May, 2003
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Overview – March/2003
• Integrated Telecom Service Provider-15.0 million wirelines in service - 1.7 million wireless clients
• Concession Area (Region I) - Local Service and SMP– 65% of Brazilian territory/94 million people– 40% of country’s GDP– Over 21 million households
• Leadership in local services in Region I (98% market share)
• National and international long distance services
• Regional mobile services (GSM)
• National Data, Corporate & Value Added Services
• TNLP4: most liquid stock in Brazilian market• TNE: among the most liquid L.A. ADR at the NYSE /2002
• Free Float: 80% of total shares
• Level 2 ADR (NYSE: TNE): 30% of total shares
• Market value: US$ 4.2 billion (Apr/03)
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* Controlling Shareholder (53% of voting shares)
TNE – Shareholders´Structure
TelemarParticipações S.A.*
Free float
Tele Norte Leste Participações S.A. (TNE)
Free float = 18.9%
Treasury stock = 1.6%
100.0%
Treasury
79.5%
Norte Leste (TMAR)
100.0% 100.0%
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TNE – Capital Structure
*53% of TNE common shares
Capital
R$ 4,644 million
Tele Norte Leste Participações S.A.
(TNE)
Telemar Participações S.A.
Free float
17.9% 79.9%
BNDESPar
Fiago
AG Telecom
ASSECA Participações
L.F. Tel
BrasilCap
Brasil Veículos
Lexpart Part.
130,186 Mn
390,557 Mn
260,371 Mn
Common
Preferred
Total
Shares
1/3
2/3
Total outstanding shares (ex-treasury)
381,8 Mn
Treasury Stock
2.2%
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Managing Structure
Audit
Committee
Fiscal Committee
Board of
Directors
Executive Committee
Controlling
Procurement
Treasury
CFOStrategy and
Regulation
Legal Counsel Financial PlanningAsset Management
Public Relations
Internal Audit
TMAR
Investor Relations
Billing CycleHuman Resource
OiCEOTMAR CEO
TNE
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Wireline Network – Lines Installed & in Service(million lines)
Lines in service (LIS)
Lines installed (LI)
July 1998* 1998 1999 2000 2001 2002 1Q03
*Company´s acquisition.
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Wireline Network – Broadband Accesses(in thousands)
Mar/02 Jun/02 Sep/02 Dec/02 Mar/03
15%
85%
19%
81%
23%
77%
53%58%
47%42%
90 92 93
120125
Velox (ADSL)
DVI (ISDN)
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Wireline Network – Long Distance Backbone
Natal
Recife
Maceió
RR
AMPA
MA
AC
RO
MT
MS
RS
PR
SP
MGGO
TO
BA
PI
CE
PBPE
Porto Alegre
Florianópolis
Curitiba
Goiânia
Brasília
SE
São Luís
Rio de Janeiro
Vitória
Salvador
Aracajú
Terezina
Fortaleza
Paracatu
Patrocínio
ES
Belém
RN
AL
Uberlândia
SC
Belo Horizonte
São Paulo
Campinas RJ
AP
Montes Claros
• Cover over 80% of Brazilian Industrial GDP
• Interstate transport network
• 18,000 km fiber optical cable
• 20 integrated metropolitan rings in 18 states
• 350 remote satellite stations
• 8 Hub satellites
• DWDM, SDH and IP
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Nov/02 Dec/02
Prepaid
Post-paid
Wireless Platform - Oi’s subscriber base(in thousands)
Mar/03
80%
20%
78%
22%
78%
22%
80%
20%
79%
21%
78%
22%
502
978
1,4011,504
1,624
78%
22%
1,722
677
Oct/02Sep/02 Jan/03 Feb/03
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Financial Results 1Q03 – Net Revenues(R$ Mn)
Oi
244
291
4Q02 1Q03
TMAR
2,980 3,041
4Q02 1Q03
TNL
2,785
3,2183,226
4Q02 1Q03 1Q02
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Gross Revenue - R$ Mn 1Q03 % 4Q02 % 1Q02 %
QoQ YoY
Wireline 4,234 100% 4,034 100% 3,759 100% 5% 13%
Local (ex - VC1) 1,881 44% 1,863 46% 1,644 44% 1% 14%
Local Fixed-to-Mobile (VC1) 711 17% 665 16% 702 19% 7% 1%
Long Distance (ex - VC2/3) 514 12% 470 12% 342 9% 9% 50%
LD Fixed-to-Mobile (VC2/3) 152 4% 125 3% 121 3% 22% 26%
Network Usage 330 8% 347 9% 426 11% -5% -22%
Data 271 6% 221 5% 230 6% 23% 18%
Public Phones 196 5% 182 5% 148 4% 8% 32%
Other 180 4% 161 4% 147 4% 12% 22%
Wireless 219 100% 318 100% - - -31% - Services 137 63% 76 24% - - 81% -
Subscription 32 15% 17 5% - - 91% - Outgoing Calls 52 24% 27 8% - - 93% - Domestic/Inter. Roaming 12 6% 7 2% - - 73% - Network Usage 35 16% 21 7% - - 68% - Other SMP Services 6 3% 4 1% - - 44% - Handset Sales 82 37% 242 76% - - -66% -
Total Gross Revenue 4,453 100% 4,352 100% 3,759 100% 2% 18%
Wireline 4,234 95% 4,034 93% 3,759 100% 5% 13%
Wireless 219 5% 318 7% - 0% -31% 0%
Consolidated Net Revenue 3,218 3,226 2,785 16%
% Change
Financial Results 1Q03 – Gross Revenue Breakdown
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25
- 4
46
-3
0
64Total
Installation
Other
Fixed to Mobile
Pulses
Montly Subscription
Consolidated Revenues – Local Services
Decrease in average lines in service and traffic
Fixed to mobile tariff adjustment in February
1
246
-19
9
96
160
Total
Installation
Other
Fixed to Mobile
Pulses
Montly Subscription
1Q03/1Q02
1Q03/4Q02
Tariff increase in June/02 and traffic growth (5% yoy)
Decrease in fixed to mobile traffic (campaigns incentivating fixed-fixed calls)
Drivers
+ R$ 67 Mn
(+2.5%)
+ R$ 246 Mn
(+10.5%)
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Consolidated Revenues – Long Distance Services
Intra-RegionaI: increase in average revenue per minute (lower promotions/ discounts)
Inter-regional & International: Increase in traffic and market share
Fixed-Mobile: Traffic increase (CSP 31) and tariff adjustment in February
27
71
12
11
10
11
Total
Fixed to Mobile (VC2/3)
International
Inter-Regional
Inter-State
Intra-State
1Q03/1Q02
1Q03/4Q02
32
204
24
53
40
56
Total
Fixed to Mobile (VC2/3)
International
Inter-Regional
Inter-State
Intra-State
Market share gains in all segments (new services contributed with R$ 77 million) and tariff increases
Drivers
+ R$ 71 Mn
(+11.9%)
+ R$ 204 Mn
(+44.1%)
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14
24
- 4
8
50
8
Total
Other
Packet/Frame Relay
EILD
SLDD/SLDA
IP
Consolidated Revenues – Data Services
1Q03/1Q02
1Q03/4Q02
20
12
-12
7
41
14
Total
Other
Packet/Frame Relay
EILD
SLDD/SLDA
IP
The Brazilian Data Market is growing by 10% a year. Telemar´s revenue increased by 17.5% yoy and 22.4% qoq, mainly due to market share gains (also helped by Pegasus´ acquisition).
Pricing pressure on leased lines (mainly to other providers - EILD)
Drivers
+ R$ 50 Mn
(+22.7%)
+ R$ 41 Mn
(+17.8%)
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Growth in services (+89%) partly compensating the decrease in handsets sales (-66%)
Consolidated Revenues – Wireless Services
1Q03/4Q02
7
100
15
14
25
-161
Total
Other
Subscription
Netw ork Usage
Outgoing Calls
Handset SalesDrivers
- R$ 100 Mn
(-31.2%)
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Oi´s Operating & Financial Performance – 1Q03
21%34%
74%
79%66%
26%
3Q02 4Q02 1Q03
Handsets
Services
Gross Revenue (R$ Mn) Net Additions (in Thousands)
366
Market Share/Net Additions 1Q03 *
Band A+B
44%Oi56%
Wireless Market-Share Region I (Mar03)
* Region I (Band B net adds estimated)
314184
10.6%
88.4% Band A+B
900 321500
Oi
31%20%20%
69%80%80%
3Q02 4Q02 1Q03
Pre Paid
Post Paid
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Costs & Operating Expenses* - 1Q03(R$ Mn)
*Ex depreciation and amortization
1Q02 4Q02
1,351
1,966
1,743
1Q03
1Q03
4Q02
29%
18%
40%13%
Cost of services
Interconnection
Selling
G&A / Other
39%
18% 35%
8%
Cost of services
Interconnection
Selling
G&A and Other
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(R$ Mn)Costs & Operating Expenses – Main Changes - 1Q03/4Q02
Analysis
Costs and Operating Expenses - R$ Mn 1Q03 4Q02 R$ %
Interconnection 654 587 67 11.4%Average increase in mobile interconnection rates in February/03 (22%)
Personnel 204 229 (25) -10.9% A 6.8% reduction in average headcount at TMAR/TNL and higher severance costs in 4Q02
Third Party Services 475 544 (69) -12.7%Decrease in maintenance expenses/dealer commissions (Oi)/consulting expenses (Corporate + Legal +IT)
Materials 126 290 (164) -56.6% Decrease in handset sales
Rent / Insurance 145 170 (25) -14.7% Decrease in rental expenses at TMAR
Marketing 16 63 (47) -74.6% Lower marketing campaigns in 1Q03 (Oi and 31Global)
Provision for Doubtful Accounts 141 122 19 15.6% Subscription frauds at Oi
Other Op. Expenses (Income) (18) (39) 21 -53.8% Non recurring revenues in 4Q02
Total 1,743 1,966 (223) -11.3%
* TNE Consolidated - accounts for elimination of intercompany transactions.
ChangeTNE*
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Personnel – 1Q03(full–time employees)
1998 1999 2000 2002 Mar/03
24,206 24,511
21,090
28,73629,987
Contax
TMAR+Oi
2001
27,471
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Bad Debt Provisions – 1Q03(% of gross revenue)
1Q02 2Q02 3Q02 4Q02 1Q03
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Consolidated EBITDA – 1Q03(R$ Mn)
2,7803,083 3,226 3,218
2,785
1,2601,4761,434 1,311 1,285
45.9%
39.1%41.7%
47.2%
51.5%
1Q02 2Q02 3Q02 4Q02 1Q03
Net Revenue Ebitda Ebitda Margin
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Financial Results – 1Q03(R$ Mn)
* Net of currency swap results.
Increase in interest rates (CDI) and in total debt during 1Q03
1Q03 4Q02
Financial Revenue 123 75
Financial Expenses (575) (484)
Interest on Loans/ Debentures (265) (248)
Monetary & Exchange Variations* (149) 23
Banking Fees & Contingencies (108) (115)
Premium Amortization, PIS & Cofins (34) (127)
Other (19) (17)
Net Financial Result (452) (409)
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Consolidated Income Statement – 1Q03(R$ Mn)
Reversal of Income Tax/ Interest on Capital Statement
1Q03 4Q02
Net Operating Revenue 3,218.3 3,226.1
Operating Expenses 1,088.9 1,379.2
Interconection Costs 653.7 586.8
EBITDA 1,475.7 1,260.0
Depreciation and Amortization 985.1 980.7
EBIT 531.6 260.0
Financial Result 452.1 409.1
Income Before Taxes 60.9 (114.2)
Income Tax and Social Contribution 113.5 (207.8)
Employee Profit Sharing 11.2 98.2
Minoritary Interest 48.4 96.1
Net Income (112.3) (100.7)
EPADR (R$) (0.30) (0.27)
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Consolidated CAPEX – 1Q03(R$ Mn)
88
453
255
135244
97
243255196 251
5.8%
21.6%
16.5%
13.9%15.8%
1Q02 2Q02 3Q02 4Q02 1Q03
Wireline/Contax Wireless Capex/ Net Revenue
440386
509
697
185
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Debt Position (Mar/03)(R$ Mn)
Mar-03 Dec-02 Mar-02Total Debt 11,616 10,774 9,361
Short Term 2,053 1,769 1,424 Long Term 9,563 9,006 7,937
(-) Cash (1,479) (1,513) (1,044) (-) Long Term Financial Investments (132) (141) - (=) Net Debt 10,005 9,121 8,317
(+) Suppliers 1,188 1,635 1,648 (+) Other Accounts Payable 271 381 165 (=)Total 11,464 11,136 10,131
Gráfico 17 - Custo da Dívida no 3T01
1
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Debt Profile – Currency & Cost (Mar/03) – After swap effect
81%
16%
3%
CDI
TJLP
Floating Rate (FC)Libor +5%
Currency3%
97%
Local
US$
Interest Rates
Currency Cost
US$ Libor + 5%
Basket 12.3%
Real 25.0%*
Cost of Debt
* Based on CDI at 26.5% p.a.
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Debt Profile – Repayment Schedule (Mar/03)
Total Debt:
11,616
323
955
2,306 2,407
3,196
1,041
495
893
2Q2003 2S2003 2004 2005 2006 2007 2008 2009onw ards
(R$ Mn)
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Growth Focus
Wireline Services
Wireless Services
Data & Corporate
Long Distance
Integrated Strategy
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Local Service
Data & Corporate
Long Distance
• Maintain leadership in home market
• Advanced voice services
(corporate/middle market)
• Value added services
• Increase ARPU
• Reduce interconnection costs
•Lower Platform Growth (in line with GDP)
•Increase in Value Added Services
Wireless Services
Growth Focus - Local Wireline Services
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Local Service
Wireless Services
Data & Corporate
Long Distance
• Increase penetration in SME (home
market)
• ADSL (high end residential/SOHO/small
businesses)
• Nationwide services (corporate level)
• Leverage on national backbone
(Telemar + Pegasus)
• Competitive Service Level Agreements
•Growth above the market
Growth Focus - Data & Corporate Services
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Local Service
Data & Corporate
Long Distance
• Leadership in home market
• Protect existing market
– Retail: loyalty/retention programs
+ promotions
– Corporate: best quality (call
completion/billing) + competitive
service plans (discounts/volume)
• Conquer new markets
(inter-regional/international/SMP
• Leverage on relationship & brand
• Leverage on efficiency (lower cost
service provider)
• Best quality service provider
•Offer of New Services (Increase Market Share)
•Growth above the market
Wireless Services
Growth Focus - Long Distance Services
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GROWTH FOCUS - Wireless Services
Local Service
Data & Corporate
Long Distance
• Market segmentation /Innovative Plans (MTV & Celebrities/Oi Family)
• Stimulate data / SMS growth• Increase Focus on Corporate Market• Leverage on competitive advantages
– Synergies with wireline company– Regional coverage– GSM technology (speed & features)
• Low handset subsidies/aggressive service plans
• Increase national & international roaming
•High Growth + Synergies with Wireline
Wireless Services
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Outlook 2003
• Platform Growth: Wireline: stable
Wireless: 1.3 million net adds
• Revenue Drivers: (1) DLD, Data and Mobile growth
(2) Local tariff increase (June)
• Cost: strict control
• Net Debt: flat to small reduction YE03/YE02
• Bad Debt : ~3.8% of gross revenues
• EBITDA TNE: ~ 42% - 45%
• CAPEX: R$ 1.8 b (55% TMAR/40% Oi/ 5% Contax)
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“Safe Harbor” Statement
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: [email protected]
Visit our website: http://www.telemar.com.br/ri
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