annual goldman sachs latin american investment forum march 13th & 14th, 2003

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Annual Goldman Sachs Latin American Investment Forum March 13th & 14th, 2003

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Annual Goldman Sachs Latin American Investment Forum

March 13th & 14th, 2003

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Overview – December/2002

• Largest integrated telecom company in Brazil– 15.1 million fixed lines in service (Dec/02)– 1.4 million mobile subscribers (Dec/02)

• Concession Area– 65% of Brazilian territory/93 million people– 40% of country’s GDP– Over 21 million households

• Leadership in local services (98% market share)

• National and International long distance services

• Regional Mobile services (GSM)

• National Data, Corporate & Value Added Services

• TNLP4: most liquid stock on Brazilian market• TNE: most liquid Brazilian ADR on NYSE

• Free Float: 82% of total shares

• Level 2 ADR (NYSE: TNE): 29% of total shares

• Market value: US$ 3.0 billion (Jan/03)

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*Controlling Shareholder (53% of voting shares)

TNE – SHAREHOLDERS’ STRUCTURE

TelemarParticipações S.A.*

Free float

Tele Norte Leste Participações S.A.(TNE)

Free float = 19.2%

Treasury stock = 1.6%

100.0%

81.0%

100.0%

Norte Leste (TMAR)

Treasury

100.0%

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TNE – CAPITAL STRUCTURE

*53% of TNE common shares ** Including Treasury Stock

Capital

R$ 4,477 million

Tele Norte Leste Participações S.A.

(TNE)

Telemar Participações S.A.

Free float

18.3% 81.7%

BNDESPar

Fiago

AG Telecom

ASSECA Participações

L.F. Tel

BrasilCap

Brasil Veículos

Lexpart Part.

Brasil

52.7%

NYSE

29.0%

127,949

383,846

255,897

Common

Preferred

Total

Shares

1/3

2/3

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CORPORATE STRUCTURE

General Shareholders’ Meeting

• 11 Board members (3 licensed)• Board Committees [Finance; Procurement & CAPEX; Compensation / Stock Option Plan]

Board of Directors

• 5 members, appointed by:– Controlling Shareholder (Telemar Participações) - 3– Minority Shareholders (voting shares) -1– Minority Shareholders (preferred shares) -1

• Objectives: review and approve the Company’s accounting issues and procedures

Fiscal Committee

• 2 members: TMAR´s and Oi’s CEOExecutive Committee

• PricewaterhouseCoopersIndependent Accountants

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• All shares have the right to receive a minimum annual payment of 25% of adjusted net income, but

• Preferred Shares (and ADR) are entitled to a minimum of

6% of the Company´s Capital, or Whichever is higher

3% of the Company´s Shareholders´ Equity

DIVIDEND POLICY

TNE

TMAR

• All shares have the right to receive a minimum annual payment of 25% of adjusted net income, but

Preferred shares are entitled to:

Class A Shares (TMAR 5): 10% higher dividend than the one paid to the Common Shares

Class B Shares (TMAR 6): 10% of the Company´s Capital (allocated to this class)

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MANAGING STRUCTURE

Audit

Committee

Fiscal Committee

Board of

Directors

TNE

Executive Committee

Controlling

Procurement

Treasury/ Investor Relations

CFOStrategy and

Regulation

Legal Counsel Financial PlanningAsset Management

Public Relations

Internal Audit

Oi CEOTMARCEO

TMAR

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MAIN ACHIEVEMENTS

- Optimization of Resources;- Process Standardization;- Management Centralization;- Merger of wireline companies;- Better utilization of tax loss

carry-forwards

Restructuring 16 1

Processes

Services

Market Approach

16 Companies 16 IT Systems 15 Network Platforms23 Network Management Centers116 Call Centers

Local Voice and regional LD;Regional Data Communic.

Geographic

1998

Local & Advanced VoiceDomestic & International LD

Nationwide Data Transmission Contact Center

Network Management / Internet

Management/Processes/IT

Services

Market VisionCustomer Segmentation

All Unified

International

2002

Platform Expansion

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ANATEL TARGETS: REAPING THE BENEFITS

• Oi’s operational launching

• National long distance service

• International long distance service

• Nationwide data service

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WIRELINE PLATFORM AND UTILIZATION RATE

Million Lines in service (LIS)

Million Lines installed (LI)

*Acquisition of the Company

Utilization rate (wireline)

July 1998* 1998 1999 2000 2001

89% 89%

93%92%

82%

CAGRLIS = 20.4%

+ 110%

2002

86%

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REVENUE GROWTH

Gross revenue

Net revenue

1998 1999 2000 2001 2002

CAGR = 23.4%

+ 132%

+18% YoY

R$ Mn

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*Ex depreciation and amortization

OPERATING EXPENSES*R$ Mn

*Ex depreciation and amortization

1998

Cost of services

Interconnection

Selling expenses

G&A and other expenses

1999 2000 2001 2002

3,470 3,4884,095

6,545 6,584

2002

6,584

2001

6,5452001

2002

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EMPLOYEES EVOLUTION

24,206 24,511

21,090

27,471 28,736

1998 1999 2000 2001 2002

15,056

9,441

Total wireline

Consolidated (including Contax and Oi)

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BAD DEBT PROVISIONS% of gross revenue

One time adjustments

1.6%

2.5%2.0%

5.7%

3.8%

1998 1999 2000 2001 2002

5.6%

4.2%

3.0% 2.8%

1Q02 2Q02 3Q02 4Q02

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EBITDA margin (%)

EBITDA EVOLUTION – TNE

1998 1999 2000 2001 2002

R$ Mn

Net revenue

EBITDA

98 02010099

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EMPLOYEE PRODUCTIVITY – TMAR

*1998, 1999 and 2000 pro-form

Lines in service/employee

1998* 1999* 2000* 2001 2002

+375%

1998* 1999* 2000* 2001 2002

Net revenue/employee

R$ thousand

+490%

1998* 1999* 2000* 2001 2002

EBITDA/employee

R$ thousand

+700%

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PRODUCTIVITY RATIOS – TMARR$ per average line in service (ALIS)

Cash Costs/ALIS EBITDA/ALISNet revenue/ ALIS

1998* 1999* 2000* 2001 2002

+7%

-19%

+60%

1998* 1999* 2000* 2001 20021998* 1999* 2000* 2001 2002

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FINANCIAL RESULTSR$ Mn

12M01 12M02

Financial Revenue 821 502

Financial Expenses (1,265) (2,463)

Interest on Loans/ Debentures (376) (824)

Monetary & Exchange Variations (426) (953)

Premium Amortizations, PIS, Confins (Taxes) (156) (312) Others (88) (35)

Net Financial Result (444) (1,961)

(219) (339) Banking Fees & Monetary Adjustment ofProvision for Contingencies

Brazilian Currency

devaluation

* Gross of R$ 715 million of interest expenses on swap operations.

*

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CONSOLIDATED CAPEX - TNER$ Mn

Wireline

Wireless

17.1%

99.6%

34.5%

36.1%

48.5%

1998 1999 2000 2001 2002

CAPEX / Net Revenue

2,500 2,244 2,804

7,888

2,172

1,086

945

1,300

700

1998 1999 2000 2001 2002 2003E

10,060

2,031 2,000

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CONSOLIDATED NET DEBTR$ Mn

Total debt

• Short term

• Long term

(-) Cash

(-) Long term financ. invest.

(=) Net debt

R$ Mn Dec/01

8,937

1,388

7,549

(1,235)

-

7,702

Dec/02

10,774

1,769

9,006

(1,513)

(141)

9,121

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CONSOLIDATED DEBT PROFILE – CURRENCY & COST (DEC/02)%

Currency Interest Index

Currency Cost (% p.a.)

US$ Libor + 5

Basket 12.3

Real 23.2

Cost of Debt

4%5%

91%

Local

US$

Currency Basket

5%

73%

18%

4%

CDI

TJLP

Fixed Rate (ForeignCurrency)

Floating Rate(Foreign Currency)

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CONSOLIDATED DEBT PROFILE – REPAYMENT SCHEDULE (DEC/02)

2003 2004 2005 2006 2009 onwards

Total debt: R$ 10,774 Mn

2007 2008

1st half

2nd half

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WIRELESS PROJECT ROLLOUT Oi

• ~ 400 cities covered; 48 million people• GPRS coverage in 6 main capitals• 2,467 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: 846 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

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Oi POST-LAUNCHING RESULTS

Initial targets (July/2002) First achievements (December/2002)

• Innovative campaign: 31 years

• Differentiated service plans

• Diversified handsets offer

• 500,000 clients in 12 months

• ARPU of R$ 26

• MIX Pre/Post:90%/10%

• Market share and gross additions in line with fair market share

• 1,400,000 clients in just 6 months

• ARPU R$ 33 (first 6 months)

• MIX Pre/Post:80%/20% (6 months)

• Market share and gross additions well above fair market share

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Jul/02 Aug/02 Sep/02 Oct/02 Dec/02Nov/02

79%

21% 81%

19%

80%

20%

78%

22%

78%

22%

80%

20%

179

386502

677

978

1,401

Prepaid

Post-paid

Oi’s SUBSCRIBER BASE – MONTHLY EVOLUTIONThousands of subscribers

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REVENUE GROWTH STRATEGY

Local Service

Mobility

Data & Corporate

Long Distance

Integrated Strategy

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REVENUE GROWTH STRATEGYLocal Service

Local Service

Mobility

Data & Corporate

Long Distance

• Maintain leadership in home market

• Advanced voice services

(corporate/middle market/SOHO)

• Best carrier’s carrier – network

leverage (home market)

• Increase ARPU

• Value added services

• Reduce interconnection costs

(Fixed to Mobile)

•Platform Growth in line with GDP

•Increase Value Added Services

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REVENUE GROWTH STRATEGYData & Corporate

Local Service

Mobility

Data & Corporate

Long Distance

• Increase offer to SME (home market)

• ADSL (high end/SOHO/small

businesses)

• Nationwide services (corporate level)

• Leverage on national backbone

(Telemar + Pegasus)

• Competitive Service Level Agreements

•Opportunity to Increase Market Share

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REVENUE GROWTH STRATEGYLong Distance

Local Service

Mobility

Data & Corporate

Long Distance

• Leadership in home market

• Conquer new markets (inter-

regional/international/SPM – dial

code)

• Protect existing market

– Retail: loyalty/retention programs

+ promotions

– Corporate: best quality (call

completion/billing) + competitive

service plans (discounts/volume)

•Offer of New Services (Increase Market Share)

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REVENUE GROWTH STRATEGYMobile services

Local Service

Mobility

Data & Corporate

Long Distance

• Deepen market segmentation (MTV & Celebrities)

• Stimulate “DATA” + SMS Growth• Focus on Corporate Businesses• Leverage on competitive advantages

– Synergies with wireline company (TMAR)

– Regional coverage– GSM technology (speed & features)

• Low handset subsidies/aggressive service plans

• Increase national & international roaming

•New Technology + Migration Fixed to Mobile

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OUTLOOK 2003

• Platform: Wireline: in line with GDP

Wireless: +/- 1 million adds

• Revenue: (1) NLD, data and mobile growth

(2) Local and LD tariff increase (June)

• Cost : strict control

• Net Debt: flat to small reduction

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“SAFE HARBOR” STATEMENT

Investor Relations

Rua Humberto de Campos, 425 / 8º andar

Leblon

Rio de Janeiro -RJ

Phone: ( 55 21) 3131-1314/1313/1315/1316/1317

Fax: (55 21) 3131-1155

E-mail: [email protected]

Visit our website: http://www.telemar.com.br/ri

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