1. Contacts:
Tele Nordeste Celular Thomson Financial Investor Relations
Mario Gomes Peter Firestein
55 81 216.2591 Isabel Vieira
Fabíola Almeida 212 701 1823
55 81 216.2594
Octavio Muniz
55 81 216.2593
Homepage: www.timnordeste.com.br
TELE NORDESTE CELULAR PARTICIPAÇÕES S.A. ANNOUNCES
FOURTH QUARTER AND YEAR-END 1999 RESULTS
Recife, Brazil, March 24, 2000 - 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.
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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 1998. 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 1998. 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 1998. Excluding the sales of handsets, net operating revenue
increased 20.4% in 1999 over 1998.
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$0.82) per ADR, net of income tax, which will be paid as interest on equity, as per
Brazilian legislation.
The approval and payment date of the above mentioned dividend will be determined at Tele
Nordeste’s Annual Shareholders’ Meeting to be held in April 2000.
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3. Selected Consolidated Financial Data (in R$ thousands)
4Q99 4Q98 1999 1998
Gross Operating Revenue
- Usage charges 120,488 85,004 408,692 314,475
- Monthly subscription fee 43,130 25,864 147,176 124,176
- Activation fee 0 2,075 0 9,067
- Interconnection charges 46,145 33,986 164,524 131,584
- Sale of handsets and accessories 65,413 6,600 145,508 6,600
- Other revenues 1,359 2,080 4,053 5,017
Subtotal 276,535 155,322 869,953 590,919
- Taxes (64,180) (32,237) (195,100) (121,255)
Net Operating Revenue 212,355 123,085 674,853 469,664
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 70,627 284,453 279,995
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
1998. 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$155.6 million), or an increase of 13.8% on 1998.
Selected Consolidated Financial Data (in R$ thousands)
4Q99 4Q98 1999 1998
Operating Expenses
- 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)
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4. Operating expenses and costs are broken down as follows:
Cost of Services General and
and Goods Sold Selling Expenses 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 1998.
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
31.12.99 31.12.98
Radio Base Stations 12 12
Switches 652 612
Micro-cells 59 35
Analog Channels 15,990 20,223
Digital Channels 20,819 7,106
Post-paid Customers (in thousands) 861 614
Prepaid Customers (in thousands) 327 0
Total Customers (in thousands) 1,188 614
Annual Growth 93% 32%
Estimated Population in the Region (in millions) 26.0 25.8
Regional Penetration (Tele Nordeste only) 4.6% 2.4%
th
4 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 1998. The annual ARPU for 1999 was R$56.62 (US$31.46), compared to
R$70.41 (US$39.12) in 1998. These amounts refer to post-paid and prepaid customers.
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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 1999.
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.
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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*****
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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 1999 1998 1999 1998 Liabilities 1999 1998 1999 1998
Current assets Current liabilities
Cash equivalents 283 7,868 7,768 69,267 Accounts payable to suppliers 1,079 411 94,886 57,010
Trade accounts receivable - - 168,542 67,610 Financing and loans - - 270,586 56,463
Inventories 25 - 28,284 12,292 Taxes payable 1,002 36 45,917 24,612
Telecommunications companies - 1,687 32,491 31,037 Salaries and vacation pay 554 31 4,313 1,795
Taxes and contributions receivable 3,890 279 49,494 1,949 Subsidiaries 10,295 - - -
Deferred income and social contribution taxes 173 - 18,088 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 25,146 - - - 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 2,472 337 12,317 8,637
26,775 26,532 465,023 182,375
16,411 35,317 323,433 195,812
Noncurrent assets Noncurrent liabilities
Loan to subsidiaries 30,660 14,354 - - Financing and loans - - 53,278 59,957
Tax incentives - - 2,679 1,652 Other liabilities - - 90 71
30,660 14,354 2,679 1,652 - - 53,368 60,028
Permanent assets
Investments 329,186 330,980 - - Minority interest - - 97,650 98,679
Property, plant and equipment 4,609 433 644,020 498,170
333,795 331,413 644,020 498,170 Shareholders' equity
Capital stock 108,943 108,943 108,943 108,943
Profit reserves 178,922 202,846 178,922 202,846
Retained profits 66,226 42,763 66,226 42,763
354,091 354,552 354,091 354,552
380,866 381,084 970,132 695,634 380,866 381,084 970,132 695,634
See the accompanying notes to the financial statements.
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8. Tele Nordeste Celular Participações S.A.
Statements of income
Years ended December 31, 1999 and 1998
(In thousands of reais)
Parent Company Consolidated
1999 1998 1999 1998
Revenues
Telecommunications services and sale of goods - - 869,953 590,919
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 - - 674,853 469,664
Cost of goods sold and services rendered - - (390,400) (189,669)
Gross profit - - 284,453 279,995
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 9,196 102,929 - -
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 - 47 2,294 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 9,421 104,184 12,046 134,355
Minority interest - - (2,625) (30,320)
Net income for the year 9,421 104,184 9,421 104,035
Net income per lot of a thousand shares - R$ 0.03 0.31
Number of shares at year end (thousands) 334,399,028 334,399,028
See the accompanying notes to the financial statements.
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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, 1998 108,943 - 6,126 104,315 59,604 278,988
Net income for the year - - - - 104,184 104,184
Distributions:
Legal reserve - - 5,251 - (5,251) -
Statutory reserve - 87,154 - - (87,154) -
Dividends - - - - (4,113) (4,113)
Interest on shareholders equity - Law 9,249/95 - - - - (24,507) (24,507)
Balances at December 31, 1998 108,943 87,154 11,377 104,315 42,763 354,552
Realization of realizable profit reserve - - - (24,395) 24,395 -
Net income for the year - - - - 9,421 9,421
Distributions:
Legal reserve - - 471 - (471) -
Interest on shareholders equity - Law 9,249/95 - - - - (9,882) (9,882)
Balances at December 31, 1999 108,943 87,154 11,848 79,920 66,226 354,091
See the accompanying notes to the financial statements.
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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
1999 1998 1999 1998
Sources of funds
Operations
Net income for the year 9,421 104,184 9,421 104,035
Items not affecting working capital
Depreciation 399 - 87,046 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 - - 26,567 3,545
Price-level restatement increments to noncurrent assets (1,175) - - -
Other liabilities - - 19 71
Capitalizable funds - (47) - (47)
Minority interest - - 2,625 30,320
(275) 1,208 132,149 185,837
From third parties
Loans and financing - - - 40,693
Dividends 1,066 4,390 - -
Interest on shareholders' equity - Law 9,249/95 9,924 24,397 - -
Transfer from noncurrent assets to current assets 15,529 - - -
Tax incentives - - - 198
26,519 28,787 - 40,891
26,244 29,995 132,149 226,728
Applications of funds
Investments - 6 - -
Property, plant and equipment 4,851 433 239,365 167,394
Noncurrent assets 30,660 14,260 1,027 1,652
Dividends - 4,113 711 5,872
Interest on shareholders' equity - Law 9,249/95 9,882 24,507 12,828 31,460
Transfer of noncurrent liabilities to current liabilities - - 33,245 64,708
45,393 43,319 287,176 271,086
Decrease in net working capital (19,149) (13,324) (155,027) (44,358)
Changes in working capital
Current assets (18,906) 13,208 127,621 95,987
Current liabilities 243 26,532 282,648 140,345
Decrease in net working capital (19,149) (13,324) (155,027) (44,358)
See the accompanying notes to the financial statements.
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