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Completel: Q3 2005 Results

Financial Highlights : - 18% growth of total revenue in Q3'05 vs. Q3'04. - Adjusted EBITDA margin has reduced to 12% in Q3'05 versus 17% in Q2'05, as costs are incurred to expand the network in line with the plan announced last July. Q3'04 Q2'05 Q3'05 Growth Growth In million of Euros Q3'05/Q3'04 Q3'05/Q2'05 Corporate Revenue 32.3 37.6 36.2 12.1% (3.7%) Total Revenue 38.8 46.8 45.9 18.3% (1.9%) Gross Margin (1) 17.5 20.3 18.7 6.9% (7.9%) Adjusted EBITDA (1) 5.3 8.1 5.4 1.9%(33.3%) Adjusted EBITDA margin 14% 17% 12%nsns (1) Net Loss(2.9) (0.5) (4.3)nsns Operational Highlights: - +21% increase of customers connected to the networks in Q3'05 vs. Q3'04. - +21% increase of buildings connected to the networks in Q3'05 vs. Q3'04. Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 ON-NET METRICS Total buildings 2,705 2,886 2,957 3,151 3,281 connected Total customers 1,879 1,988 2,064 2,185 2,268 connected Corporate ARPU (1) 5,950 6,000 5,950 5,800 5,800 (Euros/month) Recent Events : - Expansion plan roll-out launched and on track. - ARCEP (1) decision issued September 27, 2005 did not set tariffs for call termination but established principles. Completel's estimate for call termination tariffs unchanged compared to Q1 and Q2'05. (1) Refer to Note 1 for definition Completel Europe NV, a national infrastructure-based operator providing telecom services to the French business market, announced today its results for the quarter ended September 30, 2005. Jerome de Vitry, President and CEO of Completel Europe N.V., commented: "This quarter saw further strong growth in corporate data revenues. Our focus on data products and services resulted in a 37% year-on-year growth, led by Ethernet LAN-to-LAN and IP VPN services. As in past years, corporate voice revenue was affected by summer seasonality in Q3'05. Growth of corporate voice revenue continues to be offset by price reductions negotiated with customers at contract renewal. However, annual customer churn remains below 5% per annum, which demonstrates our customers' loyalty at contract renewal. We won new corporate contracts in anticipation of our expanded coverage, leading to a solid quarter of growth in orders and reinforcing my confidence in the continuing growth prospects of the Company. Our wholesale revenue grew by 49% year on year, thus demonstrating our ability to capture market share in a highly volatile market. Our expansion plan roll-out is under way; our national backbone will be progressively commissioned from December 2005. A first tranche of 250 collocation sites out of the planned 550 has already been contracted for delivery starting December 2005. Employee recruitment is also well underway. As of today, we have contracted more than 90 additional employees who are progressively joining the Company. I am pleased with the early positive perception of our expansion plan by our current and prospective customers. It reinforces my confidence that our plan, adding a comprehensive DSL coverage of the French corporate market, over our existing metropolitan fiber network, will represent a compelling offering to our customers." Alexandre Westphalen, Chief Financial Officer, added: "Revenue growth experienced in Q3'05 leads us to re-confirm our revenue guidance for full year 2005. As anticipated, gross margin and EBITDA margin started to reduce in Q3'05, due to the incremental fixed network costs and SG&A expenses progressively incurred as we implement our expansion plan. We anticipate this trend to continue over the coming quarters, until incremental sales on our expanded addressable market progressively cover these fixed costs. As of today, capital expenditures related to our network roll-out are forecast to be within our initial cost estimates. The ARCEP decision issued September 27, 2005 did not set tariffs for call termination but established overall principles. As a result, we continue to estimate our call termination revenue for 2005 on the basis of the tariff on which Completel and France Telecom settled their 2004 call termination dispute. In the light of the process set-up by ARCEP, we do not anticipate to have final 2005 tariffs settled before early 2006." Financial Review Revenue Revenue Breakdown Q3'04 Q2'05 Q3'05 Growth Growth In million of Euros Q3'05/ Q3'05/ Q3'04 Q2'05 Corporate: Voice 23.3 26.1 23.9 2.6% (8.4%) Corporate: Internet, Data & 9.0 11.5 12.3 36.7% 7.0% Hosting Total Corporate Revenue 32.3 37.6 36.2 12.1% (3.7%) Wholesale Revenue 6.5 9.2 9.7 49.2% 5.4% Total Revenue 38.8 46.8 45.9 18.3% (1.9%) ON-NET METRICS Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 Cumulative buildings2,705 2,886 2,957 3,151 3,281 connected Cumulative total customers 1,879 1,988 2,064 2,185 2,268 connected Cumulative on-net corporate 1,783 1,877 1,941 2,049 2,120 customers ARPU (Euros/month) 5,950 6,000 5,950 5,800 5,800 Completel reported revenues of EUR45.9 million in Q3'05 compared to EUR38.8 million in Q3'04 and EUR46.8 million in Q2'05, an increase of 18.3% and a decrease of 1.9% respectively. During the quarter, Completel continued to generate strong revenue growth from data and network solutions for corporate customers. Corporate data revenues in Q3'05 increased 37% over Q3'04, and 7% over Q2'05. In Q3'05 data corporate revenues represented 34% of total corporate revenues, compared to 28% in Q3'04. Corporate data revenue growth was mainly driven by LAN-to-LAN and IP VPN services. Completel ended the quarter with 1,300 sites connected to its end-to-end Ethernet backbone, confirming its position as a leading operator for LAN-to-LAN Ethernet services in France. Connection of the main customer's sites with fiber remains a key successful differentiator for the IP-VPN offering, which will be further strengthened by the forthcoming comprehensive DSL coverage resulting from its expansion plan. Corporate voice revenues increased by 3% in Q3'05 over Q3'04 and decreased by 8% against Q2'05. Growth over Q2'05 was impacted by the expected summer holiday seasonality on switched traffic. The Company routinely forecasts that the impact of this summer seasonality on Q3 voice traffic of its installed customers is about 10% compared to other quarters, which has been the case historically. Growth of corporate voice revenues this quarter continued to be offset by price reductions negotiated with customers at contract renewals, as the result of competitive price pressures experienced in 2004 for new contracts. The Company anticipates this trend to continue and to erode revenues derived from its existing customer base in the coming quarters. However, the Company continues to see reduced price pressure for new voice contracts. In Q3'05, voice corporate revenues remain partially determined by the management's estimate for call termination revenue. ARCEP's decision issued on September 27, 2005 did not set tariffs for call termination but establish broad principles, described on page 5 of the press release. As a result, the Company continued to estimate its call termination revenues for Q3 2005 at the same tariff as it did in H1'05. Management estimates that the range of outcomes could be from increasing revenues and operating results for Q3'05 by up to EUR1.6 million and decreasing revenues and operating results by EUR1.6 million. As in the past, the reported result for the quarter may be later adjusted retrospectively upwards or downwards. Call termination estimate is discussed in greater details on page 6 of this press release. Wholesale revenues in the quarter were EUR9.7 million compared to EUR6.5 million in Q3'04 and EUR9.2 million in Q2'05. Wholesale revenues increased by 49% in Q3'05 over Q3'04, as the Company continued to successfully supply switched services to new customers, and to provision new data links to the end-customers of other operators. Despite the lower seasonal market activity for voice services, wholesale revenues increased by 5% in Q3'05 over Q2'05, demonstrating Completel's ability to capture market share in volatile markets ahead of its expansion plan roll out. Gross Margin For the third quarter of 2005, Gross Margin before network depreciation was EUR18.7 million, compared to EUR17.5 million in Q3'04 and to EUR20.3 million in Q2'05. Gross margin in Q3'05 was 40.7% vs. respectively 45.1% in Q3'04 and 43.4% in Q2'05. As anticipated, gross margin decreased in Q3'05 vs Q2'05 as a result of increased network costs. Network costs increased to EUR27.2 million in Q3'05 from EUR26.5 million in Q2'05, because of network expansion and increased personnel costs related to the deployment of the Company's expansion plan. The Company anticipates this trend to continue over the coming quarters as it progressively reinforces its network staff and incurs fixed network costs related to its expanded network footprint. S,G&A For the third quarter of 2005, Selling, General and Administrative expenses (S,G&A) amounted to EUR13.4 million compared to respectively EUR12.3 million in Q3'04 and EUR12.3 million in Q2'05. SG&A in Q3'05 represented 29% of revenue, against 32% of revenue in Q3'04. As anticipated, S,G&A increased by 9% in Q3'05 over Q2'05 as a result of costs incurred in implementing the Company's expansion plan. The Company anticipates this trend to continue over the coming quarters as the Company progressively reinforces its sales staff and support functions in order to sell its services in its expanded addressable market. Adjusted EBITDA For the third quarter of 2005, Adjusted Earnings Before Interest, Tax, Depreciation and Amortization (Adjusted EBITDA) were EUR5.4 million, compared to respectively EUR5.3 million and EUR8.1 million in Q3'04 and Q2'05. For the third quarter of 2005, adjusted EBITDA margin was 12% of revenue against respectively 14% in Q3'04 and 17% in Q2'05. As anticipated, adjusted EBITDA in Q3'05 was affected by the combination of the customary summer seasonality reducing voice revenues, and the costs incurred in relation with the implementation of the expansion plan. The Company anticipates EBITDA to continue to decrease over the coming quarters until incremental sales on its current and expanded addressable markets cover the increased fixed network costs and S,G&A expenses associated with its network extension. Operating Losses Operating losses in Q3'05 were EUR3.4 million against respectively EUR3.0 million and EUR0.7 million in Q3'04 and Q2'05. Operating losses for the quarter included EUR8.7 million of amortization and depreciation. Net Result Net loss for the third quarter of 2005 was EUR4.3 million against respectively EUR2.9 million and EUR0.5 million in Q3'04 and Q2'05. Net loss in Q3'05 included an accrued EUR1.5 million interest expense on the 2012 Notes issued in July 2005, reduced by a EUR0.7 million interest income earned on the Company's cash balance. Capital Expenditures Capital expenditures (Capex) for the third quarter of 2005 amounted to EUR12.3 million, compared to respectively EUR7.1 million and EUR6.5 million in Q3'04 and Q2'05. In Q3'05, EUR6.5 million was related to new customer connections, and EUR5.8 million related to the network expansion started at the end of July 2005. The vast majority of this EUR5.8 million was related to the implementation of the future national backbone, and to IT systems. The Company anticipates its capital expenditures to increase rapidly in the coming quarters as it completes its national backbone and progressively provisions collocation sites. Cash As of September 30, 2005, Completel had EUR166.7 million in cash and cash equivalents, compared to EUR44.9 million as of June 30, 2005. The cash increase is primarily due to the concomitant issuance on July 27, 2005, of new ordinary shares for EUR40 million and Notes due 2012 for EUR80 million, in order to fully finance the Company's expansion plan. The Company anticipates its cash balance to decrease substantially in the coming quarters as it completes its network expansion. Other events ARCEP decision on call termination tariffs issued on September 27, 2005 On September 27, 2005, ARCEP finally published its analysis of call termination as a "relevant market". In its analysis, ARCEP did not set tariffs for call termination but principles. This analysis provides that France Telecom tariffs will be cost based, and alternate operators tariffs should be "non excessive". ARCEP further invited all participants to a dedicated workshop in order to reach an agreement on tariffs. This workshop will start in the coming weeks. In the light of this process, the Company does not anticipate having final tariffs for its 2005 call termination traffic until early 2006, and remains subject to a period of "tariff regulatory uncertainty" for its revenues and operating income derived from call termination. In Q3'05, Completel continued to invoice France Telecom at EUR1.54 cents per minute for call termination, which is a tariff that the Company considers as "non excessive". France Telecom claims that the appropriate tariff should be EUR0.7 cents per minute, but pays the Company's invoices at EUR1.54 cents per minute, on a provisional basis. As in Q1 and Q2'05, management continued in Q3'05 to estimate its call termination revenues at the tariff on which Completel and France Telecom settled their 2004 call termination dispute. This tariff is approximately at the mid point between the two limits of EUR1.54 and EUR0.7 cents per minute. Until actual tariffs are set and finally accepted by all parties, the Company will continue to estimate, to the best of its ability, its call termination revenues. As has been the case in the past, these estimates may be later adjusted upwards or downwards retrospectively. Management estimates that outcomes could range from increasing or decreasing revenues and operating result by up to EUR1.6 million for Q3'05 and by up to approximately EUR6.0 million for full year 2005. However, further to the Conseil de la Concurrence comments published on May 11, 2005, and to the ARCEP analysis published September 27, 2005, management estimates that the probability to end up with a final call termination tariff for 2005 below the company's current estimate for revenue recognition is lower than the probability to end up with a tariff close to or above its current estimate. Confirmed Guidance Management anticipates for Q4'05 a continuation of the revenue and margin trends experienced in past quarters. Revenue growth is unlikely to accelerate beyond its current pace until deployment of the expansion plan allows the company to address its expanded market coverage, starting 2006. Implementation of the expansion plan will continue to increase network costs, SG&A expenses, and capital expenditures in Q4'05. Based on its operating performance in Q3'05, the Company reiterates and confirms its guidance for its 2005 results. Management guidance is based on the same call termination tariff estimate it used to assess call termination revenues up to Q3'05. Management estimate for call termination revenues could change and may be later adjusted upwards or downwards retrospectively. Guidance publishedUpdated Guidance in July 05 Corporate Revenue EUR148.5 - EUR150.5 EUR149.3 - EUR149.8 Wholesale RevenueEUR34.5 - EUR36.5 EUR36.0 - EUR37.0 Adjusted EBITDA EUR25 - EUR27 EUR25 - EUR27 CAPEX EUR64 - EUR76 EUR64 - EUR76 This guidance is based on management's current views and assumptions and involves known and unknown risks and uncertainties, such as call termination tariffs, that could cause actual results, performance or events to differ materially from those anticipated Conference Call Further discussion of the above will be provided on the Company's quarterly call to be held on November 8, 2005 at 16:00 CET. Details of the call are available on the Company's web site http://www.completel.com. Note 1: Gross Margin: Gross Margin is defined as revenue less fixed and variable network costs Adjusted EBITDA: Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization. Excludes (in addition to interest, taxes, depreciation and amortization) non-cash compensation charges and foreign exchange loss and other expenses, including restructuring, impairment, retirement, and other charges, as well as other non-recurring operating expenses. Adjusted EBITDA is not derived pursuant to generally accepted accounting principles and therefore should not be considered as an alternative to operating income (loss), as an alternative to cash flows from operating activities, or as a measure of liquidity. Furthermore, the Company is not aware of any uniform standards for determining Adjusted EBITDA. Presentations of Adjusted EBITDA may not be calculated consistently by different companies in the same or similar businesses. As a result, the Company's reported Adjusted EBITDA may not be comparable to similarly titled measures used by other companies. Management believes this non-gaap financial measure provides useful information. ARCEP: Autorite de Regulation des Communications Electroniques et des Postes. Formerly ART. ARPU: Average Monthly Revenue per User for corporate customers connected with fibre. Reconciliation of Adjusted EBITDA to Net Loss: In million of Euros Q3'04 Q2'05 Q3'05 Adjusted EBITDA5.3 8.1 5.4 Non-cash compensation 0.1 0.1 0.1 charges Network depreciation7.0 7.5 7.7 expense Depreciation expense1.0 1.0 1.0 allocated to S,G&A Other operating (income) / 0.2 0.2- loss Operating income / (loss) (3.0) (0.7) (3.4) Financial Income (Loss) 0.1 0.2 (0.9) Net Income (Loss) (2.9) (0.5) (4.3) Management considers that Adjusted EBITDA is more an operating measure than a liquidity measure of its financial performance. As a result, management reconciles Adjusted EBITDA to its Net Loss. Disclaimer Information contained in this press release is based on the current expectations and assumptions of the management of Completel only. Completel does not undertake to publicly update or revise these statements, whether as a result of new information, future events or otherwise. Any such forecasts or forward-looking statements are subject to risks and uncertainties including, but not limited to: (a) decline in demand for Completel's telecommunications services; (b) pricing pressures from Completel's direct competitors as well as from providers of alternative services; (c) failures, shutdowns or service disturbances with respect to Completel's networks; (d) Completel's inability to develop and maintain efficient operations support; (e) regulatory developments adverse to Completel and (f) technological changes affecting Completel's market and service offering. For a more detailed discussion of such risks affecting the Company, please refer to Completel's "Document de Reference" filed with the French Autorite des Marches Financiers, Completel's Annual Reports, and Completel's Registration documents filed with the Dutch Autoriteit Financiele Markten. All documents are available on http://www.completel.com, or can be obtained free of charge from the Company. Completel Europe NV (ParisBourse: CPT). Completel is a leading national infrastructure-based operator serving medium and large businesses in France. Completel is a member of the following index of Euronext : CAC Small 90, CAC Mid & Small 190, SBF250, IT CAC and the Next Economy segment. ISIN CodeBloomberg Ticker Reuters RIC Ordinary Share NL0000262822 CPT FP Equity CPT.PA Investor Contact: Catherine Blanchet, Director of Investor Relations Tel: +33-1-72-92-20-32 e-mail : ir@completel.fr http://www.completel.com Next events : Conference call for Q3 2005 : November 8, 2005 at 4pm (Paris time) Q4 2005 and 2005 Full year results : March 14, 2006

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