Corporate Presentation

Corporate Presentation

Corporate Presentation

www.telemar.com.br/ir June, 2004

2June 2004June 2004 www.telemar.com.br/ir

Telemar Presentation - Contents

3. Review of Operating Results 12

2. Growth Strategy 3

1. Highlights – 2003/2004 1

4. Financial Overview 20


Goal: Building a fully integrated telecom service provider

Change, adaptation and consolidation Market share gains in all lines of

businesses Selective growth (New Services) Consolidation of investments

Growth in highly competitive markets: Long Distance (Nationwide and

International) Data & Corporate (Nationwide) PCS Mobile Services (Region I)

Exploring new opportunities: Broadband Bundling Services New Products (residential/SME) Wi-Fi hotspots

Target: Ensure a sound financial position, with increasing returns to shareholders

Goal: Building a fully integrated telecom service provider

Change, adaptation and consolidation Market share gains in all lines of

businesses Selective growth (New Services) Consolidation of investments

Growth in highly competitive markets: Long Distance (Nationwide and

International) Data & Corporate (Nationwide) PCS Mobile Services (Region I)

Exploring new opportunities: Broadband Bundling Services New Products (residential/SME) Wi-Fi hotspots

Target: Ensure a sound financial position, with increasing returns to shareholders

Highlights – Telemar 2003/2004

Region I

= Concession areafor Wireline services

= Mobile license for Wireless services

Nationwide

= Authorization areafor Long-Distance and Data services




1. Highlights – 2003/2004 1



Ability to anticipate wireless migration and continue exceptional growth performance

Capacity to maintain / increase market share in a changing telecom landscape

Target: Continue delivering customer growth

Ability to anticipate wireless migration and continue exceptional growth performance

Capacity to maintain / increase market share in a changing telecom landscape

Target: Continue delivering customer growth

millions customers

*Company’s acquisition

Expansion of Customer Base

CAGR (98-03) 19.5%

Wireline Wireless

19.0

16.4

~21.619.5


Investments for expansion of fixed line network essentially completed

Fully operational digital platform

Mix consists of 78% residential, 18% business, and 4% public phones

Wireline penetration is only ~50% of households in Region I

Obstacle: Gain in wireline penetration subject to GDP growth and regulatory changes

Investments for expansion of fixed line network essentially completed

Fully operational digital platform

Mix consists of 78% residential, 18% business, and 4% public phones

Wireline penetration is only ~50% of households in Region I

Obstacle: Gain in wireline penetration subject to GDP growth and regulatory changes

million lines

Fixed Lines in Service

growth maintenance


Wireline / ADSL Market in Brazil

Other

17%

Velox

83%

Velox

18%

Other

18%

Speedy

40%

Turbo

24%

Market Share (Brazil v. Region I) – Dec/03

Market Share (Brazil v. Region I) – Dec/03

PC Penetration (% of households) – Dec/03

PC Penetration (% of households) – Dec/03

*

*Source: Pyramid Research

2003

Velox is already present in 110 cities, more than ten times the availability of broadband alternatives

Broadband penetration is expected to grow to 30% of nationwide internet access in the next five years

Effort to build sales channels to penetrate SME clients together with other bundled services (LD, wireless)

Challenge: Capture and retain premium clients increasing overall ARPU

Velox is already present in 110 cities, more than ten times the availability of broadband alternatives

Broadband penetration is expected to grow to 30% of nationwide internet access in the next five years

Effort to build sales channels to penetrate SME clients together with other bundled services (LD, wireless)

Challenge: Capture and retain premium clients increasing overall ARPU

Brazil Region I

Average


Highest ADSL growth in Brazil (+176k lines >37% of 2003 nationwide net adds)

ADSL represents 82% of broadband access in Brazil

Velox revenues increased by 288% in 2003 with significant room to grow in coming periods

Subscribers reached 217K in Dec/03 (18% of total broadband access in Brazil), and 284k in Mar/04

Target: Increase ADSL penetration in Region I from 1.9% of LIS to 5% in 2-3 years

Highest ADSL growth in Brazil (+176k lines >37% of 2003 nationwide net adds)

ADSL represents 82% of broadband access in Brazil

Velox revenues increased by 288% in 2003 with significant room to grow in coming periods

Subscribers reached 217K in Dec/03 (18% of total broadband access in Brazil), and 284k in Mar/04

Target: Increase ADSL penetration in Region I from 1.9% of LIS to 5% in 2-3 years

ADSL Growth

416

217

Thousand lines

Gross Revenue

(R$ million)

33

128

450

284

69


Wireless Market in Brazil

^Includes other operators: Nextel, CTBC, SERCOMTEL, Telemig and Tele Norte Celular

Market Share (Brazil v. Region I) – Mar/04

Market Share (Brazil v. Region I) – Mar/04

Wireless Penetration (%) – Apr/04Wireless Penetration (%) – Apr/04

*

*Source: Pyramid Research

Even with increased competition, Oi is still the highest growth player in its home market (50% net adds)

Oi reached ~20% market share in Mar/04

Wireless penetration in Region I (23%) still offers significant growth potential

Challenge: Grow subs by 54% in 2004, with positive EBITDA margins, aiming to #2 position in Region I

Even with increased competition, Oi is still the highest growth player in its home market (50% net adds)

Oi reached ~20% market share in Mar/04

Wireless penetration in Region I (23%) still offers significant growth potential

Challenge: Grow subs by 54% in 2004, with positive EBITDA margins, aiming to #2 position in Region I

Average

Brazil Region I

Vivo

44%

TIM

19%

Other*

8%

Claro

20%

Oi

9%


Most successful GSM launch globally

4 million subs in 18 months

Almost 50% share of all net adds in Region I since launching

Oi´s market share (Mar/04)

Region I: 20%

Brazil: 9%

Most successful GSM launch globally

4 million subs in 18 months

Almost 50% share of all net adds in Region I since launching

Oi´s market share (Mar/04)

Region I: 20%

Brazil: 9%

Wireless Platform

Pre paid Post paid

1,4012,236

3,893

80%20% 80%

20%

83%

17%

35

~6,500

Thousand subscribers

Gross Revenue

(R$ million)

4,408

85%

15%


Short Message Service - SMS

Thousand messages

Gross Revenue

(R$ million)

SMS annual revenues achieved a run-rate of R$ 60 million in the last two quarters

Oi has a team focused on data services, particularly for the corporate market

Oi also launched Wi-Fi hotspots in early 2004

Target: Increase data ARPU and maintain growth of customer base

SMS annual revenues achieved a run-rate of R$ 60 million in the last two quarters

Oi has a team focused on data services, particularly for the corporate market

Oi also launched Wi-Fi hotspots in early 2004

Target: Increase data ARPU and maintain growth of customer base


Focus on profitability: EBITDA positive since inception

62% CAGR in attendant positions, in line with increase in customer base and net revenues (70% CAGR)- Contax currently has 27 customers, including major banks, utilities, insurance, media, telecom, retail

Target: Consolidate #1 position as call center operator in Brazil

Focus on profitability: EBITDA positive since inception

62% CAGR in attendant positions, in line with increase in customer base and net revenues (70% CAGR)- Contax currently has 27 customers, including major banks, utilities, insurance, media, telecom, retail

Target: Consolidate #1 position as call center operator in Brazil

Call Center Services

Attendant Positions

7,3374,947

12,907

Net Revenues

(R$ million)

223

421

146

>15,000

12,543

125




1. Highlights – 2003/2004 1



Mobile

7%

6%

7%

9%

17%

13%

41%

Consolidated Gross Revenue Breakdown – Mar/2004

The Company’s four main lines of business provide a healthy balance between stable cash flow and growth opportunities

Local60%

Inter-Connection

Data

Long Distance(includes VC2/3)

Fixed to Mobile (VC1)

Wireline

Moderate Growth

Long Distance

High Growth

Wireless

High Growth

Data & Corporate

High Growth

Others(*)

(*) – Includes advanced voice, public telephones, additional services and Contact Center.


Telemar keeps on regional leadership in LD services in spite of inter-regional & international calls began only in July 2002

Growth in Long Distance Services

1,5682,066

2,963

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

LD as a % of Total Revenues (includes F2M)

LD as a % of Total Revenues (includes F2M)

6,873

8,183

9,510

CAGR

(01-03)

17.6%

CAGR (01-03)

37.5%885


We won key corporate and governmental contracts during 2003

Our Data revenues increased by 31% in 2003 and 15% in 2002

Challenge: Obtain at least 50% (43% in 2003*) of all data revenues in Region I and have a nationwide market share of 30% (16% in 2003*)

We won key corporate and governmental contracts during 2003

Our Data revenues increased by 31% in 2003 and 15% in 2002

Challenge: Obtain at least 50% (43% in 2003*) of all data revenues in Region I and have a nationwide market share of 30% (16% in 2003*)

Focus on Data / Corporate Services

Major Clients won in 2003Major Clients won in 2003

Data Revenues (gross) - R$ millionData Revenues (gross) - R$ million

* Telemar´s estimate

CAGR

(01-03)

22.7%


Revenue from wireless business increased by 180% in 2003

Key driver was services revenue with 700% growth, resulting mainly from subscriptions, outgoing calls & SMS

EBITDA breakeven reached after 18 months of operations

Target: Continue to deliver significant revenue growth of 50% in 2004 while maintaining positive EBITDA margins

Revenue from wireless business increased by 180% in 2003

Key driver was services revenue with 700% growth, resulting mainly from subscriptions, outgoing calls & SMS

EBITDA breakeven reached after 18 months of operations

Target: Continue to deliver significant revenue growth of 50% in 2004 while maintaining positive EBITDA margins

Gross Revenue from Wireless Services

Services

Handsets

479 372

4Q03 1Q04

R$ million


Delivering consistent revenue and EBITDA growth in spite of huge wireline expansion & wireless startup

Recurring margins stable over time, in the mid-40’s EBITDA for 2001 impacted by extraordinary provisions

Target: Maintain 2004 consolidated EBITDA margin in mid-40s even with projected growth of wireless revenues

Delivering consistent revenue and EBITDA growth in spite of huge wireline expansion & wireless startup

Recurring margins stable over time, in the mid-40’s EBITDA for 2001 impacted by extraordinary provisions

Target: Maintain 2004 consolidated EBITDA margin in mid-40s even with projected growth of wireless revenues

R$ million

Consolidated Net Revenues and EBITDA

Net Revenues EBITDA EBITDA Margin


Consolidated Net Income

1999 2000 2001 2002 20031998

1Q04

R$ million

1Q03


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

CAPEX 1Q04: R$ 197 million (5.4% of net revenues)

Consolidated CAPEX since 1998: US$10.4 billion

Target: Stabilize CAPEX at ~15% of net revenues to support growth in wireless and less regulated services

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

CAPEX 1Q04: R$ 197 million (5.4% of net revenues)

Consolidated CAPEX since 1998: US$10.4 billion

Target: Stabilize CAPEX at ~15% of net revenues to support growth in wireless and less regulated services

10.1

2.01.7

Wireline

Consolidated CAPEX

Wireless

R$ billion

Anatel TargetsMobile License

2.0/2.3

1.1

0.9

1.1

2.8

2.22.5

0.6

60%

40%

2.2

7.9

0.2




1. Highlights – 2003/2004 1



Operating Cash Flow after CAPEX

R$ million

1999 2000 2001 2002 2003

Having met wireline universalization targets and rolled-out Oi,our cash generation is expected to remain strong

CAGR (99-03)69,1%

1Q041Q03


Dividend Payments - 1999/2003

1999 2000 2001 2002 2003

Dividend yield

Dividend *

US$ million

Our goal is to provide high cash returns to shareholders

* includes JCP (interest on capital)


Net Debt Position and Repayment Schedule

R$ million

% of total

4.6 11.3 22.5 27.9 10.5 5.6

Net Debt – Mar/04 Net Debt – Mar/04 Gross Debt Repayment Schedule –

Mar/04

Gross Debt Repayment Schedule – Mar/04

Given our strong cash generation, we should reduce net debt to around 1x EBITDA by year end 2004

17.6

R$ 8,388 million R$ 12,005 million


Key Financial Ratios

Net Debt / EBITDANet Debt / EBITDA Amortization*/ EBITDA (%)Amortization*/ EBITDA (%)

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

* includes JCP (interest on capital)

(*) – 12 Months EBITDA* Principal and interest


Key Financial Ratios

Enterprise Value / EBITDAEnterprise Value / EBITDA Market Cap / EBITDAMarket Cap / EBITDA

EBITDA / Net Interest ExpenseEBITDA / Net Interest ExpenseEBITDA / Total Debt ServiceEBITDA / Total Debt Service


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

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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