Annual Goldman Sachs Latin American Investment Forum

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Annual Goldman Sachs Latin American Investment Forum

  1. 1. Annual Goldman Sachs Latin American Investment Forum March 13th & 14th, 2003
  2. 2. Overview – December/2002 <ul><ul><li>Largest integrated telecom company in Brazil </li></ul></ul><ul><ul><ul><li>15.1 million fixed lines in service (Dec/02) </li></ul></ul></ul><ul><ul><ul><li>1.4 million mobile subscribers (Dec/02) </li></ul></ul></ul><ul><ul><li>Concession Area </li></ul></ul><ul><ul><ul><li>65% of Brazilian territory/93 million people </li></ul></ul></ul><ul><ul><ul><li>40% of country’s GDP </li></ul></ul></ul><ul><ul><ul><li>Over 21 million households </li></ul></ul></ul><ul><ul><li>Leadership in local services (98% market share) </li></ul></ul><ul><ul><li>National and International long distance services </li></ul></ul><ul><ul><li>Regional Mobile services (GSM) </li></ul></ul><ul><ul><li>National Data, Corporate & Value Added Services </li></ul></ul><ul><ul><li>TNLP4: most liquid stock on Brazilian market </li></ul></ul><ul><ul><li>TNE: most liquid Brazilian ADR on NYSE </li></ul></ul><ul><ul><li>Free Float: 82% of total shares </li></ul></ul><ul><ul><li>Level 2 ADR (NYSE: TNE): 29% of total shares </li></ul></ul><ul><ul><li>Market value: US$ 3.0 billion (Jan/03) </li></ul></ul>
  3. 3. TNE – SHAREHOLDERS’ STRUCTURE * Controlling Shareholder (53% of voting shares) Telemar Participações S.A.* Free float Tele Norte Leste Participações S.A.(TNE) Free float = 19.2% Treasury stock = 1.6% Norte Leste (TMAR) Treasury 100.0% 81.0% 100.0% 100.0%
  4. 4. TNE – CAPITAL STRUCTURE * 53% of TNE common shares ** Including Treasury Stock BNDESPar Fiago AG Telecom ASSECA Participações L.F. Tel BrasilCap Brasil Veículos Lexpart Part. Capital R$ 4,477 million Tele Norte Leste Participações S.A. (TNE) Telemar Participações S.A. Free float 18.3% 81.7% Brasil 52.7% NYSE 29.0% 127,949 383,846 255,897 Common Preferred Total Shares 1/3 2/3
  5. 5. CORPORATE STRUCTURE General Shareholders’ Meeting <ul><ul><li>11 Board members (3 licensed) </li></ul></ul><ul><ul><li>Board Committees [Finance; Procurement & CAPEX; Compensation / Stock Option Plan] </li></ul></ul>Board of Directors <ul><ul><li>5 members, appointed by: </li></ul></ul><ul><ul><ul><li>Controlling Shareholder (Telemar Participações) - 3 </li></ul></ul></ul><ul><ul><ul><li>Minority Shareholders (voting shares) -1 </li></ul></ul></ul><ul><ul><ul><li>Minority Shareholders (preferred shares) -1 </li></ul></ul></ul><ul><ul><li>Objectives : review and approve the Company’s accounting issues and procedures </li></ul></ul>Fiscal Committee <ul><ul><li>2 members: TMAR´s and Oi’s CEO </li></ul></ul>Executive Committee <ul><ul><li>PricewaterhouseCoopers </li></ul></ul>Independent Accountants
  6. 6. DIVIDEND POLICY <ul><ul><li>All shares have the right to receive a minimum annual payment of 25% of adjusted net income, but </li></ul></ul><ul><ul><li>Preferred Shares (and ADR) are entitled to a minimum of </li></ul></ul><ul><ul><li> 6% of the Company´s Capital, or Whichever is higher </li></ul></ul><ul><ul><li> 3% of the Company´s Shareholders´ Equity </li></ul></ul>TNE TMAR <ul><ul><li>All shares have the right to receive a minimum annual payment of 25% of adjusted net income, but </li></ul></ul><ul><ul><li>Preferred shares are entitled to: </li></ul></ul><ul><ul><li> Class A Shares (TMAR 5): 10% higher dividend than the one paid to the Common Shares </li></ul></ul><ul><ul><li> Class B Shares (TMAR 6): 10% of the Company´s Capital (allocated to this class) </li></ul></ul>
  7. 7. MANAGING STRUCTURE Audit Committee Fiscal Committee Board of Directors TNE Executive Committee Controlling Procurement Treasury/ Investor Relations CFO Strategy and Regulation Legal Counsel Financial Planning Asset Management Public Relations Internal Audit TMAR Oi CEO TMAR CEO
  8. 8. MAIN ACHIEVEMENTS <ul><ul><li>- Optimization of Resources; </li></ul></ul><ul><ul><li>- Process Standardization; </li></ul></ul><ul><ul><li>- Management Centralization; </li></ul></ul><ul><ul><li>Merger of wireline companies; </li></ul></ul><ul><ul><li>Better utilization of tax loss carry-forwards </li></ul></ul><ul><ul><li>Restructuring 16  1 </li></ul></ul><ul><ul><li>Processes </li></ul></ul><ul><ul><li>Services </li></ul></ul><ul><ul><li>Market Approach </li></ul></ul>16 Companies 16 IT Systems 15 Network Platforms 23 Network Management Centers 116 Call Centers <ul><ul><li>Local Voice and regional LD; </li></ul></ul><ul><ul><li>Regional Data Communic. </li></ul></ul><ul><ul><li>Geographic </li></ul></ul>1998 <ul><ul><li>Local & Advanced Voice </li></ul></ul><ul><ul><li>Domestic & International LD </li></ul></ul><ul><ul><li>Nationwide Data Transmission </li></ul></ul><ul><ul><li>Contact Center </li></ul></ul><ul><ul><li>Network Management / Internet </li></ul></ul><ul><ul><li>Management/Processes/IT </li></ul></ul><ul><ul><li>Services </li></ul></ul><ul><ul><li>Market Vision </li></ul></ul><ul><ul><li>Customer Segmentation </li></ul></ul><ul><ul><li>All Unified </li></ul></ul>International 2002 <ul><ul><li>Platform Expansion </li></ul></ul>
  9. 9. ANATEL TARGETS: REAPING THE BENEFITS <ul><ul><li>Oi’s operational launching </li></ul></ul><ul><ul><li>National long distance service </li></ul></ul><ul><ul><li>International long distance service </li></ul></ul><ul><ul><li>Nationwide data service </li></ul></ul>
  10. 10. 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% 2002 86% CAGR LIS = 20.4% + 110%
  11. 11. REVENUE GROWTH Gross revenue Net revenue 1998 1999 2000 2001 2002 + 132% R$ Mn CAGR = 23.4% +18% YoY
  12. 12. OPERATING EXPENSES* * Ex depreciation and amortization R$ Mn * Ex depreciation and amortization 1998 Cost of services Interconnection Selling expenses G&A and other expenses 1999 2000 2001 2002 3,470 3,488 4,095 6,545 6,584 2002 6,584 2001 6,545 2001 2002
  13. 13. EMPLOYEES EVOLUTION Total wireline Consolidated (including Contax and Oi)
  14. 14. BAD DEBT PROVISIONS % of gross revenue One time adjustments
  15. 15. EBITDA EVOLUTION – TNE EBITDA margin (%) 1998 1999 2000 2001 2002 R$ Mn Net revenue EBITDA 98 02 01 00 99
  16. 16. EMPLOYEE PRODUCTIVITY – TMAR * 1998, 1999 and 2000 pro-form 1998* 1999* 2000* 2001 2002 1998* 1999* 2000* 2001 2002 1998* 1999* 2000* 2001 2002 Lines in service/employee +375% Net revenue/employee R$ thousand +490% EBITDA/employee R$ thousand +700%
  17. 17. PRODUCTIVITY RATIOS – TMAR R$ per average line in service (ALIS) 1998* 1999* 2000* 2001 2002 +7% -19% +60% 1998* 1999* 2000* 2001 2002 1998* 1999* 2000* 2001 2002 Cash Costs/ALIS EBITDA/ALIS Net revenue/ ALIS
  18. 18. FINANCIAL RESULTS R$ Mn Brazilian Currency devaluation * Gross of R$ 715 million of interest expenses on swap operations. *
  19. 19. CONSOLIDATED CAPEX - TNE R$ Mn Wireline Wireless 10,060 2,031 2,000 17.1% 99.6% 34.5% 36.1% 48.5% 1998 1999 2000 2001 2002 CAPEX / Net Revenue
  20. 20. CONSOLIDATED NET DEBT R$ Mn <ul><li>Total debt </li></ul><ul><ul><li>Short term </li></ul></ul><ul><ul><li>Long term </li></ul></ul><ul><li>(-) Cash </li></ul><ul><li>(-) Long term financ. invest. </li></ul><ul><li>(=) Net debt </li></ul>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
  21. 21. 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
  22. 22. 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
  23. 23. WIRELESS PROJECT ROLLOUT  Oi <ul><ul><li>~ 400 cities covered; 48 million people </li></ul></ul><ul><ul><li>GPRS coverage in 6 main capitals </li></ul></ul><ul><ul><li>2,467 sites (BTS) </li></ul></ul><ul><ul><li>CAPEX optimization (co-siting: 971 in / 531 out) </li></ul></ul><ul><ul><li>International roaming </li></ul></ul><ul><ul><li>Main suppliers: Nokia, Siemens, Alcatel, Ericsson </li></ul></ul><ul><ul><li>1,824 points of sales (breaking exclusivity of A & B band agreements) </li></ul></ul><ul><ul><li>Diversified channels with high capillarity </li></ul></ul><ul><ul><ul><li>Retail, specialized agents/dealers, stores, telesales </li></ul></ul></ul><ul><ul><li>Corporate sales effort combined with Telemar </li></ul></ul><ul><ul><li>Tight headcount structure: 846 employees </li></ul></ul><ul><ul><li>Infrastructure sharing </li></ul></ul><ul><ul><li>Outsourcing (including call centers) </li></ul></ul><ul><ul><li>Synergies with Telemar </li></ul></ul><ul><ul><li>Strong brand name </li></ul></ul>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
  24. 24. Oi  POST-LAUNCHING RESULTS Initial targets (July/2002) First achievements (December/2002) <ul><ul><li>Innovative campaign: 31 years </li></ul></ul><ul><ul><li>Differentiated service plans </li></ul></ul><ul><ul><li>Diversified handsets offer </li></ul></ul><ul><ul><li>500,000 clients in 12 months </li></ul></ul><ul><ul><li>ARPU of R$ 26 </li></ul></ul><ul><ul><li>MIX Pre/Post: 90%/10% </li></ul></ul><ul><ul><li>Market share and gross additions in line with fair market share </li></ul></ul><ul><ul><li>1,400,000 clients in just 6 months </li></ul></ul><ul><ul><li>ARPU R$ 33 (first 6 months) </li></ul></ul><ul><ul><li>MIX Pre/Post: 80%/20% (6 months) </li></ul></ul><ul><ul><li>Market share and gross additions well above fair market share </li></ul></ul>
  25. 25. Oi’s SUBSCRIBER BASE – MONTHLY EVOLUTION Jul/02 Aug/02 Sep/02 Oct/02 Dec/02 Nov/02 79% 21% 81% 19% 80% 20% 78% 22% 78% 22% 80% 20% 179 386 502 677 978 1,401 Prepaid Post-paid Thousands of subscribers
  26. 26. REVENUE GROWTH STRATEGY Local Service Mobility Data & Corporate Long Distance Integrated Strategy
  27. 27. REVENUE GROWTH STRATEGY Local Service Local Service Mobility Data & Corporate Long Distance <ul><ul><li>Maintain leadership in home market </li></ul></ul><ul><ul><li>Advanced voice services (corporate/middle market/SOHO) </li></ul></ul><ul><ul><li>Best carrier’s carrier – network leverage (home market) </li></ul></ul><ul><ul><li>Increase ARPU </li></ul></ul><ul><ul><li>Value added services </li></ul></ul><ul><ul><li>Reduce interconnection costs (Fixed to Mobile) </li></ul></ul><ul><li>Platform Growth in line with GDP </li></ul><ul><li>Increase Value Added Services </li></ul>
  28. 28. REVENUE GROWTH STRATEGY Data & Corporate Local Service Mobility Data & Corporate Long Distance <ul><ul><li>Increase offer to SME (home market) </li></ul></ul><ul><ul><li>ADSL (high end/SOHO/small businesses) </li></ul></ul><ul><ul><li>Nationwide services (corporate level) </li></ul></ul><ul><ul><li>Leverage on national backbone </li></ul></ul><ul><ul><li>(Telemar + Pegasus) </li></ul></ul><ul><ul><li>Competitive Service Level Agreements </li></ul></ul><ul><li>Opportunity to Increase Market Share </li></ul>
  29. 29. REVENUE GROWTH STRATEGY Long Distance Local Service Mobility Data & Corporate Long Distance <ul><ul><li>Leadership in home market </li></ul></ul><ul><ul><li>Conquer new markets (inter-regional/international/SPM – dial code) </li></ul></ul><ul><ul><li>Protect existing market </li></ul></ul><ul><ul><ul><li>Retail: loyalty/retention programs + promotions </li></ul></ul></ul><ul><ul><ul><li>Corporate: best quality (call completion/billing) + competitive service plans (discounts/volume) </li></ul></ul></ul><ul><li>Offer of New Services (Increase Market Share) </li></ul>
  30. 30. REVENUE GROWTH STRATEGY Mobile services Local Service Mobility Data & Corporate Long Distance <ul><ul><li>Deepen market segmentation (MTV & Celebrities) </li></ul></ul><ul><ul><li>Stimulate “DATA” + SMS Growth </li></ul></ul><ul><ul><li>Focus on Corporate Businesses </li></ul></ul><ul><ul><li>Leverage on competitive advantages </li></ul></ul><ul><ul><ul><li>Synergies with wireline company (TMAR) </li></ul></ul></ul><ul><ul><ul><li>Regional coverage </li></ul></ul></ul><ul><ul><ul><li>GSM technology (speed & features) </li></ul></ul></ul><ul><ul><li>Low handset subsidies/aggressive service plans </li></ul></ul><ul><ul><li>Increase national & international roaming </li></ul></ul><ul><li>New Technology + Migration Fixed to Mobile </li></ul>
  31. 31. OUTLOOK 2003 <ul><ul><li>Platform: Wireline: in line with GDP </li></ul></ul><ul><ul><li> Wireless: +/- 1 million adds </li></ul></ul><ul><ul><li>Revenue: (1) NLD, data and mobile growth </li></ul></ul><ul><ul><li> (2) Local and LD tariff increase (June) </li></ul></ul><ul><ul><li>Cost : strict control </li></ul></ul><ul><ul><li>Net Debt: flat to small reduction </li></ul></ul>
  32. 32. “ 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: invest@telemar.com.br 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

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