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Cellcom Israel Announces Third Quarter 2012 ResultsNETANYA, Israel, November 13, 2012 /PRNewswire via COMTEX/ -- Cellcom Israel presents a substantial improvement in free cash flow[1]for the third quarter, totaling NIS 414 million, a 58% increase in comparison to the third quarter last year Cellcom Israel continues the implementation of the efficiency plan and presents savings at an annual rate of approximately NIS 480 million[2] Cellcom Israel reports a net addition of approximately 5,000 cellular subscribers thanks to the success of "Cellcom Total", a communications solution combining cellular and landline services, and the beginning of IDF subscribers' transfer to our network Third Quarter 2012 Highlights[3] (compared with the third quarter 2011): Free cash flow[1] totaled NIS 414 million ($106 million), a 58% increase Total Revenues totaled NIS 1,448 million ($370 million), a 13% decrease Service revenues totaled NIS 1,148 million ($293 million), a 3.8% decrease EBITDA[1] totaled NIS 430 million ($110 million), a 19.9% decrease EBITDA margin 29.7%, down from 32.3% Operating profit totaled NIS 239 million ($61 million), a 31.5% decrease Net income totaled NIS 124 million ($32 million), a 37.7% decrease Cellular Subscriber base totaled approx. 3.338 million at the end of September 2012 1. Please see "Use of Non-IFRS financial measures" section in this press release. 2. Based on a comparison of third quarter 2012 expenses to fourth quarter 2011 expenses. 3. The Company consolidated financial results for the third quarter 2012 include the results of Netvision Ltd., or Netvision, for the full quarter, while the consolidated financial results for the third quarter 2011 include Netvision's results for September 2011 only (due to the completion of Netvision's acquisition by the Company on August 31, 2011). Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel", the "Company"), announced today its financial results for the third quarter of 2012. Revenues for the third quarter 2012 totaled NIS 1,448 million ($370 million); EBITDA for the third quarter 2012 totaled NIS 430 million ($110 million), or 29.7% of total revenues; and net income for the third quarter 2012 totaled NIS 124 million ($32 million). Basic earnings per share for the third quarter 2012 totaled NIS 1.25 ($0.32). Commenting on the results, Nir Sztern, Chief Executive Officer, said, "We are pleased with the implementation of the Company's strategy: the merger of Netvision, operational excellence, and our strengthening as a communications group. The Company has taken aggressive efficiency measures, which led, so far, to an annual savings run rate of approximately NIS 480 million[2], while focusing on operational excellence. It is our intention to continue the efficiency measures in the fourth quarter this year, as well as in 2013. We continue to leverage and expand the comprehensive services we provide as a communications group, addressing all customer segments, and seeing great success with our "Cellcom Total" marketing plan, which was launched in July of this year, followed by "Cellcom Total for Businesses", a beneficial, comprehensive communications package for small and medium businesses. At the same time, we witness Netvision's contribution to the Company's success, presenting a third quarter EBITDA of NIS 75 million, through leveraging Cellcom-Netvision synergies, and reducing cost redundancies between the companies". Regarding market competition, Nir Sztern noted: "In the third quarter, the Company recruited approximately 5,000 net new subscribers. This is an impressive achievement in light of the intense competition. The positive net adds is a result of the "Cellcom Total" success as well as the beginning of IDF subscribers' transfer to our network, whereas the majority of the IDF subscribers will be joining in the following quarters. This quarter, the Company also presented a record growth of private landline telephony subscribers. We will continue to strengthen Cellcom Israel's position as a leading communications group, by leveraging future opportunities, such as the wireline wholesale market and entering new areas of activity, such as cellular credit card and the examination of entry into IPTV". Yaacov Heen, Chief Financial Officer, commented: "As we anticipated in the previous quarter, we continue to see the Company's revenue erosion due to the transfer of subscribers to the new marketing plans, launched during the second and third quarters of 2012, in response to the heightened competition. Furthermore, we expect this erosion to continue in the fourth quarter as well. Yet, we continue the implementation of efficiency measures in order to continue the adjustment of our expense structure to revenue levels. The focus on cost reduction and the reduction in inventory levels and handset sales, have led to an improvement in our free cash flow for the third quarter of 2012, which totaled NIS 414 million. The Company's cash balance and future cash generation, will enable us to serve our debt during 2013, without having to raise additional debt. The Company's Board of Directors decided not to distribute a dividend for the third quarter of 2012, in order to strengthen the Company's balance sheet at this time of market uncertainty. The Board of directors will re-evaluate its decision in the coming quarters as market conditions develop, and taking into consideration the Company's needs". Main Consolidated Financial Results (financial data for Q3/2011, includes Netvision's results for September 2011 only): Q3/2012 Q3/2011 (*) % Change Q3/2012 Q3/2011 million US$ (convenience million NIS translation) Total revenues 1,448 1,665 (13.0%) 370.1 425.6 Operating profit 239 349 (31.5%) 61.1 89.2 Net income 124 199 (37.7%) 31.7 50.9 Free cash flow 414 262 58.0% 105.8 67.0 EBITDA 430 537 (19.9%) 109.9 137.3 EBITDA, as percent of total revenues 29.7% 32.3% (8.0%) (*) Since the merger transaction with Netvision was completed on August 31, 2011, Q3/2011 consolidated financial results include Netvision's results for September 2011 only. Main Financial Data by Companies: Cellcom Israel without Consolidation adjustments Consolidated Netvision Netvision (*) results Change Q3/2012 Q3/2011 (%) Q3/2012 Q3/2012 Total revenues 1,187 1,567 (24.3%) 291 (30) 1,448 Total service revenues [4] 902 1,101 (18.1%) 276 (30) 1,148 Equipment revenues 285 466 (38.8%) 15 - 300 Operating profit 220 350 (37.1%) 45 (26) 239 EBITDA 355 517 (31.3%) 75 - 430 EBITDA, as percent of total revenues 29.9% 33.0% (9.4%) 25.8% - 29.7% (*)Include elimination of inter-company revenues between Cellcom Israel and Netvision, and amortization expenses attributable to the merger. 4. Including revenues from content, SMS and value added services. The Company has ceased to detail separately the revenues from content, SMS and value added services, since most of the marketing plans which are sold nowadays include service packages which include unlimited air time minutes and SMS as well as cellular surfing. Main Performance Indicators (data refers to cellular subscribers only): Change Q3/2012 Q3/2011 (%) Cellular subscribers at the end of period (in thousands) 3,338 3,391 (1.6%) Churn Rate for cellular subscribers (in %) 8.6% 5.7% 50.9% Monthly cellular ARPU[5] (in NIS) 86.7 105.1 (17.5%) Average Monthly cellular MOU (in minutes) 399 357 11.7% Financial Review (financial data for Q3/2011, includes Netvision's results for September 2011 only) Revenues for the third quarter of 2012 totaled NIS 1,448 million ($370 million), a 13% decrease compared to NIS 1,665 million ($426 million) in the third quarter last year. The decrease in revenues is attributed to a 36.4% decrease in equipment revenues, which totaled NIS 300 million ($77 million) in the third quarter 2012 as compared to NIS 472 million ($121 million) in the third quarter last year, as well as to a 3.8% decrease in service revenues, which totaled NIS 1,148 million ($293 million) in the third quarter 2012 as compared to NIS 1,193 million ($305 million) in the third quarter last year. Netvision's contribution to total revenues for the third quarter of 2012 totaled NIS 261 million ($67 million) excluding inter-company revenues. Excluding Netvision's contribution, total revenues decreased by 24.3% compared with the third quarter last year. The decrease in service revenues is primarily attributed to the ongoing erosion in the price of cellular services, resulting from the intensified competition in the market. Most of this decrease was offset by an increase in Netvision's contribution to service revenues, which totaled NIS 246 million ($63 million) (excluding inter-company revenues) in the third quarter of 2012, as compared to NIS 92 million ($24 million) in the third quarter of 2011. The increase in Netvision's contribution to service revenues was mainly due to the consolidation of Netvision's results for September 2011 only in the third quarter of 2011 (following the completion of the merger transaction with Netvision on August 31, 2011), while in the third quarter of 2012 we consolidated Netvision's results for the full quarter. After elimination of Netvision's contribution to service revenues, service revenues for the third quarter of 2012 decreased by 18.1% as compared to the third quarter last year. As noted in the previous quarter, the Company has ceased to detail separately the revenues from content, SMS and value added services, since most of the marketing plans, which are currently sold, include service packages which include unlimited air time minutes and SMS as well as cellular surfing. 5. Including revenues from national roaming services and hosting services to operators on the Company's communications networks. Equipment revenues decreased 36.4%, from NIS 472 million ($121 million) in the third quarter last year, to NIS 300 million ($77 million) in the third quarter 2012. The decrease in equipment revenues resulted mainly from a significant decrease in the number of cellular handsets, which were sold in the third quarter of 2012 as compared to the third quarter last year. Netvision's contribution to equipment revenues for the third quarter of 2012 totaled NIS 15 million ($4 million). After elimination of Netvision's contribution to equipment revenues, equipment revenues for the third quarter of 2012 decreased by 38.8% as compared to the third quarter last year. Cost of revenues for the third quarter of 2012 decreased 3.1% to NIS 853 million ($218 million) compared to NIS 880 million ($225 million) in the third quarter of 2011. Netvision's contribution to cost of revenues for the third quarter of 2012 totaled NIS 190 million ($49 million) (after elimination of inter-company expenses of NIS 30 million ($8 million)). After elimination of Netvision's contribution, cost of revenues decreased 18.1% and totaled NIS 663 million ($169 million) in the third quarter of 2012, compared to NIS 810 million ($207 million) in the third quarter last year. This decline in cost of revenues after elimination of Netvision's contribution primarily resulted from a significant decrease in cellular handsets cost due to a decrease in the number of handsets sold during the third quarter of 2012 as compared with the third quarter last year. The decrease in cost of revenues also resulted from a decrease in cost of content services and in cost of cellular handsets repair services due to efficiency measures implemented in these areas, as well as a decrease in depreciation and amortization expenses, and a decrease in royalties expenses paid to the Ministry of Communications due to the reduction in royalties' rate and in revenues, which are subject to royalties. Gross profit for the third quarter of 2012 decreased 24.2% to NIS 595 million ($152 million), compared to NIS 785 million ($201 million) in the third quarter of 2011. Gross profit margin for the third quarter 2012 decreased to 41.1% from 47.1% in the third quarter last year. Selling, Marketing, General and Administrative Expenses ("SG&A expenses") for the third quarter of 2012 decreased 18.2% to NIS 356 million ($91 million), compared to NIS 435 million ($111 million) in the third quarter of 2011. SG&A expenses excluding Netvision's contribution decreased 24.6%. The decrease in SG&A expenses after elimination of Netvision's contribution mainly resulted from a decrease in payroll expenses and sales commissions, mainly due to efficiency measures, and in amortization expenses related to capitalized sales commissions, as well as a decrease in advertising expenses. Netvision's contribution to SG&A expenses for the third quarter of 2012 amounted to NIS 50 million ($13 million), including amortization expenses of intangible assets, attributable to the merger, in the amount of NIS 26 million ($7 million). Operating profit for the third quarter of 2012 totaled NIS 239 million ($61 million), compared to NIS 349 million ($89 million) in the third quarter last year, a 31.5% decrease. EBITDA for the third quarter of 2012 decreased 19.9% to NIS 430 million ($110 million) representing 29.7% of total revenues, compared to NIS 537 million ($137 million) represented 32.3% of total revenues in the third quarter 2011. Netvision's contribution to EBITDA for the third quarter 2012 totaled NIS 75 million ($19 million). EBITDA as a percent of total revenues for the third quarter of 2012 after elimination of Netvision's contribution to EBITDA and total revenues totaled 29.9%. Financing expenses, net for the third quarter of 2012 totaled NIS 64 million ($16 million), compared to NIS 90 million ($23 million) in the third quarter last year, a 28.9% decrease. This decrease resulted from three main elements: (1) a gain from Israeli Consumer Price Index ("CPI") hedging transactions in the third quarter of 2012 due to an increase in inflation expectations, as compared to a loss from such hedging transactions in the third quarter of 2011 due to a decrease in inflation expectations in that quarter; (2) income from foreign currency differences related to trade payables balances in the third quarter of 2012, which resulted from an appreciation of 0.3% of the NIS against the US dollar, as compared to expenses from such foreign currency differences in the third quarter of 2011, which resulted from a depreciation of 8.7% of the NIS against the US dollar in that quarter; and (3) an increase in interest income, related to cellular handsets sales, in the third quarter of 2012 as compared to the third quarter last year. These three impacts were partially offset by an increase in interest expenses, associated with the Company's debentures, due to the higher debt level and the increased inflation, as well as by a decrease in gain from currency hedging transactions, resulted from the appreciation of the NIS against the US dollar in the third quarter of 2012, compared to the depreciation of the NIS against the US dollar in the third quarter last year. Net Income for the third quarter of 2012 totaled NIS 124 million ($32 million), compared to NIS 199 million ($51 million) in the third quarter last year, a 37.7% decrease. Basic earnings per share for the third quarter of 2012 totaled NIS 1.25 ($0.32), compared to NIS 2.00 ($0.51) in the third quarter 2011. Operating Review (data refers to cellular subscribers only) New Cellular Subscribers - at the end of September 2012, the Company had approximately 3.338 million cellular subscribers. During the third quarter of 2012, the Company's cellular subscriber base increased by approximately 5,000 net subscribers. In the third quarter of 2012, the Company added approximately 19,000 net new 3G cellular subscribers to its 3G subscriber base, reaching approximately 1.449 million 3G subscribers at the end of September 2012, representing 43.4% of the Company's total cellular subscriber base, an increase from the 37.8% 3G subscribers represented of total subscribers at the end of September 2011. The Churn Rate of cellular subscribers in the third quarter 2012 was 8.6%, compared to 5.7% in the third quarter last year. The increase in the churn rate mainly resulted from the increased competition in the market following the entrance of the new operators during the second quarter 2012. Average monthly cellular Minutes of Use per subscriber ("MOU") in the third quarter 2012 totaled 399 minutes, compared to 357 minutes in the third quarter 2011, an increase of 11.7%. The monthly cellular Average Revenue per User (ARPU) for the third quarter of 2012 decreased 17.5% and totaled NIS 86.7 ($22.2), compared to NIS 105.1 ($26.9) in the third quarter last year. The decrease is attributed to the ongoing price erosion. ARPU includes revenues from national roaming services and hosting services to operators on the Company's communications networks. Financing and Investment Review (financial data for Q3/2011, includes Netvision's results for September 2011 only) Cash Flow Free cash flow for the third quarter of 2012 increased by 58% and totaled NIS 414 million ($106 million), compared to NIS 262 million ($67 million) generated in the third quarter of 2011. The increase in free cash flow mainly resulted from a decrease in payments to vendors, primarily those related to handsets purchases due to a decrease in handsets sales in the third quarter of 2012 as compared to the third quarter last year, which was partially offset by a decrease in receipts from customers, which resulted from the decrease in total revenues in the third quarter of 2012 as compared to the third quarter last year. Total Equity Total Equity as of September 30, 2012 amounted to NIS 400 million ($102 million), primarily consisting of accumulated undistributed retained earnings. Capital expenditure The Company's accrual capital expenditure for the third quarter of 2012, totaled NIS 99 million ($25 million) (including, among others, investment in information systems and software), compared to NIS 134 million ($34 million) in the third quarter of 2011. The decrease primarily resulted from a difference in timing of investments between the quarters. Dividend On November 12, 2012, the Company's board of directors decided not to declare a cash dividend for the third quarter of 2012. In making its decision, the board of directors considered the Company's dividend policy and business status and determined, that although the Company can satisfy its existing and foreseeable obligations with a dividend distribution, given the continued intensified competition and substantial changes in pricing and their continued current and expected adverse effect on the Company's results of operations, the Company should wait for the competitive situation to clarify, to strengthen the Company's balance sheet and not distribute a dividend at this time. The board of directors will re-evaluate its decision in future quarters. No future dividend declaration is guaranteed and is subject to the Company's board of directors' sole discretion, as detailed in the Company's annual report for the year ended December 31, 2011 on Form 20-F, under "Item 8 - Financial Information - Dividend Policy". Debentures For information regarding the Company's summary of financial undertakings and details regarding the Company's outstanding debentures as of September 30, 2012, see "Disclosure for Debenture Holders" section in this press release. Other developments during the third quarter of 2012 and subsequent to the end of the reporting period Regulation In August 2012, the proposed amendment to the Communications Law, setting gradually increasing financial sanctions on communication operators, for breach of their licenses, the amount of which shall be calculated as a percentage of the operator's income and based on the gravity of the breach, was enacted. For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2011, under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We operate in a heavily regulated industry, which can harm our results of operations". Changes in Senior Management Mr. Ran Harpaz resigned from his office as vice president of Information Technology of the Company effective October 2012. Mr. Harpaz is replaced by Mr. Jack Oster, as of November 2012. Jack Oster served as senior director of global delivery centers and global shared services centers as part of global IT management team of Teva Pharmaceutical Industries Ltd from 2007 to November 2012. From 2005 - 2007 Mr. Oster served as Vice President of Business Applications solutions of Yael Software Ltd. From 2000 - 2005 Mr. Oster served as Senior Manager as part of the management consulting group of KPMG Consulting. Mr. Oster holds a B.Sc. in industrial engineering from Tel-Aviv University and graduated the Executive MBA program from Kellogg-Recanati. Conference Call Details The Company will be hosting a conference call on Tuesday, November 13, 2012 at 9:00 am EST, 6:00 am PST, 14:00 UK time, 16:00 Israel time. On the call, management will review and discuss the results, and will be available to answer questions. To participate, please either access the live webcast on the Company's website, or call one of the following teleconferencing numbers below. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number. US Dial-in Number: 1-888-668-9141 UK Dial-in Number: 0-800-917-5108 Israel Dial-in Number: 03-918-0610 International Dial-in Number: +972-3-918-0610 at: 9:00 am EST; 6:00 am PST; 14:00 UK time; 16:00 Israel Time To access the live webcast of the conference call, please access the investor relations section of Cellcom Israel's website: http://www.cellcom.co.il. After the call, a replay of the call will be available under the same investor relations section. About Cellcom Israel Cellcom Israel Ltd., established in 1994, is the leading Israeli cellular provider; Cellcom Israel provides its approximately 3.338 million subscribers (as at September 30, 2012) with a broad range of value added services including cellular and landline telephony, roaming services for tourists in Israel and for its subscribers abroad and additional services in the areas of music, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure. The Company operates an HSPA 3.5 Generation network enabling advanced high speed broadband multimedia services, in addition to GSM/GPRS/EDGE networks. Cellcom Israel offers Israel's broadest and largest customer service infrastructure including telephone customer service centers, retail stores, and service and sale centers, distributed nationwide. Through its broad customer service network Cellcom Israel offers technical support, account information, direct to the door parcel delivery services, internet and fax services, dedicated centers for hearing impaired, etc. Cellcom Israel further provides through its wholly owned subsidiaries internet connectivity services and international calling services, as well as landline telephone communication services in Israel, in addition to data communication services. Cellcom Israel's shares are traded both on the New York Stock Exchange (CEL) and the Tel Aviv Stock Exchange (CEL). For additional information please visit the Company's website http://www.cellcom.co.il Forward-Looking Statements The following information contains, or may be deemed to contain forward-looking statements (as defined in the U.S. Private Securities Litigation Reform Act of 1995 and the Israeli Securities Law, 1968). In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial results, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause such differences include, but are not limited to: changes to the terms of our license, new legislation or decisions by the regulator affecting our operations, new competition and changes in the competitive environment, the outcome of legal proceedings to which we are a party, particularly class action lawsuits, our ability to maintain or obtain permits to construct and operate cell sites, and other risks and uncertainties detailed from time to time in our filings with the U.S. Securities and Exchange Commission, including under the caption "Risk Factors" in our Annual Report for the year ended December 31, 2011. Although we believe the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We assume no duty to update any of these forward-looking statements after the date hereof to conform our prior statements to actual results or revised expectations, except as otherwise required by law. The Company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). Unless noted specifically otherwise, the dollar denominated figures were converted to US$ using a convenience translation based on the New Israeli Shekel (NIS)\US$ exchange rate of NIS 3.912 = US$ 1 as published by the Bank of Israel for September 30, 2012. Use of non-IFRS financial measures EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net; income tax; depreciation and amortization and share based payments. This is an accepted measure in the communications industry. The Company presents this measure as an additional performance measure as the Company believes that it enables us to compare operating performance between periods and companies, net of any potential differences which may result from differences in capital structure, taxes, age of fixed assets and related depreciation expenses. EBITDA should not be considered in isolation, or as a substitute for operating income, any other performance measures, or cash flow data, which were prepared in accordance with Generally Accepted Accounting Principles as measures of profitability or liquidity. EBITDA does not take into account debt service requirements, or other commitments, including capital expenditures, and therefore, does not necessarily indicate the amounts that may be available for the Company's use. In addition, EBITDA may not be comparable to similarly titled measures reported by other companies, due to differences in the way these measures are calculated. See the reconciliation between the net income and the EBITDA presented at the end of this Press Release. Free cash flow is a non-IFRS measure and is defined as the net cash provided by operating activities minus the net cash used in investing activities excluding short-term investment in tradable debentures and deposits and proceeds from sales of such debentures (including interest received in relation to such debentures) and deposits. See the reconciliation note in this Press Release. Financial tables follow Cellcom Israel Ltd. (An Israeli Corporation) Condensed Consolidated Interim Statements of Financial position Convenience translation Into U.S. dollar September September September December 30, 30, 30, 31, 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions (Unaudited) (Unaudited) (Unaudited) (Audited) Assets Cash and cash equivalents 869 1,139 291 920 Current investments, including derivatives 479 493 126 290 Trade receivables 1,862 1,912 489 1,859 Other receivables 87 87 22 93 Inventory 135 125 32 170 Total current assets 3,432 3,756 960 3,332 Trade and other receivables 1,282 1,291 330 1,337 Property, plant and equipment, net 2,141 2,084 533 2,168 Intangible assets, net 1,720 1,552 397 1,680 Deferred tax assets 37 60 15 40 Total non-current assets 5,180 4,987 1,275 5,225 Total assets 8,612 8,743 2,235 8,557 Liabilities Short-term credit and current maturities of long-term loans and debentures 681 1,142 292 674 Trade payables and accrued expenses 1,016 859 220 1,026 Current tax liabilities 58 114 29 69 Provisions 112 169 43 148 Other payables, including derivatives 478 424 109 547 Dividend declared 232 - - 189 Total current liabilities 2,577 2,708 693 2,653 Long-term loans from banks 23 10 3 19 Debentures 5,464 5,399 1,380 5,452 Provisions 21 21 5 21 Other long-term liabilities 84 35 9 41 Liability for employee rights upon retirement, net - 13 3 10 Deferred tax liabilities 151 157 40 174 Total non- current liabilities 5,743 5,635 1,440 5,717 Total liabilities 8,320 8,343 2,133 8,370 Equity attributable to owners of the Company Share capital 1 1 - 1 Cash flow hedge reserve - 3 1 7 Retained earnings 287 395 101 175 Non-controlling interest 4 1 - 4 Total equity 292 400 102 187 Total liabilities and equity 8,612 8,743 2,235 8,557 Cellcom Israel Ltd. (An Israeli Corporation) Condensed Consolidated Interim Statements of Income Year Three-month period ended Nine-month period ended ended December September 30, September 30, 31, Convenience Convenience translation translation into US into US dollar dollar 2011 2012 2012 2011 2012 2012 2011 US$ US$ NIS NIS millions millions NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Revenues 4,481 4,531 1,158 1,665 1,448 370 6,506 Cost of revenues (2,434) (2,590) (662) (880) (853) (218) (3,408) Gross profit 2,407 1,941 496 785 595 152 3,098 Selling and marketing expenses (700) (671) (172) (259) (215) (55) (990) General and administrative expenses (489) (474) (121) (176) (141) (36) (685) Other expenses, net (1) - - (1) - - (1) Operating profit 1,217 796 203 349 239 61 1,422 Financing income 87 149 39 35 66 17 116 Financing expenses (319) (366) (94) (125) (130) (33) (409) Financing expenses, net (232) (217) (55) (90) (64) (16) (293) Profit before taxes on income 985 579 148 259 175 45 1,129 Taxes on income (236) (161) (41) (60) (51) (13) (304) Profit for the period 749 418 107 199 124 32 825 Profit for the period attributable to: Owners of the Company 749 418 107 199 124 32 824 Non-controlling interests - - - - - - 1 Profit for the period 749 418 107 199 124 32 825 Earnings per share Basic earnings per share in NIS 7.53 4.20 1.07 2.00 1.25 0.32 8.28 Diluted earnings per share in NIS 7.53 4.20 1.07 2.00 1.25 0.32 8.28 Cellcom Israel Ltd. (An Israeli Corporation) Condensed Consolidated Interim Statements of Cash Flows Year ended Nine-month period ended Three-month period ended December September 30, September 30, 31, Convenience Convenience translation translation into into US dollar US dollar 2011 2012 2012 2011 2012 2012 2011 US$ US$ NIS NIS millions millions NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Cash flows from operating activities Profit for the period 749 418 107 199 124 32 825 Adjustments for: Depreciation and amortization 519 579 148 183 190 48 738 Share based payment 4 4 1 3 1 - 6 Loss (gain) on sale of property, plant and equipment 1 - - 1 (1) - - Income tax expense 236 161 41 60 51 13 304 Financing expenses, net 232 217 55 90 64 16 293 Other expenses (income) - - - - (1) - 2 Changes in operating assets and liabilities: Change in inventory (31) 41 11 7 3 1 (67) Change in trade receivables (including long-term amounts) (515) 64 16 (189) 98 25 (585) Change in other receivables (including long-term amounts) 43 (42) (11) 49 - - 61 Change in trade payables, accrued expenses and provisions 166 (30) (8) 48 59 15 146 Change in other liabilities (including long-term amounts) 13 (13) (3) 1 (29) (7) (52) Proceeds from (payments for) derivative hedging contracts, net (15) 17 4 (6) 9 2 (14) Income tax paid (292) (165) (42) (86) (48) (12) (325) Income tax received - 15 4 - - - - Net cash from operating activities 1,110 1,266 323 360 520 133 1,332 Cellcom Israel Ltd. (An Israeli Corporation) Condensed Consolidated Interim Statements of Cash Flows (cont'd) Year ended Nine-month period ended Three-month period ended December September 30, September 30, 31, Convenience Convenience translation translation into into US dollar US dollar 2011 2012 2012 2011 2012 2012 2011 US$ US$ NIS NIS millions millions NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Cash flows from investing activities Acquisition of property, plant, and equipment (219) (376) (96) (84) (92) (24) (333) Acquisition of intangible assets (75) (82) (21) (23) (30) (8) (99) Acquisition of subsidiary, net of cash acquired (1,458) - - (1,458) - - (1,458) Change in current investments, net 3 (204) (52) (4) 468 120 197 Proceeds from (payments for) other derivative contracts, net (7) 11 3 2 8 2 1 Proceeds from sale of property, plant and equipment 2 3 1 - 2 1 3 Interest received 27 24 6 7 16 4 33 Loan to equity accounted investee - - - - 1 - - Proceeds from sale of shares in a consolidated company - 7 2 - - - - Net cash from (used in) investing activities (1,727) (617) (157) (1,560) 373 95 (1,656) Cash flows from financing activities Proceeds from (payments for) derivative contracts, net 11 (11) (3) 1 (5) (1) 11 Repayment of long-term loans from banks - (9) (2) - (5) (1) (4) Repayment of debentures (354) (661) (169) (179) (182) (47) (354) Proceeds from issuance of debentures, net of issuance costs 2,165 992 253 1,132 - - 2,165 Dividend paid (626) (391) (100) (292) (130) (33) (858) Interest paid (243) (350) (89) (120) (168) (43) (245) Net cash from (used in) financing activities 953 (430) (110) 542 (490) (125) 715 Cash balance presented under assets held for sales/ Cash outflow due to sale of assets held for sale - - - - - - (4) Changes in cash and cash equivalents 336 219 56 (658) 403 103 387 Cash and cash equivalents at beginning of the period 533 920 235 1,527 736 188 533 Cash and cash equivalents at end of the period 869 1,139 291 869 1,139 291 920 Cellcom Israel Ltd. (An Israeli Corporation) Reconciliation for Non-IFRS Measures EBITDA The following is a reconciliation of net income to EBITDA: Year ended Three-month period ended December September 30, 31, Convenience translation into US dollar 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Profit for the period 199 124 32 825 Taxes on income 60 51 13 304 Financing income (35) (66) (17) (116) Financing expenses 125 130 33 409 Other expenses 2 - - 1 Depreciation and amortization 183 190 48 738 Share based payments 3 1 - 6 EBITDA 537 430 110 2,167 Free Cash Flow The following table shows the calculation of free cash flow: Year ended Three-month period ended December September 30, 31, Convenience translation into US dollar 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Cash flows from operating activities 360 520 133 1,332 Cash flows from investing activities (*) (102) 373 95 (*)(198) Short-term Investment in (sale of) tradable debentures and deposits (**) 4 (479) (122) (197) Free cash flow 262 414 106 937 (*) After elimination of the net cash flows used for the acquisition of Netvision in the amount of NIS 1,458 million (net of cash acquired in the amount of NIS 120 million). (**) Including interest received in relation to such debentures. Cellcom Israel Ltd. Disclosure for debenture holders as of September 30,2012 Aggregation of the information regarding the debenture series issued by the company(1), in million NIS Principal Original on the Issuance Date of Series Date Issuance As of 30.09.2012 Principal Debenture Linked Interest Balance Balance Principal Accumulated Value in Market on Trade Balance in Books Books(2) Value 22/12/05 10/01/06* A(4) 31/05/06* 1,065 0 0 0 0 0 22/12/05 02/01/06* 05/01/06* 10/01/06* B(4) ** 31/05/06* 925.102 925.102 1,101.919 42.924 1,144.844 1,202.910 07/10/07 C 03/02/08* 326 36.222 42.096 0.155 42.251 43.104 07/10/07 03/02/08* 06/04/09* 30/03/11* D ** 18/08/11* 2,423.075 2,423.075 2,816.017 36.438 2,852.455 3,011.882 06/04/09 30/03/11* E ** 18/08/11* 1,798.962 1,499.135 1,499.135 68.796 1,567.931 1,593.731 F(4) (5) ** 20/03/12 714.802 714.802 729.923 1.496 731.419 719.663 G(4) (5) 20/03/12 285.198 285.198 285.198 0.906 286.104 284.171 Total 7,538.139 5,883.534 6,474.289 150.714 6,625.004 6,855.461 Trustee Principal Interest As of 13.11.2012 Interest Repayment Dates Repayment Contact Series Rate(fixed) (3) Dates Linkage Details Principal Linked Balance Principal on Trade Balance From To Reznik, Paz, Nevo Trusts Ltd. Accountant Yossi Reznik. 14 Yad Haruzim St., Tel January 5 Aviv. and July Linked Tel: A(4) 0 0 5.00% 05.07.08 05.07.12 5 to CPI 03-6393311. Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Aviv. B(4) Linked Tel: ** 925.102 1,101.919 5.30% 05.01.13 05.01.17 January 5 to CPI 03-5274867. Reznik, Paz, Nevo Trusts Ltd. Accountant Yossi Reznik. 14 Yad Haruzim St., Tel March 1 Aviv. and September Linked Tel: C 36.222 42.096 4.60% 01.03.09 01.03.13 1 to CPI 03-6393311. Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Aviv. Linked Tel: D ** 2,423.075 2,816.017 5.19% 01.07.13 01.07.17 July 1 to CPI 03-5274867. Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Not Aviv. Tel: E ** 1,499.135 1,499.135 6.25% 05.01.12 05.01.17 January 5 linked 03-5274867. Strauss Lazar Trust Company (1992) Ltd 17 Yizhak January 5 Sadeh St., F(4) Tel Aviv. (5) ** and July Linked Tel: 03- 714.802 729.923 4.35% 05.01.17 05.01.20 5 to CPI 6237777 Strauss Lazar Trust Company (1992) Ltd 17 Yizhak January 5 Sadeh St., Tel Aviv. G(4) and July Not Tel: 03- (5) 285.198 285.198 6.74% 05.01.17 05.01.19 5 linked 6237777 Total 5,883.534 6,474.289 Comments: (1) In the reported period, the company fulfilled all terms of the debentures. The company also fulfilled all terms of the Indentures. Debentures F and G financial covenants - as of September 30, 2012 the net leverage (net debt to EBITDA ratio- see definition in the Company's annual report for the year ended December 31, 2011 on Form 20-F, under "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Debt Service - Shelf prospectus") was 2.70. (2) Including interest accumulated in books. (3) Annual payments, excluding series A, C, F and G debentures in which the payments are semi annual. (4) Regarding Debenture series A, B, F and G- the company undertook not to create any pledge on its assets, as long as debentures are not fully repaid, subject to certain exclusions. (5) Regarding Debenture series F and G - the company has the right for early redemption under certain terms (see the Company's annual report for the year ended December 31, 2011 on Form 20-F, under "Item 5. Operating and Financial Review and Prospects- B. Liquidity and Capital Resources - Debt Service - Shelf prospectus"). (*) On these dates additional debentures of the series were issued, the information in the table refers to the full series. (**) Series B, D, E and F are material, which represent 5% or more of the total liabilities of the Company, as presented in the financial statements. Cellcom Israel Ltd. Disclosure for debenture holders as of September 30,2012 (cont.) Debentures rating details* Additional ratings between original issuance and the Rating recent assigned Recent date of Rating as upon date of rating as of Rating as issuance rating as of Rating 30.9.2012 of of the of 13.11.2012 Series Company (1) 13.11.2012 Series 13.11.2012 (2) Date Rating 5/2006, 9/2007, 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, 3/2012, S&P 5/2012, AA-, B Ma'alot AA- AA- AA- Nov-12 11/2012 AA,AA- (2) 1/2008, 10/2008, 3/2009 , 9/2010, 8/2011, 1/2012, 3/2012, S&P 5/2012, AA-, C Ma'alot AA- AA- AA- Nov-12 11/2012 AA,AA- (2) 1/2008, 10/2008, 3/2009 , 9/2010, 8/2011, 1/2012, 3/2012, S&P 5/2012, AA-, D Ma'alot AA- AA- AA- Nov-12 11/2012 AA,AA- (2) 9/2010, 8/2011, 1/2012, 3/2012, S&P 5/2012, E Ma'alot AA- AA- AA Nov-12 11/2012 AA,AA- (2) S&P 5/2012, F Ma'alot AA- AA- AA Nov-12 11/2012 AA,AA- (2) S&P 5/2012, G Ma'alot AA- AA- AA Nov-12 11/2012 AA,AA- (2) In May 2012, S&P Ma'alot updated the Company's rating from an "ilAA/negative" to an "ilAA-/negative". In September 2007, S&P Ma'alot issued a notice that the AA- rating for debentures issued by the Company was in the process of recheck with positive implications (Credit Watch Positive). In October 2008, S&P Ma'alot issued a notice that the AA- rating for debentures issued by the Company is in the process of recheck with stable implications (Credit Watch Stable). This process was withdrawn upon assignment of AA rating in March 2009. In August 2011, S&P Ma'alot issued a notice that the AA rating for debentures issued by the Company is in the process of recheck with negative implications (Credit Watch Negative). In May 2012, S&P Ma'alot updated the Company's rating from an "ilAA/negative" to an "ilAA-/negative". In November 2012, S&P Ma'alot affirmed the Company's rating of "ilAA-/negative". For details regarding the rating of the debentures see S&P Ma'alot's report dated November 4, 2012. * A securities rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to suspension, revision or withdrawal at any time, and each rating should be evaluated independently of any other rating. Cellcom Israel Ltd. Summary of Financial Undertakings (according to repayment dates) as of September 30,2012 a. Debentures issued to the public by the Company and held by the public, excluding such debentures held by the Company's parent company, by a controlling shareholder, by companies controlled by them, or by companies controlled by the Company, based on the Company's "solo" financial data (in thousand NIS). Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to Euro to CPI CPI Dollar Other First year 783,950 290,927 - - - 336,536 Second year 744,678 290,927 - - - 278,571 Third year 744,678 290,927 - - - 221,509 Fourth year 744,678 290,927 - - - 164,585 More than five years 1,467,130 571,295 - - - 159,785 Total 4,485,114 1,735,004 - - - 1,160,985 b. Private debentures and other non-bank credit, excluding such debentures held by the Company's parent company, by a controlling shareholder, by companies controlled by them, or by companies controlled by the Company, based on the Company's "solo" financial data (in thousand NIS) - None c. Credit from banks in Israel based on the Company's "solo" financial data (in thousand NIS) - None d. Credit from banks abroad based on the Company's "solo" financial data (in thousand NIS) - None e. Total of sections a - d above, total credit from banks, non-bank credit and debentures based on the Company's "solo" financial data (in thousand NIS). Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to Euro to CPI CPI Dollar Other First year 783,950 290,927 - - - 336,536 Second year 744,678 290,927 - - - 278,571 Third year 744,678 290,927 - - - 221,509 Fourth year 744,678 290,927 - - - 164,585 More than five years 1,467,130 571,295 - - - 159,785 Total 4,485,114 1,735,004 - - - 1,160,985 f. Out of the balance sheet Credit exposure based on the Company's "solo" financial data - None g. Out of the balance sheet Credit exposure of all the Company's consolidated companies, excluding companies that are reporting corporations and excluding the Company's data presented in section f above (in thousand NIS) - None Cellcom Israel Ltd. Summary of Financial Undertakings (according to repayment dates) as of September 30,2012 (cont.) h. Total balances of the credit from banks, non-bank credit and debentures of all the consolidated companies, excluding companies that are reporting corporations and excluding Company's data presented in sections a - d above (in thousand NIS). Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked Euro to CPI to CPI Dollar Other First year - 16,367 - - - 1,333 Second year - 5,041 - - - 603 Third year - 5,041 - - - 303 Fourth year - 26 - - - - More than five years - - - - - - Total - 26,475 - - - 2,239 Total balances of credit granted to the Company by the parent company or a controlling shareholder and balances of debentures offered by the Company held by the parent company or the controlling shareholder (in thousand NIS). Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked Euro to CPI to CPI Dollar Other First year - 12 - - - 4 Second year - 12 - - - 3 Third year - 12 - - - 2 Fourth year - 12 - - - 1 More than five years - 12 - - - 1 Total - 58 - - - 11 j. Total balances of credit granted to the Company by companies held by the parent company or the controlling shareholder, which are not controlled by the Company, and balances of debentures offered by the Company held by companies held by the parent company or the controlling shareholder, which are not controlled by the Company (in thousand NIS). Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked Euro to CPI to CPI Dollar Other First year 41,734 8,888 - - - 13,652 Second year 38,909 8,888 - - - 11,000 Third year 38,909 8,888 - - - 8,412 Fourth year 38,909 8,888 - - - 5,826 More than five years 46,380 13,719 - - - 3,858 Total 204,842 49,721 - - - 42,749 Cellcom Israel Ltd. Summary of Financial Undertakings (according to repayment dates) as of September 30,2012 (cont.) k. Total balances of credit granted to the Company by consolidated companies and balances of debentures offered by the Company held by the consolidated companies (in thousand NIS) Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked Euro to CPI to CPI Dollar Other First year - - - - - 1,234 Second year - 26,371 - - - 1,234 Third year - - - - - - Fourth year - - - - - - More than five years - - - - - - Total - 26,371 - - - 2,468 Company Contact Yaacov Heen Chief Financial Officer [email protected] Tel: +972-52-998-9755 IR Contacts Porat Saar CCG Investor Relations Israel & US [email protected] Tel: +1-646-233-2161 SOURCE Cellcom Israel Ltd. |