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29 August 2000

Netia Holdings S.A. annouces 2000 first half results


Warsaw, Poland - August 29, 2000 - Netia Holdings (NASDAQ: NTIA, WSE: NETIA), Poland's largest alternative provider of fixed-line telecommunications services, today announced unaudited results for the second quarter and first half year ended June 30, 2000.

Financial highlights

  • Total revenues for the first half 2000 increased by 107% to PLN 200.0 million (US$ 45.6 million) compared to PLN 96.8 million for the same period in 1999. Total revenues for second quarter 2000 increased by 102% to PLN 104.8 million (US$ 23.9 million) compared to PLN 51.9 million for second quarter 1999 and 10% compared to PLN 95.2 million in first quarter 2000.
  • Revenues from telecom services for first half 2000 increased by 106% to PLN 177.4 million (US$ 40.4 million) compared to PLN 86.3 million for first half 1999, driven by higher usage and tariff increases, as well as a growing business customer base. Revenues from telecom services for the second quarter 2000 increased by 94% to PLN 90.4 million (US$ 20.6 million) compared to PLN 46.5 million for the second quarter 1999 and by 4% compared to PLN 87.0 million over the first quarter 2000.
  • EBITDA for the first half 2000 improved to PLN 13.1 million (US$ 3.0 million), from a negative PLN 16.0 million for the first half of 1999. EBITDA for the second quarter 2000 improved to PLN 3.3 million (US$ 0.7 million) from a negative PLN 14.5 million in the second quarter of 1999. These improvements were primarily due to revenues increasing faster than operating expenses. EBITDA decreased from PLN 9.8 million in the first quarter 2000 due to costs associated with the ongoing introduction of new services.
  • Investments in gross fixed assets at June 30, 2000 increased by 54% to PLN 2,181.0 million (US$ 496.8 million) compared to PLN 1,416.3 million at June 30, 1999, and by 7% compared to PLN 2,035.7 million at March 31, 2000, reflecting the continued build-out of Netia's network. At June 30, 2000 Netia had PLN 1,799.6 million (US$ 409.9 million) in cash (excluding restricted investments of PLN 376.5 million or US$ 85.8 million).
  • On July 31, 2000, Netia entered into its first currency hedge transaction in order to more effectively manage the foreign currency risk associated with debt denominated in USD.
  • On June 15, 2000, Netia Holdings S.A. commenced trading of its stock on the Warsaw Stock Exchange. Concurrently with the Polish offering, Netia completed a follow-on offering of its shares in the form of ADRs on Nasdaq. Net proceeds from these transactions amounted to PLN 474.5 million (US$ 108.1 million). In June, Netia Holdings II BV also completed its Senior Notes offering of Euro 200 million, proceeds from which amounted to PLN 839.3 million (US$ 191.2 million).
  • Telia, the Swedish national operator and Netia's strategic partner, raised its equity stake to approximately 48% of Netia Holdings' share capital by purchasing 2,250,000 newly issued shares from Netia and 4,900,000 existing shares from other shareholders of the Company.

Operational highlights

  • In May 2000, the Ministry of Communications granted the Netia 1 consortium a nationwide domestic long distance license. In June 2000, Netia's subsidiary Netia Telekom Mazowsze S.A. was granted a license to provide local voice service in the Warsaw metropolitan area.
  • Build-out of Netia's national inter-city fiber optic network is on track for scheduled completion by the end of 2000.
  • Number of subscriber lines in service increased by 48% to 286,259 at June 30, 2000 from 193,607 at June 30, 1999, and 6.5% from 268,912 at March 31, 2000.
  • Business lines as a percentage of total subscriber lines reached 22.1%, up from 18.0% at June 30, 1999, and 21.0% at March 31, 2000.
  • Number of business customer lines in service increased by 81% to 63,217 at June 30, 2000 from 34,943 at June 30, 1999, and increased by 12% from 56,530 at March 31, 2000.
  • Average monthly revenue per line grew by 37% to PLN 107 (US$ 24) in the second quarter 2000 compared to PLN 78 in the second quarter 1999 and decreased by 1.8% from PLN 109 compared to the first quarter 2000. In January and July 2000, Netia increased tariffs in step with increases announced by TP S.A.
  • The launch of Internetia's dial-up service completed its test phase (limited to 20,000 active users). A total of 27,003 potential customers logged on to the network during this initial phase and were given five free hours to test the service. On June 30, 2000 there were 12,030 active and registered users paying for the service. The larger, second phase will commence in September 2000.
  • On August 8, 2000, Netia agreed to acquire all of the outstanding shares of Millennium Communications S.A., a Warsaw-based provider of shared tenant telecommunications services in multi-tenant buildings.

Key Figures

PLN'000YTD OOYTD 99%2Q001Q00%
Margin %6.6%(16.5%)3.1%10.3% 
Net profit / (loss) before FX(198,014)(161,581)23%(107,464)(90,550)19%
Net profit / (loss) after FX(278,538)(268,370)4%(214,168)(64,370)233%
Net debt**1,542,4571,364,76713%1,542,4571,524,2601%

US$'000 * *YTD 00YTD 99%2Q001Q00%
Margin %6.6%(16.5%)3.1%10.3%
Net profit / (loss) before FX(45,106)(36,807)23%(24,479)(20,627)19%
Net profit / (loss) after FX(63,439)(61,124)4%(48,777)(14,662)233%
Net debt**351,357310,88113%351,357347,2121%

* The US$ amounts shown in this table have been translated using the exchange rate of PLN 4.39 = US$ 1.00, the average rate announced by the National Bank of Poland at June 30, 2000. These figures are included for convenience only.
** Net debt is defined as long term debt less cash and both long and short term portion of escrow accounts.

Commenting on the results, Meir Srebernik, President and CEO of Netia, said: "The growth of Netia's local access business continues on course, especially in our business customer franchise, and for the first time our business customer revenues have exceeded 50% of total. We are making significant progress entering the city of Warsaw, following Netia's award of a voice license for the country's leading local market in June. We are continuing the roll-out of the Internetia ISP services and portal following a successful launch, and are making preparations to offer DLD services later this year.

"Netia continues to benefit from the liberalization of the market. Poland enacted the new telecommunications law in August, moving towards the EU regulations, which will lead to rebalancing of TP S.A.'s tariffs, and thus should have a positive margin impact for Netia. Netia is rapidly expanding its fixed-line business in competitive segments beyond voice and IP dial-up services, to offer ATM and IP-based data transmission, carrier's carrier and co-location services over our nationwide backbone in 2000.

"We will continue to expand our business through organic growth and selected acquisitions, such as the purchase of Millennium Communications S.A. in Warsaw. In addition, we will seek to leverage our network, service offering, customer franchise and strong brand, with a potential entry into the Polish mobile market. We anticipate that we will participate in the upcoming UMTS license tender and, if we do so, we will adhere to the strict financial business model that has guided Netia's previous bids, and participation will be through a consortium with other partners, similar to our successful approach on the DLD license.

Avi Hochman, Chief Financial Officer of Netia, added: "Netia's growth continues, with a doubling of our revenue base in comparison with the same period in 1999. Additionally, this is Netia's third consecutive quarter of positive EBITDA. Despite the introduction and preparation of new services, i.e., Internet, domestic long distance, and our entry into the Warsaw market, we were successful in maintaining an overall positive EBITDA for the quarter, and intend to do so in the future."

Financial Information

2000 Year to Date vs 1999 Year to Date
Revenues increased by 107% to PLN 200.0 million (US$ 45.6 million) during first half 2000, compared to PLN 96.8 million for the same period in 1999.

Revenues from telecommunications services increased by 106 % to PLN 177.4 million (US$ 40.4 million) from PLN 86.3 million in the first half of 1999. The increase was primarily attributable to a 48% increase in the number of total subscribers to 286,259 at June 30, 2000 from 193,607 at June 30, 1999. Other contributing factors were the overall increase in average revenue per line (PLN 107 (US$ 24) for the second quarter 2000 compared to PLN 78 for the second quarter 1999), increases in Netia's local tariff and monthly subscription fee in January 2000, matching the increases in TP S.A.'s tariff, and higher usage.

Earnings before interest, tax, depreciation and amortization (EBITDA) amounted to PLN 13.1 million or US$ 3.0 million, compared with a negative result of PLN 16.0 million in the first half of 1999.

Interconnection charges increased by 119% to PLN 53.4 million (US$ 12.2 million) from PLN 24.4 million. Interconnection charge as a percentage of calling charges was at the same level for both periods and amounted to 41%. Increased interconnect costs which were a result of Netia's increased business customer base (which uses more DLD and ILD services, subject to interconnection costs) have been offset by decreased fixed-to-mobile costs (as a result of direct interconnection to the mobile operators). On June 30, 2000, the Ministry of Communications announced the recommended interconnection rates to be used in settlements between operators. Accordingly, Netia has commenced negotiations with TP S.A. aimed at adjusting the existing rates to those recommended by the Ministry.

"Other operating expenses" amounted to PLN 122.8 million (US$ 28.0 million), with salaries and benefits as the main item; headcount at June 30, 2000 was 1,350 compared to 1,028 at June 30, 1999. The above-mentioned "other operating expenses" represented 61% of total revenues at June 30, 2000, compared to 88% at June 30, 1999. Productivity continued to improve, as the number of active lines in service per employee increased by 16%, to an average of 207 in the first half of 2000 from 178 in the first half of 1999. Monthly average telecommunications revenue per employee increased between these periods by 54% to PLN 23,034 (US$ 5,247) from PLN 14,912.

Depreciation of fixed assets and amortization of licenses increased by 43% to PLN 67.5 million (US$ 15.4 million) from PLN 47.3 million as the construction stage of additional parts of the network drew to completion. Net financial expenses increased due to the fact that in 2000 Netia had experienced the full year effect of issuing 1999 Senior Notes.

The cash outflow from investing activities increased by 111% to PLN 714.2 million (US$ 162.7 million) from PLN 339.2 million for the same period of 1999.

Net loss amounted to PLN 278.5 million or US$ 63.4 million, compared to a net loss of PLN 268.4 million for the same period of 1999. The amount of the loss is mainly attributable to the cost of servicing Netia's debt and increased debt levels as well as depreciation of fixed assets and amortization of goodwill and licenses.

2000 Second Quarter vs 2000 First Quarter

Revenues for the quarter increased by 10% to PLN 104.8 million (US$ 23.9 million) compared to PLN 95.2 million for the first quarter of 2000. This increase was attributable to a 4% increase in revenues from telecommunications services to PLN 90.4 million (US$ 20.6 million) compared to PLN 87.0 million for the first quarter of this year, and a 75% increase in non-telecommunications revenues (operations of a trunking company Uni-Net) to PLN 14.4 million (US$ 3.3 million) from PLN 8.2 million.

Earnings before interest, tax, depreciation and amortization (EBITDA) for the quarter were PLN 3.3 million (US$ 0.7 million), compared to PLN 9.8 million for the first quarter of this year. The fluctuations at EBITDA level are caused by the ongoing introduction of new services.

Operational Review

During the past six months, Netia has successfully implemented a new national organizational structure, to replace the geographical/regional model. National sales channels for large corporate, SME and residential segments have been created, and the businesses have been organized into separate product lines for voice, data transmission and Internet services.

During the past six months, Netia has made considerable progress in building out its telecommunications network. Construction of the inter- and intracity network continues on track. The Company's intercity fiber optic backbone, planned at a total of 3,500 km, is 1,145 km short of reaching all of Poland's ten largest metropolitan areas, out of which 300 km are under construction, with 79% of rights of way for the remaining 845 km secured. Construction of the local access fiber optic city rings in all major cities within Netia's voice licenses should be substantially completed by the end of 2000, with four additional cities (Lodz, Bydgoszcz, Wroclaw and Szczecin) planned for completion in 2001 and Warsaw by the end of 2002.

The Company has increased the number of connected lines (defined as lines connected to the distribution point, with the last drop to the customer to be completed) by 40% to 470,006 lines at the end of second quarter 2000, up from 335,974 lines at June 30, 1999, and by 6% in the quarter, up from 441,421 lines at March 31, 2000.

Business lines as a percentage of total subscriber lines reached 22.1%, up from 18.0% at June 30, 1999.

Net cash used in the purchase of fixed assets amounted to PLN 324.3 million (US$ 73.9 million). Net fixed assets increased by 51% to PLN 1,983.5 million (US$ 451.8 million) as of June 30, 2000, compared to PLN 1,311.2 million at the same date in 1999, and 6% from 1,866.1 million at the end of first quarter of 2000, further reflecting the expansion of the network.

At June 30, 2000, Netia had cash and cash equivalents of PLN 1,799.6 million (US$ 409.9 million) available to be invested in building the telecommunications network and to support its operating activities. The Company had deposits in escrow amounting to PLN 376.5 million (US$ 85.8 million) to service interest payments on its 1997 Senior Notes until November 2000, interest payments on its 1999 Senior Notes until June 2001 and 2000 Senior Notes till June 2002.

This press release contains certain statements of a forward looking nature with respect to plans and projections of future performance of Netia, the occurrence of which involves certain risks and uncertainties including but not limited to product and market acceptance risks, the impact of comparative pricing, product development, commercialization and technology. Investors are directed to Netia's reports and documents filed from time to time with the US Securities and Exchange Commission, including Netia's Annual Report on Form 20-F for the year ended December 31, 1999, for additional factors that should be considered before investing in Netia's securities.

NETIA HOLDINGS is the largest alternative fixed-line telecommunications operator in Poland. Netia has 24 licenses for local telecommunications services in territories covering some 15 million people or approximately 40% of the Polish population. The Company's existing local telephone license territories cover six of the country's ten largest urban areas including Warsaw, Krakow, Poznan, Gdansk, Lublin and Katowice. Netia has also secured the benefit of a nationwide data and IP license to provide data transmission and Internet-based services. In May 2000 the Netia 1 consortium was issued the nationwide domestic long distance voice license.

Key operational indicators
Time periods:2Q001Q004Q993Q992Q991Q99
Network data 
Number of connected lines (cumulative)470,006441,421 429,595 374,569 335,974 306,843
Subscriber data 
Subscriber lines (cumulative)286,259268,912251,724214,252 193,607 170,959
Total net additions17,34717,188 37,472 20,645 22,648 22,825
Business net additions6,6874,976 10,312 6,299 6,425 6,726
Business subscribers (cumulative)63,21756,530 51,554 41,242 34,943 28,518
Business mix of total subscriber lines22.1%21.0%20.5%19.3%18.0%16.7%
Average monthly revenue per line (PLN)107109 92 80 78 74
Average monthly revenue per business line (PLN)252282 209 205 203 210
Average monthly revenue per residential line (PLN)6765 58 51 50 47

Income statement (according to IAS, unaudited)
(PLN in thousands unless otherwise stated)
Time periods:YTD00YTD992Q001Q00
Telecommunications revenue177,44686,31990,41487,032
Non-telecommunications revenue22,59010,47614,3848,206
Total revenues200,03696,795104,79895,238
Interconnection charges(53,400)(24,395)(27,435)(25,965)
Cost of equipment(10,770)(2,980)(7,138)(3,632)
Other operating expenses(122,760)(85,417)(66,946)(55,814)
Margin (%)6.6%(16.5%)3.1%10.3%
Depreciation of fixed assets and amortization of license (67,497)(47,262)(35,266)(32,231)
Amortization of goodwill(12,693)(6,747)(6,361)(6,332)
Margin (%)(33.5%)(72.3%)(36.6%)(30.2%)
Net financial expenses(209,625)(196,807)(178,523)(31,102)
Other losses0(62)00
Profit / (loss) before tax(276,709)(266,875)(216,871)(59,838)
Tax charges(1,162)(1,334)3,339(4,501)
Net profit / (loss)(278,538)(268,370)(214,168)(64,370)
Margin (%)(139.2%)(277.3%)(204.4%)(67.6%)
Earning/(loss) per share (not in thousands)(10,46)(19,94)(7,93)(2,45)
Weighted average number of shares outstanding (not in thousands)26,633,61213,455,71927,002,44226,260,684
Note to financial expenses
Net Interest Expense(119,779)(83,520)(65,385)(54,394)
Net Foreign Exchange gains (losses)(80,524)(106,789)(106,704)26,180
Amortization of deferred financing costs(5,377)(6,498)(2,489)(2,888)
Other financial expenses(3,945)0(3,945)0

Balance sheet (according to IAS, unaudited)
(PLN in thousands unless otherwise stated)
Time Periods:June 30, 2000June 30, 1999
Cash and cash equivalents1,799,589846,649
Restricted investments266,117178,773
Accounts receivable
Trade, net78,03049,461
Related parties0487
Prepaid expenses10,45311,521
Total current assets2,192,7651,126,038
Restricted investments110,410140,334
Investments at cost93513
Fixed assets, net1,983,5451,311,218
Investments in real estate3,7874,805
Deferred financing costs, net110,21286,901
Other long term assets2,4680
Goodwill, net245,489267,763
Total non-current assets3,325,1072,136,334
TOTAL ASSETS5,517,8723,262,372
Current maturities of long term debt17645,242
Accounts payable and accruals
Related parties4,51114,386
Accruals and other311,334118,819
Deferred income3,349875
Total current liabilities510,431362,561
Refundable customer deposits2361,516
Long term debt3,718,5732,530,523
Long term liabilities for licenses339,154179,969
Deferred tax liability010,974
Minority interest78,996234
Total non-current liabilities4,136,9592,723,216
Share capital203,285123,749
Share premium1,720,768673,367
Treasury shares(3,951)0
Accumulated deficit(1,049,620)(620,521)
Total shareholders equity870,482176,595

Cash flow statement (according to IAS, unaudited)
(PLN in thousands unless otherwise stated)
Time periods:YTD00YTD992Q001Q00
Net Loss(278,538)(268,370)(214,168)(64,370)
Depreciation and amortization of goodwill80,19054,00941,62938,561
Amortization of deferred financing costs5,3776,4982,4892,888
Amortization of discount on Notes56,50450,62729,20627,298
Other Losses3,945623,9450
Decrease / (Increase) in long term assets9,277017,700(8,423)
Foreign exchange (gains) / losses57,39997,45886,494(29,095)
Change in working capital123,33343,84773,92649,407
Net cash from / (used by) operating activities
Purchase of fixed assets(324,268)(335,518)(147,420)(176,848)
Purchase of investment at cost(922)0(922)0
Increase in restricted investments(219,902)(205,698)(219,902)0
Purchase of licenses(169,157)(3,723)(169,157)0
Net cash from investing activities(714,249)(544,939)(537,401)(176,848)
Net proceeds from share issue474,478289,521474,4780
Proceeds from unregistered issuance of shares of subsidiaries77,331077,3310
Proceeds from long term loans839,320811,858839,3200
Repayment of bank loans(50,511)0(50,511)0
Related Party Borrowings0(2,478)00
Capitalized deferred financing costs(21,772)(22,331)(21,772)0
Net cash from financing activities1,318,8461,076,5701,318,8460
Exchange rate change on cash34,42831,93652,870(18,442)
Net change in cash & equivalents697,179547,859876,172(178,993)
Cash at the beginning of the period1,102,410298,790923,4171,102,410
Cash at the end of the period1,799,589846,6491,799,589923,417