Current reports

Warsaw, Poland - February 18, 2002 - Netia Holdings (NASDAQ: NTIA, WSE: NET), Poland's largest alternative provider of fixed-line telecommunications services, today announced audited financial results for the year ended December 31, 2001.

Financial Highlights:

• Revenues for 2001 amounted to PLN 538.9 m (US$ 135.2 m), a year-on-year increase of 22%. Revenues for Q4 2001 amounted to PLN 144.9 m (US$ 36.3 m), a year-on-year increase of 12%.
  
  
• EBITDA for 2001 (before the allowance for Millennium-related receivables recorded in Q3 2001) reached PLN 78.2 m (US$ 19.6 m), a year-on-year increase of 237%. EBITDA for 2001 after the above-mentioned item amounted to PLN 61.2 m (US$ 15.4 m), a year-on-year increase of 164%. EBITDA for Q4 2001 amounted to PLN 29.3 m (US$ 7.4 m), a year-on-year increase of 253%.
  
  
• EBITDA margin for 2001 amounted to 14.5% and 11.4% before and after the allowance for Millennium-related receivables, respectively. EBITDA margin for Q4 2001 reached 20.2%.
  
  
• Six non-cash exceptional items totaling PLN 740.1 m (US$ 185.7 m) affected the financial results for 2001. In particular, three items totaling PLN 405.8 m (US$ 101.8 m) impacted the financial results for Q4 2001, and were related to a provision for impairment of fixed assets (network construction in progress), the event of default on Netia's long-term debt and the effect of canceling all swap transactions.
  
  
• Cash at December 31, 2001 amounted to PLN 486.9 m (US$ 122.1 m), excluding restricted investments of PLN 47.5 m (US$ 11.9 m).
  
  
• Consolidated shareholders' equity at the end of Q4 2001 was negative PLN 343.2 m or US$ 86.1 m.
  
  
• "Events of default" under the indentures governing Netia's high yield notes occurred on January 14, 2002, following the failure to make payments of interest on Netia's 1999 Senior Dollar Notes and 1999 Senior Euro Notes, which were due on December 15, 2001.
  
  
• Cross-currency swap transactions with Merrill Lynch and JPMorgan Chase Bank were terminated in connection with the proposed debt restructuring.
  
  
• A deferral of license fee payments, totaling approximately EUR 33 m, was granted until June 30, 2002.

Operational Highlights:

• Netia's nationwide backbone network stretched to 3,370 km at year-end.
  
  
• Subscriber lines amounted to 343,802 net of churn and disconnections, a year-on-year increase of 7%.
  
  
• Business customer lines amounted to 97,994, a year-on-year increase of 21%. Business mix on subscriber lines reached 28.5% while revenues from business customers accounted for 54.1% of telecom revenues in 2001.
  
  
• Average revenue per line increased 7% to PLN 122 in December 2001.
  
  
• An agreement for commercial network services (carrier's carrier services) on Netia's backbone network signed with Telia AB on January 14, 2002.
  
  
• Intelligent Network services (free-phone and split-charge service offering) was launched in February 2002.
  
  
• Headcount decreased year-on-year from 1,626 to 1,536, as part of management's program of reducing staffing levels by approximately 20%.

Other Highlights:

• An Extraordinary Shareholders' Meeting will be held on February 19, 2001 to vote, among other things, on the proposed increase in the share capital of Netia Holdings S.A. by up to approximately 740 m new shares in connection with the reorganization of Netia.
  
  
• Negotiations with bondholders aimed at a consensual reorganization of Netia's balance sheet to reduce its debt and interest burdens are still ongoing. Netia announced earlier today that the Management Board had approved the proposed terms of a restructuring submitted by the bondholders but that the Supervisory Board had not yet acted on the proposal. Therefore, Netia's Management Board recommended today that Netia's shareholders vote in favor of the resolutions to be proposed at the Extraordinary Shareholders' Meeting to be held on February 19, 2002.
  
  
• Changes within Netia's Supervisory Board. Effective August 7, 2001 Morgan Ekberg, Executive Vice President, Business Area Networks at Telia was appointed the new chairman of the Netia Supervisory Board. Effective December 10, 2001 Jan Henrik Ahrnell replaced Jan Johansson as a representative of Telia AB. Effective November 26, 2001 Andrzej Wojcik, representing BRE Bank S.A., resigned due to the termination of BRE Bank S.A.'s right to nominate one member of the Supervisory Board for election by the Shareholders Meeting.

Morgan Ekberg, Chairman of Netia's Supervisory Board commented: "These results give us confidence that management is taking the actions necessary to drive Netia forward. At the end of last year, Netia's Supervisory Board approved general guidelines for a revised business plan designed to achieve profitable leadership focused on business customers. The proposed restructuring of our balance sheet is aimed at placing Netia on a firm financial footing and, if successful, should enable us to focus our attention on execution of our revised strategy."

Kjell-Ove Blom, Netia's acting CEO and Chief Operating Officer, commented: "Despite tough competition, the weak Polish economy and our financial situation, Netia made significant operational and financial progress in 2001. We focused our investment program to maximize revenues, concentrated network development on urban centers, terminated uneconomic customer accounts, and negotiated to cancel or defer licensing fees. Our market position with business customers, and the solid growth we achieved in EBITDA and in our EBITDA margin, underscore Netia's potential.

"However, the financial statements released today show that our liabilities now exceed our assets. Polish law requires that a company with such negative equity file for bankruptcy or petition for the opening of arrangement proceedings. Netia and some of its subsidiaries are therefore considering a prompt filing of arrangement petitions."

Avi Hochman, Chief Financial Officer of Netia, added: "Faced with the extremely poor market conditions for telecommunications companies, Netia has considered a range of solutions to fund its development while reorganizing itself to preserve cash. Capex for 2001 was PLN 586.8 m (US$ 147.2 m) compared to PLN 1,116.8 m for the previous year.

"For 2001 Netia has delivered a fourfold increase in EBITDA to PLN 78.2 m (before the allowance for Millennium related receivables), and our fourth quarter EBITDA margin tripled year-on-year to 20.2%. We believe that this improved performance achieved in a harsh environment demonstrates Netia's operational vitality. Our immediate priority is therefore to complete the contemplated debt restructuring and establish a solid capital structure and foundation to enable Netia's healthy future development."

Financial Information

2001 vs. 2000

Revenues increased by 22% to PLN 538.9 m (US$ 135.2 m) for 2001 compared to PLN 442.7 m for 2000.

Revenues from telecommunications services increased by 30% to PLN 512.2 m (US$ 128.5 m) from PLN 395.2 m in 2000. The increase was primarily attributable to an increase in total number of subscriber lines coupled with an increase in average revenue per line as well as introduction of new products. The total number of subscriber lines increased 7% to 343,802 at December 31, 2001 from 321,073 at December 31, 2000 while the overall increase in average monthly revenue per line was 7% to PLN 122 (US$ 31) for December 2001, compared to PLN 114 for December 2000, mainly due to increases in monthly subscription fees in May 2001.

Six exceptional items totaling PLN 740.1 m (US$ 185.7 m) impacted the financial results for 2001 and included:

Three exceptional items at a total amount of PLN 405.8 m (US$ 101.8 m) which occurred in Q4 2001 as follows:

• effect of canceling the swap transactions of PLN 274.6 m (US$ 68.9 m);
• effect of default on long-term debt of PLN 112.0 m (US$ 28.1 m);
• provision for the impairment of fixed assets of PLN 19.2 m (US$ 4.8 m) relating to discontinued network construction.

In addition, three exceptional items totaling to PLN 334.3 m (US$ 83.9 m) had occurred previously, namely:

• impairment on goodwill in the amount of PLN 220.3 m (US$ 55.3 m);
• provision for the impairment of fixed assets of PLN 97.0 m (US$ 24.3 m) relating to 70,200 connected lines;
• allowance for receivables from Millennium of PLN 17.0 m (US$ 4.3 m).

The above write-off charges are non-cash items and their entire impact was recorded during the third and fourth quarter of 2001, respectively.

The write-off charge regarding the swap transactions results from the cancellation of these agreements. The default on the long-term debt resulted from the failure to make interest payments due on December 15, 2001 on the Company's 1999 Senior Dollar Notes and 1999 Senior Euro Notes owing to negotiations with bondholders on a consensual reorganization of Netia's balance sheet to reduce its debt and interest burdens.

The write-off charge on goodwill is a result of an impairment test performed by management as well as management's belief that there is no longer a future economic benefit associated with the goodwill. The provisions for impairment of fixed assets relate to a write-off of our investment in 70,200 connected lines and additional network construction in progress which, based on our recently approved long-term strategy to focus on business customer segments, will not be converted into ringing lines. The allowance for receivables from Millennium follows Netia's withdrawal from the agreement to acquire the outstanding share capital of Millennium due to Millennium's refusal to perform its obligations under the agreement. Netia has claimed from Millennium compensation in the amount of PLN 8.5 m and additionally has demanded the repayment of PLN 11.5 m of extended loan. In the future the Company may be subject to further impairment tests.

EBITDA amounted to PLN 61.2 m (US$ 15.4 m) compared with PLN 23.2 m for 2000. EBITDA for 2001 before the allowance for Millennium improved by 237% to PLN 78.2 m (US$ 19.6 m). EBITDA margin, before the allowance for Millennium, for 2001 increased to 14.5% from 5.2% in 2000.

"Other operating expenses" amounted to PLN 331.0 m (US$ 83.0 m) and represented 61% of total revenues for 2001, compared to 65% for 2000, with salaries and benefits being the main item.

Amortization of goodwill and other intangibles including an impairment of goodwill increased to PLN 301.1 m (US$ 75.5 m) from PLN 49.2 m in 2000 as a result of an impairment on goodwill of PLN 220.3 m (US$ 55.3 m) made in Q3 2001.

Depreciation of fixed assets increased by 32% to PLN 172.7 m (US$ 43.3 m), from PLN 130.5 m for 2000, as the construction stage of additional parts of the network drew to completion.

Interconnection charges increased by 9% to PLN 122.2 m (US$ 30.7 m) from PLN 112.3 m for 2000. Interconnection charges as a percentage of calling charges decreased to 34% from 39%, reflecting the effect of direct interconnection to the mobile operators and the increased proportion of traffic carried through Netia's own backbone network.

Net financial expenses increased by 16% to PLN 230.0 m (US$ 57.7 m) from PLN 198.7 m due to higher expense of servicing the interests costs connected with senior notes issued by Netia. In addition, net financial expense for the fourth quarter includes the effect of canceling the swap transactions.

Net loss amounted to PLN 1,149.2 m (US$ 288.3 m), compared to a net loss of PLN 362.0 m in 2000. The increased loss for 2001 was mainly attributable to the six exceptional items described above as well as an increase in net financial expenses.

Net fixed assets and computer software increased by 5% to PLN 2,537.3 m (US$ 636.5 m) as of December 31, 2001, compared to PLN 2,408.4 m at December 31, 2000.

Cash outflow from investing activities decreased by 53% to PLN 639.2 m (US$ 160.3 m) in 2001, from PLN 1,357.5 m in 2000 with net cash used for the purchase of fixed assets and computer software in the amount of PLN 582.8 m (US$ 146.2 m) for 2001.

Cash and cash equivalents at December 31, 2001 amounting to PLN 486.9 m (US$ 122.1 m) were available to fund Netia's operations. The Company also had deposits in escrow amounting to PLN 47.5 m (US$ 11.9 m) to service the interest payments on its 2000 Senior Notes in June 2002.

2001 Fourth Quarter vs. 2001 Third Quarter

Revenues for the fourth quarter 2001 increased by 6% to PLN 144.9 m (US$ 36.3 m) compared to PLN 136.8 m for the third quarter of 2001. This increase was attributable to a 6% increase in telecommunications revenues to PLN 139.3 m (US$ 34.9 m) compared to PLN 131.0 m for the third quarter 2001 and a 3% decrease in other revenues, representing the operations of Uni-Net, a joint venture with Motorola offering radio trunking services, to PLN 5.6 m (US$ 1.4 m) compared to PLN 5.8 m for the third quarter 2001.

EBITDA for the quarter was PLN 29.3 m (US$ 7.3 m), compared to PLN 17.7 m (EBITDA before the Millennium allowance) for the third quarter 2001. The increase in EBITDA for the quarter was mainly the result of a decrease in salaries and benefits expense associated with the ongoing headcount reduction. The EBITDA margin for the fourth quarter 2001 before the Millennium allowance improved to 20.2% as compared to 13.0% for the third quarter 2001.

Net loss for the quarter totaled PLN 286.4 m (US$ 71.8 m) and was mainly caused by the charges related to three exceptional items recorded in the fourth quarter 2001.

Operational Review

Following the recently approved general outline of the ten-year business plan and strategy to focus on providing services to business customers, the number of connected lines reported for the third quarter 2001 has been recalculated in order to reflect the write-off of 70,200 connected lines due to the future limited utilization of certain existing parts of Netia's local access network. In addition, the number of ringing lines reported previously for the first and second quarters of 2001 has been adjusted downwards by 14,924 lines to correct a previous error in the translation of ISDN channels into subscriber lines. Figures related to average monthly revenue per line, number of business lines, business mix and number of lines in service per employee have also been restated for the period to reflect this. The figures shown below reflect the restated numbers.

Connected lines at the end of the fourth quarter 2001 increased by 1.4% to 526,402 lines, up from 519,035 lines at September 30, 2001. The number of connected lines decreased in comparison with the number reported for the fourth quarter of 2000 due to the write-off of 70,200 lines recorded in the third quarter 2001.

Subscriber lines in service increased by 7% to 343,802 at December 31, 2001 from 321,073 at December 31, 2000 and remained at the same level as in September 2001. The number of subscriber lines is net of customer churn and disconnections of bad payers by the Company, which amounted to 8,024 and 6,330, respectively, for the fourth quarter 2001 and 27,440 and 23,750, respectively, for 2001. The recorded churn was mostly a result of customers affected by the deterioration of economic conditions, customers moving outside the coverage of Netia's network and churn to other operators.

Business lines as a percentage of total subscriber lines reached 28.5%, up from 25.3% at December 31, 2000 and 27.3% at September 30, 2001, reflecting the intensified focus on the corporate and SME market segments. Business customers accounted for all net additions in the quarter while the residential segment saw net disconnections. Revenues from business customers accounted for 54.1% of telecommunications revenues in 2001.

Business customer lines in service increased by 21% to 97,994 at December 31, 2001 from 81,137 at December 31, 2000 and by 5% from 93,713 at September 30, 2001.

Average monthly revenue per line grew by 7% to PLN 122 (US$ 31) in December 2001, compared to PLN 114 in December 2000 and remained at the same level as in September 2001.

Average monthly revenue per business line amounted to PLN 225 (US$ 56) representing a 1% increase from PLN 224 in December 2000 and a 7% decrease from PLN 243 in September 2001.

Average monthly revenue per residential line increased by 5% to PLN 81 (US$ 20) from PLN 77 in December 2000 and by 7% from PLN 76 in September 2001.

New tariff packages for analogue and ISDN lines were introduced effective October 1, 2001, offering more flexibility to customers depending on their usage pattern. We are now offering three packages with a different monthly fee and local call charges addressing low, medium and high-usage customers.

Domestic long distance voice service based on indirect access was made available countrywide in mid-October, 2001. The service, addressed primarily to the business customer base, was originally launched in August 2001 and provided at the first stage in 15 numbering zones. In December 2001, the President of the Telecommunications Regulatory Office established new interconnection rates, with reductions over the previous tariffs ranging from 55% to 60%, to be used in settlements between Netia 1 (Netia's domestic long distance vehicle) and TP S.A. until June 30, 2002. Netia is currently in discussions with TP S.A. regarding the retroactive implementation of these new interconnection rates from July 1, 2001. In addition, Netia filed with the Court of Warsaw a claim against the State Treasury of the Republic of Poland and the Ministry of Infrastructure for compensation in the amount of PLN 183 m (approximately EUR 52 m or US$ 46 m) for delays that prevented the timely launch of its domestic long distance (DLD) services.

Frame relay data transmission service based on the ATM network was launched in September 2001, with a view to extending and supplementing Netia's service offerings to business customers.

Intelligent Network (IN) services, including new free-phone and split-charge service offerings, were launched in February 2002. Netia is the first domestic long distance operator among three competitors to the incumbent TP S.A. to launch the IN services.

Carrier's carrier services. An agreement for commercial network services on Netia's backbone network was signed with Telia AB in January 2002. Netia will lease to Telia two ducts on the route between Warsaw and the Szczecin area for a period of fifteen years and for the amount of approximately USD 16 million. In addition, during the lease term Netia will offer to Telia, for additional consideration, related services such as cable installation, cable maintenance and co-location services on the route. The agreement is subject to the fulfillment of certain conditions by April 15, 2002.

In the Warsaw metropolitan area Netia had 8,067 subscriber lines in service at December 31, 2001, out of which 93% were business lines. Netia is currently constructing local access infrastructure in Warsaw. As of December 31, 2001, eight radio access base stations were installed and 80 kilometers of fiber-optic network constructed.

Internetia had 57,847 registered users at December 31, 2001 as compared to 36,500 at December 31, 2000 and 64,837 at September 30, 2001. In October 2001 Internetia extended its offering and now also provides Internet access without requiring subscribers to register. This new service is currently offered to subscribers directly connected to Netia and, upon reaching an agreement with TP S.A., will be offered to other potential customers. Average blended revenue per dial-up and call-back registered user in December 2001 reached PLN 25.

Netia's nationwide backbone network connecting Poland's twelve largest urban areas now stretches to 3,370 kilometers and consists of 2,120 kilometers of fiber and 1,250 kilometers of leased lines. Netia is constructing additional infrastructure, planned for completion in 2002, of approximately 960 kilometers to replace most of the present leased lines.

Headcount at December 31, 2001 was 1,536, compared to 1,626 at December 31, 2000 and 1,639 at September 30, 2001. During 2001 Netia made announcements on headcount reductions of approximately 20%, and finalization of this program is being carried out.

The number of active lines in service per employee increased by 3% to an average of 214 for 2001, from 208 in 2000. Monthly average telecommunications revenue per employee increased by 15% to PLN 26,979 (US$ 6,768) for 2001 from PLN 23,541 in 2000.

License payments. The Polish Minister of Infrastructure decided on January 19, 2002 to postpone the payment of license fees installments of certain Netia operating subsidiaries, originally due in November and December 2001, until June 30, 2002. The total amount of the deferred installments is approximately EUR 33 million. The Minister of Infrastructure also established deferral fees, in the total amount of approximately PLN 9 million, for the re-scheduled license fee payments, payable on June 30, 2002. In May 2001, certain of our subsidiaries applied to the Ministry of Communications and the President of the Office for Regulation of Telecommunication ("URT") for confirmation that remaining license fee installments are not due and requesting the return of EUR 92 million in license fees paid by such subsidiaries, due to the expiry of the licenses. Netia submitted these applications based on the fact that the amounts we agreed to pay for the licenses were directly connected to the period of the license protection and forecast revenues from the license activities in a semi-closed market, which provided an economic justification for the cost of the licenses. As a result of the enactment of the new Telecommunications Act and the premature expiry of the licenses, the protection period was reduced from the expected fifteen years to, at most, three years, and in the case of Netia Telekom Mazowsze S.A., to six months. In parallel, Netia applied for a return of EUR 24 million in license fees paid for its domestic long distance license in April 2001. Netia is still awaiting a response on the above issues from the authorities.

Key Figures

* The US$ amounts shown in this table and in the entire document have been translated using the exchange rate of PLN 3.9863 = US$ 1.00, the average rate announced by the National Bank of Poland at December 31, 2001. These figures are included for convenience only.

** Net debt is defined as long term debt, including its current portion, less cash, restricted cash and both long and short term portion of escrow accounts.

^ Certain prior period amounts have been restated to reflect the impact of an adjustment to the nominal cost of licenses to reflect their net present values in accordance with IAS 38 "Intangible Assets".

* Following the recently approved general outline of the ten-year business plan and strategy to focus on providing services to business customers, the number of connected lines reported for the third quarter 2001 has been recalculated in order to reflect the write-off of 70,200 connected lines due to the future limited utilization of certain existing parts of Netia's local access network.

^ The number of ringing lines reported previously for the first and second quarters of 2001 has been adjusted downwards by 14,924 lines to correct a previous error in the translation of ISDN channels into subscriber lines. Figures related to average monthly revenue per line, number of business lines, business mix and number of lines in service per employee have also been restated for the period to reflect this.

Netia is the leading alternative fixed-line telecommunications provider in Poland. Netia provides a broad range of telecommunications services including voice, data and Internet-access and commercial network services. Netia's American Depositary Shares ("ADSs") are listed on the Nasdaq National Market (NTIA), and the Company's ordinary shares are listed on the Warsaw Stock Exchange. Netia owns, operates and continues to build a state-of-the-art fiber-optic network that, as at December 31, 2001, had connected 343,802 active subscriber lines, including 97,994 business lines. Netia currently provides voice telephone services in 24 territories throughout Poland, including in six of Poland's ten largest cities.

Some of the information contained in this news release contains forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. For a more detailed description of these risks and factors, please see the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 20-F filed with the Commission on April 30, 2001, its Current Report on Form 6-K filed with the Commission on May 15, 2001, its Current Report on Form 6-K filed with the Commission on August 7, 2001, its Current Report on Form 6-K filed with the Commission on November 6, 2001, and its Current Report on Form 6-K filed with the Commission on January 18, 2002. The Company undertakes no obligation to publicly update or revise any forward-looking statements.


 

Warsaw, Poland - February 18, 2002 - Netia Holdings (NASDAQ: NTIA, WSE: NET), Poland's largest alternative provider of fixed-line telecommunications services, today announced audited financial results for the year ended December 31, 2001.

Financial Highlights:

• Revenues for 2001 amounted to PLN 538.9 m (US$ 135.2 m), a year-on-year increase of 22%. Revenues for Q4 2001 amounted to PLN 144.9 m (US$ 36.3 m), a year-on-year increase of 12%.
  
  
• EBITDA for 2001 (before the allowance for Millennium-related receivables recorded in Q3 2001) reached PLN 78.2 m (US$ 19.6 m), a year-on-year increase of 237%. EBITDA for 2001 after the above-mentioned item amounted to PLN 61.2 m (US$ 15.4 m), a year-on-year increase of 164%. EBITDA for Q4 2001 amounted to PLN 29.3 m (US$ 7.4 m), a year-on-year increase of 253%.
  
  
• EBITDA margin for 2001 amounted to 14.5% and 11.4% before and after the allowance for Millennium-related receivables, respectively. EBITDA margin for Q4 2001 reached 20.2%.
  
  
• Six non-cash exceptional items totaling PLN 740.1 m (US$ 185.7 m) affected the financial results for 2001. In particular, three items totaling PLN 405.8 m (US$ 101.8 m) impacted the financial results for Q4 2001, and were related to a provision for impairment of fixed assets (network construction in progress), the event of default on Netia's long-term debt and the effect of canceling all swap transactions.
  
  
• Cash at December 31, 2001 amounted to PLN 486.9 m (US$ 122.1 m), excluding restricted investments of PLN 47.5 m (US$ 11.9 m).
  
  
• Consolidated shareholders' equity at the end of Q4 2001 was negative PLN 343.2 m or US$ 86.1 m.
  
  
• "Events of default" under the indentures governing Netia's high yield notes occurred on January 14, 2002, following the failure to make payments of interest on Netia's 1999 Senior Dollar Notes and 1999 Senior Euro Notes, which were due on December 15, 2001.
  
  
• Cross-currency swap transactions with Merrill Lynch and JPMorgan Chase Bank were terminated in connection with the proposed debt restructuring.
  
  
• A deferral of license fee payments, totaling approximately EUR 33 m, was granted until June 30, 2002.

Operational Highlights:

• Netia's nationwide backbone network stretched to 3,370 km at year-end.
  
  
• Subscriber lines amounted to 343,802 net of churn and disconnections, a year-on-year increase of 7%.
  
  
• Business customer lines amounted to 97,994, a year-on-year increase of 21%. Business mix on subscriber lines reached 28.5% while revenues from business customers accounted for 54.1% of telecom revenues in 2001.
  
  
• Average revenue per line increased 7% to PLN 122 in December 2001.
  
  
• An agreement for commercial network services (carrier's carrier services) on Netia's backbone network signed with Telia AB on January 14, 2002.
  
  
• Intelligent Network services (free-phone and split-charge service offering) was launched in February 2002.
  
  
• Headcount decreased year-on-year from 1,626 to 1,536, as part of management's program of reducing staffing levels by approximately 20%.

Other Highlights:

• An Extraordinary Shareholders' Meeting will be held on February 19, 2001 to vote, among other things, on the proposed increase in the share capital of Netia Holdings S.A. by up to approximately 740 m new shares in connection with the reorganization of Netia.
  
  
• Negotiations with bondholders aimed at a consensual reorganization of Netia's balance sheet to reduce its debt and interest burdens are still ongoing. Netia announced earlier today that the Management Board had approved the proposed terms of a restructuring submitted by the bondholders but that the Supervisory Board had not yet acted on the proposal. Therefore, Netia's Management Board recommended today that Netia's shareholders vote in favor of the resolutions to be proposed at the Extraordinary Shareholders' Meeting to be held on February 19, 2002.
  
  
• Changes within Netia's Supervisory Board. Effective August 7, 2001 Morgan Ekberg, Executive Vice President, Business Area Networks at Telia was appointed the new chairman of the Netia Supervisory Board. Effective December 10, 2001 Jan Henrik Ahrnell replaced Jan Johansson as a representative of Telia AB. Effective November 26, 2001 Andrzej Wojcik, representing BRE Bank S.A., resigned due to the termination of BRE Bank S.A.'s right to nominate one member of the Supervisory Board for election by the Shareholders Meeting.

Morgan Ekberg, Chairman of Netia's Supervisory Board commented: "These results give us confidence that management is taking the actions necessary to drive Netia forward. At the end of last year, Netia's Supervisory Board approved general guidelines for a revised business plan designed to achieve profitable leadership focused on business customers. The proposed restructuring of our balance sheet is aimed at placing Netia on a firm financial footing and, if successful, should enable us to focus our attention on execution of our revised strategy."

Kjell-Ove Blom, Netia's acting CEO and Chief Operating Officer, commented: "Despite tough competition, the weak Polish economy and our financial situation, Netia made significant operational and financial progress in 2001. We focused our investment program to maximize revenues, concentrated network development on urban centers, terminated uneconomic customer accounts, and negotiated to cancel or defer licensing fees. Our market position with business customers, and the solid growth we achieved in EBITDA and in our EBITDA margin, underscore Netia's potential.

"However, the financial statements released today show that our liabilities now exceed our assets. Polish law requires that a company with such negative equity file for bankruptcy or petition for the opening of arrangement proceedings. Netia and some of its subsidiaries are therefore considering a prompt filing of arrangement petitions."

Avi Hochman, Chief Financial Officer of Netia, added: "Faced with the extremely poor market conditions for telecommunications companies, Netia has considered a range of solutions to fund its development while reorganizing itself to preserve cash. Capex for 2001 was PLN 586.8 m (US$ 147.2 m) compared to PLN 1,116.8 m for the previous year.

"For 2001 Netia has delivered a fourfold increase in EBITDA to PLN 78.2 m (before the allowance for Millennium related receivables), and our fourth quarter EBITDA margin t