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FOR IMMEDIATE RELEASE
GTS Reports Third Quarter 2000 Results;
Refocuses on High-End Broadband and Data Services;
Announces Intention to Sell Voice Business and Central Europe Retail Operations
Core revenues up 7.1 percent sequentially;
EBITDA loss narrows to (3.3) percent of revenues
Financial Highlights
· Grows quarterly core revenues 7.1 percent sequentially on a euro basis, to €254.2 million, or US$230.2 million
· Reports EBITDA1 losses of (€9.6) million, or (US$9.5) million, improving from (6.3) percent of revenues to (3.3) percent on a sequential basis
· Drives data/IP revenues up approximately 17 percent sequentially, with data/IP and managed bandwidth now representing approximately 47 percent of core revenues
Organizational Highlights
· Appoints Robert J. Amman as Chairman, President and Chief Executive Officer
· Refocuses on high-end broadband and data services
· Retains Credit Suisse First Boston (CSFB) to sell its voice-focused Business Services division and its Central Europe retail operations
· Sells equity interest in Flag Atlantic Limited joint venture for US$175 million in value; retains FA-1 fibre
· Wins major new data business:
- Yahoo! Europe for pan-European Internet network and infrastructure
- Tiscali for IP transit
- Intranets.com for hosting and IP transit
· Launches Europe’s largest streaming media service in partnership with Microsoft and Compaq
· Opens City Enterprise Networks in Frankfurt and Stockholm
LONDON – 13 November 2000 – Global TeleSystems, Inc. (GTS) (NYSE: GTS; EASDAQ: GTSG; Frankfurt: GTS), the leading European e*Business and borderless broadband services company, today announced its results for the third quarter of 2000. Core revenues in the quarter grew to €254.2 million, or US$230.2 million, up 7.1 percent from €237.4 million, or US$222.0 million, in the second quarter of 2000. The company’s EBITDA losses for the third quarter of 2000 were (€9.6) million, or (US$9.5) million, or (3.3) percent of total revenues, narrowing from (€17.5) million, or (US$16.3) million in the second quarter of 2000.
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Revenues
GTS Broadband Services
Broadband Services grew revenues to €125.3 million, or US$113.6 million, up 29.6 percent versus the year-ago quarter, and up 5.9 percent sequentially. The traditional managed bandwidth and IP transit businesses (previously referred to as Carrier Services) grew to €88.3 million, up 13.5 percent from the year-ago quarter and up 3.6 percent from the second quarter.
GTS Business Services
The Business Services division grew core revenues to €96.7 million, or US$87.4 million, up 6.9 percent on a sequential basis. The non-core business had revenue of €32.7 million, down 18 percent sequentially, consistent with objectives of exiting this business by the first quarter of 2001.
Data/IP Mix
Data and IP revenues were up approximately 17 percent on a sequential basis for the core business; comprised approximately 17 percent of the company’s core quarterly revenues; and represented approximately €172 million in revenues on an annualized basis. Data/IP revenue, together with managed bandwidth, represented approximately 47 percent of total core revenues for the quarter.
Gross Margins
Gross margins for the core business in the quarter were €98.5 million, up from €95.9 million in the second quarter, and represented 38.7 percent of quarterly core revenues, down from 40.4 percent from the second quarter. Gross margin percentage of revenue for the core was impacted by the revenue mix of lower margin wholesale increasing as a percent of total revenues and costs associated with start-up operations in our hosting centres.
Selling, General and Administrative (SG&A)
Total SG&A for the core business was €106.7 million or 42.0 percent of core revenue in the third quarter, improving from 46.4 percent in the second quarter of 2000. A significant portion of the absolute sequential decrease in core SG&A results from consolidation of sales offices, elimination of employees, as well as overall improved cost control. As a percent of revenue, core SG&A declined by 4.4 percent in the third quarter over the second quarter.
EBITDA
In the third quarter of 2000, GTS generated EBITDA losses of (€9.6) million, or (US$9.5) million, representing (3.3) percent of total revenues. This was an improvement from an EBITDA loss of (€17.5) million, or (US$16.3) million, in the second quarter of 2000, which represented (6.3) percent of total revenue.
EBITDA for the core business was (€8.2) million or (3.2) percent of core revenues in the third quarter, an improvement from (6.0) percent in the second quarter. EBITDA for the non-core business in the third quarter was (€1.4) million compared to (€3.2) million in the second quarter.
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August 2000 Restructuring Actions
As part of the Company’s plans to exit from its residential and pre-paid card businesses and streamline its operations, including the consolidation of its headquarter functions, reducing or redeploying headcount, centralizing finance and billing operations, the company incurred a one-time charge of US$26.1 million during the third quarter for severance, lease termination and other related items.
In the third quarter cash capital expenditures totaled US$200 million. Total cash capital expenditures in the first nine months of 2000 were US$567 million.
Net loss applicable to common shareholders was (US$192.4) million for the third quarter of 2000 compared to (US$152.4) million for the second quarter of 2000 and (US$121.9) million for the year-ago quarter.
Recurring net loss per share based on the weighted average shares outstanding in the quarter of 201.9 million shares was (US$0.82) for the third quarter of 2000 compared to (US$0.77) for the second quarter of 2000 and (US$0.59) for the year-ago quarter.
CORPORATE RESTRUCTURING
GTS today announced that it will restructure its operations to focus on the
company’s core competency of providing broadband services to carriers, ISPs,
ASPs, Web-centric entities and pan-European corporations. The objective of the
restructuring is to 1) unlock the value of this highly EBITDA positive business
by creating a pure play data company which is today the leading provider of
broadband services in Europe and 2) generate proceeds and reduce overall cash
requirements from the potential sale of non-core, non-strategic businesses which
can be redirected to our core business.
In order to implement this new strategy, GTS will manage the company as four “stand-alone” business units: GTS Broadband Services; GTS Business Services; GTS Central Europe; and Golden Telecom. GTS will seek to sell its voice-focused Business Services unit, as well as its Central Europe unit, and has retained CSFB to assist in the sale of these assets.
Robert J. Amman, Chairman, President and Chief Executive officer said: “By selling our Business Services and Central Europe units, we will focus on and leverage our position as Europe’s leading broadband network solutions and services provider. Importantly, we will attack the pan-European corporate market by leveraging our strategic capabilities such as our Ebone backbone, robust optical network and our experience in serving Europe’s most sophisticated customers. In addition, we will continue to provide carriers, ISPs, ASPs, and Web-centrics with unparalleled managed bandwidth, data and IP services throughout Europe. We believe such a focused strategy will yield significant benefits to our shareholders, customers and employees.”
These four units are defined as below:
· GTS Broadband Services – This unit will continue to focus on being the premier provider of broadband network solutions and services in Europe. The unit will expand its services to address the pan-European corporate market, and will continue to provide carriers, ISPs, ASPs and Web-centric customers with managed bandwidth and data products. Expanded services include IP VPN, dedicated hosting, high-capacity direct Internet access as well as a host of new high-end data applications such as our recently announced streaming media services.
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Included in this unit will be the following:
- Ebone - Europe’s leading Tier-1 IP backbone;
- GTS’s leading pan-European fibre optic network;
- trans-Atlantic fibre network on FA-1;
- multi-duct, fibre-rich, City Enterprise Networks;
- four on-net Western European hosting centres;
- unmatched experience in managing networks for highly sophisticated, demanding clients across Europe.
· GTS Business Services – This unit will contain all of the company’s Western European voice business, both retail and wholesale. The retail business will focus predominantly on delivering voice services to SMEs in Western Europe. This unit will include most of GTS’s present Business Services unit, excluding the Central European operations, and will also include the company’s wholesale switched voice business, which had previously been reported as Broadband Services. The new Business Services unit will be managed as a separate entity, and will include GTS’ switched voice network infrastructure.
· GTS Central Europe – This unit, which operates within the Czech Republic, Poland, Hungary, the Slovak Republic and Romania, is a leading provider of Internet, data, and voice services to multinational companies, ISPs, and SMEs throughout Central Europe. This unit offers, through agreements with Broadband Services, managed bandwidth and IP access via the Broadband Services pan-European Internet network.
· Golden Telecom – This unit represents the consolidated results of GTS’s 62.6% ownership in Golden Telecom, Inc., a leading facilities-based provider of integrated telecommunications and Internet services throughout Russia and the Commonwealth of Independent States (CIS). The company will continue to evaluate the possible sale of this unit.
Robert A. Schriesheim, Executive Vice President, Corporate Development and Chief Financial Officer, said: “Upon execution of this corporate restructuring, we simplify our structure and focus our resources on our highest value business – a European data, pure play, highly EBITDA positive company, which is the leading provider of broadband services in Europe. Further, as a result of the restructuring activities, together with the recent FA-1 transactions, we expect to enhance our funding position by redirecting our resources to the broadband business.”
OTHER DEVELOPMENTS
Flag Atlantic Limited Sale
On October 31, the company announced the sale of its 50% interest in Flag Atlantic Limited, to its joint venture partner, FLAG Telecom. The joint venture is constructing FA-1, a six fibre pair, trans-Atlantic cable. The total value of the transaction to GTS was US$175 million. Under the terms of agreement, GTS will receive US$135 million in cash from Flag Telecom. In addition, the dark fibre pair that GTS had previously purchased from the venture will be retained by GTS and will initially be equipped with 80 Gbps of total capacity, providing us with trans-Atlantic capacity for a very favorable cost. Furthermore, as part of the consideration, GTS will receive 305 kilometers in duct space as well as six fibre pair stretching over 500 kilometers in and around Paris and Northwest France. GTS will also have the right to acquire backhaul fibres from FLAG Atlantic on favorable terms going forward. The company anticipates this transaction closing in the month of November.
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Consent Solicitation – 9-7/8% Senior Notes Due 2005
GTS today announced a solicitation to obtain consents from holders of its 9-7/8% Senior Notes due 2005 (the “Notes”) for amendments of certain provisions of the indenture governing the Notes. The purpose of the consent solicitation is to permit GTS to modify certain provisions of the indenture governing the Notes in order to provide the company with greater flexibility to, among other things, restructure the operations of its Global TeleSystems (Europe) Limited subsidiary, formerly known as Esprit Telecom Group plc (Esprit Telecom), and address the indebtedness represented by Esprit Telecom’s publicly traded debt securities and long-term debt owed to GTS by Esprit Telecom. In this regard, the company has retained Houlihan Lokey Howard & Zukin to advise the company in connection with these activities.
Dividend on Convertible Preferred Stock
The company’s Board of Directors has determined that it is in the best interest of the company and its shareholders not to pay dividends on its 7.25% Cumulative Convertible Preferred Stock this quarter. The Preferred Stock is represented by Depositary Shares, each representing 1/100 of a share of the Preferred Stock.
Exchange Rates
The average dollar:euro exchange rate during the third quarter of 2000 was 0.906, down from 0.935 in the second quarter of 2000. In early November 2000, the dollar:euro exchange rate was approximately 0.857.
CONFERENCE CALL AND WEBCAST INFORMATION
GTS will conduct a conference call to discuss its financial results and other developments described in this release today, Monday, November 13, at 9:00am (US EST). The call will be available live to all investors via a direct link from the Company’s home page at http://www.gts.com.
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About GTS (www.gts.com)
Global TeleSystems, Inc., is the leading provider of e*Business and borderless broadband services across Europe, serving businesses and carriers with a range of broadband, hosting, Internet/IP and voice services. As an industry leader in Europe, the company has the largest cross-border fibre optic network; the largest Tier-1 IP backbone (GTS Ebone); the most widely deployed pan-European e*Business sales and service staff; and the largest pan-European customer base. GTS’s first and most extensive trans-European broadband fibre network includes on-net points of presence in 38 European cities (50 cities planned) and stretches across 17,500 route kilometres (25,000 route kilometres planned) with seven city enterprise networks (CENs) (14 CENs planned), providing intra-city bandwidth. The company has its European operating headquarters in London; other corporate offices in Washington, D.C., Brussels and Cork, Ireland; and sales and service operations in 20 countries.
Jim Shields, Director, Investor Relations
Tel.: +44-207-769-8264; fax: +44-207-769-8068; e‑mail: jim.shields@gts.com
Patti Grohs, Senior Manager, Investor Relations
Tel.: +1-703-236-3170; fax: +1-703-236-3606; e‑mail: patti.grohs@gts.com
Glenn Manoff, Vice President, Communications
Tel.: +44-(0)-207-769-8290; fax: +44-(0)-207-769-8084; e-mail: glenn.manoff@gts.com
This press release may include forward-looking statements that involve risk and uncertainty. Although the company believes its expectations reflected in such forward-looking statements are based on reasonable assumptions, no assurance can be given that such projections will be fulfilled. Any such forward-looking statement must be considered along with knowledge that actual events or results may vary materially from such predictions due to, among other things, political, economic or legal changes in the markets in which GTS does business, competitive developments or risks inherent in the company’s business plan. Readers are referred to the documents filed by GTS with the U.S. Securities and Exchange Commission, specifically the most recent reports filed under the Securities Exchange Act of 1934 and registration statements filed pursuant to the Securities Act of 1933, which identify important risk factors.
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