Deutsche Bank Conference by X4apL3

VIEWS: 4 PAGES: 33

									3rd Annual Global Emerging Markets Conference


www.telemar.com.br/ir                           September 8-10, 2004
           Part I - Overview

                          1.1 Brazilian Telecom Market

                          1.2 Telemar

           Part II - Recent Developments and Growth Prospects

                          2.1 Highlights 2003/2004

                          2.2 Growth of the Business

                          2.3 Review of Operating Results

                          2.4 Financial Position




GEM Conference - September/2004                                 www.telemar.com.br/ir   1
         Part I - Overview

                         1.1 Brazilian Telecom Market

                         1.2 Telemar




GEM Conference - September/2004                         www.telemar.com.br/ir   2
  1.1 Wireline Sector
                                                          1998      2001      2002         2003     Jun/04
                                  LIS (Million)*          20.0      37.4       38.8        39.2      39.3
                                                                                                             Fixed Lines in Service
                                  Penetration (%)           11        21        23          23        23     have doubled since
                                                                                                             privatization
                                      Telemar                                   Brasil Telecom




                                                                                                               Lines in Service

  Largest                                 15.2 M         32%                          9.6 M         20%        Revenue Share
  Incumbents                                                                                                   (Brazil: R$ 29.1 bn - 1H04)
                                     Telefonica                                 Embratel (DLD & ILD)




                                          12.2 M         31%                                  17%


* Source: Company´s Information
   * Includes smaller incumbents and mirror companies (CTBC, Sercomtel, Vesper and GVT).

                     GEM Conference - September/2004                                                          www.telemar.com.br/ir          3
    1.1 Wireless Market
                                                                 1998        2001     2002         2003   Jun/04
                                       LIS (Million)*            7.4         28.7     34.9         46.4    54.0
                                        Penetration (%)            5          17       20           26      30

                                  Vivo – TEL/PT (CDMA)                  Claro -AMX (TDMA/GSM)             TIM (TDMA/GSM)




                                    23.5 m         44%                    11.1 m        21%                 10.4 m    19%
   Largest
   Groups
                                                    Oi - Telemar (100% GSM)              Opportunity (TDMA/GSM)*


                                                                                                                                   Total Subscribers

                                                                                                                                    National Market
                                                                                                                                    Share




                                                         5.1 m          9%                     3.6 m       7%



    * Other groups such as Nextel, CTBC and Sercomtel had 0.3 m subscribers (0.5% market share).
* Source: Company´s Information
                      GEM Conference - September/2004                                                                      www.telemar.com.br/ir       4
1.1 Growth in Customer Base

                        Fixed-line platform – LIS (million)                               Mobile platform – Subscribers (million)



                                                                                                   Penetration                      30
                   Penetration
                                               23      23                                          Rate Brazil              26
                   Rate Brazil
                                                                  22                                  (%)                           55      Brazil
                      (%)              21
                                 18                     39        38    Brazil                                         20    46
                                                39
                                         37                                                                      17
                   14
           11                     31                                                                    14             35
                        25                                                                9                      29
             20                                                                   5                       23
                                                                                              15

                                                                                      7
                                         15     15      15        15                                                        21      25     Region I
                        10        12                                   Region I                                        16
              8                                                                                          10       12
                                                                                      3       7
             981        99        00     01     02      03   Jul/04                981        99          00      01   02   03    Jul/04




        After doubling in size after privatization in 1998,
          further expansion of fixed-line platform more
          closely linked performance of Brazilian
                                                                                   Brazilian subscriber base still growing at a
                                                                                      rapid pace (over 30% p.a.).
          economy (current household penetration
          ~55%).


1   Privatization (Jul/98)        * Source: Company Information

                        GEM Conference - September/2004                                                                     www.telemar.com.br/ir     5
  1.1 Mobile Penetration Rate – Jul/04
Penetration per Region
             Jun-03 Sep-03       Dec-03   Mar-04    Jun-04
Region I     18.1% 19.5%         21.9%    22.8%      24.8%
Region II    25.4% 27.3%         31.2%    33.2%      36.9%
Region III   25.8% 27.6%         31.5%    33.0%      36.4%
Brazil       21.5% 23.1%
Source: Anatel
                                 26.2%    27.5%     30.2%
                                                                   Brazil – 30.4%


                                                             Region III – 36.5%
                         Region I – 25.0%                                                       Region II – 37.3%




                         In jul/02, the penetration rate in Region I was 15% and in Brazil 18%;
                         Wireless penetration in Region I (25%) still offers room for growth;
                         According to Pyramid´s forecast, penetration will reach 40% by 2006.

  * In July/04, population was estimated by IBGE.

                     GEM Conference - September/2004                                    www.telemar.com.br/ir       6
1.1 Mobile Penetration - Projections

             Brazil (%)
               45%

                                                       July/2004: 30.4%             40%
               40%
                                                                                        39%
               35%

               30%

               25%

               20%
                                      20%

               15%
                                          2002         2003       2004    2005   2006


                                                 Pyramid         Ovum




        GEM Conference - September/2004                                                  www.telemar.com.br/ir   7
1.1 ADSL Market in Brazil
                              Market Share – Brazil*

                Dec/03                                            Jun/04

                 Other      Virtua (Cable)                       Other   Virtua
   (ADSL)        10%                                                       8%
  Br Turbo                   8%                      Br Turbo     8%

    24%                                                24%                                        Brazil has 1.4 million
                                  Velox (ADSL)                                    Velox
                                  18%                                                 22%
                                                                                                   broadband accesses (Jun/04);

(ADSL) Speedy                                                                                     ADSL has 84% market share
          40%                                                   Speedy
                                                                 38%
                                                                                                   of the Brazilian broadband
 *Source: Teleco & Telemar estimates.
                                                                                                   subscriber base;

                         PC Penetration (% of households)**                                       Broadband penetration is
                                                                                                   expected to represent 30% of
                                                                                                   total internet access in Brazil
                                                                                                   in the next five years.




                                                                                  *
                               2003


 *Source: Pyramid Research                   ** Brazil has approximately 42 million households

                          GEM Conference - September/2004                                                          www.telemar.com.br/ir   8
1.2 Telemar – Overview (June/2004)
                                         Region I =
                                         • Concession              • Integrated Telecom Service Provider
                                         for fixed line services     – 15.2 million wirelines in service
                                                                     – 5.3 million wireless subscribers (Jul/04)
                                         • License for               – 345,000 ADSL subscribers
                                         Wireless services
                                         (GSM)
                                                                   • 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 and long distance services (Region I)

                                                                   • PCS Mobile services (GSM) in Region I
   Nationwide
                                                                   • Data, Corporate & Call Center Services (nationwide)
   • Authorization for
   fixed line services
                                                                   • Telemar shares heavily traded at Bovespa (TNLP4): ~ US$ 47
                                                                     m / day and at the NYSE (TNE): ~ US$ 22 m / day (Jul/04)



                                                                   • High Free Float: 82% of total shares


                                                                   • Market value: US$ 5.1 billion (Jul/04)



            GEM Conference - September/2004                                                                   www.telemar.com.br/ir   9
 1.2 Telemar - Shareholder Structure


                                                       Holding Co.
                                                                         TNLP          ADR
                                                    Tele Norte Leste
                                                   Participações (TNE)




                                                               81.0%


Contact Center
                                                                         Wireline

                                                          (TMAR)




                  Data
                                                                                                  Wireless




                 GEM Conference - September/2004                                    www.telemar.com.br/ir    10
          Part II - Recent Developments and Growth Prospects

                         2.1 Highlights 2003/2004

                         2.2 Growth of the Business

                         2.3 Review of Operating Results

                         2.4 Financial Position




GEM Conference - September/2004                                www.telemar.com.br/ir   11
2.1 Highlights –2003/2004

                                          Building a fully integrated telecom
                                            service provider

                                           Change, adaptation and consolidation
                                                Market share gains in relevant segments
                                                Selective growth (new markets)
                                                Consolidation of investments made in
                                                 the network
                                           Growth in highly competitive markets:
                                                Long Distance (domestic and
                                                 international)
                                                Data & Corporate (nationwide)
                                                GSM Mobile Services (Region I)
                                           Exploring new opportunities:
                                                Broadband
                                                Bundled services
                                                Satellite services
                                                Agreements and Partnerships
                                          Target: Ensure a sound financial position,
                                            with increasing returns to our
                                            shareholders.


        GEM Conference - September/2004                             www.telemar.com.br/ir   12
2.2 Expansion of Customer Base
million


                                                                           22.2
                                                             20.6
           CAGR (98-03)
              19.5%                            19.2
                                                              5.1          6.5               Ability to anticipate mobile
                             14.8
                                     16.4       3.9                                           traffic migration presenting an
                                       1.4             0.2          0.3           0.5   1
                                                                                              outstanding performance in
                   11.8                                                                       customer base;
             9.7
  7.8
                                                15.1         15.2          15.2              Capacity to maintain stable
                                       15.0
                                                                                              fixed line platform while
                                                                                              increasing market share in new
                                                                                              businesses (LD,Data, ADSL and
                                                                                              Mobile).

1998       1999    2000     2001     2002      2003     Jun_04            2004E

             Wireline                 Wireless                  ADSL




1Target:
       450,000 ADSL subscribers by YE 2004.
   * Company’s acquisition
                   GEM Conference - September/2004                                                            www.telemar.com.br/ir   13
2.2 TMAR Fixed Lines in Service
million lines

                                                                          Investments for expansion of
                                                                           fixed line network essentially
                                                                           completed;
                                     15.0       15.1    15.2     ~15.2
                           14.8
                                                                          Fully digital platform:
                11.8                                                        78% household lines
        9.7                                                                 18% business lines
 7.8                                                                        4% public phones

                                                                          Wireline penetration: ~55% of
                                                                           households (Region I);


1998   1999    2000       2001      2002        2003   Jun 04   2004E     Obstacles: Further
                                                                           increases in wireline
         growth                                 maintenance                penetration subject to GDP
                                                                           growth and regulatory
                                                                           changes.



              GEM Conference - September/2004                                              www.telemar.com.br/ir   14
2.2 Oi´s Subscriber Base
                  million subscribers

                                                        ~6.5

                                                  5.3
                                       4.4        85%
                               3.9     85%
                               83%
                       2.8                                      Most successful GSM launch
            2.2
    1.7
            80%
                       80%                                       globally
    78%                                                           5.3 million subs in 25 months;

  Mar_03 Jun_03 Sep_03 Dec_03 Mar_04 Jul_04 Dec_04E             21% market share (Region I);
                 Pre paid                  Post paid

                   Gross Revenue                                Share of mobile revenue in
                     (R$ million)                                total consolidated business
                                                                 grew from 3% in 2002 to 8% in
                                                  699
                                625                              1H04.
                                         564
                         496
                 391
          314




      1Q03 2Q03 3Q03 4Q03 1Q04 2Q04


                GEM Conference - September/2004                                  www.telemar.com.br/ir   15
2.2 Oi´s Market Position
           Market Share (Brazil v. Region I) – Jun/04

                  Brazil                                         Region I
           Other^
                           Claro                                        Claro
             8%                                           Other^
                           21%                                          16%
     TIM                                                   16%
     19%
                                                                                            Even with increased
                                                                                     Oi
                                   Oi               TIM                                      competition, Oi remains a
                                                                                     21%
                                   9%               22%                                      high growth player in its
                                                                                             operating market (35% of all
             Vivo 43%                                              Vivo 25%
                                                                                             net adds in 2Q04);
      ^Includes other operators:Telemig Celular, Tele Norte Celular, Nextel, CTBC,
        and SERCOMTEL.
      Source: Teleco /Morgan Stanley.
                                                                                            Wireless penetration in
                    Wireless Penetration (%) – Jul/04                                        Region I (25%) still offers
                                                                                             significant growth potential;


                                                                                            Challenge: Grow subscriber
                                                                                             base by 65% in 2004, with
                                                                                             positive EBITDA margins.



                                                                                 *

*Source: Pyramid Research

                    GEM Conference - September/2004                                                          www.telemar.com.br/ir   16
2.2 ADSL

                 Thousand lines
                                             450


                                   345

                       217                           Highest ADSL growth in Brazil
                                                      (~37% of net adds/2003);

     6      41                                       Annual revenue growth of
                                                      288% in 1H04, but still a low
  2001    2002       2003     Jun_04        2004E     portion of fixed line revenues
                  Gross revenue                       (1.6%);
                   (R$ million)
                                            155      Target: Increase ADSL
                             128                      penetration from 1.9% of fixed
                                                      lines to 5% in 2-3 years.


                 33



   2001       2002          2003         1H04

          GEM Conference - September/2004                            www.telemar.com.br/ir   17
2.2 Call Center Services


                Attendant Positions
                                                  >15,000
                                         14,887
                        12,907

                                                             Focus on profitability: EBITDA
                7,337
                                                              positive since inception;
     4,947

                                                             Growth in attendant positions,
                                                              in line with increase in
    2001      2002         2003          2Q04     2004E       customer base and net
                                                              revenues
                     Net Revenues                             - Contax currently has 29
                      (R$ million)                            customers, including major banks,
                             421                              utilities, insurance, media,
                                                              telecom, retail, excluding Telemar.
                                                  286
                     223
      146




    2001         2002             2003          1H04
             GEM Conference - September/2004                                    www.telemar.com.br/ir   18
2.3 Revenue Drivers

     Data, Internet &                                                          Wireless
        Corporate




                                                                               High Growth
       High Growth
                                               Integrated
                                               Strategy
       DLD / ILD                                                             Contact Center




        High Growth                                                            High Growth
                                                Wireline
                                             Concession Area




                                              Moderate Growth


        The Company’s five main lines of businesses provide a healthy balance between stable
       cash flow and growth opportunities.

         GEM Conference - September/2004                                         www.telemar.com.br/ir   19
2.3 Consolidated Gross Revenue Breakdown

                2002                                                   2003                                        1H04
      R$ 16,091 million                                  R$ 19,427 million                                R$ 10,460 million

                Other 8%                                               Other 9%                                Other 9%
  Wireless 3%                                        Wireless 7%                                    Wireless 8%
                           F- M                                                                                            F- M
                                                                              F- M
                                                                                      Local 57%                                        Local 53%
Network 9%                 17%                     Network 6%                                                              13%
                                   Local 61%                                  15%                 Network 6%
 Data 6%
                                                     Data 6%
                           Local                                                                     Data 7%               Local
                                                                              Local
                           44%
    LD 13%                                                                    42%                                           40%
                                                        LD 15%
                                                                                                         LD 17%




            Local Service decreased its share from 61% in 2002 to 53% in 1H04;


            Real growth has been driven by competitive and less regulated segments of mobile, long
           distance and data:                                   F- M

                             LD services increased its share from 13% in 2002 to 17% in 1H04;
                                                      13%


                             Mobile service rose from 3% in 2002 to 8% in 1H04 and
                                                      Local
                                                      40%
                             Data increased its share from 6% in 2002 to 7% in 1H04.


                 GEM Conference - September/2004                                                               www.telemar.com.br/ir               20
 2.3 Consolidated Gross Revenue
 R$ million


                                                                                   Revenue growth driven by less
                                               +16%                  10,460        regulated/ highly competitive
                       9,023                                                       business (Mobile, LD & Data);

                                                                        3,377
Less                   2,418                                                       Revenue growth in regulated
regulated*                                   +40%
                                                                                   services basically driven by tariff
                                                                                   increases;

                       6,605                                           7,083       Share of less regulated/competitive
Regulated                                     +7%
                                                                                   services increased from 27% to 32%
                                                                                   of total revenues (1H03/1H04);

                                                                                   Expected growth in wireless, data
                                                                                   and LD in 2004 should further
                     1H03                                              1H04        increase that share.




 * Services offered in highly competitive markets, less affected by regulation.

                     GEM Conference - September/2004                                                   www.telemar.com.br/ir   21
2.3 Long Distance Services

           LD Gross Revenue - R$ million                                            LD Traffic (billion minutes)

  CAGR             2,963                                                                                  9.5
  37.5%
           2,066                   +31.7%
                                                                                            8.2                          CAGR
                                              1,774
   1,568                                                                                                                 17.9%
                                     1,347                                    7.1



                                                                           2001           2002        2003
   2001    2002    2003             1H03      1H04




                                       Contribution to Total Revenues (includes F2M)


                                                                            17%
                                                              15%    15%
                                                       13%
                                                11%




                                               2001   2002   2003   1H03   1H04



                   Telemar continues gaining market share and holding its market leadership
                  in Region I.

            GEM Conference - September/2004                                                           www.telemar.com.br/ir      22
2.3 Data Services

        Data Revenues (gross) - R$ million

       CAGR
                             1,184
       22.7%
               906                                        +31.6%
 787
                                                                   737    Key corporate and
                                                    560                    government contracts won in
                                                                           2003;

2001      2002             2003
                                                 1H 0 3        1H 0 4     Data revenue growth driven
                                                                           by ADSL and IP services;
               Major Clients won in 2003

                                                                          Target: Increase market
                                                                           share in data services for
                                                                           Region I and extend
                                                                           comprehensive offer on
                                                                           nationwide basis.




               GEM Conference - September/2004                                            www.telemar.com.br/ir   23
2.3 Mobile Services Revenue*
R$ million


                                                                                   Outstanding revenue increase
                                                                                    (69% yoy);
            511                                         866
                                                                                   Services growth driven by
                                                                       Handsets     subscriptions, outgoing calls
                                                        32%                         & data services (mainly SMS);
           39%

                                                                                   EBITDA breakeven reached in
                                                                                    Dec/03, after 18 months of
                                                       68%             Services     operations;
           61%
                                                                                   Target: Maintain a high
                                                                                    revenue growth rate with
                                                                                    increasingly positive EBITDA
        1H03                                        1H04                            margins.



* Refer to gross consolidated revenues (excluding Intercompany transactions).

                  GEM Conference - September/2004                                                  www.telemar.com.br/ir   24
  2.3 Consolidated Net Revenues and EBITDA
  R$ million
                 50%
44%                                                45%                  44%

                                    35%                                                                         Delivering consistent revenue
                                                                                                                 and EBITDA growth in spite of
                                                                                                                 huge expansion of fixed line
                                                               14,003                                            platform and startup of mobile
                                                                                                                 business;
                                                11,874

                                 10,103
                                                                                                                Recurring margins stable over
                 8,122                                                                                           time, in the mid-40’s
                                                                                                                  EBITDA 2001 impacted by
 6,222                                                                6,221                     7,487
                                                       5,353
                                                                                                                 extraordinary provisions;
                                                                                6,561

                         4,032          3,558
         2,735
                                                                                        2,974          3,225    Target 2004: Keep
                                                                                                                 consolidated EBITDA margin
                                                                                                                 at ~43% in spite of a higher
                                                                                                                 growth in mobile revenues.
  1999           2000            2001           2002           2003             1H03            1H04



             Net Revenues                  EBITDA                     EBITDA Margin

                          GEM Conference - September/2004                                                                   www.telemar.com.br/ir   25
   2.4 Consolidated CAPEX
   R$ billion

                                  10.1


                    Wireless       2.2                                       CAPEX 2003: ~12% of net
                                                                              revenues (v. 17% in 2002);

                                   7.9
                                                                             CAPEX 1H04: R$ 534 million
                                                                              (7.1% of net revenues);

                                                                             Consolidated CAPEX since
                                                                              1998: US$10.4 billion;
                          2.8
           2.5
                  2.2                       2.0                       2.0
                                                      1.7
                                                                      40%
                                                                             Target: Stabilize CAPEX at
Wireline                                   0.9        0.6
                                                              0.5
                                                                              ~15% of net revenues to
                                           1.1        1.1            60%      support growth in mobile and
       1998      1999   2000    2001     2002     2003      1H04    2004E
                                                                              other services (broadband,
                                                                              long distance).


                         Anatel Targets/
                         Mobile License
                           (R$1.1 bn)


                    GEM Conference - September/2004                                          www.telemar.com.br/ir   26
 2.4 Free Cash Flow after CAPEX
R$ million
                                         CAGR (99-03)
                                            69.1%
                                                                         4,025

                                                                 2,302
                                                                                                       2,247
                            1,233                                                  1,064
        492




                                                                                    1H03              1H04




                                                        -5,906


        1999                2000               2001          2002        2003



          Having met fixed line universal service goals and successfully rolled out GSM services,
         our FCF is expected to remain strong in the coming years.

             GEM Conference - September/2004                                          www.telemar.com.br/ir    27
  2.4 Dividend Payments - 1999/2003
R$ million


                                               5.0%    5.1%
Dividend yield                                                *
                                 2.4%                                           Dividend Policy
                   1.8%                                 800
     1.7%

                                                                                • All shares have the right to receive a
                                                                                  minimum annual payment of 25% of
                                                 500                              adjusted net income;
                                                                  Dividend/     • Preferred Shares and ADR are entitled
                                                                  Interest on
                                    303                           Capital
                                                                                  to a minimum dividend of:
       224            251
                                                                                   6% of the Company´s Capital;
                                                                                   3% of the Company´s Shareholders´
                                                                                  Equity
                                                                                  Whichever is higher.
      1999           2000          2001         2002   2003

  * Based on stock prices at 08/31/04.




                             Our goal is to continue to provide high cash returns to our shareholders.


                     GEM Conference - September/2004                                                 www.telemar.com.br/ir   28
 2.4 Debt Position
 R$ billion
                         Net Debt – Jun/04                                     Repayment Schedule – Jun/04

                                R$ 7.4 billion                                    Total Debt: R$ 12.2 billion
Net Debt/
EBITDA (x)    2.2
                                                                                           3.4
                        1.7
                                     1.3                                           2.8
                                                      1.1
                         9.1                                    ~ 1.0
                                                                                                                     2.4

             7.7                      7.8
                                                 7.3                       1.5                    1.4

                                                              6.3                                         0.8




                                                                        2H04     2005    2006    2007   2008     2009+

                                                                                 22.6    28.0    11.4    6.4       19.5
                                                                                                                                % of
                                                                        12.1
                                                                                                                                total
         2001         2002        2003      Jun_04          2004E



              Given our strong cash generation, we estimate net debt to be less than 1x EBITDA by year
             end 2004.



                    GEM Conference - September/2004                                                     www.telemar.com.br/ir           29
2.4 Key Financial Ratios
                           Net Debt / EBITDA                       Amortization*/ EBITDA (%)




   (*) 12 - Month EBITDA
                                                      * Principal and interest

                       CAPEX / EBITDA (%)                            Dividends* / EBITDA (%)

                               *




   * Early attainment of universal service targets.   * includes JCP (interest on capital)

                GEM Conference - September/2004                                              www.telemar.com.br/ir   30
2.4 Key Financial and Valuation Ratios

         Enterprise Value / EBITDA            Market Cap / EBITDA




         EBITDA / Total Debt Service      EBITDA / Net Interest Expense




        GEM Conference - September/2004                         www.telemar.com.br/ir   31
“Safe Harbor” Statement




       This presentation contains forward-looking
       statements. Statements that are not
       historical facts, including statements about   Investor Relations
       our beliefs and expectations, are forward-     Rua Humberto de Campos, 425 / 8º andar
       looking statements and involve inherent        Leblon
       risks and uncertainties. These statements      Rio de Janeiro -RJ
       are based on current plans, estimates and      Phone: ( 55 21) 3131-1314/1313/1315/1316
       projections, and therefore you should not      Fax: (55 21) 3131-1155
       place undue reliance on them. Forward-         E-mail: invest@telemar.com.br
       looking statements speak only as of the date   Visit our website:
       they are made, and we undertake no             http://www.telemar.com.br/ir
       obligation to update publicly any of them in
       light of new information or future events




       GEM Conference - September/2004                                         www.telemar.com.br/ir   32

								
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