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Corporate Presentation Corporate Presentation www.telemar.com.br/ir August, 2004.

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Presentation on theme: "Corporate Presentation Corporate Presentation www.telemar.com.br/ir August, 2004."— Presentation transcript:

1 Corporate Presentation Corporate Presentation www.telemar.com.br/ir August, 2004

2 August 2004 www.telemar.com.br/ir 1 Telemar Presentation - Contents 3. Review of Operating Results 12 2. Growth Strategy 3 1. Highlights – 2003/2004 1 4. Financial Overview 20

3 August 2004 www.telemar.com.br/ir 2 Goal: Building a fully integrated telecom service provider Change, adaptation and consolidation  Market share gains in all lines of businesses  Selective growth (New Services)  Consolidation of investments Growth in highly competitive markets:  Long Distance (Nationwide and International)  Data & Corporate (Nationwide)  PCS Mobile Services (Region I) Exploring new opportunities:  Broadband  Bundling Services  New Products (residential/SME)  Wi-Fi hotspots Target: Ensure a sound financial position, with increasing returns to shareholders Goal: Building a fully integrated telecom service provider Change, adaptation and consolidation  Market share gains in all lines of businesses  Selective growth (New Services)  Consolidation of investments Growth in highly competitive markets:  Long Distance (Nationwide and International)  Data & Corporate (Nationwide)  PCS Mobile Services (Region I) Exploring new opportunities:  Broadband  Bundling Services  New Products (residential/SME)  Wi-Fi hotspots Target: Ensure a sound financial position, with increasing returns to shareholders Highlights – Telemar 2003/2004 Region I = Concession area for Wireline services = Mobile license for Wireless services Nationwide = Authorization area for Long-Distance and Data services

4 August 2004 www.telemar.com.br/ir 3 3. Review of Operating Results 12 2. Growth Strategy 3 1. Highlights – 2003/2004 1 4. Financial Overview 20

5 August 2004 www.telemar.com.br/ir 4 Ability to anticipate wireless migration and continue exceptional growth performance Capacity to maintain / increase market share in a changing telecom landscape Target : Continue delivering growth of customer base Ability to anticipate wireless migration and continue exceptional growth performance Capacity to maintain / increase market share in a changing telecom landscape Target : Continue delivering growth of customer base million customers *Company’s acquisition Expansion of Customer Base CAGR (98-03) 19,7% 19.2 16.4 ~22.2 20.6 Wireline Wireless ADSL

6 August 2004 www.telemar.com.br/ir 5 Investments for expansion of fixed line network essentially completed Fully operational digital platform  Mix consists of 78% residential, 18% business, and 4% public phones Wireline penetration is only ~50% of households in Region I Obstacle : Increase in wireline penetration subject to GDP growth and regulatory changes Investments for expansion of fixed line network essentially completed Fully operational digital platform  Mix consists of 78% residential, 18% business, and 4% public phones Wireline penetration is only ~50% of households in Region I Obstacle : Increase in wireline penetration subject to GDP growth and regulatory changes million lines Fixed Lines in Service growth maintenance

7 August 2004 www.telemar.com.br/ir 6 Wireline / ADSL Market in Brazil Market Share (Brazil v. Region I) – Dec/03 PC Penetration (% of households) – Dec/03 * *Source: Pyramid Research 2003 Velox is already present in 110 cities, more than ten times the availability of broadband alternatives Broadband penetration is expected to grow to 30% of nationwide internet access in the next five years Effort to build sales channels to penetrate SME clients together with other bundled services (LD, wireless) Challenge : Capture and retain premium clients increasing overall ARPU Velox is already present in 110 cities, more than ten times the availability of broadband alternatives Broadband penetration is expected to grow to 30% of nationwide internet access in the next five years Effort to build sales channels to penetrate SME clients together with other bundled services (LD, wireless) Challenge : Capture and retain premium clients increasing overall ARPU Brazil Region I Average

8 August 2004 www.telemar.com.br/ir 7 Highest ADSL growth in Brazil (+176k lines >37% of 2003 nationwide net adds)  ADSL represents 82% of broadband access in Brazil Velox revenues increased by 285% yoy in 1H04 Subscribers reached 217K in Dec/03 (18% of total broadband access in Brazil), and 345k in Jun/04 Target : Increase ADSL penetration in Region I from 1.9% of LIS to 5% in 2-3 years Highest ADSL growth in Brazil (+176k lines >37% of 2003 nationwide net adds)  ADSL represents 82% of broadband access in Brazil Velox revenues increased by 285% yoy in 1H04 Subscribers reached 217K in Dec/03 (18% of total broadband access in Brazil), and 345k in Jun/04 Target : Increase ADSL penetration in Region I from 1.9% of LIS to 5% in 2-3 years ADSL Growth Thousand lines Gross Revenue (R$ million) 450

9 August 2004 www.telemar.com.br/ir 8 Wireless Market in Brazil ^Includes other operators: Nextel, CTBC, SERCOMTEL, Telemig and Tele Norte Celular ** Morgan Stanley estimates. Market Share (Brazil v. Region I) – Jun/04 Wireless Penetration (%) – Jun/04 * *Source: Pyramid Research Even with increased competition, Oi remains a high growth player in its home market (35% net adds in 2Q04) Oi reached ~21% market share in Jun/04 Wireless penetration in Region I (25%) still offers significant growth potential Challenge : Grow subs by ~65% in 2004, with positive EBITDA margins Even with increased competition, Oi remains a high growth player in its home market (35% net adds in 2Q04) Oi reached ~21% market share in Jun/04 Wireless penetration in Region I (25%) still offers significant growth potential Challenge : Grow subs by ~65% in 2004, with positive EBITDA margins Average Brazil** Region I

10 August 2004 www.telemar.com.br/ir 9 Most successful GSM launch globally  5 million subs in 24 months Almost 50% share of all net adds in Region I since launching Oi´s market share (Jun/04)  Region I: 21%  Brazil: 9% Most successful GSM launch globally  5 million subs in 24 months Almost 50% share of all net adds in Region I since launching Oi´s market share (Jun/04)  Region I: 21%  Brazil: 9% Wireless Platform Pre paid Post paid 1,401 2,236 3,893 80% 20% 80% 20% 83% 17% 35 ~6,500 Thousand subscribers Gross Revenue (R$ million) 5,093 85%85% 15%15%

11 August 2004 www.telemar.com.br/ir 10 Short Message Service - SMS Thousand messages Gross Revenue (R$ million) SMS annual revenues achieved a run-rate of over R$ 70 million in the last two quarters Oi has a team focused on data services, particularly for the corporate market Oi also launched Wi-Fi hotspots in early 2004 Target : Increase data ARPU and maintain growth of customer base SMS annual revenues achieved a run-rate of over R$ 70 million in the last two quarters Oi has a team focused on data services, particularly for the corporate market Oi also launched Wi-Fi hotspots in early 2004 Target : Increase data ARPU and maintain growth of customer base

12 August 2004 www.telemar.com.br/ir 11 Focus on profitability: EBITDA positive since inception 62% CAGR in attendant positions, in line with increase in customer base and net revenues (70% CAGR) - Contax currently has 29 customers, including major banks, utilities, insurance, media, telecom, retail Target : Consolidate #1 position as call center operator in Brazil Focus on profitability: EBITDA positive since inception 62% CAGR in attendant positions, in line with increase in customer base and net revenues (70% CAGR) - Contax currently has 29 customers, including major banks, utilities, insurance, media, telecom, retail Target : Consolidate #1 position as call center operator in Brazil Call Center Services Attendant Positions 7,337 4,947 12,907 Net Revenues (R$ million) 223 421 146 >15,000 14,887 287

13 August 2004 www.telemar.com.br/ir 12 3. Review of Operating Results 12 2. Growth Strategy 3 1. Highlights – 2003/2004 1 4. Financial Overview 20

14 August 2004 www.telemar.com.br/ir 13 Consolidated Gross Revenue Breakdown – 1H04 The Company’s four main lines of business provide a healthy balance between stable cash flow and growth opportunities Local 59% Inter- Connection Data Long Distance (includes VC2/3) Fixed to Mobile (VC1) Wireline Moderate Growth Long Distance High Growth Wireless High Growth Data & Corporate High Growth Others(*) (*) – Includes advanced voice, public telephones, additional services and Contact Center. Mobile

15 August 2004 www.telemar.com.br/ir 14 Telemar keeps on leadership in LD services in Region I. Growth in Long Distance Services LD Gross Revenue - R$ million LD as a % of Total Revenues (includes F2M) +31.7%

16 August 2004 www.telemar.com.br/ir 15 Key corporate and governmental contracts achieved during 2003 Data revenues increased by 31% in 2003 and 15% in 2002 Challenge : Increase market share in data services in Region I and nationwide Key corporate and governmental contracts achieved during 2003 Data revenues increased by 31% in 2003 and 15% in 2002 Challenge : Increase market share in data services in Region I and nationwide Focus on Data / Corporate Services Major Clients won in 2003 Data Revenues (gross) - R$ million +31.6%

17 August 2004 www.telemar.com.br/ir 16 Revenue growth of 69% yoy Services revenues increased 91% yoy, resulting mainly from subscriptions, outgoing calls & SMS EBITDA breakeven reached after 18 months of operations Target : Continue to deliver high revenue growth with positive EBITDA margins Revenue growth of 69% yoy Services revenues increased 91% yoy, resulting mainly from subscriptions, outgoing calls & SMS EBITDA breakeven reached after 18 months of operations Target : Continue to deliver high revenue growth with positive EBITDA margins Gross Revenue from Wireless Services Services Handsets R$ million 511 866 1H03 1H04

18 August 2004 www.telemar.com.br/ir 17 Delivering consistent revenue and EBITDA growth in spite of huge wireline expansion & wireless startup Recurring margins stable over time, in the mid-40’s  EBITDA for 2001 impacted by extraordinary provisions Target 2004 : Consolidated EBITDA margin in mid-40s even with a faster growth of wireless revenues Delivering consistent revenue and EBITDA growth in spite of huge wireline expansion & wireless startup Recurring margins stable over time, in the mid-40’s  EBITDA for 2001 impacted by extraordinary provisions Target 2004 : Consolidated EBITDA margin in mid-40s even with a faster growth of wireless revenues R$ million Consolidated Net Revenues and EBITDA Net Revenues EBITDA EBITDA Margin

19 August 2004 www.telemar.com.br/ir 18 Consolidated Net Income 1999 20002001 2002 2003 1998 1H04 R$ million 1H03

20 August 2004 www.telemar.com.br/ir 19 CAPEX 2003: ~12% of net revenues (v. 17% in 2002) CAPEX 1H04: R$ 534 million (7.1% of net revenues) Consolidated CAPEX since 1998: US$10.4 billion Target : Stabilize CAPEX at ~15% of net revenues to support growth in wireless and other services (broadband, long distance) CAPEX 2003: ~12% of net revenues (v. 17% in 2002) CAPEX 1H04: R$ 534 million (7.1% of net revenues) Consolidated CAPEX since 1998: US$10.4 billion Target : Stabilize CAPEX at ~15% of net revenues to support growth in wireless and other services (broadband, long distance) 10.1 2.0 1.7 Wireline Consolidated CAPEX Wireless R$ billion Anatel Targets Mobile License (R$1.1 bn) 2.0 1.1 0.9 1.1 2.8 2.2 2.5 0.6 60% 40% 2.2 7.9 0.5

21 August 2004 www.telemar.com.br/ir 20 3. Review of Operating Results 12 2. Growth Strategy 3 1. Highlights – 2003/2004 1 4. Financial Overview 20

22 August 2004 www.telemar.com.br/ir 21 Operating Cash Flow after CAPEX R$ million 1999 20002001 2002 2003 Having met wireline universalization targets and PCS rollout, our cash generation is expected to remain strong CAGR (99-03) 69.1% 1H04 1H03

23 August 2004 www.telemar.com.br/ir 22 Dividend Payments - 1999/2003 1999200020012002 2003 Dividend yield Dividend * US$ million Our goal is to continue to provide high cash returns to shareholders * includes JCP (interest on capital)

24 August 2004 www.telemar.com.br/ir 23 Net Debt Position and Repayment Schedule R$ million % of total 12.122.6 28.011.4 6.4 Net Debt – Jun/04 Gross Debt Repayment Schedule – Jun/04 Given our strong cash generation, we should reduce net debt to less than 1x EBITDA by year end 2004 19.5 R$ 7,355 million R$ 12,200 million

25 August 2004 www.telemar.com.br/ir 24 Key Financial Ratios Net Debt / EBITDA Amortization*/ EBITDA (%) Dividends* / EBITDA (%) CAPEX / EBITDA (%) * includes JCP (interest on capital) (*) 12 - Month EBITDA * Principal and interest

26 August 2004 www.telemar.com.br/ir 25 Key Financial and Valuation Ratios Enterprise Value / EBITDA Market Cap / EBITDA EBITDA / Net Interest Expense EBITDA / Total Debt Service

27 August 2004 www.telemar.com.br/ir 26 Investor Relations Rua Humberto de Campos, 425 / 8º andar Leblon Rio de Janeiro -RJ Phone: ( 55 21) 3131-1314/1313/1315/1316 Fax: (55 21) 3131-1155 E-mail: invest@telemar.com.br Visit our website: http://www.telemar.com.br/ir 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 “Safe Harbor” Statement


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