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12 May 2000

Netia Holdings S.A. announces 2000 first quarter results led by 167% increase in EBITDA over fourth quarter 1999


Warsaw, Poland - May 12, 2000 - Netia Holdings (NASDAQ: NTIA), the largest alternative provider of fixed-line local telephone services in Poland, today announced unaudited results for the first quarter of 2000.

Financial highlights

  • Total revenues for the first quarter 2000 increased 112% to PLN 95.2 million (US$ 23 million) compared to PLN 44.9 million for the first quarter 1999, and 9.0% compared to the fourth quarter 1999 (PLN 87.3 million).
  • Revenues from telecom services for the first quarter 2000 increased 119% to PLN 87.0 million (US$ 21 million) compared to PLN 39.8 million for the first quarter 1999 and 18.6% compared to PLN 73.4 million for the fourth quarter 1999, driven by higher usage and a growing business customer base.
  • EBITDA improved to PLN 9.8 million or US$ 2.4 million, from PLN (1.5 million) for the first quarter 1999 or US$ (0.4 million) and 167% from PLN 3.7 million (US$ 0.9 million) for the fourth quarter 1999.
  • Investments in gross fixed assets at March 31, 2000 increased 60% to PLN 2,035.7 million (US$ 491 million) compared to PLN 1,271.7 million at March 31, 1999, reflecting the continued buildout of Netia's network. At March 31, 2000 Netia had PLN 923 million in cash (excluding restricted investments of PLN 241 million).

Operational highlights

  • Build-out of national inter-city fiber optic network is on track for completion by the end of 2000. Over 60% of rights of way for remaining 1,300 km are secured.
  • Number of subscriber lines increased by 57% to 268,912 at March 31, 2000 from 170,959 at March 31, 1999 and 7% from 251,724 at December 31, 1999.
  • Business lines as a percentage of total subscriber lines reached 21%, up from 16.7% at March 31, 1999, while the number of business customer lines in service doubled, from 28,518 at March 31, 1999 to 56,530 at March 31, 2000. Revenues from business customers accounted for 47% of all telecommunications revenues at the end of the first quarter 2000.
  • Average monthly revenue per line grew by 48% to PLN 109.07 in the first quarter of 2000 compared to PLN 73.67 in the first quarter of 1999 and by 18% compared to PLN 92.28 in the fourth quarter of 1999. In January 2000, Netia increased tariffs in step with similar tariff increases by TP S.A.
  • In January 2000, the Ministry of Communications announced that the Netia 1 consortium (of which Netia is the leading member) had won a tender for providing nationwide domestic long distance services. In March 2000, Netia also won the second tender to provide local voice service in the Warsaw metropolitan area. Formal receipt of both licenses is expected in the first half of 2000.
  • With a new Internet strategy, in April 2000, Netia relaunched its Internet offering with both access and portal services under the "Internetia" brand, with a goal of becoming Poland's largest ISP, providing the full chain of Internet services from connectivity to content.
  • On April 19, 2000, the Polish SEC admitted the shares of Netia Holdings S.A. to public trading in Poland.
  • On May 5, 2000, Telia AB, (the Swedish national telecoms operator and Netia's strategic partner and largest shareholder), agreed to purchase from four other principal shareholders 4,900,000 shares of Netia Holdings S.A. at a price of US$ 35 per share, thereby increasing its stake in Netia significantly. The transaction is subject to customary conditions, including the approval of the Polish SEC.

PLN'0001Q 001Q 99%1Q004Q99%
EBITDA 9,827(1,501)754.7%9,8273,685166.7%
Margin %10.3%-3.3%10.3%4.2%
Net proft / (loss) before FX(90,550)(63,250)-43.2%(90,550)(48,115)-88.2%
Net profit / (loss) after FX(64,370)(215,499)70.1%(64,370)2,920-2,304.5%
Net debt**1,524,260988,04954.3%1,524,2601,405,832-8.4%
US$'000 *1Q 001Q 99%1Q004Q99%
EBITDA 2,372(362)754.7%2,372889166.7%
Margin %10.3%-3.3%10.3%4.2%
Net proft / (loss) before FX(21,857)(15,267)-43.2%(21,857)(11,614)-88.2%
Net profit / (loss) after FX(15,538)(52,018)70.1%(15,538)705-2,304.5%
Net debt**397,930238,49854.3%367,930339,343-8.4%
* The US$ amounts shown in this table have been translated using the exchange rate of PLN 4.1428 = US$ 1.00, the average rate announced by the National Bank of Poland at March 31, 2000. These amounts are included for the convenience of the reader only.
** The 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: "Netia is making continued progress in establishing a durable national presence. We are extremely excited with our launch of InterNetia's ISP and consumer portal services. Our entry into Warsaw in 2000, coupled with the completion of our inter-city fiber network and the launch of ATM data transmission and domestic long distance services will further enhance our position as Poland's leading national alternative provider of telecommunications solutions ahead of the full liberalization of the domestic market in 2002."

Avi Hochman, Chief Financial Officer of Netia added on the financial results: "This is the second consecutive quarter of positive EBITDA for Netia, driven by increasing usage and the growth of our business customer base, coupled with continuous growth of productivity."

Financial Information

2000 First Quarter vs 1999 First Quarter
Revenues increased 112% to PLN 95.2 million (US$ 23 million) during first quarter 2000, compared to PLN 44.9 million for the same period in 1999.

Revenues from telecommunications services increased 119% to PLN 87.0 million (US$ 21 million) from PLN 39.8 million in the first quarter of 1999. The increase was primarily due to a 57% increase in the number of subscribers to 268,912 as of March 31, 2000 from 170,959 as of March 31, 1999. Other contributing factors were the overall increase in average revenue per line (PLN 109.07 for the first quarter 2000 compared to PLN 73.67 for the first quarter 1999), increases in Netia's local tariff of 12.5% and monthly subscription fee from 28% to 33% 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 9.8 million or US$ 2.4 million, compared with PLN (1.5 million) in the first quarter of 1999. As a result of higher usage and change in the calling structure due to growing business customers base, the interconnection charges increased to PLN 26 million from PLN 10.4 million. Other operating expenses amounted to PLN 55.8 million, with salaries and benefits as the main item; the headcount at March 31, 2000 was 1,276 compared to 955 at March 31, 1999. Other operating expenses accounted for 58.6% of total revenues at March 31, 2000 compared to 77.3% at March 31, 1999. Productivity continued to improve, as the number of active lines in service per employee increased 17.4%, to an average of 202 in the first quarter 2000 from 172 in the first quarter 1999. Monthly average telecommunications revenue per employee increased between these periods by 58.3% to PLN 23,295 (US$ 5,623) from PLN 14,720.

Depreciation of fixed assets and amortization of licenses increased 53.7% to PLN 32.2 million as the construction stage of additional parts of the network drew to completion.

The cash outflow from investing activities increased 42.0% to PLN 176.8 million (US$ 42.8 million) from PLN 124.5 million for the same period of 1999.

Net loss amounted to PLN (64.4 million) or US$ (15.5 million), compared to a net loss of PLN (215.5 million) at March 31, 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 and amortization of goodwill and licenses.

2000 First Quarter vs 1999 Fourth Quarter
Revenues for the quarter increased by 9% to PLN 95.2 million (US$ 23 million) compared to PLN 87.3 million (US$ 21.2 million) for the fourth quarter of year 1999. This increase was attributable to a 19% increase in revenues from telecommunications services to PLN 87.0 million (US$ 21 million) compared to PLN 73.4 million (US$ 17.7 million) for the fourth quarter of 1999.

Earnings before interest, tax, depreciation and amortization (EBITDA) for the quarter were PLN 9.8 million, or US$ 2.4 million, compared to PLN 3.7 million (US$ 0.9 million) for the fourth quarter of 1999. The main reasons for the improvement is increased usage and the change of the customer base structure with a greater focus on cost control procedures.

Operational Review
During the past quarter, Netia has made considerable progress in building out its telecommunications network.

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 44% to 441,421 lines at the end of first quarter 2000 up from 306,843 lines at March 31, 1999 and by 2.8%, up from 429,595 lines at December 31, 1999.

Business lines as a percentage of total subscriber lines reached 21%, up from 16.7% at March 31, 1999.

Following the introduction of new software to the billing system in March and April 2000, Netia's seasonal spring residential/SME campaign was launched on May 8, 2000 as compared to the launch of the 1999 spring campaign in March. This will result in different loading structure of added lines in the first three quarters of 2000 compared to 1999.

Construction of the inter- and intracity network continues on track. The Company's intercity fiber optic backbone now stretches to 1,650 km and is expected to reach all of Poland's ten largest metropolitan areas by the end of 2000. 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.

To accelerate time to market and complement its fiber optic network, Netia will utilize broadband (2Mb/s) radio access, for which the radio frequency of 26 GHz has been secured in 15 cities, including Warsaw.

Net cash used in purchasing of fixed assets amounted to PLN 176.8 million (US$ 42.7 million). Net fixed assets increased by 57% to PLN 1,866.1 million (US$ 450.5 million) as of March 31, 2000 compared to PLN 1,188.3 million (US$ 286.8 million) at the same date in 1999, further reflecting the expansion of the network.

At March 31, 2000, Netia had cash and cash equivalents of PLN 923.4 million (US$ 222.9 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 241.1 million (US$ 58.2 million) to service interest payments on its 1997 Senior Notes until November 2000 and interest payments on its 1999 Senior Notes until June 2001.

Certain statements contained in this release contain forward looking information with respect to plans and projections of future performance of the company, 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.

Key operational indicators

Time periods:1Q004Q993Q992Q991Q99
Network data
Number of connected lines (cumulative)441,421 429,595 374,569 335,974 306,843
Subscriber data
Subscriber lines (cumulative)268,912 251,724 214,252 193,607 170,959
Total net additions17,188 37,472 20,645 22,648 22,825
Business net additions4,976 10,312 6,299 6,425 6,726
Business subscribers (cumulative)56,530 51,554 41,242 34,943 28,518
Business mix of total subscriber lines21.0%20.5%19.3%18.0%16.7%
Average monthly revenue per line (PLN)109 92 80 78 74
Average monthly revenue per business customers (PLN) 282 209 205 203 210
Average monthly revenue per residential customers (PLN)65 58 51 50 47

NETIA HOLDINGS is the largest alternative fixed?line telecommunications operator in Poland. In March 2000 Netia won the tender for the Warsaw voice telephony license. Including Warsaw, 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 five of the country's ten largest urban areas including Krakow, Poznan, Gdansk, Lublin, Katowice and several territories surrounding the city of Warsaw. Netia has also secured the benefit of a nationwide data and IP license to provide data transmission and internet?based services. In February 2000, the Netia 1 consortium was awarded a nationwide domestic long distance voice license.

Income statement (according to IAS)

(PLN in thousands unless otherwise stated)
Time periods:1Q001Q991Q004Q99
Telecommunications revenue87,032 39,784 87,032 73,403
Non-telecommunications revenue8,2065,1098,20613,896
Total revenues95,23844,89395,23887,299
Interconnection charges(25,965)(10,439)(25,965)(19,563)
Cost of equipment(3,632)(1,241)(3,632)(5,914)
Other operating expenses(55,814)(34,714)(55,814)(58,137)
Margin (%)10.3%-3.3%10.3%4.2%
Depreciation of fixed assets and amortization of license(32,231)(20,970)(32,231)(27,893)
Amortization of goodwill(6,332)(1,048)(6,332)(7,353)
Margin (%)-30.2%-52.4%-30.2%-36.2%
Net financial expenses(31,102)(194,894)(31,102)25,368
Other losses0(62)0(488)
Profit / (loss) before tax(59,838)(218,475)(59,838)(6,681)
Tax charges(4,501)2,976 (4,501)10,564
Minorities(31)0 (31)(963)
Net profit / (loss)(64,370)(215,499)(64,370)2,920
Margin (%)-67.6%-480.0%-67.6%3.3%
Earning/(loss) per share (not in thousands)(2.45)(19.25)(2.45)0.11
Weighted average number of shares outstanding26,260,684 11,196,294 26,260,684 26,260,684
Note to financial expenses
Net Interest Expense(54,394)(39,156)(54,394)(28,022)
Net Foreign Exchange gains (losses)26,180 (152,249)26,180 51,035
Amortization of deferred financing costs(2,888)(3,489)(2,888)2,355

Balance sheet (according to IAS)

Time PeriodsMarch 31, 2000March 31, 1999
Cash and cash equivalents923,417 298,645
Restricted investments188,455 65,779
Accounts receivable
Trade, net89,734 31,881
Government22,364 32,160
Related parties0 487
Other5,178 10,183
Inventories1,641 873
Prepaid expenses12,832 5,317
Total current assets1,243,621445,325
Restricted investments52,633 65,779
Investments at cost13 13
Fixed assets, net1,866,139 1,188,274
Investments in real estate3,762 6,423
Licenses309,356 326,107
Deferred financing costs, net88,816 65,825
Other long term assets20,168 0
Goodwill, net251,850 274,511
Total non-current assets2,592,7371,926,932
TOTAL ASSETS3,836,3582,372,257
Current maturities of long term debt46,955 46,532
Accounts payable and accruals
Trade181,008 171,747
Related parties4,014 14,776
Accruals and other181,340 119,245
Deferred income3,111 819
Total current liabilities416,428 353,119
Refundable customer deposits235 1,519
Long term debt2,688,765 1,758,069
Long term liabilities for licenses117,192 217,832
Deferred tax liability0 7,828
Minority interest1,016 22
Total non-current liabilities2,807,2081,985,270
Share capital172,334 108,164
Share premium1,275,840 493,354
Accumulated deficit(835,452)(567,650)
Total shareholders equity612,722 33,868

Cash flow statement (according to IAS)

Time periods:1Q001Q991Q00 4Q99
Net Loss(64,370)(215,499)(64,370)2,920
Depreciation and amortization of goodwill38,645 22,018 38,645 35,246
Amortization of Loan Origination Fees2,888 3,489 2,888 (2,355)
Amortization of Discount on Notes27,298 24,949 27,298 28,703
Minorities31 0 31 963
Provision for Deferred Tax0 (3,146)0 (10,974)
Other Losses0 62 0 488
Increase in long term assets(8,423)0 (8,423)(11,745)
Foreign Exchange Gains / Losses(29,095)169,247 (29,095)(83,493)
Change in Working Capital:49,323 (17,624)49,323 (2,249)
Net cash from operating activities16,297 (16,504)16,297 (42,496)
Purchase of fixed assets(176,848)(124,454)(176,848)(178,644)
Increase in investments0 0 0 0
Purchase of licenses0 0 0 (62,024)
Net cash from investing activities(176,848)(124,454)(176,848)(240,668)
Net proceeds from share issue0 93,923 0 0
Proceeds from long term loans0 0 0 0
Related Party Borrowings0 0 0 0
Capitalized Loan Origination Fees0 0 0 0
Net cash from financing activities0 93,923 0 0
Exchange rate change on cash(18,442)46,890 (18,442)15,367
Net change in cash & equivalents(178,993)(145)(178,993)(267,797)
Cash at the beginning of the period1,102,410 298,790 1,102,410 1,370,207
Cash at the end of the period923,417 298,645 923,417 1,102,410