Transcript Titulo

Global Emerging Markets
Investor Forum
June 16-18, 2004
Contents
Company Highlights
2
Industry Overview
3
Growth Strategy & Revenue Drivers
11
Regulatory Framework
20
Financial Performance
23
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
1
Company Highlights
Region I
Fixed-line and
GSM Mobile Services
Goal: Building a fully integrated
telecom service provider
 Change, adaptation and consolidation
Nationwide
Long Distance, Data
Transmission and
Contact Center
Services
www.telemar.com.br/ir
 Market share gains
 Selective growth (new markets)
 Consolidation of investments
 Growth in highly competitive markets
 GSM Mobile Services (Region I)
 Long Distance (domestic and international)
 Data & Corporate (nationwide)
 Contact Center Services (nationwide)
 Exploring new opportunities:
 Broadband Rollout (ADSL)
 Bundling Services
 Enhanced Services for high end residential
and SME markets (voice / data)
 Target: Ensure a sound market and financial
position, with increasing returns to our
shareholders
Merrill Lynch – GEM Investor Forum – June/04
2
Telecom Industry in Brazil – Growth of Customer Base
Fixed-line platform – LIS (million)
Penetration
Rate Brazil
(%)
23
23
Mobile platform – Subscribers (million)
23
21
18
37
14
39
39
39
Brazil
49
Brazil
35
29
9
23
5
20
46
27
17
25
15
Region I
8
10
12
981
99
00
15
15
15
7
15
3
01
02
03
Mar/04
 Having met universalization goals (19982001), fixed-line platform growth tends to
rely on the performance of Brazilian
GDP.
1
20
14
31
11
26
Penetration
Rate Brazil
(%)
981
7
10
12
16
99
00
01
02
21
22
03
Mar/04
Region I
 Since privatization and introduction of
competition, mobile growth in Brazil has
largely exceed the most optimistic
scenarios (over 30% CAGR through
2003).
Privatization (Jul/98).
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
3
Telecom Industry in Brazil – Net Revenues
2002 – R$ 50.6 bn
 Growth of telecom service revenues in
Fixed
Line 1
71%
2003 was ~13% yoy;
Mobile 2
29%
 Revenue growth was driven by the
mobile sector (+18% yoy);
 Given stability of fixed-line platform,
mobile sector should continue to drive
revenue growth in 2004.
2003 – R$ 57.0 bn
Fixed
Line 1
69%
www.telemar.com.br/ir
Mobile 2
31%
1
Net Revenues of Incumbent Telcos (Telemar, Telesp, Brasil Telecom,
Embratel) – excluding CTBC, Vesper, Intelig, GVT.
2 Net Revenues of main groups: Vivo, Claro, Oi, TIM and Opportunity,
including handset sales (excluding: CTBC, Nextel, Sercomtel, etc.).
Merrill Lynch – GEM Investor Forum – June/04
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Telecom Industry in Brazil - Fixed Line Services
LIS (million)*
1998
2001
2002
2003
Mar/04
20.0
37.4
38.8
39.2
38.9
Brasil Telecom
Telemar
15.1 M
32%
9.7 M
20%
Lines in Service
Revenue Share
Embratel (DLD & ILD)
Telefonica
Fixed Line Incumbents
(R$ 14.6 bi 1Q04)
12.2 M
31%
17%
* Including mirror companies.
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Telecom Industry in Brazil - Mobile Services
Main Groups
Vivo (CDMA)
21.9 m
TIM (TDMA/GSM)
Claro (TDMA/GSM)
10.0 m
44%
Oi (100% GSM)
9.1 m
20%
19%
TDMA/GSM / Other*
Incumbents
Subscribers - Mar/04
Brazil: 49.1 m
National Market
Share
Startup
(BRP)
4.4 m
9%
3.8 m
8%
* Other groups (Opportunity, CTBC,
Sercomtel and Nextel)
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Fixed Line Market in Brazil – Gross Revenue / Incumbents
Fixed to Mobile Services (VC1)
Local Services (ex-VC1)
2002 – R$ 18.4 bi
2002 – R$ 7.0 bi
2003 – R$ 20.7 bi
+12.5%
62% Others
TMAR 38%
+12.8%
61%
61%
Others
TMAR
39%
Others
TMAR
Average Tariff increase: 12.3%
39%
63%
Data Services1
2003 – R$ 14.5 bi
2002 – R$ 4.4 bi
+13.7%
2003 – R$ 5.1 bi
+15.9%
54%
44%
54%
44%
EMT
EMT
TMAR
EMT
EMT
16%
TMAR
20%
TMAR
13%
www.telemar.com.br/ir
16%
Others
36%
Average Tariff increase: 8.7%
TMAR
Others
Others
Others
30%
TMAR 37%
Others
Average Tariff increase: 24%
Long Distance Services
2002 – R$ 12.7 bi
2003 – R$ 7.9 bi
33%
1 Excludes
40%
leased lines to other telecom service providers (EILD).
Merrill Lynch – GEM Investor Forum – June/04
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Telecom Industry in Brazil - Long Distance
Brazil – Revenue Market Share (1)
 Telemar is the market share leader in LD calls
originated in Region I;
 Regional incumbents conquered market share
2000
2001
2002
2003
from LD carriers in 2002, as new markets were
opened for competition;
Telemar
12%
13%
16%
20%
Embratel
65%
62%
54%
44%
 Telemar increased its market share from 2000
BrT+ Telefonica
23%
25%
30%
36%
to 2003, mainly as a result of entry into new
markets;
9,970
11,773
12,708
14,450
CAGR
13.2%
Total Revenue
R$ Million
 Since 2H03 there has also been a significant
contribution of revenues derived from mobile
LD calls (SMP);
 Challenge: sustaining market share in home
market and preserving profitability (avoiding
price war/irrational competition).
(1) Incumbents only (rounding %).
Source: Company reports.
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Telecom Industry in Brazil - Mobile Services
Region I
Dec/03
Wireless Penetration (%) – April/04
Mar/04
Others^
Claro
17%
17%
Others
TIM
80%
21%
Oi
Oi
20%
18%
Vivo
27%
*
Brazil
Dec/03
Mar/04
Others^
Others^
8%
Claro
8%
 Brazilian mobile subscriber base is growing
20%
TIM
21%
TIM
19%
18%
Claro
Oi
Oi
8%
9%
Vivo
Vivo
44%
45%
^Includes other groups: Opportunity, Nextel, CTBC and Sercomtel.
www.telemar.com.br/ir
over 30% annually;
 Oi is still the fastest growing player in its home
market;
 Wireless penetration in Region I (23%) still
offers room for growth.
*Source: Pyramid Research
Merrill Lynch – GEM Investor Forum – June/04
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Telecom Industry in Brazil - Broadband Services
Region I
Brazil
Dec/03
Others
82%
Velox
Others
Velox
18%
17%
83%
 ADSL represents 82% of total 1.2 mn
broadband accesses in Brazil (Dec/03);
 Broadband penetration in Brazil
expected to reach to 30% of internet
users in the next five years;
PC Penetration (% of households)
 Broadband subscribers in Brazil
expected to increase by 2.5x through
2006*;
 Challenge: Develop sales channels to
increase offer to SME clients, bundling
with other services (LD, wireless).
*
2003
*Source: Pyramid Research
** Total households= 41.5 mn (IBGE- PNAD/2002)
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Growth Strategy & Revenue Drivers
Data, Internet &
Corporate
Wireless
High Growth
High Growth
Integrated
Strategy
DLD / ILD
Contact Center
High Growth
High Growth
Wireline
Concession Area
Moderate Growth
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Customer Base Growth
(million)
 Ability to anticipate wireless growth
and traffic migration (F to M);
21.6
CAGR
19.5%
19.0
14.8
16.4
1.4
19.8
 Capacity to maintain / increase
4.4
3.9
6.0
market share in a rapid changing
scenario;
0.5 1
0.3
11.8
 Capacity to increase offer of ADSL
9.7
7.8
15.0 15.1 15.1
15.1
to our customers and protect our
home market;
 Keep delivering customer growth;
 Developing advanced and
segmented services;
1998
1999
2000
2001
Wireline
1Target:
2002
2003
Wireless
1Q04
ADSL
2004E
 Offering innovative and bundled
plans.
450K ADSL subscribers.
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Mobile Services
Revenues (R$ million)
625
564
496
366
4Q02
391
1Q03
 Highly successful GSM rollout
+80% yoy
314
 4.4 million subs in 21 months (20%
market share;
2Q03
3Q03
4Q03
 Market share gains at Oi help to reduce
1Q04
consolidated interconnection costs;
Subscribers (thousand)
 Almost 50% share of all net adds in home
6,000
market since launching in Jun/02;
4,408
 Share of total revenues increased from 3%
3,893
1,722
in 2002 to 7% in 2003;
85%
2,849
83%
2,236
 Target: consolidate and increase market
80%
80%
78%
Mar_03
Post paid
Pre paid
Jun_03
Sep_03
3-Dec
www.telemar.com.br/ir
Mar_04
share in Region I, reaching # 2 position by
2004 YE, with positive EBITDA margins.
Dec_04E
Merrill Lynch – GEM Investor Forum – June/04
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Local Services
Local Revenues (ex- VC1) - R$ million
44.8%
44.1%
41.8%
% of total revenues
8,119
 Local traffic impacted by low GDP
growth and F-M traffic migration (to a
lesser extent);
7,098
 Local revenues growing basically in line
6,122
1,881
2,093
with tariffs (no real growth expected);
 Outstanding performance of mobile,
2001
2002
2003
1Q03
Local Traffic – F to F (billion pulses)
21.3
2001
22.9
22.6
1Q04
long distance and data services have
caused a decrease in the share of local
services in total consolidated revenues;
 Target: protection of home market
leadership / retention of high-end clients
(customer care / bundling/ADSL).
2002
www.telemar.com.br/ir
2003
Merrill Lynch – GEM Investor Forum – June/04
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Long Distance Services
Revenues - R$ million
15.3% % of total revenues
 LD revenues growing over 30% yoy,
2,963
12.8%
mainly driven by market share gains:
New DLD/ ILD markets (Jul/02) and
 Mobile originated LD calls (Jun/03);
11.5%
2,066
1,568
885
2001
2002
7.1
2001
1Q03
2003
Traffic (billion minutes)
9.5
8.2
2002
www.telemar.com.br/ir
 LD Market leadership in Region I and
“Top of Mind” carrier in Brazil for two
consecutive years;
666
1Q04
 Over three million customers in loyalty
programs;
 Targets: increase efficiency & quality,
keeping revenue growth (2004 ~20%)
preserving profitability.
2003
Merrill Lynch – GEM Investor Forum – June/04
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Broadband rollout (ADSL)
Subscribers (thousands) - EoP
450
 Fastest growing subscriber base in
217
Brazil (~37% of all net adds in 2003);
284
 Presence in 110 of the largest cities in
59
41
6
1Q03
2001
2002
2003
1Q04
Region I (~10x larger than other
technologies, including cable);
2004E
 Revenue growth of almost 4x in 2003
Revenues (R$ million)
(and still significant room to grow in
coming periods);
128
 Target: Increase our broadband
33
penetration in Region I from 2% of
LIS to 5% in 2-3 years.
69
17
2001
2002
www.telemar.com.br/ir
2003
1Q03
1Q04
Merrill Lynch – GEM Investor Forum – June/04
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Data Services
Revenues (R$ million)
1,056
787
873
 Data revenues (ex-broadband)
growing at a 16% annual rate;
255
295
 Sustainable real growth driven by
relevant long term corporate
contracts;
2001
2002
2003
Major Clients
1Q03
1Q04
 High quality network and services
(SLA/ End-to-end);
 Target: Increasingly provide
integrated nationwide solutions to
top corporate customers in Brazil.
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
17
Value Added Services (VAS)
Revenues (R$ million)
 Based on full digitalization of our
network, VAS revenues are
increasing more than 20%
annually;
423
303
 Besides adding to basic fixed line
revenues, services like “follow
me”, ‘’call forwarding” and “voice
mail” help sustain fixed line traffic;
258
94
117
 Total services sold increased from
25% of our LIS in 2001 to 40% in
2003;
 Target: develop new services to
2001
2002
2003
www.telemar.com.br/ir
1Q03
1Q04
foster penetration traffic and
revenues.
Merrill Lynch – GEM Investor Forum – June/04
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Contact Center Services
Attendant Positions
 Focus on profitability: EBITDA positive
>15,000
since inception;
12,907
 Customized solutions for all areas of
7,337
customer relationship;
4,947
12,543
8,270
2001
2002
2003
2004E
 Leverage traffic to Telemar´s network;
 Contax customers include major
1Q04
1Q03
banks, utilities, insurance, media,
telecom, retail;
Net Revenues (R$ million)
421
223
146
125
 Target: Consolidate #1 position among
82
call center operators in Brazil.
2001
2002
www.telemar.com.br/ir
2003
1Q03
1Q04
Merrill Lynch – GEM Investor Forum – June/04
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Regulatory Framework – Main Issues
1. Tariffs – Annual Revisions
2003
• IGP- DI (30.05%) x IPC-A (17.24%)
• Tariffs have been adjusted based on IPC-A
• Still pending “merit” judgment by the Courts
2004
•Tariff increase most likely based on 12 month IGP-DI (7.97%) and not IPC-A (5.15%)
Base for tariff increase: Currently authorized prices (based on Court injunction / 2003)
• Productivity factors:
Local Basket – 1%
Long Distance Basket – 4.5%
Local Interconnection – 17.5%
2005
• Most likely based on IGP-DI
2006 on
• Tariff increases based on:
IST – A “Telecom Sector” price index (TBD)
“K” – New Productivity factors (TBD)
Interconnection:
a) Defined as a % of local tariff (60%-2006; 50%-2007)
b) From 2008 on based on a “Long Range Incremental
Cost Model” (TBD)
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
20
Regulatory Framework
1. Tariffs
Reduction of Local Areas
Domestic long distance:
• LD calls between neighboring areas to be considered local calls (local areas from
4,289 to 2,920);
• To be implemented in up to 90 days after June 07, 2004;
• Change already expected: Telemar has been rebalancing its rates = local ~
neighboring.
R$ Net of Taxes
2001
2002
2003
Neighboring areas
0 to 50 km
50 to 100 km
100 to 300 Km
Over 300 km
0.028
0.16
0.25
0.27
0.30
0.024
0.18
0.26
0.28
0.30
0.022
0.21
0.28
0.29
0.32
Fixed to Mobile Interconnection Rate
• Free negotiation scheduled to start as of July, 2004;
• Currently F-M local calls is a non profitable business for Telemar;
• Target:Recover margins on this business
Share the uncollectibles with mobile operators
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
21
Regulatory Framework
2. Competition
Unbundling
• In May 2004, Anatel established the overall conditions for:
a) Line Sharing: setting maximum reference values, such as monthly
rental prices, at R$ 15.42 / pair and
b) Full unbundling: determining that prices should be set by the
incumbents, based on the overall conditions defined by Anatel.
Co-Billing
• System already in place between all telecom operators in Brazil
Fixed line Number Portability
• To be implemented as of 2006 (TBD)
3. Transparency
Local Traffic in Minutes
• Conversion of local traffic billing: Pulses to Minutes
(to be implemented as of 2006 / the frame and extension of adjustments) (TBD)
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
22
Revenue Growth
Net Revenue Growth – R$ million
CAGR
17.7%
 Telemar continues delivering real
revenue growth in spite of a
slowdown in Brazilian economy.
Changes in Revenue Mix
Network
Others
Wireless
Others
7%
7%
8%
11%
Data
 Real growth has been driven by
Network
7%
6%
LD
Local
12%
64%
Data
Local
6%
57%
competitive and less regulated
segments of mobile, long distance
and data.
LD
15%
2001
www.telemar.com.br/ir
2003
Merrill Lynch – GEM Investor Forum – June/04
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Costs & Expenses
Costs & Expenses: R$ million
CAGR
9.0%
6,545
7,782
6,521
 After the huge expansion of fixed
line platform and installation of our
GSM network costs & expenses
are being kept under strict control.
2,009
1,733
1Q03
1Q04
Main Cost Items (% of Total Costs)
Intercon.
36%
33%
3rd Party
25%
26%
Headcount
12%
12%
6%
Handsets
Marketing
Bad Debt
10%
3%
3%
9%
8%
2003
www.telemar.com.br/ir
 In line with the growth of our
mobile operations, associated
costs, such as handsets and dealer
commissions increased their
stakes in total costs, as opposed to
consolidated interconnection
costs.
2002
Merrill Lynch – GEM Investor Forum – June/04
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EBITDA
(R$ million)
45%
44%
35%
 Recurring EBITDA margins have
6,221
been stable over time, in the midforties1;
5,353
 For 2004 we expect an EBITDA
3,558
margin of ~43%.
1,486
2001
2002
www.telemar.com.br/ir
2003
1Q03
1,680
1Q04
1 EBITDA
for 2001 was impacted by extraordinary
provisioning.
Merrill Lynch – GEM Investor Forum – June/04
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CAPEX
(R$ billion)
10.1
2.2
Wireless
 CAPEX / 2003: c.12% of net revenues
7.9
(17% in 2002);
 Main investments in fixed line network
expansion already made;
2.8
2.5
2.2
2.0/2.3
2.0
1.7
0.9
40%
0.6
60%
Wireline
1998
1999
2000
2001
1.1
1.1
2002
2003
 Total CAPEX since 1998 of R$ 21.3 bn
(US$ 10.4 bn);
 Target: Stabilize CAPEX at ~15% of sales to
support growth in mobile subscribers and in
less regulated services.
2004E
Anatel Targets
Mobile License
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Merrill Lynch – GEM Investor Forum – June/04
26
Operating Cash Flow after Capex
(R$ million)
4,025
2,302
1,233
492
-5,906
1999
1999
2000
2000
2001
2001
2002
2002
2003
2003
Given our level of EBITDA generation and strict control over
CAPEX, our Free Cash Flow is expected to remain strong in
the coming years.
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Merrill Lynch – GEM Investor Forum – June/04
27
Net Debt Position and Repayment Schedule – Mar/04
Net Debt – R$ billion
Debt Repayment Schedule R$ billion
Total Debt = R$ 12. bn
3.3
Net Debt/EBITDA (x)
2.2
2.7
1.7
1.3
1.3
~ 1.0
9.1
2.1
2.0
8.4
7.8
7.7
1.2
6.7
0.7
2001
2002
2003
www.telemar.com.br/ir
1Q04
2004E
2004
2005
2006
2007
2008
2009+
16.7
22.5
27.5
10.0
5.8
17.5
% of
total
 Given our current strong cash generation,
we expect to reduce our net debt to around
1x EBITDA by year end 2004.
Merrill Lynch – GEM Investor Forum – June/04
28
Cash Position x Short Term Debt
(R$ million)
4,326
3,617
2,662
2,820
 Our cash position has largely exceeds our
short-term debt, giving Telemar a cushion
against unfavorable shifts in global
financial markets.
1,769
1,654
1,388
1,234
Dec_01
Dec_02
Short Term Debt
Dec_03
Mar_04
Cash & Equivalents
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Net Financial Expenses
Net Financial Expenses – R$ million
 Our foreign currency debt is 74% of our
total debt (mar/04);
 Given
that 96% of our foreign debt is
hedged, we swap our currency exposure to
Brazilian interest rates;
Average Interest Rate (SELIC)
 Reduction in Brazilian interest rates have
25.8%
helped us reduce our net financial
expenses;
26.4%
23.5%
18.4%
1Q03
2Q03
3Q03
www.telemar.com.br/ir
4Q03
 Our average cost of debt is 16% (mar/04).
16.5%
1Q04
Merrill Lynch – GEM Investor Forum – June/04
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Debt Amortization (Cash Expenses)
(R$ million)
2,932
1,021
3,094
1,038
1,525
1,072
538
1,911
2,056
987
2001
736
2002
Principal
www.telemar.com.br/ir
336
2003
1Q04
Interest
Merrill Lynch – GEM Investor Forum – June/04
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Dividend Payments - 1999/2003
(R$ million)
5.0%
1.7%
1.8%
2.4%
6.3% * Dividend yield
800
500
* Based on June/04, stock prices
**Includes interest on capital
224
251
1999
2000
Dividend**
303
2001
2002
2003
Our goal is to provide high cash returns to shareholders
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
32
Key Financial Ratios
Net Debt / EBITDA
(*) 12- Month EBITDA
CAPEX / EBITDA
Amortization*/ EBITDA
* Principal and interest
Dividends* / EBITDA
* Includes interest on capital
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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Key Financial Ratios
Enterprise Value / EBITDA
Market Cap / EBITDA
EBITDA / Net Financial Expenses
www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
34
“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
www.telemar.com.br/ir
Investor Relations
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: [email protected]
Visit our website:
http://www.telemar.com.br/ir
Merrill Lynch – GEM Investor Forum – June/04
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