FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a or 15d - 16 of
the Securities Exchange Act of 1934
For the month of June 1998
Tevecap S.A.
(Exact Name as Specified in its Charter)
Tevecap Inc.
(Translation of Name into English)
SEC FILE NUMBER: 0-22267
Rua do Rocio, 313
Sao Paulo, SP Brazil
04552-904
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with rule 12g3-2(b):82 N/A
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEVECAP S.A.
By: /s/ Jose Augusto P. Moreira
Jose Augusto P. Moreira
Officer
By: /s/ Claudio Cesar D'Emilio
Claudio Cesar D'Emilio
Officer
Date: June 1, 1998
<PAGE>
EXHIBIT LIST
1. One copy of the press release published on May 27, 1998, containing
relevant information on Tevecap S.A. for the three-month period ended
March 31, 1998, with financial information prepared in accordance with
Brazilian GAAP.
Tevecap S.A.
Rua do Rocio, 313 - 11th floor
04552-904-Sao Paulo-SP-Brazil
TEVECAP ANNOUNCES FIRST
QUARTER 1998 RESULTS
Sao Paulo, May 27th, 1998, TEVECAP S.A., (TVA) one of Brazil's largest and
fastest growing pay television operators and programming distributors, today
announced results for the first quarter of 1998.
Contact:
Tevecap - Douglas Duran phone: (55 11) 821-8554
Ludgate Communications - Marina Echavaria phone: (212) 688-5144
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Index
1. Tevecap's New Structure....................................................3
New Licenses.............................................................3
2. Overview...................................................................4
Highlights as of March 31, 1998..........................................5
3. Market Analysis............................................................6
4. Ownership & Partnership Relations..........................................7
5. Operational Performance 1Q98:..............................................8
TVA Distribuidora........................................................8
a) Cable Operation Overview...........................................8
b) MMDS Operation Overview...........................................12
c) C-Band Operation Overview.........................................15
d) TVA Distribuidora - 1Q98 Income Statement.........................17
TVA Satelite............................................................18
a) Ku-Band Operation Overview........................................18
b) TVA Satelite - 1Q98 Income Statement..............................20
TVA Programadora........................................................22
a) HBO Brasil Operation Overview.....................................22
b) ESPN Brasil Operation Overview....................................22
c) TVA Channel Operation Overview....................................22
d) TVA Programadora - 1Q98 Income Statement..........................25
6. Tevecap's Consolidated 1Q98 Results.......................................26
a) Consolidated Results..............................................26
b) Financial Situation...............................................29
c) Consolidated Balance Sheet........................................30
d) Tevecap - 1Q98 Income Statement...................................31
e) Tevecap - 1Q98 Statement of Cash Flow.............................32
7. Report from Management....................................................33
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1. Tevecap's New Structure
- ----------------------------
Tevecap's new corporate structure was completed by dividing the Company
into three distinct operating companies: 1) TVA Distribuidora, which includes
Cable, MMDS and C-Band operations; 2) TVA Programadora which concentrates
Tevecap's programming interest; and 3) TVA Satelite, which holds the DirecTV(TM)
interests.
[CORPORATE STRUCTURE VISIO CHART OMITTED]
As mentioned in our last conference call, commencing this quarter Tevecap
will be reporting its financial and operational results in accordance with the
Corporate Structure shown above.
New Licenses
Considering the structure of the tender invitation announced by the
Government in the last quarter 1997, Tevecap's shareholders decided to create
new companies in association with other Telecommunication Groups in order to
participate in the bid with the best structure under the Government rules. Those
rules penalize current Pay TV operators which decide to participate in an alone
or major share equity basis, since the Government wants to avoid concentration
in the Pay TV market.
As of May 13, the "Superior Tribunal de Justica - STJ" (Brazilian Federal
Court) gave a favorable ruling to Anatel (National Communications Agency) on the
injunctions that were preventing the Pay TV licenses auction from moving
forward. Anatel scheduled the opening of the qualification documents last week.
2. Overview
- -------------
Tevecap S.A. is one of the leading pay television operators and programming
distributors in Brazil. The Company was the first to offer Ku-Band technology in
Brazil through DirecTV(TM), which was launched in the second half of 1996, and
is the leader for this technology in Brazil. Brazil is the largest television
market in Latin America, with approximately 35.2 million television households.
During the first quarter of 1998, Pay TV penetration had no growth due to the
difficult situation of the Country affected by the Asian crisis. Nevertheless,
it is important to mention that Brazil had a 93% penetration of broadcast
television and only a 7.3% Pay TV penetration. Market projections estimate that
overall penetration should reach 28% by 2004.
As of March 31, 1998, Tevecap had approximately 1.3 million direct and
indirect subscribers, an increase of 1.6% over the 4Q97. TVA accounts for
subscribers by utilizing the method employed in the United States, which means
that the customer must be installed and paying on a current basis to be
considered a subscriber. Non-installed backlog and disconnected subscribers are
not included in TVA's subscriber base. We disconnect once a subscriber is 30
days past due.
<PAGE>
The table below sets forth the number of subscribers as of December 31,
1997 and March 31, 1998 according to new structure as well as the number of
households that receive TVA's programming through operating ventures and
independent operators:
Subscriber Base
Dec-97 Mar-98 Chg %
------ ------ -----
MMDS 240,913 223,247 -7.3%
Cable 94,261 103,651 10.0%
C Band 68,309 69,431 1.6%
Total Owned Systems 403,483 396,329 -1.8%
TV Filme (MMDS) Total 111,244 112,443
Equity Subscribers 16,349 16,525 1.1%
Canbras (Cable) Total 31,930 37,625
Equity Subscribers 11,495 13,545 17.8%
Total Operating Ventures (a) 27,843 30,070 8.0%
TVA Distribuidora 431,326 426,399 -1.1%
TVA Satelite (b) 142,900 163,826 14.6%
TV Programadora 669,543 672,830 0.5%
TVA Total Subscribers 1,243,769 1,263,055 1.6%
HH receiving TVA 1,359,100 1,383,053 1.8%
(a) represents equity subscriber base
(b) means Ku Band Subscribers
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Highlights as of March 31, 1998
o Consolidated Net Revenue for 1Q98 reached US$82.2 million, representing a
growth of 22% versus US$67.2 million in 1Q97 and a 4% decrease versus US$86
million in 4Q97.
o Subscription Revenue amounted to US$62.9 million in 1Q98, a growth of 42%
versus US$44.3 million in 1Q97. Subscription revenue represented 77% of Net
Revenue and increased 1% when compared to US$62.2 million in 4Q97.
o Installation Revenue amounted to US$15.3 million in 1Q98, a decrease of 12%
versus US$17.5 million in 1Q97, and a decrease of 29% versus US$21.6
million in 4Q97. Installation revenue represented 19% of net revenue for
1Q98 as compared to 25% in 4Q97. That was the main reason for the 4%
decrease of Consolidated Net Revenue.
o Direct Operating Expenses reached US$49.6 million in 1Q98, a 36% growth
versus US$36.4 million in 1Q97 or a 9% growth versus US$45.3 million in
4Q97.
o Selling, General and Administrative Expenses for 1Q98 reached US$25.3
million, a decrease of 14% versus US$29.3 million in 4Q97. S,G&A
represented 31% of net revenue and decreased 2% when compared to US$25.9
million in 1Q97.
o EBITDA reached US$7.3 million in 1Q98, representing a growth of 49% versus
a US$4.9 million in 1Q97 and a decrease of 36% when compared to US$11.4
million in 4Q97. Installation Revenue's decrease of US$6.3 million was the
main reason for the EBITDA decrease.
o Total Operating Expenses for 1Q98 amounted to US$94.4 million, a 4%
decrease versus US$98.0 million in 4Q97.
o Net loss for 1Q98 was US$31.2 million, an 18% increase compared to a loss
of US$26.5 million in 4Q97.
o Capital Expenditures (cash basis) amounted to US$25.0 million for 1Q98, a
35% decrease versus US$38.5 million during 4Q97 and the Capital
Expenditures (book basis) for 1Q98 reached US$31.2 million, a decrease of
50% versus US$64.8 million in 4Q97.
o Net Sales in the 1Q98 were 71,406 and the Activation for the same period
was 78,630 which means that the Company reduced its Backlog during the
1Q98.
o The Backlog as of the end of 1Q98 was 12,681 subscribers representing seven
days of installation, a 29% decrease versus the 17,963 in 4Q97.
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[Complete Financial Statements are included on pages 30 -32.]
3. Market Analysis
- --------------------
Brazil is the largest television and video market in Latin America with
approximately 35.2 million TV homes, including almost 20 million ABC households.
In this context, the pay-television industry operates in a expanding market that
is still in the early stage of growth. As of March 31, 1998, there were
approximately 2.5 million subscribers, compared to 1.8 million at the end of
1996. This figure represents approximately 7.3% penetration rate as compared to
a 55.1% penetration rate in Argentina. The Brazilian pay television industry is
extremely under penetrated; the market estimates an increase of 8.0 million net
new subscribers by the end of 2004.
Despite the fact that Brazil is a growing market for Pay TV, the
macroeconomic environment has been unfavorable since October 1997: high interest
rates had caused a moderate GDP growth and rising unemployment, affecting almost
all sectors of Brazilian industry. The relatively stable interest rate
environment, which had prevailed in Brazil throughout most of 1997 was abruptly
reversed with an almost doubling of the benchmark rate last October 1997. These
factors generated lower sales levels and an increasing delinquency.
Overall, the increasing delinquency problems affected more companies that
do not have ability to disconnect subscribers with agility. The Company
intensified the disconnection of non-paying subscribers at the end of 1997 and
1Q98. Since its operations are almost 100% fully addressable, delinquent
subscribers can be disconnected easily and immediately by software from the
head-end without incurring the extra costs associated with sending a team to the
subscriber's location. Also, the use of the addressable decoder boxes virtually
eliminates piracy of Tevecap's signal. Additionally, a special effort has been
made to clean up the system by either rehabilitating disconnected subscribers or
eventually retrieving their decoders. Further, since early this year, Tevecap
began using credit check of all new potential subscribers using SPC and SERASA
Credit Bureaus (Brazilian companies offering services similar to Dunn &
Bradstreet). Only qualified candidates that are good credit risks are accepted
as customers. We believe that low level of sales and an increase of delinquency
will continue during the second quarter of this year.
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<PAGE>
As a result of this strong credit policy, Tevecap is showing a moderate
growth in this first quarter of 1998. However, it should be pointed out that TVA
accounts for installed and paying subscribers only. Non-installed backlog and
disconnected subscribers are not included in TVA's reported subscriber base.
Despite said moderate growth, the Company is showing a reliable growth in
consistency with its policy of disconnecting subscribers after 30 days past due.
This policy provides the Company a better quality subscriber base.
4. Ownership & Partnership Relations
- --------------------------------------
Tevecap is a 62.2% owned subsidiary of The Abril Group, the largest
publishing company in Latin America and one of the five largest media
conglomerates in Latin America. Abril publishes approximately 200 magazines in
Brazil, including eight of the ten most widely circulated. Additionally, Abril
distributes nine magazines in Portugal and four in Argentina. Abril is also the
leader in the Brazilian home video market and is the largest publisher of
telephone directories in Latin America. Abril pioneered the development of
electronic media in Brazil with the launch of TVA, which was the Country's first
pay television operation. Abril, with its strong presence in all media sectors,
provides TVA with expertise in distribution and advertising. Abril also provides
TVA with access to its databases with proprietary subscriber information,
particularly through its magazine publishing interests (including Veja, the
world's fourth largest newsweekly magazine) which have a combined monthly paid
circulation of 15.8 million. For the twelve-month period ended December 31,
1997, Abril had a net revenue of US$ 1.6 billion, with EBITDA of US$ 176.3
million, as compared to net revenue of US$ 1.4 billion and EBITDA of US$ 108.7
million as of year end 1996.
[GRAPHIC BOX OMITTED]
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<PAGE>
5. Operational Performance 1Q98:
- ----------------------------------
TVA Distribuidora
a) Cable Operation Overview
TVA Sistema and TVA Sul own and operate cable licenses in six Southern
cities, namely, Sao Paulo, Curitiba, Camboriu, Blumenau, Florianopolis and Foz
do Iguacu. The total population of this area exceeds 17 million. As of March 31,
1998, TVA cable subscribers in an equity basis amounted to 117,196, representing
a 10.8 % increase as compared to year-end 1997. These figures include the
subscriber base from 10 cities operated by Canbras TVA. TVA has already deployed
3,294 kilometers of its cable network, including 452 kilometers of fiber optic
cable. The capacity of most of TVA's systems varies from 750 MHz bandwidth to
550 MHz bandwidth, easily upgradable to 750 MHz. This technology will allow the
Company to render interactive services in the future. Furthermore, the
addressable decoders used by TVA's cable systems permit the upgrading,
downgrading or disconnection of a subscriber service from the head-end upon
short notice and also allow for pay-per-view services. Addressability permits a
much better churn management as the Company has full control over its subscriber
base. Addressability also enables TVA to offer at this moment four different
programming tiers, while its main competitor who is in early stage of
addressability can only offer two tiers.
TVA's cable systems today reaches close to 976,644 homes, with a 452
kilometer fiber-optic network, which includes a 395 kilometer fiber-optic loop
in Sao Paulo, a 57 kilometer fiber optic network in Curitiba, and the upgrading
of the three previous cable systems, acquired in 1996.
TVA Distribuidora's cable Plant as of March 31, 1998
Active Km to be Total Marketable Density
Km Activated(a) Km HP in 2Q98 (HP/KM)
------ ------------ ----- ---------- -------
TVA Sistemea 1,636 331 1,967 558,612 284
TVA Sul 896 125 1,021 192,106 188
Canbras TVA 762 130 892 225,926 253
----- --- ----- ------- ---
Total TVA
Distribuidora 3,294 586 3,880 976,644 252
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(a) Kilometers to be activated uring the first half of 1998
Presently, TVA offers up to 54 analog channels with capacity to offer up to
78 analog channels. Cable costs include the US$39 average installation fee, and
between US$33 and US$58 as a monthly programming fee, depending on the
programming package. Company's average monthly fee for new subscribers increased
from US$39 in 4Q97 to US$42 in 1Q98, upon introduction of the tiered pricing
system.
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<PAGE>
Subscriber Performance
In the first quarter of 1998, Tevecap had approximately 117 thousand direct
cable subscribers, an increase of 10.8% over December 31, 1997.
The following table sets forth the subscriber performance between the year
ended December 1997 and March 31, 1998:
Cable Subscriber Evolution (Jan/Mar-98)
TVA TVA Canbras
Sistema Sul TVA (a) Total
------- --- ------- -----
(+) Paying Subs - Dec 31, 1997 58,541 35,720 11,495 105,756
(+) New Connects 11,978 3,948 2,725 18,651
(+) Net Transferred from/to
other Operations 2,056 553 1 2,610
(-) Disconnects 5,920 3,225 676 9,821
(=) Paying Stubs - March 31, 1998 66,655 36,996 13,545 117,196
1st Q98 Growth 13.9% 3.6% 17.8% 10.8%
Monthly Churn (b) 2.7% 2.7% 1.6% 2.6%
Annual Churn (c) 32.6% 32.1% 19.0% 30.9%
(a) Represents subscribers in an equity basis
(b) Disconnects / (Initial Balance + New Connects + Net Transferred) / 3
(c) Monthly Churn * 12
[SALES VOLUME PER MONTH BAR CHART OMITTED]
Our Cable Plant was developed only in areas where high penetration will be
possible and the only additional necessary investment will be backbones and
decoders.
The growth of TVA Distribuidora and its affiliates enjoyed good cable
subscribers in performance in the 1Q98 based on the strategy to implement a
the cable area very aggressive construction of backbone and instantaneous
has shown that installation.
Tevecap is
achieving the The paying cable subscriber base of Sao Paulo grew 13.9%
goal of during the first quarter. This performance occurred
increasing basically because TVA Distribuidora is selling in new areas
penetration which were activated a few months ago.
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<PAGE>
In the case of TVA Sul, the subscriber base grew 3.6%. In
the city of Curitiba, however, that is part of TVA Sul, even
facing strong competition, we reached a 7.1% increase as
compared to the 4Q97. In the other four South Region cities
we kept the same base as of December 31, 1997. In those
cities we are maintaining approximately 21 thousand total
subscribers.
Canbras TVA grew 17.8% in the first quarter of this year and
we expect to have similar performance during the year.
Churn and bad The impact of the Brazilian austerity plan instituted during
debt level are the fourth quarter of 1997 in response to the Asian crisis
under control strongly affected churn, provision for doubtful accounts and
despite the reduction of growth. However, since TVA Distribuidora has
Brazilian shown a consistent policy dealing with delinquent
economic subscribers - who are disconnected within 30 days - the
situation crisis did not affect TVA Distribuidora in a significant
manner. This policy provided the Company with full control
over the Subscriber Base, keeping the churn rate as budgeted
at the beginning of the year.
The churn rate of Cable Operation for the 1Q98 was 2.6% per
month. We consider this churn too high. However, it is
important to consider that the net growth in the same period
was 10.8%.
As we mentioned before, since the decoders are fully
addressable, delinquent subscribers can be disconnected
easily and immediately by software from the head-end without
incurring the extra costs associated with sending a team to
the subscriber's location. Thus, the Company can regain
revenue and reduce the purchase of new equipment.
Price continues Despite the decrease of consumer purchasing power following
to be consistent the Asian crisis, TVA Distribuidora has achieved its
with the previous budgeted cable subscriber goals by targeting A and B social
quarter as a classes combined with the implementation of affordable
result of the programming package.
implementation
of the
programming
tiering
As shown in next page, this crisis did not affect TVA
Distribuidora in terms of price when compared to 4Q97.
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<PAGE>
Hook up fee Monthly fee
----------- -----------
4Q97 1Q98 %Chg. 4Q97 1Q98 %Chg.
---- ---- ----- ---- ---- -----
TVA Sistema $24.30 $32.66 34.4% $41.54 $42.83 3.1%
TVA Sul $37.11 $60.44 62.9% $33.77 $38.55 14.2%
TOTAL $27.95 $39.31 40.6% $39.33 $41.80 6.3%
We believe that TVA Distribuidora can sustain this pricing throughout the
year of 1998.
As soon as the Brazilian legislation approves Internet service to
subscribers, Tevecap will be able to provide such services which will certainly
represent a new revenue for the Company.
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<PAGE>
b) MMDS Operation Overview
TVA had the opportunity of entering new markets very fast, due to its quick
strategy of deploying an extensive MMDS network with broad geographic coverage.
TVA's MMDS network, which comprises the cities of Sao Paulo, Rio de Janeiro,
Porto Alegre and Curitiba, is the largest MMDS network in Brazil. MMDS systems
are easier to deploy and require lower capital investments for implementation
than cable systems. For instance, an MMDS operator is usually required to invest
up to US$1.5 million for a head-end to cover a population of two million with
450,000 Line of Sight (LOS) households and close to US$300 per incremental
subscriber, including box cost, marketing and installation expenses. The
advantage relies on the fact that the incremental expense is only incurred when
the subscriber signs on. In large urban areas, TVA intends to switch its MMDS
subscribers to cable but in areas not to be served by cable it intends to
fulfill channel capacity of its MMDS operations.
TVA Distribuidora has four MMDS licenses and operates in the cities of Sao
Paulo, Rio de Janeiro, Porto Alegre and Curitiba. These areas have a LOS of
almost 7 million for a total population of close to 17.4 million. As of March
31, 1998, 239,772 MMDS subscribers were served in this area. Through a tiered
pricing system and 100% addressable decoder boxes, its MMDS system offers up to
31 channels. Since customers may select the programming packages they want and
can afford, tiered pricing is expected to attract more subscribers. This will
also reduce future churn rates. Customers may select from four packages varying
from US$26 to US$47, from 14 to 31 channels. There is also a single installation
charge that varies from US$ 69 to US$158.
Notwithstanding TVA Distribuidora's strategy to transfer subscribers from
MMDS technology to Cable, as the Company has invested heavily to deploy a
significant Cable Network in Sao Paulo and other five cities in the South of the
Country, we will continue to offer MMDS service. MMDS technology is part of our
strategy to reach areas that are not economically feasible with Cable
operations.
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<PAGE>
Subscriber Performance
In the first quarter of 1998, TVA Distribuidora had approximately 240
thousand MMDS direct subscribers, a decrease of 6.8% over December 31, 1997.
The following table sets forth the subscriber performance between the year
ended December 1997 and March 31, 1998:
MMDS Subscriber Evolution (Jan-Mar/98)
TVA TVA TV
Sistema Sul Filme (a) Total
------- --- --------- -----
(+) Paying Subs
- Dec 31, 1997 217,178 23,735 16,349 257,262
(+) New Connects 26,292 2,892 1,388 30,572
(+) Net Transferred from/to
other Operations -2,058 -553 -2,611
(-) Disconnects 38,079 6,160 1,212 45,451
(=) Paying Subs
- March 31, 1998 203,333 19,914 16,525 239,772
1st Q98 Growth -6.4% -16.1% 1.1% -6.8%
Monthly Churn (b) 5.3% 7.9% 2.3% 5.3%
Annual Churn (c) 63.1% 94.5% 27.3% 63.7%
(a) Represents subscribers in an equity basis
(b) Disconnects / (Initial Balance + New Connects + Net Transferred) / 3
(c) Monthly Churn *12
[SALES VOLUME PER MONTH BAR CHART OMITTED]
MMDS Strategy for TVA Distribuidora intends to switch its MMDS subscribers to
next quarters cable but in areas not served by cable it intends to fulfill
channel capacity of its MMDS operations. Also, the Company
is analyzing the digitalization of MMDS technology and
preparing to serve subscribers with Internet service.
As TVA Distribuidora is able to offer MMDS in areas where
there is no competition, it has been charging a higher
hook-up fee, as shown in the table below:
Hook up fee Monthly fee
----------- -----------
4Q97 1Q98 %Chg. 4Q97 1Q98 %Chg.
---- ---- ----- ---- ---- -----
TVA Sistema $89.14 $103.06 15.6% $40.23 $39.28 -2.4%
TVA Sul $92.36 $97.13 5.2% $28.92 $30.74 6.3%
TOTAL $89.57 $102.48 14.4% $39.99 $38.45 -3.9%
Churn and Bad Since MMDS operations serve a 35 Km radius from the main
Debt Level antenna, C Class subscribers could be reached by this
technology during the past years. Those subscribers were
strongly affected by unemployment and by the economic action
taken by the Government in reaction to the Asian crisis.
In this regard TVA Distribuidora, following its firm
disconnection policy, has been disconnecting delinquent
subscribers promptly. In the next quarter we expect to
reduce the churn as a result of our credit policy and the
possibility offered to customers of downgrading programming
packages.
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c) C-Band Operation Overview
Today TVA is the only pay TV operator to deliver a digital C-Band signal in
Brazil. TVA has provided C-Band service since 1993. The system serves the whole
Brazilian territory (35.2 million television households) and can reach
approximately 4 million households that currently use C-Band dishes to receive
broadcast channels only. At 1Q98 end TVA had 69,431 C-Band subscribers
representing a growth of 1.6% as compared to the 4Q97. In order to receive TVA
C-Band signal the subscriber pay only a US$89 hook-up fee - the lowest hook-up
fee in the Brazilian DTH Market since February, 1998 - and a monthly fee of
US$44. In this manner, the C-Band owner may upgrade to TVA's C-Band service,
which offers up to 24 Pay TV channels, in addition to local off-air channels.
This segment is expected to have a minimum growth in the near future by virtue
of the huge variety of Pay TV technologies and the new licenses that are coming.
We continue with the subscriber base administrative policies disconnecting
thirty-day past due subscribers, both individual and MDU, and working on
reconnections through contact with the disconnected subscribers.
These policies have shown good results expressed by the strong reconnection
rate, which can be confirmed by the average monthly churn ratio of 2.4% in 1Q98.
Our experience has shown that after being disconnected, 70% of subscribers
promptly pay-off their debts and request reconnection.
<PAGE>
Subscriber Performance
In the first quarter of 1998, the C-Band Operation had 69 thousand direct
C-Band subscribers, an increase of 1.6% over December 31, 1997.
The following table sets forth the subscriber performance between the year
ended December 1997 and March 31, 1998:
C-Band Subscriber Evolution
(Jan-Mar/98)
TVA
Sistema
-------
(+) Paying Subs - Dec 31, 1997 68,309
(+) New Connects 6,550
(+) Net Transferred from/to other Operations 0
(-) Disconnects 5,428
(=) Paying Subs - March 31, 1998 69,431
1st Q98 Growth 1.6%
Monthly Churn (a) 2.4%
Annual Churn (b) 29.0%
(a) Disconnects / (Initial Balance + New Connects + Net Transferred) / 3
(b) Monthly Churn *12
[SALES VOLUME PER MONTH BAR CHART OMITTED]
C-Band Strategy TVA's principal C-Band competitor announced that it will
abandon this market. We believe this offers us a good
opportunity to exploit this segment, which has experienced
minimum subscriber base growth but continues to be a
profitable business. Brazil has certain areas that can not
receive Ku-Band signal due to the limitations of satellite
footprints. TVA can serve those areas without competition
and without additional investment. TVA expects to
concentrate its efforts in those areas using its existing
decoder inventory. Since the decoders are fully addressable
delinquent subscribers can be disconnected easily and
immediately.
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<PAGE>
The table below shows the performance of the C-Band
Operation:
US$ per new subs
Hook up fee Monthly fee
----------- -----------
4Q97 1Q98 %Chg. 4Q97 1Q98 %Chg.
---- ---- ----- ---- ---- -----
TVA Sistema $210.36 $108.22 -48.6% $37.15 $41.87 12.7%
With regard to market reaction, after the installation fee reduction and
the strong marketing campaign, we experienced a significant growth as shown
above.
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d) TVA Distribuidora - 1Q98 Income Statement
TVA DISTRIBUIDORA S.A.
Income Statement
For the Three-Month Periods Ended March 31, 1998; December 31, 1997 and
March 31, 1997
<TABLE>
<CAPTION>
1Q98 4Q97 1Q97
---- ---- ----
1Q98/ 1Q98/
% Net % Net 4Q97 % Net 1Q97
$000 Revenue $000 Revenue % Change $000 Revenue % Change
---- ------- ---- ------- -------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Monthly subscriptions 40,255 99.9% 42,667 101.4% -5.7% 38,250 90.2% 5.2%
Installation (Hook-up fee) 2,654 6.6% 1,918 4.6% 38.4% 6,101 14.4% -56.5%
Advertising
Indirect programming
Other 390 1.0% 1,401 3.3% -72.2% 1,270 3.0% -69.3%
Gross revenue 43,299 107.4% 45,986 109.2% -5.8% 45,621 107.6% -5.1%
Revenue Taxes (2,997) -7.4% (3,889) -9.2% -22.9% (3,238) -7.6% -7.4%
Net revenue 40,302 100.0% 42,097 100.0% -4.3% 42,383 100.0% -4.9%
Direct operating expenses 20,536 51.0% 22.497 53.4% -8.7% 22,048 52.0% -6.9%
S,G&A expenses 7,788 19.3% 9,149 21.7% -14.9% 10,474 24.7% -25.6%
EBITDA 11,978 29.7% 10,451 24.8% 14.6% 9,861 23.3% 21.5%
</TABLE>
Highlights as of March 31, 1998
o EBITDA Margin had a 14.6% increase as compared to the 4Q97, especially by
virtue of the dilution of fixed cost and the reduction of direct cost
(magazine cost, sales commission, distribution cost) as a result of process
and source review.
o Installation Revenue as mentioned in the table below increased 38.4% as
compared to 4Q97 due to an increase in the average hook-up fee for Cable
and MMDS and high volumes of C-Band and Cable new subscriptions.
US$ million
1Q98 4Q97 % Chg
---- ---- -----
Cable 380 315 20.6%
MMDS 1,717 1,352 27.0%
C-Band 557 251 121.9%
--- --- ------
TOTAL 2,654 1,918 38.4%
o The 5.7% decrease in Monthly Subscription during the 1Q98 was due to the
1.8% TVA owned systems' subscriber base reduction experienced during this
period (see page 4), since TVA faced a large number of delinquent
subscribers following its credit policy, promptly disconnecting them.
US$ million
1Q98 4Q97 % Chg
---- ---- -----
Cable 8,776 8,535 2.8%
MMDS 25,006 27,895 -10.4%
C-Band 6,473 6,236 3.8%
----- ----- ----
TOTAL 40,255 42,666 -5.7%
- more -
<PAGE>
TVA Satelite
a) Ku-Band Operation Overview
DTH is the fastest growing pay television sector in Brazil. As a result,
DirecTV(TM) is Tevecap's fastest growing pay television operation. TVA first
offered digital Ku-Band services in 1996 and ended that year with 23,322
subscribers. As of the end of fiscal year 1997, Ku-Band subscribers increased by
513% to 142,900. We expect this segment to continue experiencing impressive
growth. With the launch of Galaxy's VIII-i satellite in the fourth quarter of
1997, we obtained a significant improvement in the total signal availability
even under the most adverse weather conditions. Galaxy VIII-i satellite is
providing us with the capability to offer more than 150 channels in Brazil, with
the best technology and quality available in the Country. New channels have been
introduced in the line-up as well as new pay-per-view programming options such
as daily Pay-Per-View. The footprint of GVIII-i allows the use of a
sixty-centimeter dish antenna in almost all of Brazil.
The new satellite was launched on December 8, 1997 from Cape Canaveral Air
Station in Florida. It has replaced the transmission services on Galaxy III-R,
the first satellite launched to offer DirecTV(TM), digital direct-to-home
television service in Latin America. Galaxy VIII-i, with 32 transponders, is the
most powerful satellite built to date by Hughes Space and Communications and is
operated by PanAmSat Corporation. Its payload has been expanded and the expected
operational life of the spacecraft extended. Additionally, as DirecTV's
satellite covers almost all of Brazil, it can also be marketed to those
households in areas where cable or MMDS are not fully developed or not
economically viable alternatives. Therefore, we expect the DTH market to grow
from 14 % in 1997 to 25% in 2004. TVA believes that it will continue to have an
important position as a leader in this technology.
Galaxy Brazil currently offers 73 video channels (26 pay-per-view) and 33
audio channels. With the new satellite, we will expand our programming line-up
to 94 video channels (35 pay-per-view) and 48 audio channels. The entrance cost
for a new subscriber is US$351 as a hook-up fee plus a monthly fee of US$12 as a
decoder rental to the customer. The US$12 is built-in to the total monthly
subscription fee of US$58. This operation has been funded with a long-term lease
finance facility, which prevents the Company from subsidizing the cost of its
equipment, approximately US$360 per decoder.
The Company created a new nationwide structure in February, 1998, with
regional managers and regional sales teams. New points of sales have been added
especially in dealers and high traffic areas (malls, shopping centers and
department stores). Galaxy Brasil launched a new MDU (bulk installation) project
in order to aggressively increase market share, especially in large cities. In
the first quarter penetration was 4.5 subscribers per building, and new cities
have been added in the past months. It is important to emphasize that
competitors so far have no similar project to approach buildings, and this will
continue to be a very important advantage to the Company.
- more -
<PAGE>
Competition
DirecTV(TM) is the leader in the Brazilian DTH Ku-Band market. It has the
best quality product and the largest programming offer. SKY is the second player
in the market, with also significant growth but serious technological challenges
with its new satellite. NetSat is migrating its C-Band subscribers to SKY with
no charge for equipment and antenna. SKY has also reduced its hook-up fee to
R$351 in October to match DirecTV(TM) prices, and has introduced many channels
throughout the year. TECSAT is a new player that launched the service in March,
1998. It started the service with a limited number of channels and a promotional
programming package. Its strength is the dealer network it created to sell
C-Band antennas.
Subscriber Performance
In the first quarter of 1998, DirecTV(TM) had approximately 164 thousand
direct Ku-Band subscribers, an increase of 14.6% over December 31, 1997.
The following table sets forth the subscriber performance between the year
ended December 1997 and March 31, 1998:
KU-BAND Subscriber Evolution
(Jan-Mar/98)
Galaxy
Brasil
------
(+) Paying Subs - Dec. 31, 1997 142,900
------------------------------- -------
(+) New Connects 22,857
(+) Net Transferred from/to other Operations
(-) Disconnects 1,931
---------------------------------------------------------------------------
(=) Paying Subs - March 31, 1998 163,826
---------------------------------------------------------------------------
1st Q98 Growth 14.6%
Monthly Churn (a) 0.4%
Annual Churn (b) 4.7%
---------------------------------------------------------------------------
(a) Disconnects / (Initial Balance + New Connects + Net Transferred) / 3
(b) Monthly Churn *12
[SALES VOLUME PER MONTH BAR CHART OMITTED]
New collection During the first quarter, DirecTV(TM) carried out several
structure measures to fight delinquency, resulting in a recovery of
recovers more than 60% of total disconnects. This impressive result
delinquent leads us to continue those actions on a daily basis.
subscribers
Despite said fact we experienced a decrease in the hook-up
fee basically because of the entry of MDUs into the
subscriber base. The increase of the Monthly fee is due to
an increase in pay-per-view purchasing and to the full
package sales growth as shown in the chart below:
US$ per new subs
Hook up fee Monthly fee
----------- -----------
4Q97 1Q98 % Chg. 4Q97 1Q98 % Chg.
---- ---- ------ ---- ---- ------
Galaxy Brasil $373.19 $325.96 -12.7% $47.79 $50.74 6.2%
- more -
<PAGE>
b) TVA Satelite - 1Q98 Income Statement
TVA SATELITE Ltda.
Income Statement
For the Three-Month Periods Ended March 31, 1998;
December 31, 1997 and March 31, 1997
<TABLE>
<CAPTION>
1Q98 4Q97 1Q97
---- ---- ----
1Q98/ 1Q98/
%Net % Net 4Q97 %Net 1Q97
$000 Revenue $000 Revenue % Change $000 Revenue % Change
---- ------- ---- ------- -------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Monthly subscriptions 22,623 68.9% 19,521 53.4% 15.9% 6,032 38.4% 275.0%
Installation (Hook-up fee) 12,646 38.5% 19,658 53.7% -35.7% 11,355 72.3% 11.4%
Advertising
Indirect programming
Other
Gross revenue 35,269 107.5% 39,179 107.1% -10.0% 17,387 110.7% 102.8%
Revenue taxes (2,448) -7.5% (2,597) -7.1% -5.7% (1,680) -10.7% 45.7%
Net Revenue 32,821 100.0% 36,582 100.0% -10.3% 15,707 100.0% 109.0%
Direct operating expenses 22,051 67.2% 17,669 48.3% 24.8% 5,793 36.9% 280.6%
S,G&A expenses 9,062 27.6% 10,541 28.8% -14.0% 9,820 62.5% -7.7%
EBITDA 1,708 5.2% 8,372 22.9% -79.6% 94 0.6% 1717.0%
</TABLE>
Highlights as of March 31, 1998
This operation experienced a significant reduction of the EBITDA Margin as
compared to the 4Q97 due to:
A 36% reduction of installation revenue:
o Activation reduced by 26% from 30,701 in the 4Q97 to 22,857 in the 1Q98,
reflecting the market economic cycle;
o Average revenue per subscriber dropped by 13% from US$373 to US$326 due to
the introduction of the MDU - bulk installation - project;
o In the 4Q97 there were still some installments relating to the previous
hook-up fee of US$527.
A 25% increase of Direct Operating Expenses:
o Programming costs in the 1Q98 included some free pay-per-view events that
were offered to the subscribers, such as shows and concerts;
o Increase in marketing expenses in order to aggressively respond to
competition and to enhance market leadership;
o Introduction of the initial operational cost to launch the MDU - bulk
installation - project;
o Creation of a new nationwide sales structure to replace third party
distributors.
The significant 16% increase of Monthly subscription was due to:
o Subscriber base increase of 15% by the end of the quarter;
o Average monthly revenue increase of 6%, representing an additional US$3 per
subscriber, as a result of the total programming package penetration.
- more -
<PAGE>
TVA Programadora
TVA's programming is distributed by TVA to its owned and operated MSOs
(Multiple System Operator), its affiliated MSOs and to independent operators. By
the end of 1Q98, programming had been distributed to almost 1.4 million
households. Among its proprietary channels, TVA Programadora includes ESPN
Brasil, HBO Brasil1 and 2 (multiplexed), CMT Brasil, Bravo and Eurochannel in
addition to the recently launched Cinemax.
a) HBO Brasil Operation Overview
On March 31, 1998, HBO Brasil had 735,349 subscribers, being distributed by
73 Pay TV operators throughout the Country. The channel successfully completed
the launch of Cinemax on November 1st, 1997, and this significantly strengthened
the HBO portfolio as a movie channel provider. Recent marketing surveys indicate
that HBO has the stronger preference among subscribers and the highest levels of
satisfaction when compared to any other Pay TV service. This year strong
blockbuster offerings by its partner studio suppliers (Disney, Warner, Sony)
will further reinforce HBO Brasil's and Cinemax's favored position in our
programming line-up.
b) ESPN Brasil Operation Overview
On March 31, 1998, ESPN Brasil had 878,210 subscribers, being distributed
by 71 Pay TV operators. The channel continues to reinforce its programming
content, including rights to the most important Brazilian, European and South
American soccer leagues, and other relevant Brazilian sports, such as volleyball
and basketball, plus an exclusive license agreement with ESPN2 for Brazil.
During next June and July, ESPN Brasil will feature a 24 hour daily
coverage of the Soccer World Cup in France, the most intensive of any Brazilian
Television Network, thus bringing unparalleled coverage of the upmost relevant
sports event to the Brazilian audience.
c) TVA Channel Operation Overview
TVA Channel has completed the revamping of the line-up for TVA
Distribuidora's MSOs , with the launch of MGM Gold and CBS Telenoticias during
the first quarter of 1998. In the last six months, seven channels were launched,
significantly reinforcing our line-up of channels, at no extra cost to the
subscriber and operations. This was possible due to a complete renegotiation of
the previous contracts, with resulting savings reinvested as new "free" channels
for the
- more -
<PAGE>
subscribers, a process that coincided with the launch of the tiered packages of
programming by the Rio and Sao Paulo operations.
With its the line-up review completed, TVA is now able to offer the
strongest programming packages in the marketplace, at comparable costs to the
subscriber for cable and at lower costs for MMDS. Also, taking advantage of our
fully addressable operations, the tiering packages launched on November 1st,
1997 provided a more complete product portfolio at lower access prices allowing
full freedom to navigate among the packages above Basic with a non-buy thru
concept, thus appealing to all consumer segments.
TVA's Engineering facilities has completed their renovation and
modernization process, with state of the art equipment to play back and uplink
our channels and advertising, plus new studio and post-production facilities
intended to bring economies of scale for the existing channels and new revenue
sources with new businesses.
- more -
<PAGE>
Subscriber Performance
In the first quarter of 1998, TVA Programadora had approximately 673
thousand indirect subscribers, an increase of 0.5% over December 31, 1997.
The following table sets forth the subscriber performance between the year
ended December 1997 and March 31, 1998:
TVA Programadora Subscriber Evolution
(Jan-Mar/98)
Indirects
---------
(+) Paying Subs - Dec 31, 1997 669,543
(+) New Connects 18,710
(+) Net Transferred from/to other Operations
(-) Disconnects 15,423
(=) Paying Subs - March 31, 1998 672,830
1st Q98 Growth 0.5%
Monthly Churn (a) 0.7%
Annual Churn (b) 9.0%
(a) Disconnects / (Initial Balance + New Connects + Net Transferred) / 3
(b) Monthly Churn *12
Indirect Most of the indirect subscribers operations have completed
Operators reach three years, having achieved high penetration levels in A
maturity and and B social classes due to the small-medium size of the
start scrambling cities operated. These operations are now under the process
the signal. of encrypting their systems, which will allow them to offer
basic packages more affordable to the C social class. This
movement is expected to increase our subscriber base in the
near future.
New licenses will also bring opportunities to expand the
indirect subscriber base when they become effective.
- more -
<PAGE>
d) TVA Programadora - 1Q98 Income Statement
TVA PROGRAMADORA Ltda.
Income Statement
For the Three-Month Periods Ended March 31, 1998;
December 31, 1997 and March 31, 1997
<TABLE>
<CAPTION>
1Q98 4Q97 1Q97
---- ---- ----
1Q98/ 1Q98/
%Net %Net 4Q97 %Net 1Q97
$000 Revenue $000 Revenue % Change $000 Revenue % Change
---- ------- ---- ------- -------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Monthly subscriptions
Installation (Hook-up fee)
Advertising 1,203 14.0% 1,028 14.6% 17.0% 1,810 21.1% -33.5%
Indirect programming 5,729 66.5% 4,778 67.9% 19.9% 5,115 59.6% 12.0%
Other 2,196 25.5% 1,599 22.7% 37.3% 1,995 23.3% 10.1%
Gross revenue 9,128 106.0% 7,405 105.2% 23.3% 8,920 104.0% 2.3%
Revenue taxes (514) -6.0% (365) -5.2% 40.8% (340) -4.0% 51.2%
Net Revenue 8,614 100.0% 7,040 100.0% 22.4% 8,580 100.0% 0.4%
Direct operating expenses 6,963 80.8% 5,092 72.3% 36.7% 8,597 100.2% -19.0%
S,G&A expenses 2,009 23.3% 2,851 40.5% -29.5% 2,144 25.0% -6.3%
EBITDA (358) -4.2% (903) -12.8% -60.4% (2,161) -25.2% -83.4%
</TABLE>
Highlights as of March 31, 1998
o The reduction on EBITDA from negative US$903 thousand for the 4Q97 to
negative US$358 thousand during the 1Q98 was due to:
i) Services rendered to our affiliates as a result of support in
productions and engineering;
ii) Revenue from new channels offered to our affiliated and independent
operators.
- more -
<PAGE>
6. Tevecap's Consolidated 1Q98 Results
- ----------------------------------------
a) Consolidated Results
Consolidated Net Revenue
- ------------------------
1Q98 4Q97 1Q97
---- ---- ----
(+) Gross Revenue 88,125 92,868 72,517
(-) Revenue Taxes 5,964 6,857 5,286
----- ----- -----
(=) Net Revenue 82,161 86,011 67,231
In the 1Q98 Net Revenue decreased 4.5% as compared to the 4Q97 mainly due
to the reduction of the hook-up fee revenue of the Ku-Band Operation and to the
lower number of new subscriptions. We emphasize that to the Asian crisis, the
first quarter in Brazil usually has a negative seasonal impact due to the summer
and vacation period in Brazil. Also, the implementation of more aggressive MDU
(bulk installation) sales contributed to reduced Revenue, since in many cases
the Company does not charge the full hook-up fee.
Monthly Subscription Revenue
- ----------------------------
1Q98 4Q97 1Q97
---- ---- ----
US$ million 62,878 62,188 44,282
% of Gross Revenue 71.4% 67.0% 61.1%
As shown above the Monthly Subscription Revenue is becoming the most
important portion of revenue in light of our solid and consistent subscriber
base. For the 1Q98 we experienced a 1.1% growth despite the adverse Brazilian
economic situation as already mentioned in the previous pages.
The Company has a provision for bad debt equivalent to 100% of the
potential subscriber cancellation based on historical data.
Installation Revenue
- --------------------
1Q98 4Q97 1Q97
---- ---- ----
US$ million 15,300 21,576 17,456
% of Gross Revenue 17.4% 23.2% 24.1%
The substantial reduction in this item was due to:
i) low sales volume of the season,
ii) Tevecap's reduction of new subscriptions due to new credit analysis
policy,
iii) Introduction of Ku-Band's new sales policy for MDU and
- more -
<PAGE>
iv) Waiver of hook-up fee in highly competitive areas.
The chart below shows the performance of sales in the 1Q98:
1Q98 4Q97 Chg.%
---- ---- -----
MMDS 24,382 36,950 -34.0%
Cable 15,452 12,092 27.8%
C Band 5,685 3,989 42.5%
Ku Band 21,543 29,800 -27.7%
------ ------ ------
Total O&O 67,062 82,831 -19.0%
Ventures 4,344 4,144 4.8%
----- ----- ----
Total 71,406 86,975 -17.9%
MMDS was affected by the strict credit policy and Ku-Band had a low sales
performance as compared to its sales peak in 4Q97 when the Company reduced the
hook-up fee from US$ 527 to US$ 151.
Indirect Programming Revenue
----------------------------
1Q98 4Q97 1Q97
---- ---- ----
US$ million 5,729 4,778 5,115
% of Gross Revenue 6.5% 5.1% 7.1%
This revenue consists of payments made to the Company for the sale of its
programming to affiliates and independent operators.
Direct Operating Expenses
-------------------------
1Q98 4Q97 1Q97
---- ---- ----
(+) Direct Operating Expenses 23,134 24,264 20,072
(excluding programming)
% of Net Revenue 28.2% 28.2% 29.9%
(+) Programming 26,416 20,994 16,366
% of Net Revenue 32.2% 24.4% 24.3%
(=) Direct Operating Expenses 49,550 45,258 36,438
% of Net Revenue 60.3% 52.6% 54.2%
Overall, the Direct Operating Expenses as a percentage of Net Revenue are
under control as shown in the line excluding programming cost. However, the
Programming Cost, in the 1Q98 grew as a result of investment in pay-per-view
events and channels added to the line-up of Ku-Band Operation.
- more -
<PAGE>
Selling, General and Administrative expenses
--------------------------------------------
1Q98 4Q97 1Q97
---- ---- ----
Selling Expenses 22,629 27,335 24,323
% of Net Revenue 27.5% 31.8% 36.2%
Allowance for doubtful
accounts 2,691 2,010 1,568
% of Net Revenue 3.3% 2.3% 2.3%
S, G&A 25,320 29,345 25,891
% of Net Revenue 30.8% 34.1% 38.5%
During the 1Q98, Tevecap kept the policy to make provisions for 100% of bad
debt and for potential subscriber cancellation. This policy guarantees that
Tevecap will not surprise the market with bad news and on March 31, 1998, the
Company had a provision of US$13.4 million for doubtful accounts.
As a percentage of Net Revenue, S,G&A decreased to 30.8% in the 1Q98, from
34.1% in the last quarter by virtue of revisions in process as already
mentioned.
EBITDA
------
1Q98 4Q97 1Q97
---- ---- ----
US$ million 7,290 11,408 4,902
% of Gross Revenue 8.9% 13.3% 7.3%
EBITDA Margin in the 1Q98 as a percentage of Net Revenue decreased 4.4%
when compared to the last quarter as a consequence of the Ku-Band's performance
mentioned previously in this report. On an operation-per-operation basis, TVA
Distribuidora experienced a consistent EBITDA Margin as shown below
1Q98 4Q97 1Q97
---- ---- ----
TVA Distribuidora 29.7% 24.3% 22.7%
TVA Programadora -4.2% -8.5% -21.1%
TVA Satelite 5.2% 22.9% 0.6%
Operating Loss
--------------
During the 1Q98 Operating Loss was US$12.3 million, 2% higher than the
US$12 million loss reported for the 4Q97, and we expect this item to remain
stable this year.
Interest Income/Expense
-----------------------
Net Interest Income/Expense was US$14.5 million for 1Q98, the same amount
as reported for the previous quarter.
- more -
<PAGE>
Equity in losses of affiliates
------------------------------
This item amounted to a loss of US$4.8 million in 1Q98 versus an income of
US$0.6 million in 4Q97. This loss came from ESPN Brasil (US$3.6 million), HBO
Brasil (US$1.3 million) and was reduced in US$0.1 million by the positive result
of Canbras TVA.
b) Financial Situation
1Q98 4Q97 1Q97
---- ---- ----
Short Term Debt 71,552 56,397 30,279
Long Term Debt 349,022 461,368 253,126
------- ------- -------
Total Debt 420,574 517,765 283,405
Shareholders' Equity 70,578 1,972 67,926
------ ----- ------
Capitalization 491,152 519,737 351,331
Debt to Capitalization 85.6% 99.6% 80.7%
During the 1Q98 Total Debt dropped 19% compared to the previous quarter. In
February, 1998 the Abril Group, the major shareholder, injected US$100 million
into Tevecap. The proceeds from the capital infusion were used to repay Loans
from shareholders and the balance of cash on hand as of March 31, 1998 was
US$16.4 million.
- more -
<PAGE>
c) Consolidated Balance Sheet
TEVECAP S.A.
Consolidated Balance Sheet
For the Periods Ended March 31, 1998; December 31, 1997 and March 31, 1997
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Mar 31, Dec 31, % Mar 31, %
1998 1997 Chg. 1997 Chg.
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 16,378 1,024 1499% 65,066 -75%
Accounts receivable, net 43,103 47,002 -8% 35,928 20%
Inventories 23,639 23,590 0% 16,906 40%
Film exhibition rights 1,559 1,291 21% 856 82%
Prepaid and other assets 11,139 14,028 -21% 4,058 174%
Other accounts receivable 14,254 12,984 10% 4,443 221%
Total current assets 110,071 99,919 10% 127,257 -14%
Property, plant and equipment 434,038 421,972 3% 260,284 67%
Investments
- -Equity affiliates 5,229 11,835 -56% 9,454 -45%
- -Cost basis investees 43,705 30,237 45% 23,734 84%
- -Concessions, net 13,349 13,775 -3% 16,710 -20%
Loans to related companies 19,311 19,566 -1% 16,693 16%
Prepaid expenses 7,351 7,813 -6% 8,379 -12%
Other 2,683 2,614 3% 2,154 25%
Total assets 635,737 607,731 5% 464,665 37%
Short-term bank loans 71,552 56,397 27% 30,279 136%
Film suppliers 26,017 26,184 -1% 10,955 137%
Other suppliers 64,940 66,749 -3% 51,984 25%
Taxes payable other
than income taxes 13,761 12,837 7% 8,843 56%
Accrued payroll and
related liabilities 6,282 6,589 -5% 7,163 -12%
Advance payments received
from subscribers 3,045 4,386 -31% 6,303 -52%
Other accounts payable 8,126 4,839 68% 8,107 0%
Total current liabilities 193,723 177,981 9% 123,634 57%
Long term bank loans 303,198 309,739 -2% 250,456 21%
Loans from related companies 45,824 95,232 -52% 2,670 1616%
Loans from shareholders 3,228 -100%
Provision for claims 6,643 5,907 12% 4,547 46%
Liability to fund joint venture
and equity investee 1,391 -100%
Deferred hook up fee revenue 11,190 12,098 -8% 9,224 21%
Total long-term liabilities 366,855 422,976 -13% 271,516 35%
Minority interest 4,581 4,802 -5% 1,589 188%
Paid-in-capital 387,803 287,962 35% 287,962 35%
Accumulated deficit (317,225) (285,990) 11% (220,036) 44%
Total shareholders' equity 70,578 1,972 3479% 67,926 4%
Total liabilities and
shareholders' equity 635,737 607,731 5% 464,665 37%
</TABLE>
- more -
<PAGE>
d) Tevecap - 1Q98 Income Statement
TEVECAP S.A.
Income Statement
For the Three-Month Periods Ended March 31, 1998;
December 31, 1997 and March 31, 1997
<TABLE>
<CAPTION>
1Q98 4Q97 1Q97
---- ---- ----
1Q98/ 1Q98/
%Net %Net 4Q97 %Net 1Q97
$000 Revenue $000 Revenue % Change $000 Revenue % Change
---- ------- ---- ------- -------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Monthly subscriptions 62,878 76.5% 62,188 72.3% 1.1% 44.282 65.9% 42.0%
Installation (Hook-up fee) 15,300 18.6% 21,576 25.1% -29.1% 17,456 26.0% -12.4%
Advertising 1,203 1.5% 1,028 1.2% 17.0% 1,810 2.7% -33.5%
Indirect programming 5,729 7.0% 4,778 5.6% 19.9% 5,115 7.6% 12.0%
Other 3,015 3.7% 3,298 3.8% -8.6% 3,854 5.7% -21.8%
Gross revenue 88,125 107.3% 92,868 108.0% -5.1% 72,517 107.9% 21.5%
Revenue taxes (5,964) -7.3% (6,857) -8.0% -13.0% (5,286) -7.9% 12.8%
Net Revenue 82,161 100.0% 86,011 100.0% -4.5% 67,231 100.0% 22.2%
Direct operating expenses 49,550 60.3% 45,258 52.6% 9.5% 36,438 54.2% 36.0%
S,G&A expenses 25,321 30.8% 29,346 34.1% -13.7% 25,891 38.5% -2.2%
EBITDA 7,290 8.9% 11,407 13.3% -36.1% 4,902 7.3% 48.7%
Allowance for obsolescence
of material 5,218 6.1% -100.0% 38 0.1% -100.0%
Depreciation and amortization 19,551 23.8% 18,155 21.1% 7.7% 10,397 15.5% 88.0%
Operating loss (12,261) -14.9% (11,966) -13.9% 2.5% (5,533) -8.2% 121.6%
Interest income 2,767 3.4% 1,796 2.1% 54.1% 5,035 7.5% -45.0%
Interest expenses (17,297) -21.1% (16,574) -19.3% 4.4% (11,316) -16.8% 52.9%
Translation (loss) gain (636) -0.8% 927 1.1% -168.6% (610) -0.9% 4.3%
Equity in losses of affiliates (4,761) -5.8% 587 0.7% -911.1% (2,466) -3.7% 93.1%
Other nonoperating (expenses)
income, net 731 0.9% (1,602) -1.9% -145.6% (763) -1.1% -195.8%
Loss before income taxes and minority (31,457) -38.3% (26,832) -31.2% 17.2% (15,653) -23.3% 101.0%
Income taxes
Minority interest 222 0.3% 374 0.4% -40.6% 191 0.3% 16.2%
Net income (loss) (31,235) -38.0% (26,458) -30.8% 18.1% (15,462) -23.0% 102.0%
</TABLE>
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<PAGE>
e) Tevecap - 1Q98 Statement of Cash Flow
TEVECAP S.A.
Statement of Cash Flow
For the Three-Month Periods Ended March 31, 1998;
December 31, 1997 and March 31, 1997
(in thousands of U.S. dollars)
1Q 4Q 1Q
1998 1997 1997
---- ---- ----
Cash flows from operating activities:
Net loss (31,235) (26,456) (15,462)
Adjustment to reconcile net loss to
net cash (used in) provided by
Operating activities:
Depreciation 19,125 17,727 9,533
Amortization 426 427 864
Allowance for exhibition costs
Allowance for doubtful accounts 2,691 2,010 1,568
Allowance for obsolescence 5,218
Provision for claims 736 687 (492)
Minority interest (221) (374) (191)
Disposal and write-off of fixed assets
Equity in losses (earnings) of affiliates 4,761 (587) 2,466
Changes in operating assets and liabilities:
Film exhibition rights (268) (788) 205
Accounts receivable 1,208 (860) (5,200)
Prepaid and other assets 9,586 1,598 (1,859)
Other accounts receivable (7,504) (3,202) 229
Other (69) (30) 283
Accrued interest 3,266 12,514 7,746
Inventories (49) (1,330) (3,811)
Legal deposits (408)
Suppliers (1,976) 23,779 2,995
Taxes payable other than income taxes 924 2,052 (110)
Accrued payroll and related liabilities (307) (1,615) 1,022
Advances received from subscribers (1,341) (1,128) (4,179)
Deferred hook up fee Revenue (908) (5,357) 4,341
Other accounts payable 3,283 1,394 3,231
Net cash (used in) provided by
operating activities 2,128 25,271 3,179
Cash flows from investing activities:
Business acquisition
Purchase of fixed assets (31,191) (64,776) (36,569)
Loans to affiliated companies (189) (189) (1,915)
Cash received on loans to
affiliated companies 439 1,299
Purchase of concessions
Investments in equity and
cost investments (11,625) (5,398) (11,658)
Net cash used in investing
activities (42,566) (69,064) (50,142)
Cash flows from financing activities:
Loans from Banks 15,081 16,885 5,117
Capital contributions 99,847
Repayments of loans from shareholders (5,753) 1,588
Loans from shareholders 1,800
Loans from affiliated companies 38,651 53,111 526
Repayments of loans from
affiliated companies (90,073) (1,631)
Repayments of loans from banks (7,714) (28,169)
Net cash provided by financing
activities 55,792 36,243 7,231
Net (decrease) increase in cash
and cash equivalents 15,354 (7,550) (39,732)
Cash and cash equivalents at beginning
of the period 1,024 8,574 104,798
Cash and cash equivalents at
end of the period 16,378 1,024 65,066
<PAGE>
7. Report from Management
- ---------------------------
"The Pay TV business in Brazil continues to offer a good business
opportunity, taking into account the low penetration level and the very strong
demand for this type of service. The temporary crisis faced by our Country
resulted in a high delinquency level due to the increase of interest rates
imposed by the Government in reply to the Asian crisis. Notwithstanding this, in
the medium and long term we expect to enjoy significant growth.
Tevecap has always been candid in the disclosure of its results, business
strategy and policy, which we consider to be one of our major obligations
towards investors and shareholders. Furthermore, the Company's Management has
been consistently focused on profitability, but without neglecting the customer,
our primary target. We are sure that Tevecap is considered to be a company that
respects its customers while simultaneously being firm with those who maintain
their accounts current.
We are confident that this Report is clear, objective and will be useful to
Tevecap's investors and to the segment analysts, and will be an important tool
in our conference call scheduled May 29, 1998, at 3:00 p.m. EST. Please do not
hesitate to contact us should you need any clarification or have any eventual
questions on the foregoing."
Best regards,
Raul Rosenthal
CEO
