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Presentation at the 9 th Annual Asia Pacific / GEM Conference

Presentation at the 9 th Annual Asia Pacific / GEM Conference. October 04, 2004 New York. Contents. 1. Brazilian Telecom Market 1. 2. Company Overview 7. Brazilian Telecom Market – Customer Base (in millions). Fixed Line. Mobile. Brazil.

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Presentation at the 9 th Annual Asia Pacific / GEM Conference

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  1. Presentation at the 9th Annual Asia Pacific / GEM Conference October 04, 2004 New York

  2. Contents 1. Brazilian Telecom Market1 2. Company Overview 7

  3. Brazilian Telecom Market – Customer Base (in millions) Fixed Line Mobile Brazil Penetration Rate (%) Penetration Rate (%) Brazil 03 Jun/04 02 01 981 99 00 03 Aug/04 02 01 981 99 00 • After doubling in size after privatization in 1998, further growth of fixed-line platform more closely linked to the performance of Brazilian economy. • Brazilian subscriber base still growing at over 30% p.a., with further room to increase penetration levels. 1 Privatization.

  4. Telefonica Embratel (LD Carrier) Telemar Fixed Line Sector in Brazil – June/2004 Brasil Telecom Region I Region II FixedLines in Service (Brazil: 39 m*) 15.2 M 39% 9.6 M 25% Market Share Region IV Region III 12.2 M 31% * Includes smaller incumbents and mirror companies.

  5. TIM (TDMA/GSM) Mobile Subscribers in Brazil - June/2004 Main Groups Vivo – TEL/PT (CDMA) Claro - AMX (TDMA/GSM) 10.4 m 19% 11.1 m 23.5 m 21% 44% Oi - Telemar (100% GSM) Opportunity & BRT (TDMA/GSM)* Subscriber Base - Brazil: 54 m** Market Share 5.1 m** 9% 3.6 m 7% * Other groups with 0.3 m subscribers (~0.5% market share) ** Oi announced 5.5 million subs in Aug/04 - Brazil: 57 m subs

  6. Brazilian Telecom Market - Penetration Figures Fixed: 39 m (Jun/04) Mobile: 57 m (Aug/04) 23% 32% • Mobile penetration still has a lot of room to grow, helped by economic recovery; • Anatel estimates between 62.8 / 69.8 m subs by 2004YE; • Estimated mobile penetration for 2008YE ranges from 42% to 58%; • Fixed line penetration should be more or less stable, following GDP growth. 58% Max. 42% Min. Mobile* Fixed Line** 23% * Estimates from: Citigroup, Goldman Sachs, JP Morgan, Merryll Lynch, Pyramid Research. ** Estimates from Yankee Group

  7. Brazilian Telecom Market - Broadband Broadband Access – ( thousands) 3,831 3,547 3,148 • ADSL has become the dominant technology in Brazil (over 80% market share); • Broadband subscriber base expected to increase by 2.5x through 2008; • Telemar has a target to increase broadband penetration from 2% of fixed lines to 5% by 2006. 2,591 ADSL 1,874 1,490 1,199 694 326 130 PC Penetration (% of households) 2003 Source: Anatel / Teleco / Pyramid Research estimates*

  8. Contents 1. Brazilian Telecom Market1 2. Company Overview 7

  9. Telemar Overview – June/2004 • TELEMAR is an Integrated Telecom Player - Leadership in local and long distance services (15.2 million fixed lines) - Over 5 million mobile subscribers (GSM) - Data, Corporate & Value Added services Region I Region I I • Most Liquid stock in Brazil – BOVESPA TNLP4: US$ 47 m / day ; TNLP3: US$ 3 m / day Region III • Free Float: 82% of total shares (27% traded at NYSE: US$ 22 m / day) • Market value: US$ 5.0 billion (Sep/04)

  10. Operating and Financial Highlights Operating • Stable fixed-line platform; • Strong growth in mobile and ADSL subscribers; • Consistent market share gains in long distance services; • Strong segmented offer and a large distribution network; • A state-of-art fiber & satellite backbone reaching main cities of Brazil, supporting voice, data and internet services. Financial • Consistent top line growth; • Mid 40’s EBITDA margins; • Low CAPEX required; • Strong cash generation; • Execution of deleverage policy; • High dividend yield.

  11. Telemar Customer Base Fixed Line (million lines) Mobile (million subs) ~6.5 5.5 4.4 3.9 2.8 2.2 1.7 ADSL (thousand subs)

  12. Revenue Growth & Key Drivers Net Revenue Growth – R$ million 14,003 • Telemar has been delivering strong revenue growth in spite of a modest performance of Brazilian economy. 11,874 10,103 Key Revenue Drivers New Services1 • Real growth driven by new segments of mobile, data, broadband and long distance. Traditional Services2 • Revenues from traditional services broadly in line with inflation (no real growth). 1 Domestic and International Long Distance, Mobile, Data and Value Added Services. 2 Local voice (fixed), network usage and public phones.

  13. EBITDA R$ million 45% 44% EBITDA Margin 35% • Recurring EBITDA margins stable over time1; • Given strong revenue growth in more competitive segments, we expect a slight reduction in consolidated EBITDA margin to ~43% in 2004. 3,225 2,974 1H03 1H04 1EBITDA 2001 impacted by non recurring items.

  14. Free Cash Flow after Capex R$ million 2,247 1,064 2001 2003 2002 2000 1999 1H03 1H04 - Turning point (fixed line targets/mobile startup) Having met universal service goals and successfully rolled out mobile business, our Free Cash Flow is expected to remain strong in the coming years.

  15. Debt Position R$ million Debt Repayment Schedule (Total Debt: R$ 12.2 bn - Jun/04) Net Debt Evolution Net Debt/ EBITDA (x) ~ • Based on a strong cash generation, we expect to reduce our net debt level to below 1x EBITDA by 2004YE.

  16. CAPEX R$ billion 10.1 • CAPEX / 2003: 12% of sales (17% in 2002); • Main investments in fixed line platform already made; • Total CAPEX since 1998: ~R$ 22 bn (nearly US$ 11 bn); • Target: Stabilize CAPEX at up to 15% of sales to support growth in new segments (mobile, data, broadband and LD). Mobile Fixed Line 2.8 2.5 2.2 2.0 2.0 1.7 40% 0.5 60%

  17. Dividend Payments - 1999/2003 R$ million * Dividend yield Dividend Policy • All shares have the right to receive a minimum annual payment of 25% of adjusted net income; • Preferred Shares and ADR entitled to a minimum dividend (higher of):  6% Capital; or  3% of Shareholder’s Equity * Based on stock prices on 08/31/04. Our goal is to continue to provide high cash returns to our shareholders.

  18. Growth Opportunities • Increase of PC penetration, broadband access and internet traffic; • Sustained growth rates in the mobile market should leverage our total customer base to exceed 25 million clients; • Our fixed and mobile integrated strategy helping to increase our sales and retain our clients.

  19. Our view on what the market considers as most relevant threats • Traffic migration; • New technologies / Alternative products; • Competition; • Regulatory Environment.

  20. “Safe Harbor” Statement 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 Investor Relations - Telemar 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

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