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28 February 2000

Netia Holdings S.A. announces 1999 year end and fourth quarter results


NETIA HOLDINGS S.A. ANNOUNCES 1999 YEAR END AND FOURTH QUARTER RESULTS

126% y-o-y growth of telecom revenues as active subscriber lines surpass 250,000
Business customers account for 44.3% of telecom revenues
First quarter of positive Ebitda

Warsaw, Poland - February 28, 2000 - Netia Holdings (NASDAQ: NTIA), Poland's leading alternative fixed-line telecommunications services provider, today announced its unaudited results for the fourth quarter of 1999 and for the year ended December 31, 1999.

Overview: Financial Highlights | Operational highlights | Key Figures | 1999 vs. 1998 | 1999 Fourth Quarter vs. 1999 Third Quarter and 1998 Fourth Quarter | Operational Review | Key operational indicators | Income statement | Balance sheet | Cash flow statement

Financial highlights

  • Total revenues in 1999 increased 107% to PLN 249 million (US$60 million) from PLN 120 million in 1998. Total revenues for the fourth quarter 1999 amounted to PLN 87.3 million (US$ 21 million), representing a 34.3% increase over the third quarter of this year (PLN 65.0 million) and a 114% increase over the fourth quarter of 1998 (PLN 40.8 million).
  • Revenues from telecom services in 1999 increased 126% to PLN 218 million (US$ 52.5 million) compared to PLN 96 million in 1998. Revenues from telecom services for the fourth quarter increased 26.6% to PLN 73.4 million (US$ 17.7 million) compared to PLN 58 million for the third quarter of this year and 116% compared to PLN 34.0 million for the fourth quarter of 1998.
  • EBITDA before exceptional items for 1999 improved 93.4% to PLN (2.5 million) from PLN (38.3 million) in 1998. EBITDA for the fourth quarter 1999 improved to PLN 3.7 million compared to PLN (3.1 million) for the third quarter 1999 and PLN (11.8 million) for the fourth quarter 1998.
  • Investments in gross fixed assets at December 31, 1999 increased by 63% to PLN 1,940.0 million compared to PLN 1,192.5 million at December 31, 1998. At December 31, 1999 Netia had PLN 1,344.3 million in cash (including restricted investments of PLN 241.8 million).

Operational highlights

  • Active subscriber lines increased by 70% to 251,724 at December 31, 1999 from 148,134 in 1998.
  • Business lines reached 51,554 or 20.5% of total lines at December 31, 1999, up from 14.7% at year end 1998. Business line additions as a percentage of new lines reached 29% in 1999. Revenues from business customers accounted for 44.3% of telecommunications revenues at year end. Large corporate customer wins are accelerating, as 5% of Poland's top 500 companies already choose Netia.
  • Average monthly revenue per line grew by 48% to PLN 92.28 in fourth quarter 1999 compared to PLN 62.35 in fourth quarter 1998. In January 2000, Netia increased tariffs in step with TP S.A.
  • Build-out of our national fiberoptic network continues on track. Approximately 1,650 km of inter-city and 1,290 km intra-city fiber lines were operational at year end as compared to 1,100 km of total fiber lines at December 31, 1998.
  • In December 1999, Netia reached agreement with TP S.A. for new interconnection rates for fixed-to-mobile traffic.
  • Following the direct interconnect agreement with mobile operators Polska Telefonia Cyfrowa (PTC) and Polkomtel, Netia completed seven physical interconnect points in 1999. We expect that an additional two points will be operational in the first quarter and another four in second quarter 2000.
  • On February 23, 2000, the Ministry of Communications awarded the Netia 1 consortium a license to provide domestic long-distance voice services throughout Poland. Being ranked number 1 in the tender process Netia 1 has been awarded first choice of the four dedicated DLD prefix numbers.
  • On February 7, 2000, Netia submitted its bid for the second Warsaw tender.

Commenting on the results, Meir Srebernik, President and CEO of Netia, said: "We end our first year as a public company on a very strong note, both financially and operationally. We have also successfully positioned Netia to make the leap in 2000 from a successful local loop player to a national alternative provider of bundled voice, data and internet services. The recent tender, in which the MOC awarded Netia the highest score of the three new DLD entrants, recognizes the quality of our infrastructure and our commitment to leadership in Poland.

I am confident that in the coming year we will make further significant progress in seizing the growth opportunities of the booming Polish telecommunications market. Construction of our national fiber optic network is on track; Netia's strong brand is increasingly identified with the corporate and SME market; our preparations to enter into the voice DLD and data transmission markets and to launch InterNetia as a major ISP are well underway; and the Polish tariff and interconnect regime is increasingly favorable to Netia's bottom line. I look forward to reporting to you on Netia's continued progress in 2000."




Key Figures
PLN '00019991998% change4Q993Q99*% change
Revenues249,097120,380106.9%87,29965,00334.3%
EBITDA before exceptional items(2,513)(38,262)93.4%3,685(3,067)220.1%
Margin %(1.0%)(31.8%)4.2%(4.7%)
EBITDA after exceptional items(15,379)(38,262)59.8%3,685(3,067)220.1%
Margin %(6.2%)(31.8%)4.2%(4.7%)
Net profit / (loss) before FX(290,992)(160,194)(81.6%)(48,115)(83,827)42.6%
Net profit / (loss)(418,931)(205,495)(103.9%)2,920(156,012)105.1%
Long Term Debt2,750,0951,581,03073.9%2,750,0952,701,0871.8%
US$ '000 **19991998% change4Q993Q99*% change
Revenues60,04829,019106.9%21,04515,67034.3%
EBITDA before exceptional items(606)(9,224)93.4%888(739)220.1%
Margin %(1.0%)(31.8%)4.2%(4.7%)
EBITDA after exceptional items(3,707)(9,224)59.8%888(739)220.1%
Margin %(6.2%)(31.8%)4.2%(4.7%)
Net profit / (loss) before FX(70,147)(38,617)(81.6%)(11,599)(20,208)42.6%
Net profit / (loss)(100,989)(49,537)(103.9%)704(37,609)105.1%
Long Term Debt662,945381,12773.9%662,945651,1311.8%

* These third quarter amounts have been adjusted to reflect a decrease in deprecation expense of PLN 2.5 Million in order to ensure comparability with the fourth quarter results.
** US$ amounts are provided solely for reader convenience at a rate of $1.00 = PLN 4.1483, the average rate announced by the National Bank of Poland at December 31, 1999.
NETIA HOLDINGS is the largest alternative fixed-line telecommunications operator in Poland, with 23 licenses for local telecommunications services in territories covering some 13 million people or approximately 33% of the Polish population. The Company?s 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. On February 23, 2000 the Netia 1 consortium was awarded a nationwide domestic long distance voice license.




Financial Information (according to IAS)
1999 vs. 1998
Total revenues for 1999 increased by 106.9% to PLN 249.1 million, compared to PLN 120.4 million for 1998.
Revenues from telecommunications services increased 126% to PLN 217.7 million from PLN 96.4 million in 1998. The increase was primarily due to a 70% increase in the number of subscribers to 251,724 as of December 31, 1999 from 148,134 as of December 31, 1998. Other contributing factors were the overall increase in average revenue per line (PLN 92.28 for 1999 compared to PLN 62.35 for 1998), and increases in Netia?s local tariffs of 10% in January 1999 and 14% in July 1999, which matched the increases in TP S.A.?s tariffs.
Earnings before interest, tax, depreciation and amortization (EBITDA) for 1999 amounted to PLN (15.4 million) or US$ (3.7 million), a 59.8% improvement from PLN (38.3 million) in 1998. As a result of higher usage, interconnection charges increased to PLN 62 million from PLN 22.9 million. Other operating expenses amounted to PLN 190.6 million, with salaries and benefits as the main item; the headcount at December 31, 1999 was 1,211 compared to 898 at December 31, 1998. Other operating expenses accounted for 76.5% of total revenues at the year end compared to 103.3% at December 31, 1998, reflecting a significant increase in productivity. Productivity continued to improve, as the number of active lines in service per employee increased 47%, from an average of 127 in the year ended December 1998 to 186 in the corresponding period of 1999. Monthly average telecommunications revenues per employee increased during 1999 by 71%, to PLN 17,542 from PLN 10,277.
The cash outflow from investing activities increased by 102% in 1999 to PLN 970.7 million, from PLN 480.3 million in 1998.
Depreciation of fixed assets and amortization of licenses and goodwill increased by 190.7%, to PLN 119.2 million, as the construction stage of additional portions of the network drew to completion.
Net loss amounted to PLN (418.9 million) or US$ (101 million), compared to a net loss of PLN (205.5 million) for 1998. The increased loss is mainly attributable to an increase in the financial expenses up to PLN 141 million due to the depreciation of the Polish Zloty and the resulting increased cost of servicing Netia?s debt payable in US Dollars, as well as to increased debt levels.
1999 Fourth Quarter vs. 1999 Third Quarter and 1998 Fourth Quarter
Revenues for the quarter amounted to PLN 87.3 million (US$ 21 million), representing a 34.3% increase over the third quarter of this year (PLN 65.0 million) and a 114% increase over the fourth quarter of 1998 (PLN 40.8 million). Revenues from telecommunications services increased by 26.6% to PLN 73.4 million (US$ 17.7 million) compared to PLN 58 million for the third quarter of this year and the 116% increase compared to PLN 34.0 million for the fourth quarter of 1998.
Earnings before interest, tax, depreciation and amortization (EBITDA) for the quarter were PLN 3.7 million (US$ 888,000), compared to PLN (3.1 million) for the third quarter of 1999 and PLN (11.8 million) for the fourth quarter 1998. Net gain for the fourth quarter 1999 totaled PLN 2.9 million or US$ 704,000, compared to a net loss of PLN (156.0 million) for third quarter 1999 and PLN (33.6 million) for the fourth quarter 1998.
Operational Review
In 1999, we commanced operations of our networks in all major cities covered by Netia?s voice licenses (Katowice, Krakow, Gdansk, Lublin and Poznan). 1,290 km of local access fiberoptic city rings are now in place to service a large portion of Poland?s business community. In addition, the Company?s inter-city fiberoptic backbone now stretches to 1,650 km and is expected to reach all of Poland?s ten largest metropolitan areas in 2000. An additional 310 km are under construction and 1,290 km are in the design phase. At the year end 1998 Netia?s fiberoptic network stretched to approximately 1,100 route kilometers.
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 51.3%, to 429,595 lines at the end of the fourth quarter 1999, up from 283,900 lines at December 31, 1998 and by 14.6%, up from 374,569 lines at the end of September 1999.
Business lines as a percentage of total subscriber lines reached 20.5%, up from 14.7% at December 31, 1998.
Net cash used in purchasing fixed assets amounted to PLN 697.2 million as compared toPLN 395.9 million in 1998. Net fixed assets increased by 59.9%, to PLN 1.8 billion (US$ 433 million) as of December 31, 1999 compared to PLN 1.1 billion in 1998, further reflecting the expansion of the network.
At December 31, 1999, the Company had cash and cash equivalents of PLN 1.1 billion (US$ 266 million) available for investment in building the telecommunications network and to support our operating activities. The Company also had deposits in escrow amounting to PLN 242 million to service its 1997 Bond interest payments until November 2000, and its 1999 Bond interest payments until June 2001.
Certain statements made 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: 19994Q993Q992Q991Q991998
Network data
Number of connected lines (cumulative)429,595429,595374,569335,974306,843283,900
Subscriber data
Subscriber lines (cumulative)251,724251,724214,242193,607170,959148,134
Total net additions103,59037,48220,63522,64822,82585,035
Business net additions29,76210,3126,2996,4256,72616,468
Business subscribers (cumulative)51,55451,55441,24234,94328,51821,792
Business mix of total subscriber lines20.5%20.5%19.3%18.0%16.7%14.7%
Average monthly revenue per line (PLN)929280787462
Average monthly revenue per business line (PLN)209209205203210165
Average monthly revenue per residential line (PLN)585851504745




Income statement (according to IAS)
(PLN in thousands unless otherwise stated)
Time periods:199919984Q993Q99*
Telecommunications revenue217,71196,43573,40357,989
Non-telecommunications revenue 31,38623,94513,8967,014
Total revenues 249,097120,38087,29965,003
 
Interconnection charges(61,994)(22,900)(19,563)(18,036)
Cost of equipment(11,924)(11,425)(5,914)(3,030)
Other operating expenses(190,558)(124,317)(58,137)(47,004)
Ebitda(15,379)(38,262)3,685(3,067)
Margin (%)-6.2%-31.8%4.2%-4.7%
 
Depreciation of fixed assets and amortization of license(98,096)(37,407)(27,893)(25,441)
Amortization of goodwill(21,067)(3,633)(7,353)(6,967)
 
Ebit(134,542)(79,302)(31,561)(35,475)
Margin (%)-54.0%-65.9%-36.2%-54.6%
 
Net financial expenses(292,574)(151,596)25,368(121,166)
Other losses(550)(1,148)(488)0
Profit / (loss) before tax (427,666)(232,046)(6,681)(156,641)
 
Tax charges9,646(8,802)10,564416
Minorities(911)35,353(963)213
Net profit / (loss)(418,931)(205,495)2,920(156,012)
Margin (%)-168.2%-170.7%3.3%-240.0%
 
Earning / (loss) per share(22.5)(19.8)0.1 (7.3)
 
Weighted average number of shares outstanding18,633,29710,391,37126,260,68421,379,406
 
Note to financial expenses
Net interest expense(157,832)(96,690)(28,022)(46,290)
Net Foreign Exchange gains (losses)(127,939)(45,301)51,035(72,185)
Guarantee costs0(1,614)00
Amortization of deferred financing costs(6,803)(7,991)2,355(2,660)


* These third quarter amounts have been adjusted to reflect a decrease in deprecation expense of PLN 2.5 Million in order to ensure comparability with the fourth quarter results.




Balance sheet (according to IAS)
(PLN in thousands unless otherwise stated)
Time periods:December 31, 1999December 31, 1998
Cash and cash equivalents1,102,410298,790
Restricted investments188,80667,595
Accounts receivable
Trade, net78,50326,358
Government44,27042,376
Related parties0487
Other4,7955,457
Inventories2,700998
Prepaid expenses8,9171,003
Total current assets1,430,401443,064
 
Restricted investments53,04767,595
Investments at cost1375
Fixed assets, net1,796,4201,125,330
Investments in real estate4,1166,964
Licenses315,306330,736
Deferred financing costs, net91,96669,314
Other long term assets11,7450
Goodwill, net258,18239,597
Total non-current assets2,530,7951,639,611
 
Total assets3,961,1962,082,675
 
Current maturities of long term debt6850
Accounts payable and accruals
Trade269,573250,749
Related parties4,68614,380
Accruals and other132,01698,240
Deferred income1,333799
Total current liabilities408,293364,168
 
Refundable customer deposits1,4991,519
Long term debt2,750,0951,581,030
Long term liabilities for licenses123,219205,197
Deferred tax liability010,974
Minority interest9986,250
Total non-current liabilities2,875,8111,804,970
 
Share capital173,73577,117
Share premium1,275,840188,571
Treasury stock(1,401)0
Accummulated deficit(771,082)(352,151)
Total shareholders equity677,092(86 463)
 
Total liabilities and equity3,961,1962,082,675




Cash flow statement (according to IAS)
(PLN in thousands unless otherwise stated)
Time periods:199919984Q993Q99
Net Loss(418,931)(205,495)2,920(156,012)
 
Depreciation and amortization of goodwill119,16341,04035,24632,408
Amortization of loan origination fees6,8037,991(2,355)2,660
Amortization of discount on notes106,13184,60228,70326,801
Minorities911(35,353)963(213)
Provision for deferred tax(10,974)7,859(10,974)0
Other losses5501,1484880
Increase in long term assets(11,745)0(11,745)0
Foreign exchange (gains) / losses48,36218,036(83,493)34,426
Change in working capital:90,670(76,241)(2,249)46,928
Net cash from operating activities(69,060)(156,413)(42,496)(13,002)
 
Purchase of fixed assets(697,199)(395,943)(178,644)(183,037)
Increase in investments(205,698)000
Purchase of licenses(67,625)(84,376)(62,024)(1,878)
Net cash from investing activities(970,522)(480,319)(240,668)(184,915)
 
Net proceeds from share issue940,57900653,202
Proceeds from long term loans811,858000
Related party borrowings(2,478)2,60000
Capitalized loan origination fees(22,331)(4,288)00
Net cash from financing activities1,727,628(1,688)0653,202
 
Exchange rate change on cash115,57614,91815,36768,273
 
Net change in cash & equivalents803,620(623,502)(267,797)523,558
 
Cash at the beginning of the period298,790922,2921,370,207846,649
Cash at the end of the period1,102,410298,7901,102,4101,370,207