TELE NORDESTE CELULAR PARTICIPAÇÕES S.A. ANNOUNCES FOURTH QUARTER AND YEAR-END 1999 RESULTS

Transcription

1 Contacts: Tele Nordeste Celular Thomson Financial Investor Relations Mario Gomes Peter Firestein Isabel Vieira Fabíola Almeida Octavio Muniz Homepage: TELE NORDESTE CELULAR PARTICIPAÇÕES S.A. ANNOUNCES FOURTH QUARTER AND YEAR-END 1999 RESULTS Recife, Brazil, March 24, Tele Nordeste Celular Participações S.A. (NYSE: TND BOVESPA: TNCP3;TNCP4) ( Tele Nordeste or The Company ), the holding company controlling the operating companies serving Band A cellular telecommunications customers in the states of Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas, under the brand name TIM, announced today its results for fiscal year 1999 in accordance with Brazilian GAAP. The translation to US dollars has been presented solely for the convenience of the reader. This conversion does not imply that Real (R$) amounts actually represent such US dollar amounts or may be converted to US dollars at the rate indicated or at any other rate. The US dollar amounts have been translated from Reais at the commercial selling rate published by the Central Bank of Brazil at December 30, 1999, which was R$1.80 to US$1.00. Operational Highlights The commercial activities in 1999 resulted in the net addition of 574,000 customers, representing a 93% increase on the December 31, 1998, customer base. The Company had 1.18 million customers at December 31, 1999, being 861,000 contract customers and 327,000 prepaid. The churn rate for the year was 15%, within our expectations. The market share at the end of 1999 was 69%. In spite of the competitor s strong marketing efforts, our marginal market share in the year was 61%. The prepaid system was launched in May 1999, marketed as Timmy Digital, and the acceptance was very positive. The digitalization of the network progressed as planned, reaching 55% at the end of the year. The old billing and management control systems were replaced, providing the Company with more flexible and cost effective systems that will allow the Company to centralize certain key controls and financial functions, to segment its customer base and to offer alternative tariff plans. 1

2 Financial Highlights Consolidated net loss for the fourth quarter of 1999 was R$3.1 million (US$1.7 million), compared to a net profit of R$35.7 million (US$19.8 million) in the same period of 1998; consolidated net income for 1999 totaled R$9.4 million (US$5.2 million), compared to the net income of R$104.0 million in 1998 (US$57.8 million), or R$0.60 (US$0.33) per ADR (1 ADR equals 20,000 preferred shares). Net income was negatively affected by the exchange rate variation effects on obligations in US dollars of certain subsidiaries, by the increase in commercial and marketing expenses to gain new clients and the reassessment of the useful life of certain equipment, which resulted in an increase in depreciation charges. Consolidated financial expenses totaled R$106.3 million (US$59.1 million) in 1999, compared to R$57.9 million (US$32.2 million) in Financial expenses for the first, second, third and fourth quarters of 1999 were R$13.9 million (US$7.7 million), R$12.2 million (US$6.8 million), R$24.6 million (US$13.7 million) and R$55.5 million (US$30.8 million), respectively. The currency devaluation effects incurred during the first quarter of 1999 have been fully charged to income for the year (R$24 million US$13.3 million in the fourth quarter). Consolidated net operating revenue in the fourth quarter of 1999 amounted to R$212.4 million (US$118.0 million) compared with R$123.1 million (US$68.4 million) in the fourth quarter of 1998; consolidated net operating revenue for 1999 totaled R$674.9 million (US$374.9 million) compared with R$469.7 million (US$260.9 million) in Net sales of digital handsets and accessories in 1999 totaled R$115.5 million (US$64.2 million), with a subsidy on the price of handsets in the amount of R$34.2 million (US$19.0 million). It is important to note that sales of handsets began in December of Excluding the sales of handsets, net operating revenue increased 20.4% in 1999 over Consolidated EBITDA and EBIT for the fourth quarter of 1999 totaled R$24.9 million (US$13.8 million) and R$25.5 million (US$14.2 million), respectively, representing 11.7% and 12.0% of net operating revenue. Consolidated EBITDA and EBIT for 1999 amounted to R$175.8 million (US$97.7 million) and R$88.8 million (US$ 49.3 million), respectively, representing 26.1% and 13.2% of net operating revenue for the same period. For the fourth quarter of 1998, consolidated EBITDA and EBIT totaled R$52.6 million (US$29.2 million) and R$39.5 million (US$21.9 million), respectively, representing 42.7% and 32.1% of net operating revenue. In 1998, consolidated EBITDA and EBIT amounted to R$235 million (US$130.6 million) and R$189 million (US$105.0 million), respectively, representing 49% and 39% of net operating revenue. Excluding the sales of handsets and subsidies, EBITDA for the fourth quarter of 1999 totaled R$42.8 million (US$23.8 million), with full-year EBITDA for 1999 reaching R$210.0 million (US$116.7 million), representing 26.7% and 37.5% of net operating revenue, respectively. With the change in depreciation rates for switching and transmission equipment as of January 1999, depreciation charges for 1999 increased R$25.3 million (US$14.1 million), reducing net income by R$15.9 million (US$8.8 million). Tele Nordeste s management is proposing the distribution of annual dividends equivalent to 25% of the adjusted net income, after deducting 5% of net income for the year (R$0.5 million US$0.3 million) for the legal reserve and adding R$24.4 million (US$13.5 million) from the realizable profits reserve. This represents dividends of R$8.4 million (US$4.7 million), or R$1.48 (US$0.82) per ADR, net of income tax, which will be paid as interest on equity, as per Brazilian legislation. The approval and payment date of the above mentioned dividend will be determined at Tele Nordeste s Annual Shareholders Meeting to be held in April

3 Selected Consolidated Financial Data (in R$ thousands) 4Q99 4Q Gross Operating Revenue - Usage charges 120,488 85, , ,475 - Monthly subscription fee 43,130 25, , ,176 - Activation fee 0 2, ,067 - Interconnection charges 46,145 33, , ,584 - Sale of handsets and accessories 65,413 6, ,508 6,600 - Other revenues 1,359 2,080 4,053 5,017 Subtotal 276, , , ,919 - Taxes (64,180) (32,237) (195,100) (121,255) Net Operating Revenue 212, , , ,664 Cost of Services and Goods Sold - Depreciation and amortization 1,774 (12,635) (84,381) (46,715) - Personnel (2,860) (910) (7,339) (2,846) - Material and services (3,482) (3,297) (8,792) (3,397) - Lease of circuits and related costs (26,664) (31,848) (113,501) (110,213) - Leasing and insurance (2,501) 8,517 (7,219) (7,863) - Handsets and accessories (69,829) (9,665) (149,621) (9,665) - Fistel and others (7,046) (2,620) (19,547) (9,970) Subtotal (110,608) (52,458) (390,400) (189,669) Gross Profit 101,747 70, , ,995 Net operating income for the fourth quarter of 1999 increased 72.5% in relation to the same period the prior year, due to an increase in the number of users and the sale of cellular handsets and accessories, which began in December 1998; net operating revenue for 1999 totaled R$674.9 million (US$374.9 million), compared to R$469.7 million (US$260.9 million) in The average number of users in the fourth quarter of 1999 increased 90% over the same quarter of 1998 (from 562,511 to 1,069,985). The average number of users in 1999 increased 67% when compared to 1998 (from 539,544 to 901,001). In 1999, gross profit amounted to R$284.5 million (US$158.1 million), with the subsidy in the sale of handsets, and R$318.6 million (US$177.0 million), excluding the subsidy, compared to the R$280.0 million (US$155.6 million), or an increase of 13.8% on Selected Consolidated Financial Data (in R$ thousands) Operating Expenses 4Q99 4Q Selling Expenses (52,161) (13,849) (125,759) (66,619) - General and Administrative Expenses (21,305) (10,658) (68,631) (32,431) - Other Operating Income (Expenses) (3,028) (6,366) 3,381 7,501 Subtotal (76,494) (30,873) (191,009) (91,549) Net Financial Expenses (excluding Interest on Capital) (41,628) 10,286 (81,127) (7,425) Total Operating Expenses, Net of Interest on Capital (118,122) (20,587) (272,136) (98,974) 3

4 Operating expenses and costs are broken down as follows: Cost of Services and Goods Sold Selling Expenses General and Administrative Expenses Total Cellular Handsets and Accessories (149,621) 0 0 (149,621) Material and Services (8,792) (68,199) (45,586) (122,577) Lease of Circuits and Related Expenses (113,501) 0 0 (113,501) Depreciation and Amortization (84,381) (1,001) (1,662) (87,044) Personnel (7,339) (10,398) (15,327) (33,064) Others (26,766) (46,161) (6,056) (78,983) Total (390,400) (125,759) (68,631) (304,998) Consolidated net operating expenses for the fourth quarter of 1999, excluding financial expenses, increased 147.8% in relation to the same period of the previous year - from R$30.9 million (US$17.2 million) to R$76.5 million (US$42.5 million) - mainly due to the increase in marketing activities, promotional campaigns during the end of the year, and the structuring of the successor companies of Telebrás that occurred after the privatization in July Net financial expenses increased substantially, mainly as a result of the currency devaluation effects on financing in foreign currency, which were transferred to certain subsidiaries during the spin-off process of Telebrás. The variation in the exchange rate between December 1998 and December 1999 was 48.9%. Consolidated bad debt expenses represented 3.7% of gross revenues for the fourth quarter of 1999 and 4.6% for the year, amounting to R$10.3 million (US$5.7 million) and R$40.2 million (US$22.3 million), respectively. Selected Consolidated Physical Data Radio Base Stations Switches Micro-cells Analog Channels 15,990 20,223 Digital Channels 20,819 7,106 Post-paid Customers (in thousands) Prepaid Customers (in thousands) Total Customers (in thousands) 1, Annual Growth 93% 32% Estimated Population in the Region (in millions) Regional Penetration (Tele Nordeste only) 4.6% 2.4% 4 th Quarter Churn Rate 4.3% 2.8% Annual Churn Rate 15.7% 12.5% Average revenue per customer, net of taxes (ARPU Average Revenue Per User) for the fourth quarter of 1999, was R$51.41 (US$28.56) per month, R$65.70 (US$36.50) per month during the fourth quarter of The annual ARPU for 1999 was R$56.62 (US$31.46), compared to R$70.41 (US$39.12) in These amounts refer to post-paid and prepaid customers. 4

5 Market Share Tele Nordeste s market share at the end of 1999 was approximately 69%. The penetration rate in the region at the end of 1999 was estimated at 6.6%. In the fourth quarter of 1999, the operating companies controlled by Tele Nordeste continued network digitalization and expansion (TDMA system); more than 72% of our customers are using digital terminals. As a whole, the operating companies expanded the customer base to 1,187,912 users (860,529 in the post-paid system, and 327,383 in the prepaid system), with the addition of 703,206 new customers and disconnection of 129,384 customers during the year. The majority of disconnections were due to delinquency. Tele Nordeste services 74% of the population and 28% of its service area, comprising 289 cities (for comparison, the competitor covers 76 cities in the region). Balance Sheet Total loans and financing by the subsidiaries at December 31, 1999 amounted to R$323.9 million (US$179.9 million), of which R$170.2 million (US$94.6 million) was in US dollars, with R$270.6 million (US$150.3 million) maturing in the short term. The exchange rate used for closing the accounts at December 31, 1999 was R$1.80 per US$1.00. The operating companies with debt in US dollars concluded financial operations between July and October 1999, which converted these obligations into Reais (R$). With these operations, the exposure of the subsidiaries to exchange rate fluctuations was substantially reduced. Management is negotiating long-term financing to replace the existing borrowings. The completion of the migration to a new billing system during the fourth quarter of 1999 resulted in some delays in mailing invoices to customers and in higher-than-normal accounts receivable at the end of the year. The invoice mailing activities have already been normalized. The R$24.8 million (US$13.8 million) provision for doubtful accounts at December 31, 1999, represented 12.8% of service accounts receivable on said date. At December 31, 1998, this rate amounted to 17.9%. Investments R$240 million (US$133.3 million) were invested in 1999, mainly in the expansion, modernization and digitalization of the network, with special emphasis on Project Praias, which covers the regions coast, and Project Rodovias, which provides coverage on the main highways in these states. Considerable investments were also made in purchasing and implementing new systems for prepaid services, billing, customer services and management (SAP R/3 system). All the systems were year 2000 compliant and the services did not suffer any kind of interference during the turn of the year Human Resources The human resources policies implemented at TELE NORDESTE CELULAR and its operating companies establish a long-term partnership between employees and the companies. The companies have made a considerable effort to maintain an excellent relationship with their employees and provide a pleasant work environment, which can be seen in the employee survey conducted recently. 5

6 A Salary Plan was implemented and collective labor agreements were signed, which reflect the employees and the Companies business objectives, standardizing benefits such as medical and life insurance plans, including dependents, as well as universalizing the procedures adopted by the 6 operating companies. A Professional Training and Qualification Center was created, where employees receive training regarding new technologies and customer service techniques. In 1999, more than 74,600 hours of training were provided, equivalent to 65 hours per employee. As of December 31, 1999, the Company s workforce was comprised of 1,283 employees, including full-time, part-time and trainees. *****Tables to Follow***** 6

7 Tele Nordeste Celular Participações S.A. Balance sheets December 31, 1999 and 1998 (In thousands of reais) Parent Company Consolidated Parent Company Consolidated Assets Liabilities Current assets Current liabilities Cash equivalents 283 7,868 7,768 69,267 Accounts payable to suppliers 1, ,886 57,010 Trade accounts receivable ,542 67,610 Financing and loans ,586 56,463 Inventories 25-28,284 12,292 Taxes payable 1, ,917 24,612 Telecommunications companies - 1,687 32,491 31,037 Salaries and vacation pay ,313 1,795 Taxes and contributions receivable 3, ,494 1,949 Subsidiaries 10, Deferred income and social contribution taxes ,088 5,020 Telecommunications companies 3 1,110 7,520 1,894 Dividends and interest on shareholders' equity Dividends and interest on shareholders' equity - Receivable according to Law 9,249/95 9,568 25, Law,9.249/95 10,340 24,944 16,751 32,592 Prepaid expenses - - 6,449 - Other liabilities 3,502-25,050 8,009 Other rights 2, ,317 8,637 26,775 26, , ,375 16,411 35, , ,812 Noncurrent assets Noncurrent liabilities Loan to subsidiaries 30,660 14, Financing and loans ,278 59,957 Tax incentives - - 2,679 1,652 Other liabilities ,660 14,354 2,679 1, ,368 60,028 Permanent assets Investments 329, , Minority interest ,650 98,679 Property, plant and equipment 4, , , , , , ,170 Shareholders' equity Capital stock 108, , , ,943 Profit reserves 178, , , ,846 Retained profits 66,226 42,763 66,226 42, , , , , , , , , , , , ,634 See the accompanying notes to the financial statements. 7

8 Tele Nordeste Celular Participações S.A. Statements of income Years ended December 31, 1999 and 1998 (In thousands of reais) Parent Company Consolidated Revenues Telecommunications services and sale of goods , ,919 Deductions ICMS (Tax on Distribution of Goods and Services) - - (164,277) (105,798) PIS (Profit Participation Program Tax) and COFINS (Social Security Financing Contribution) - - (30,823) (15,457) Net revenues , ,664 Cost of goods sold and services rendered - - (390,400) (189,669) Gross profit , ,995 Operating revenues (expenses) Selling expenses (1,579) - (125,759) (66,619) Administrative and general expenses (460) (2,949) (68,631) (32,431) Financial expenses (10,916) (24,507) (106,266) (57,934) Financial income 4,604 4,729 12,311 19,049 Equity in income of subsidiaries 9, , Other operating income - - 8,129 10,976 Other operating expenses (2,067) (42) (4,748) (3,475) Operating income (loss) (1,222) 80,160 (511) 149,561 Nonoperating income ,294 1,731 Nonoperating expenses - (2) (6,940) (2,088) Income before reversal of interest on shareholders' equity and income and social contribution taxes (1,222) 80,205 (5,157) 149,204 Income and social contribution taxes 761 (528) 4,375 (46,309) Reversal of interest on shareholders' equity 9,882 24,507 12,828 31,460 Net income before minority interest 9, ,184 12, ,355 Minority interest - - (2,625) (30,320) Net income for the year 9, ,184 9, ,035 Net income per lot of a thousand shares - R$ Number of shares at year end (thousands) 334,399, ,399,028 See the accompanying notes to the financial statements. 8

9 Tele Nordeste Celular Participações S.A. Statements of changes in shareholders' equity Years ended December 31, 1999 and 1999 (In thousands of reais) Profit reserves Statutory Legal Realizable Retained Capital reserve reserve profits profits Total reserve Capital increase due to the transfer of the net assets of the Band A Cellular Mobile Telephone Service from Telecomunicações Brasileiras S.A. (TELEBRÁS) as of February 28, ,943-6, ,315 59, ,988 Net income for the year , ,184 Distributions: Legal reserve - - 5,251 - (5,251) - Statutory reserve - 87, (87,154) - Dividends (4,113) (4,113) Interest on shareholders equity - Law 9,249/ (24,507) (24,507) Balances at December 31, ,943 87,154 11, ,315 42, ,552 Realization of realizable profit reserve (24,395) 24,395 - Net income for the year ,421 9,421 Distributions: Legal reserve (471) - Interest on shareholders equity - Law 9,249/ (9,882) (9,882) Balances at December 31, ,943 87,154 11,848 79,920 66, ,091 See the accompanying notes to the financial statements. 9

10 Tele Nordeste Celular Participações S.A. Statements of changes in financial position Years ended December 31, 1998 (In thousands of reais) Parent Company Consolidated Sources of funds Operations Net income for the year 9, ,184 9, ,035 Items not affecting working capital Depreciation ,046 46,241 Residual cost on disposal of fixed assets 276-6,471 1,672 Equity in net income of subsidiaries (9,196) (102,929) - - Price-level restatement increments to noncurrent liabilities ,567 3,545 Price-level restatement increments to noncurrent assets (1,175) Other liabilities Capitalizable funds - (47) - (47) Minority interest - - 2,625 30,320 (275) 1, , ,837 From third parties Loans and financing ,693 Dividends 1,066 4, Interest on shareholders' equity - Law 9,249/95 9,924 24, Transfer from noncurrent assets to current assets 15, Tax incentives ,519 28,787-40,891 26,244 29, , ,728 Applications of funds Investments Property, plant and equipment 4, , ,394 Noncurrent assets 30,660 14,260 1,027 1,652 Dividends - 4, ,872 Interest on shareholders' equity - Law 9,249/95 9,882 24,507 12,828 31,460 Transfer of noncurrent liabilities to current liabilities ,245 64,708 45,393 43, , ,086 Decrease in net working capital (19,149) (13,324) (155,027) (44,358) Changes in working capital Current assets (18,906) 13, ,621 95,987 Current liabilities , , ,345 Decrease in net working capital (19,149) (13,324) (155,027) (44,358) See the accompanying notes to the financial statements. 10