0 6 th Annual Latin America Conference Morgan Stanley September, London
1 General Overview
2 HIGHLIGHTS Integrated Telecom Service Provider –14.9 million wirelines in service –2.2 million wireless clients Concession Area (Region I ) - Local Service and PCS –65% of Brazilian territory/94 million people –40% of country’s GDP –Over 20 million households Leadership in local services (97% market share – Region I ) Domestic and international long distance services PCS Mobile services (GSM) Data, Corporate & Call Center Services Most liquid stock in Brazilian market (TNLP4) One of Most liquid Latam ADR (NYSE: TNE) High Free Float: 80% of total shares/ADR: 27% Market value: US$ 4.5 billion
3 SHAREHOLDERS’ STRUCTURE Telemar Participações S.A.* Free float Free float = 19.2% 100%80.8% Norte Leste (TMAR) 100% Tele Norte Leste Participações S.A. (TNE) *Controlling Shareholder (55% voting shares) Note: % of holdings excluding treasury stock
4 CAPITAL STRUCTURE Tele Norte Leste (TNE) Telemar Participações Free float 17.9%79.9% BNDESPar Fiago AG Telecom ASSECA Participações L.F. Tel BrasilCap Brasil Veículos Lexpart Part. Capital R$ 4,644 million Common shares Preferred shares Total shares 130,186 m 390,557 m 260,371 m 1/3 2/3 Total outstanding shares (ex-treasury) 381,777 m * 13.1% - Annex IV Treasury Stock 2.2% Bovespa NYSE (ADR/TNE)
5 ORGANIZATION CHART Fiscal CommitteeBoard of DirectorsTNEExecutive Committee Internal Audit Institutional Relations Asset Management Strategy & Regulation Human Resources Legal Counsel IT Billing Cycle Procurement Controller Treasury Financial Planning Investor Relations CFO Independent Auditors Disclosure Committee TMAR
6 PERSONNEL Fixed & mobile businesses Contact center full-time employees Jun/ ,471 28,736 31,393 Jul/1998
7 Jul/1998* Jun/2003 *Company’s acquisition WIRELINE PLATFORM million lines Lines in service Lines installed Universalization goals 24% CAGR
8 BROADBAND ACCESS ISDN ADSL thousand lines Jun/ % 81% Sep/ % 77% Dec/ % 58% Mar/ % 53% Jun/ % 41% Increasing focus on ADSL
9 Natal Recife Maceió RR AM PA MA AC RO MT MS RS PR SP MG GO TO BA PI CE PB PE Porto Alegre Florianópolis Curitiba Goiânia Brasília SE São Luís Rio de Janeiro Vitória Salvador Aracajú Terezina Fortaleza Paracatu Patrocínio ES Belém RN AL Uberlândia SC Belo Horizonte São Paulo Campinas RJ AP Montes Claros Coverage of 80% of Brazilian Industrial GDP Interstate and intrastate transport network 18,000 km of fiber optical cables 20 integrated metropolitan rings in 18 states 350 remote satellite stations – 8 Satellite Hubs ATM, TDM/SDH and IP Networks Main features LONG DISTANCE AND DATA TRANSMISSION NETWORK International connections Rio – location of our Network Operations Center (NOC) João Pessoa
10 WIRELESS PLATFORM Prepaid Post-paid thousand subscribers Jun/ Sep/ % 78% Dec/2002 1,401 20% 80% Mar/2003 1,722 22% 78% Jun/2003 2,236 20% 80% Oi – 2.2 million subscribers in just 12 months
11 Oi’s OPERATING & FINANCIAL PERFORMANCE – 2Q03 Net additions - Oi thousand subscribers 4Q021Q032Q Post-paid Prepaid 3Q Q021Q03 2Q03 3Q02 Net additions – Region I thousand subscribers ,517 1,115 Oi´s market share (net adds)
12 Source: Anatel Brasil GSM - Region I Region I Oi’s MARKET SHARE – JUNE/2003
13 WIRELESS PENETRATION – JUNE/03 % - States in Region I Brazil - 22% Region I - 16% Source: Anatel
14 WIRELESS PROJECT ROLLOUT Oi ~ 400 cities covered; 48 million people GPRS coverage in 6 main capitals 2,680 sites (BTS) CAPEX optimization (co-siting: 971 in / 531 out) International roaming Main suppliers: Nokia, Siemens, Alcatel, Ericsson 1,824 points of sales (breaking exclusivity of A & B band agreements) Diversified channels with high capillarity –Retail, specialized agents/dealers, stores, telesales Corporate sales effort combined with Telemar Tight headcount structure: 933 employees Infrastructure sharing Outsourcing (including call centers) Synergies with Telemar Strong brand name Coverage Distribution Resource optimization Coverage focused on profitable areas Consumer and corporate focus through high capillarity and diversity of channels Focus on profitable growth, minimizing OPEX and CAPEX
H02 1H03 REVENUE GROWTH R$ million Gross revenue Net revenue 23.4% CAGR +19.8% *Wireless startup from 2H02
H02 1H03 COSTS & EXPENSES R$ million 17.4% CAGR +21.3% *Recurring costs (excluding extraordinary rev. of R$ 153 million /Sistel)
17 EBITDA R$ million *Recurring EBITDA (ex-Sistel) EBITDA Margin H02 1H03 * H02 *
18 EMPLOYEE PRODUCTIVITY – TMAR * Annualized Lines in Service/Employee +398% Net Revenue/Employee R$ Thousand +541% EBITDA/Employee R$ Thousand +777% H03* H03* H03
19 WIRELINE PRODUCTIVITY – TMAR R$ Costs & Expenses /ALISEBITDA/ALISNet Revenue/ ALIS % -10% +63% H03* *Annualized ALIS: Average Lines in Service
20 CAPITAL EXPENDITURES (CAPEX) R$ million Wireline Wireless H02 1H ,500 2,244 2,804 10,060 2, H H02 CAPEX/Sales
21 CAPITAL EXPENDITURES (CAPEX) US$ million Total 1H03
22 Quarterly Results
23 GROSS REVENUE BREAKDOWN R$ million *Wireless startup from 2H02 Wireline Local (including VC1) Long distance (including VC2/3) Network Usage Data Public phones Other Wireless Services Subscription Outgoing calls Domestic/inter. roaming Network usage Other SMP services Handset sales Total Gross revenue Wireline Wireless Contact center Consolidated net revenue 2Q031Q032Q02 QoQ Gross revenue YoY %% % Change 4,256 2, ,570 4, , ,214 2, ,453 4, , ,764 2, – – 3,774 3,764 – 10 2, – 100 – – *
24 LOCAL SERVICES 2Q03/2Q02 – YoY Monthly subscription Pulse Fixed to mobile (F-M) Other Installation Total Local rate increase (Jun/02) F-M rate increase (Feb/03) + R$ 239 million (+10.0%) 2Q03/1Q03 – QoQ Main drivers Monthly subscription Pulse Fixed to mobile (F-M) Other Installation Total F-M rate increase (Feb/03) + R$ 26 million (+1.0%)
25 Domestic International Fixed to mobile (F-M) Total 17 LONG DISTANCE SERVICES 2Q03/2Q02 – YoYMain drivers Market share gains (new services: R$ 86 million), rate increase and traffic growth + R$ 217 million (+46.9%) 2Q03/1Q03 – QoQ DLD: market share gains ILD: backlog cleanup/1Q03 F-M rate increase (Feb/03) + R$ 15 million (+2.2%) Domestic International Fixed to mobile ( F-M) Total -8
26 DATA SERVICES 2Q03/2Q02 – YoY IP SLDD/SLDA* EILD* Packet/frame relay Other Total -16 Main drivers Market growth, market share gains (new long term contracts) and increasing sales of IP & ADSL services + R$ 67 million (+30.2%) 2Q03/1Q03 – QoQ IP SLDD/SLDA* EILD* Packet/frame relay Other Total + R$ 18 million (+6.6%) *Leased lines to companies and other telcos
27 WIRELESS SERVICES 2Q03/1Q03* – QoQMain drivers Handset sales Outgoing calls Network usage Subscription Other Total Aggressive growth: 2.2m subscribers in just 12 months (514K net adds-2Q03) + R$ 73 million (+33.2%) *Startup as of 3Q02 1 Handsets +R$ 37 million Services +R$ 36 million
28 COSTS & OPERATING EXPENSES* – 2Q03 2Q021Q032Q03 R$ million *Excluding depreciation & amortization 2Q03 1Q03 Cost of services Interconnection Selling G&A/other Cost of services Interconnection Selling G&A/other Special sales campaigns Cleanup of outstanding payments
29 COSTS & OPERATING EXPENSES – MAIN CHANGES (2Q03/1Q03) R$ million Interconnection Personnel Third Party Services Handset Costs Rent/Insurance Marketing Provisions for Doubtful Accounts (PDA) Other Operating Exp. (Revenues) Total Item R$ m% Change 2Q031Q03 TNE Comments , ,743 (33) (7) Backlog cleanup in 1Q03 Headcount/severance costs/sales commissions Dealers’ commissions/consultancy Handset sales (+85.7%) Lower costs with leased lines Marketing campaigns (mothers and valentine days) Stable level in spite of macro environment - PDA/Sales: 3.3% (3.2% in 1Q03) Lower infrastructure rental revenues
30 PROVISIONS FOR DOUBTFUL ACCOUNTS % of gross revenue 2Q03 2Q023Q024Q021Q03
31 EBITDA R$ million *Startup of wireless business EBITDA Margin 2Q023Q024Q021Q032Q03 2Q023Q024Q021Q032Q03 *
32 FINANCIAL RESULT – 2Q03 Financial revenues Financial expenses Interest on loans/debentures Monetary & exchange variations Banking Fees & contingencies Premium amortization, PIS & Cofins Other Net Financial result 1Q032Q03 R$ million 133 (586) (265) (164) (108) (31) (18) (452) 134 (651) (232) (220) (126) (29) (44) (518) Interest on currency swaps (+R$ 54 m); Restatement of provisions & liabilities (+R$ 29m)
33 DEBT POSITION Total Debt Short term Long term (-) Cash (-) Long term financial invest. (=) Net debt Jun/02Dec/02Mar/03Jun/03 R$ million 9,700 1,220 8,481 (573) – 9,128 10,774 1,769 9,006 (1,513) (141) 9,121 11,616 2,053 9,563 (1,479) (132) 10,005 11,394 2,264 9,130 (1,789) (86) 9,519 A 5% reduction in 2Q03
34 DEBT PROFILE – CURRENCY & INTEREST (JUNE/03) CurrencyInterest index Local* 2% US$ CDI 2% TJLP** Libor * After currency swaps ** BNDES long term lending rate (12% p.a.)
35 DEBT REPAYMENT SCHEDULE (JUNE/03) R$ million 20072H Total debt = 11,394 % of total FC:8,306 LC:3,088
36 CAPEX R$ million Wireline Wireless 2Q023Q024Q021Q032Q03 2Q023Q024Q021Q032Q CAPEX/SALES
37 CASH FLOW: EBITDA & CAPEX 2Q03 2Q02 3Q024Q021Q03 1,311 1,260 1,476 1,479 1,285 R$ million EBITDA CAPEX EBITDA (-) CAPEX
38 Growth Strategy & Outlook 2003
39 Local Wireline Wireless (GSM) Data & Corporate Long Distance Integrated Offer of Telecom Services GROWTH STRATEGY
40 Data & corporate Long distance Wireless services Local service Leadership in home market Advanced voice services (corporate/ middle market) Increase ARPU (V.A. Services) Reduce interconnection costs (F-M) Customized Offer (Regulation) WIRELINE LOCAL SERVICES Platform and traffic growth (GDP/Regulation)
41 Local service Data & corporate Wireless services Long distance LONG DISTANCE SERVICES New services (increase market share): DLD, ILD and SMP(mobile) Leadership in home market Retail – loyalty/retention programs + promotions Corporate – best quality (call completion/billing) + competitive service plans (discounts/volume) Conquer new markets (domestic/ international/SMP) Leverage on relationship & brand Increase efficiency & quality (low cost + high quality service provider) Avoid price wars
42 Local service Long distance Wireless services Data & corporate DATA & CORPORATE SERVICES Growth above market average (market share gains) Increase penetration in SME (home market) ADSL (high end residential/so-ho/small businesses) Nationwide services (corporate level) Best Service Provider (quality end to end / SLA)
43 Local service Data & corporate Long distance Wireless services WIRELESS (GSM) Aggressive growth / Enhance competitive position Market segmentation/innovative plans (MTV & Celebrities/Oi Family) Streamline product portfolio Leverage on competitive advantages: GSM, regional coverage, synergies with Telemar Optimize distribution channels Positive EBITDA in 2004
44 OUTLOOK 2003 Network –Wireline ~ 14.9 million lines in service –Wireless ~ 3.0 million subscribers Revenue drivers –Mobile, DLD and Data –Rate increases (2H03) Net debt ~R$ 8.5 billion (2003 YE) Bad debt ~3.8% of annual gross revenues EBITDA Margin in the mid- 40’sCapex ~R$ 1.7 billion for 2003
45 “SAFE HARBOR” STATEMENT Investor Relations Rua Humberto de Campos, 425 / 8º andar Leblon Rio de Janeiro -RJ Phone: ( 55 21) /1313/1315 Fax: (55 21) Visit our website: This presentation contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements and involve inherent risks and uncertainties. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events