TELE CELULAR SUL PARTICIPAÇÕES S. A. Contatos TELE CELULAR SUL PARTICIPAÇÕES S.A. Ruggero Caterini Diretor de Finanças e de Relações com Investidores Joana Dark Fonseca Serafim Relações com Investidores (41) 312-6862 jserafim@telecelularsul.com.br Rafael J. Caron Bosio Relações com Investidores (41) 312-6623 rbosio@telecelularsul.com.br Website http:/www.timsul.com.br TELE CELULAR SUL PARTICIPAÇÕES S.A. ANNOUNCES RESULTS FOR THE SECOND QUARTER 1999. Curitiba, August 12, 1999 Tele Celular Sul Participações S.A. (BOVESPA: TCLS3 and TCLS6; NYSE: TSU), the holding Company of Telepar Celular S.A., Telesc Celular S.A. and CTMR Celular S.A., leading providers of cellular telecommunications services in Southern Brazil, announced today its results for the Second Quarter and First Half 1999. Second Quarter 1999 Highlights: 48% growth in the subscriber base compared to the second Quarter of 1998. Launching of the prepaid card service, Pronto. Digitalization of 67% of the radio base stations and 49% of the municipalities served. The substitution of technology in 73 radio base stations related to the digitalization process. The launch of the implementation of the new Billing and Collection (BSCS) and Business Management (SAP-R/3) systems. Payment of dividends and interest on capital. Creation of Executive Offices: Director of Finance and Investor Relations, Director of Technology, Director of Business, Director of Operations, and Director of General Management.
Analysis of the Consolidated Results Operating Revenues In the Second Quarter of 1999, Gross Operating Revenue reached R$ 205.5 million, representing a 30% increase compared to the R$ 157.6 million reported for the Second Quarter of 1998. During that period, the number of subscribers grew by 48%, thereby offsetting the impact of the decrease in service fees (effective in late 1998) on Revenue. Gross Sales of Cellular Telephones began in January 1999 and amounted to R$ 36.2 million, representing 18% of the Gross Operating Revenue. Total Net Operating Revenue for the Second Quarter was R$158.5 million, including Net Revenue from the Sale of Cellular Telephones amounting to R$ 31.4 million. The table below provides a breakdown of Operating Revenue for the Second Quarter and First Half of 1999, compared to the same periods of 1998: In R$ Thousands 1Q99 2Q99 2 Q98 1H99 1H98 Gross Operating Revenue 182,724 205,538 157,621 388,262 325,342 Sales of cellular telephones 19,306 36,217 0 55,523 0 Usage charges 88,267 86,646 70,397 174,913 159,884 Monthly subscription fee 36,380 42,743 41,458 79,123 80,906 Rental 8,100 5,017 11,235 13,117 22,347 Interconnection charge 28,176 31,444 25,677 59,620 47,095 Activation 1,931 873 6,903 2,804 12,068 Additional services 717 735 1,841 1,452 3,337 Others (153) 1,863 110 1,710 (295) Taxes and Other Deductions (37,202) (46,966) (32,576) (84,168) (69,564) Net Operating Income 145,522 158,572 125,045 304,094 255,778 Net Operating Income from 128,909 127,133 125,045 256,042 255,778 Services Net Operating Income from Sales 16,613 31,439-48,052 - Costs and Expenses Costs of Services Rendered for the Second Quarter of 1999, excluding the sale of telephones, was R$ 54 million, representing a 23% increase in relation to the same period of the previous year. This increase was primarily due to the adoption of different depreciation rates which resulted in a depreciation expense of R$ 6 million for the Second Quarter of 1999 and R$ 13 million for the First Half of 1999. The Cost of Equipment Sales for the Second Quarter of 1999 reached R$ 34 million compared to R$ 22 million reported for the First Quarter of 1999. 2
Selling Expenses reached R$22 million, while in the Second Quarter of 1998, Selling Expenses amounted to R$ 7 million. This increase was due to higher customer acquisition costs resulting from operating in a more competitive environment. The Provision for Doubtful Accounts, allocated to Selling Expenses, was R$ 9 million for the Second Quarter of 1999, representing an increase of 50% in relation to the same period of the previous year. However, compared to the First Quarter of 1999, this figure decreased by 10%, due to the Company s prepaid card service. The table below shows the Operating Costs and Expenses for the Second Quarter and First Half periods of 1999, compared to 1998: In R$ Thousands 1Q99 2Q99 2Q98 1H99 1H98 Cost of Services and Goods 75,614 87,249 44,486 162,863 89,358 Operating Expenses 64,646 51,730 16,341 116,376 52,265 Selling Expenses 19,302 22,342 7,212 41,644 27,478 General Administrative Expenses 14,874 21,076 4,258 35,950 16,154 Financing Expenses 28,617 8,765 3,779 37,382 7,035 Other Operating Expenses 1,853 (453) 1,092 1,400 1,598 Costs and Operating Expenses 140,260 138,979 60,827 279,239 141,623 Provision for Doubtful Accounts 10,025 9,385 5,692 19,410 17,704 EBITDA 57,272 57,571 82,967 114,843 149,870 EBITDA margin 39% 36% 66% 38% 59% EBITDA for the Second Quarter of 1999 was R$ 58 million, representing a 36% margin over Net Operating Revenue. The EBITDA margin for the Second Quarter of 1998 was 66%. The changes introduced by the transition to a more competitive environment are reflected in the Company s new EBITDA levels. Financial Situation Financial Expenses were R$ 8.7 million for the Second Quarter of 1999 and R$ 37 million for the First Half of 1999. The impact of the Real devaluation on the Financial Expenses, which was not deferred, was R$30 million for the First Half of the year. Tele Celular Sul s interest-bearing indebtedness, as of June 30, 1999, was R$ 86 million, representing dollar-denominated debt with suppliers. Non-Operating Income The Company wrote off fixed assets in the Second Quarter because of the need to replace equipment and technology for network digitalization. This write off resulted in a Non-Operating Expense of R$22 million, of which R$ 14 million had been provisioned for in 1998. Therefore, R$ 8 million affected the Company s results for the Second Quarter of 1999. Net Profit 3
Net profit for the Second Quarter of 1999 reached R$ 15.1 and the accumulated profit for the First Half of 1999 was R$ 31.2 million, or R$ 0.9 per lot of 1,000 shares. Investments Tele Celular Sul invested R$ 98 million during the Second Quarter of 1999, while in the same period of the previous year, the Company invested R$ 18 million. The total investment for the First Half of the current year was R$ 114.8 million, financed by the Company s own excess cash. As a result, the Company achieved 67% digitalization of its radio base stations, expanded its customer base, increased its coverage area and improved the quality of its services. By the end of the Second Quarter of 1999, Tele Celular Sul reported market share of 94% and a penetration rate for the region of approximately 5.4%. Selected Data 1Q99 2 Q99 2Q98 1H99 1H98 Subscribers 665,708 770,873 522,163 770,873 522,163 Average Subscribers 638,044 718,290 503,279 690,627 492,158 Estimated population in the region ( 14.3 14.4 14.3 14.4 14.3 millions) Penetration (Tele Celular Sul) 5.0% 5.4% 3.6% 5.4% 3.6% Municipalities Served 191 193 158 193 158 Market share 98% 94% 100% 94% 100% Average revenue per subscriber (ARPU) 1 R$67.35 R$60.00 R$82.82 R$61.75 R$86.60 Monthly minute average per 103 94-96 - subscriber(incoming) Monthly minute average per subscriber 78 70-72 - (outgoing) Investment (millions) R$ 8.1 R$ 97.8 R$19.40 R$ 105.9 R$ 62.8 Gross Additions 65,689 128,192-193,881 - Disconnections 10,362 23,027-33,389 - Churn 2 2% 3% 5% - Total Employees 862 927 356 927 356 Full-time 385 537 356 537 356 Contractors and Interns 477 390-390 - Note: (1) Net Revenues, excluding Equipment Sales. (2) Calculated on the average subscriber base. The Year 2000 Issue Tele Celular Sul prepared a Contingency Plan aimed at finding solutions to any unforeseeable disruptions that may arise in the Year 2000. The objective of that Plan is to perform a detailed analysis of the risks and likely impact to areas vulnerable to the Y2K problem, with special emphasis on the Cellular Telephone Network. To this end, TSU will continue working to ensure the continuity of its service. 4
The software of the Company s switching centers (CCC s), used to initiate and route phone calls, was replaced after it failed tests done by vendors. The billing and collection (BSCS) and business management (SAP/R3) systems, are already compliant with the Year 2000 and will be fully integrated by October. With these systems, the Company s other systems (accounting, accounts payable, inventory management, etc.) will be Y2K compliant. Based on the Company s efforts and its project deadlines, management expects that there will be no abnormality in its Mobile Telephone Services. Company Outlook Despite a difficult macroeconomic environment, the mobile telephone service market in Brazil continues to show high growth rates. Despite this challenge, Tele Celular Sul made significant advances by the end of the Second Quarter of 1999. Tele Celular Sul s prepaid service, Pronto, launched in late April 1999, reached 63,908 subscribers (representing 61% of the net increase in the Quarter). 44% of the municipalities served and 67% of the radio base stations were digitalized, avoiding significant market losses. Thus, the Company efforts are in line with its long term strategy: modernization, digitalization and expansion into new market segments. In spite of the constant challenges presented by the economic scenario and by the increasingly competitive environment, management remains confident in TSU s continuous growth and leadership position in the market. 5
TELE CELULAR SUL PARTICIPAÇÕES S.A. BALANCE SHEET AT JUNE 30, 1999 AND MARCH 31, 1999 (in thousands of Brazilian reais) (Translation of the original in Portuguese) A S S E T S Parent Company. Consolidated. June 30, 1999 March 31, 1999 June 30, 1999. March 31, 1999 CURRENT ASSETS Cash and marketable securities 1,702 29 26,167 86,163 Accounts receivable from services - - 91,060 95,343 Accounts receivable from sales of products - - 18,463 13,785 Allowance for doubtful accounts - - (13,116) (24,277) Inventories - - 10,600 26,835 Receivable from subsidiaries 106,969 138,730 - - Deferred and recoverable taxes 4,259 4,815 29,600 53,653 Other current assets 2,523 417 21,418 27,156 115,453 143,991 184,192 278,658 LONG-TERM ASSETS Receivables from subsidiaries 3,984 5,402-63 Deferred and recoverable taxes - - 24,266 599 3,984 5,402 24,266 662 PERMANENT ASSETS Investments 455,225 440,722 20 20 Property, plant and equipment 22 16 677,173 611,068 Deferred assets - - 359 383 455,247 440,738 677,552 611,471 Total assets 574,684 590,131 886,010 890,791 ====== ====== ====== ====== 6
TELE CELULAR SUL PARTICIPAÇÕES S.A. BALANCE SHEET AT JUNE 30,1999 AND MARCH 31, 1999 (in thousands of Brazilian reais) (Translation of the original in Portuguese) LIABILITIES AND SHAREHOLDERS EQUITY Parent Company. Consolidated. June 30, 1999 March 31, 1999 June 30, 1999. March 31, 1999 CURRENT LIABILITIES Loans and financing - - 73,040 75,455 Suppliers - - 47,489 34,183 Taxes and contributions 103 605 17,097 20,185 Dividends payable 2,116 32,158 5,604 42,057 Provision for contingencies - - 2,859 2,708 Other current liabilities 333 375 9,761 9,020 2,552 33,138 155,850 183,608 LONG-TERM LIABILITIES Loans and financing - - 13,391 12,000 Provision for pension plan - - 1,909 1,805 Other long-term liabilities 75 75 4,489 820 75 75 19,789 14,625 MINORITY INTEREST - - 138,314 135,640 75 75 158,103 150,265 SHAREHOLDERS EQUITY Capital Stock 175,872 175,872 175,872 175,872 Legal reserve 15,027 15,027 15,027 15,027 Profit Reserves 142,408 142,408 142,408 142,408 Retained earnings 238,750 223,611 238,750 223,611 572,057 556,918 572,057 556,918 Total liabilities and shareholders equity 574,684 590,131 886,010 890,791 ====== ====== ====== ====== 7
TELE CELULAR SUL PARTICIPAÇÕES S.A. INCOME STATEMENT FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (In thousands of Brazilian reais) 3 months 1999 6 months 1999 Parent Company 3 months 1998 6 months 1998 Operating income (expenses) General and administrative (537) (1,087) - - Financial income (expenses) 1,902 25,390 5,576 7,428 Other operating income (expenses), net (86) 104 - - Income from the investments in subsidiaries 14,503 15,062 38,114 66,769 Operating income 15,782 39,469 43,690 74,197 Non-operating income, net - - 9 8 Income before taxes and profit sharing 15,782 39,469 43,699 74,205 Provision for income tax and social contribution (643) (8,273) (1,839) (2,450) Net income 15,139 31,196 41,860 71,755 Number of shares outstanding (in thousands) 334,399,027 334,399,027 334,399,027 334,399,027 Net income per thousand shares 0.00005 0.00009 0.00013 0.00021 8
TELE CELULAR SUL PARTICIPAÇÕES S.A. CONSOLIDATED INCOME STATEMENT FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1999AND 1998 (In thousands of Brazilian reais) 3 months 1999 6 months 1999 Consolidated 3 months 1998 6 months 1998 Gross revenue 205,538 388,262 157,621 325,342 Deductions (46,966) (84,168) (32,576) (69,564) Net revenue 158,572 304,094 125,045 225,778 Cost of sales (87,249) (162,863) (44,486) (89,358) Gross profit 71,323 141,231 80,559 166,420 Operating income (expenses) Selling expenses (22,342) (41,644) (1,520) (9,774) General and administrative (21,076) (35,950) (9,950) (33,858) Financial income (expenses) (322) (18,539) 5,531 5,179 Other operating income, net 5,716 7,485 1.839 3,853 Operating income 33,299 52,583 76,459 131,820 Non-operating income (expenses) (7,940) (7,940) (2) 16 Income before taxes and profit sharing 25,359 44,643 76,457 131,836 Provision for income tax and social contribution (8,720) (24,095) (22,103) (40,599) Deferred income tax 1,486 10,508 - - Profit sharing (311) (530) (177) (334) Minority interests (2,675) 670 (13,028) (21,635) Net income 15,139 31,196 41,149 69,268 Number of shares outstanding (in thousands) 334,399,027 334,399,027 334,399,027 334,399,027 Net income per thousand shares 0.00005 0.00009 0.00012 0.00021