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Corporate Presentation. November, 2004. www.telemar.com.br/ir. Telemar Presentation - Contents. 1. Highlights 1. 2. Growth of Customer Base 3. 3. Operating Results 1 2. 4. Debt Position and Financial Ratios 2 1. Highlights. Region I
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Corporate Presentation November, 2004 www.telemar.com.br/ir
Telemar Presentation - Contents 1. Highlights 1 2. Growth of Customer Base 3 3. Operating Results 12 4. Debt Position and Financial Ratios 21
Highlights Region I = Concession areafor Wireline services = Mobile license for Wireless services • Integrated Telecom Service Provider (Sep/04) • 15.2 million fixed lines in service • 5.7 million mobile subscribers • 429 thousand ADSL subscribers • Concession Area (Region I) - Local Service and PCS • 65% of Brazilian territory/94 million inhabitants • 40% of country’s GDP • Over 20 million households • Leadership in local and long distance services • After only 2 years of launching, already #2 position in mobile subs (Region 1) Nationwide = Authorization areafor Long-Distance and Data services • Data, Corporate & Call Center Services (nationwide) • Most heavily traded shares at Bovespa (TNLP4): US$ 41 million/day (Oct/04); • Strong liquidity at the NYSE (TNE): US$ 15 million/day (Oct/04) • High Free Float: 81.1% of total shares • Market value of US$ 5 billion (Oct/04)
Shareholder Structure – TNE BNDESPar - 25% Fiago – 19.9% AG Telecom – 10.28% Telemar Participações S.A. ASSECA Participações – 10.27% Lexpart Part. – 10.28% L.F. Tel - 10.27% 18.9% BrasilCap - 5% Tele Norte Leste Participações S.A. (TNL) Brasil Veículos - 5% Total Shares: 387.9 million Free Float 79.5% / Treasury 1.6% Fundação SISTEL - 4% (TNL) 80.9% 100% Total Shares: 241.7 million Free Float 18.7% / Treasury 0.4% Fixed line Contact Center 100% 100% Data Transmission Mobile
ADSL Mobile Fixed Line Expansion of Customer Base million customers CAGR (98-03) 19.7% ~22.4 Main growth drivers: • Ability to anticipate the growth potential of mobile technology and keep on expanding customer base; • Capacity to maintain and increase market share in a changing technological and market environment. 21.3 19.2 16.5 * Company’s acquisition
Fixed Lines in Service million lines • Main investments for expansion of fixed line network already completed; • Fully digital platform in service; • Fixed line penetration still ~50% of households in Region I; • With an 88% utilization rate, Telemar has some 2 million lines spare capacity; • Challenge: Increase in fixed line penetration subject to Brazilian GDP sustained growth and regulatory changes. CAGR (98/01) 23.8% maintenance growth
Embratel (LD Carrier) Telefonica Telemar Fixed Line Sector in Brazil – Sep/2004 2002 Sep/04 1998 2001 2003 38.8 39.1 LIS (million)* 20.0 37.4 39.2 Brasil Telecom Region II Region I FixedLines in Service 15.2 M 32.7% 9.6 M 20.3% % of Total Gross Revenue: T= R$ 43.6 bn / 9M04 Region IV Region III 12.4 M 30.4% 16.6% * Includes smaller incumbents and mirror companies (CTBC, Vesper, GVT and Sercomtel).
Broadband Market in Brazil Market Share Brazil Sep/04 Dec/03 • Broadband clients in Brazil are 1.9 million (Sep/04); • ADSL accounts for 85% of total broadband access in Brazil; • Broadband penetration is expected to grow to 30% of total internet access in Brazil by 2008*; • Challenge: Growth in broadband services in the medium/long term relies on increasing PC penetration in Brazil. *Source: Estimates Teleco e Telemar PC Penetration (% of households) Brazil * 2003 *Pyramid Research
ADSL – Telemar (Velox) ADSL - thousand lines • Velox is already available in 140 cities of Region I (more than 10x the coverage of alternative technologies); • Subscribers reached 429K in Sep/04, with a penetration of 2.8% of total fixed lines in service; • In 9M04, revenues from Velox grew by by 254% compared to the same period of 2003; • Target: Increase Velox´s penetration within Region I to consolidate customer´s loyalty and enhance the fixed line ARPU. 480 Gross Revenue (R$ million)
Mobile Market in Brazil Market Share (Brazil v. Region I) – Sep/04 Region I** Brazil • Annual growth rate in mobile subscribers is currently over 40% in Brazil; • 33% mobile penetration in Brazil and especially in Region I (27%) still offer significant growth potential; • Oi´s market share in its region reached 23% Oct/04; • Challenge: Increase Oi´s subscriber base to 6.7 million (+72%) in 2004, with positive EBITDA margin. *Includes other operators: Nextel, CTBC, SERCOMTEL, Telemig and Tele Norte Celular ** Oct/04 Mobile Penetration (%) – Oct/04 Brazil * *Source: Pyramid Research
Mobile Platform - Oi Subscriber base (thousand) • In spite of the increased competition, Oi has been able to maintain its leadership in net additions in its region (market share of ~35% in 3Q04); • Oi´s annual growth as of Sep/04 around 2.9 million subscribers (+101% on Sep/03); • Total revenue in 3Q04 increased by 60% over 3Q03, while revenue from services (ex-handset sales) improved by 82%. ~6,700 5,740 5,093 15% 4,408 3,893 15% 85% 15% 85% 2,849 17% 85% 20% 83% 80% Post-paid Prepaid Gross Revenue (R$ million)
Call Center Services • Focus on profitability: EBITDA positive since inception; • 61% CAGR (01/03) in attendant positions, in line with increase in customer base and revenues (70% CAGR) - Contax has conquered important customers, including major banks, utilities, insurance, media and retail. Attendant Positions 15,952 12,907 7,337 4,947 Gross Revenues (R$ million) 500 459 240 159
Wireline Long Distance Data & Corporate Moderate Growth High Growth High Growth Wireless Others(*) High Growth Consolidated Gross Revenue Breakdown – 9M04 Fixed to Mobile (VC1) Inter-Connection Local 58% Data Long Distance (includes VC2/3) Mobile (*) Includes advanced voice, public telephones, additional services and Contact Center. The Company’s four main lines of business combine strong cash generation and new growth opportunities.
Growth in Long Distance Services LD Gross Revenue - R$ million LD as a % of Total Revenues* +26.8% * Includes F2M (VC2/3) Telemar holds leadership in LD services in Region I.
Data Transmission Services Data Revenues (gross) - R$ million • Key corporate and government contracts achieved during 2003; • The annual growth in revenues from data services has been consistently above 30%; • ADSL services accounted for 23% of total data revenue in 9M04 (+8% in 9M03); • Target: Expand Telemar´s offer of data services and market share in Brazil. +32% Major Clients
Consolidated Gross Revenue from Mobile Telephony R$ million • Accumulated annual growth of 66% (9M04), driven by the increase in revenues from mobile services - subscriptions, outgoing calls & SMS - up 85% yoy; • Recurring positive EBITDA since 1Q04; • Target: Maintain the expansion of service revenues while increasing EBITDA margin. 875 1,454 Handsets Services 9M04 9M03
Net Revenues EBITDA EBITDA Margin Consolidated Net Revenues and EBITDA R$ million • Delivering consistent revenue and EBITDA growth in spite of strong expansion in the customer base; • High EBITDA margins, despite the faster growth of mobile services (where margins are still below company´s average); • Target 2004: reach a consolidated EBITDA margin of ~43% for the year. 43% 45%
Consolidated Net Income R$ million 9M03 1998 2002 2000 2001 1999 2003 9M04 Increase in EBITDA and reduction in net debt, with lower financial expenses, had a positive effect on year to date results (9M04).
Consolidated CAPEX R$ billion 10.1 • CAPEX 2003: ~12% of net revenues, compared to 17% in 2002; • Consolidated CAPEX since 1998: R$ 22 billion; • Target: Stabilize CAPEX below 15% of net revenues over the next years. 2.2 Wireless 7.9 2.8 2.5 2.2 2.0 2.0 1.7 40% 0.9 Wireline 0.6 1.1 60% 0.4 1.1 1.1 0.7 Anatel Targets and Mobile License (R$1.1 bn)
Consolidated Operating Cash Flow after CAPEX R$ million CAGR (99-03)69.1% 9M04 9M03 2003 2002 2000 2001 1999 Having met our main fixed line universalization targets and mobile rollout,our cash generation is expected to remain strong
TNE: Dividend Payments - 1999/2003 US$ million * Dividend yield Dividend / Interest on Capital 2003 1999 2000 2001 2002 * Based on stock prices at 10/29/04. Our goal is continue to provide high cash returns to investors
4.2 24.1 29.7 13.1 7.4 7.3 14.2 Net Debt Position and Repayment Schedule R$ million Gross Debt Repayment Schedule – Sep/04 Net Debt – Sep/04 R$ 7,000 million R$ 11,863 million % of total * To this figure should be added the amount disbursed by the Company on its stock buyback program. Given our strong cash generation, we expect to reduce net debt to less than 1xEBITDA by year end 2004
Key Financial Ratios Net Debt* / EBITDA Amortization*/ EBITDA (%) *EOP ** 12 - Month EBITDA * Principal and interest Net Debt /Enterprise Value* CAPEX / EBITDA (%) *EOP
Key Financial and Valuation Ratios Enterprise Value* / EBITDA Market Cap* / EBITDA *EOP ** 12 - Month EBITDA *EOP ** 12 - Month EBITDA EBITDA / Net Interest Expense Dividends / EBITDA
“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 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/ir