TMCnet News
Partner Communications Reports Second Quarter 2014 Results1ROSH HA'AYIN, Israel --(Business Wire)-- Partner Communications Company Ltd. ("Partner" or the "Company") (NASDAQ and TASE: PTNR), a leading Israeli communications operator, announced today its results for the quarter ended June 30, 2014. Commenting on the second quarter results, Mr. Haim Romano, CEO of Partner noted: "The results of the second quarter of 2014 reflect the Company's strength and its ability to cope with the continued and intense competition in the telecom market. Adherence to the Company's strategy - which is based on creating a competitive advantage with an emphasis on technological innovation and quality of service - was reflected this quarter. This quarter we recorded an increase of 4% in Adjusted EBITDA compared to the comparable quarter last year, as a result of adapting our cost structure and operating model to the changing business environment. These actions contributed to an 8% decline in operating expenses. In addition, an increase of 25% in revenues from the sale of equipment was recorded. These two factors partially offset the continued erosion in service revenues. This is the second consecutive quarter in which we recorded an increase in Adjusted EBITDA in comparison to its comparable quarter since the fourth quarter of 2010. In the current quarter we also recorded an increase of 130% in profit, which reflects an improvement in Adjusted EBITDA as well as lower finance costs, net, compared to the comparable quarter last year. In addition, we continued to reduce the Company's net debt which totaled at the end of the quarter NIS 2.7 billion. The net debt was reduced by NIS 711 million compared to the parallel quarter last year. Our customers' vote of confidence is expressed by the increase - for a fifth consecutive quarter - in the Post-Paid subscriber base. The decrease in the total number of subscribers stems from the decline in the Pre-Paid subscriber base, resulting, among other things, from seasonality effects. In July, the Company launched its 4G network, the first among the cellular operators in Israel, following the MOC's approval to convert a 5 MHz bandwidth which the Company owned. Our 4G network includes today hundreds of sites deployed nationally and we estimate that the network will include more than one thousand sites by year end. Hundreds of thousands of our customers can already enjoy the advanced services of LTE technology. The full implementation of the technology's potential is subject to a complete spectrum allocation which we estimate is expected in early 2015 as part of the 4G tender recently published by the MOC. 4G technology makes possible the use of new products and services, cellular internet becomes significantly faster and enables the use of services and applications that are based on the transfer of heavy data at high speeds, which enhance the user experience. The experience of other countries demonstrates that the adoption of 4G networks encourages the use of these innovative services and advanced applications." Haim Romano emphasized, "The advanced network which Partner launched is ready to provide LTE Advanced (4.5), subject to the approval by the MOC, the allocation of the necessary spectrum to launch this technology and the availability of supporting end user devices. Referring to our activities in the fixed line, we are implementing the principles of technological leadership to the fixed network. These days we are executing a broad upgrade of the network. Our fixed line network is at the forefront of technology and is one of the fastest networks in Israel. We are proud in our continued leadership position in quality of service and are continuing to consistently improve and enhance the customer experience, and expand the points of contact with our customers and the breadth of services and products offered. Today we also offer customers of all cellular operators a repair service for cellular devices within two hours, a very wide range of devices and accessories and innovative services which bring added value through the cellular device." In conclusion, Haim Romano noted, "I believe that the Company's strength will be maintained based on our leadership in the areas of technologies and customer service which are our core assets." Mr. Ziv Leitman, Partner's Chief Financial Officer commented on the quarterly results as compared to the previous quarter: "During the second quarter of 2014, competition in the cellular market continued to be intense, which resulted in a further decline in revenues; however, at the same time, the Company continued to adjust its cost structure and implement operational efficiency measures which, among other things, led to a decrease of NIS 19 million in operating expenses (excluding cost of equipment sold and depreciation & amortization expenses) compared with the first quarter of 2014. The cellular subscriber churn rate during the second quarter of 2014 declined to 11.4% compared to 11.6% in the previous quarter. This slight decline follows two consecutive quarters in which the churn rate increased. Cellular ARPU in the second quarter of 2014 totaled NIS 76, decreasing by NIS 1 compared with the previous quarter. The decline in ARPU resulted primarily from continued price erosion of cellular services, a result of the intense competition, which was partially offset by an increase in revenues from national roaming services. Revenues from equipment sales in the second quarter of 2014 were similar to the previous quarter; however, gross profit from equipment sales increased by NIS 13 million compared to the previous quarter, primarily due to improvements in the supply chain and a change in the product mix. Adjusted EBITDA in the second quarter of 2014 increased by NIS 17 million compared with the previous quarter, reflecting the increase in gross profit from equipment sales and the decline in operating expenses which were partially offset by the decline in cellular service revenues. Finance costs, net, in this quarter increased by NIS 25 million compared to the previous quarter, mainly due to an increase in CPI linkage expenses and a one-time repayment fee for bank loans of NIS 6 million. Profit in the second quarter of 2014 totaled NIS 46 million compared with NIS 52 million in the previous quarter, reflecting the higher finance costs, net, partially offset by the increase in adjusted EBITDA. Free cash flow (after interest payments) in the second quarter totaled NIS 123 million, compared with NIS 139 million in the first quarter of 2014. The decrease in free cash flow was primarily due to semi-annual interest payments. As of June 30, 2014, net debt amounted to approximately NIS 2.7 billion. In April 2014, the Company made an early repayment of bank loans totaling NIS 100 million (whose original repayment schedule was for repayments of NIS 25 million in each of 2014, 2015, 2016, and 2017). Since January 2013, the Company has made early repayments of bank loans in the total amount of NIS 717 million. In May 2014, the Company entered into a NIS 250 million deferred unsecured loan agreement for which the principal financial undertakings are similar to those undertaken in previous bank loans. The loan principal will be granted in December 2016." Key Financial Results6 (unaudited)
Key Operating Indicators:
Partner Consolidated Results (unaudited)
Financial Review (Consolidated) In Q2 2014, total revenues were NIS 1,087 million (US$ 316 million), a decrease of 4% from NIS 1,130 million in Q2 2013. Service revenues in Q2 2014 totaled NIS 862 million (US$ 251 million), a decrease of 9% from NIS 950 million in Q2 2013. Service revenues for the cellular segment in Q2 2014 were NIS 667 million (US$ 194 million), a decrease of 8% from NIS 726 million in Q2 2013. The decrease was mainly the result of the continued price erosion of Post-Paid and Pre-Paid cellular services due to the intense competition, partially offset by an increase in revenues from national roaming services. Service revenues for the fixed line segment in Q2 2014 totaled NIS 248 million (US$ 72 million), a decrease of 10% compared with NIS 277 million in Q2 2013. The decrease mainly reflected price erosion in fixed line services including local calls, international calls and internet services, as well as a decrease in interconnect revenues following a reduction in the fixed line interconnect tariff in December 2013. Equipment revenues in Q2 2014 totaled NIS 225 million (US$ 65 million), an increase of 25% compared with NIS 180 million in Q2 2013. The growth was due primarily to an increase in the number of equipment devices sold. Gross profit from equipment sales in Q2 2014 was NIS 58 million (US$ 17 million), compared with NIS 9 million in Q2 2013, an increase of NIS 49 million. The increase resulted primarily from improved profit margins, in addition to the increase in the number of devices sold. Operating expenses ('OPEX', including cost of service revenues, selling, marketing and administrative expenses and excluding depreciation and amortization) totaled NIS 642 million (US$ 187 million) in Q2 2014, a decrease of 8% or NIS 58 million from Q2 2013. The decrease largely reflected the impact of the efficiency measures undertaken in the last twelve months as well as lower interconnect expenses partially due to the reduction in the fixed line interconnect tariff by approximately 60% in December 2013. Operating expenses including depreciation and amortization expenses in Q2 2014 decreased by 7% compared with Q2 2013. Adjusted EBITDA in Q2 2014 totaled NIS 291 million (US$ 85 million), an increase of 4% from NIS 280 million in Q2 2013. Adjusted EBITDA for the cellular segment was NIS 211 million (US$ 61 million) in Q2 2014, increasing by 7% from NIS 198 million in Q2 2013, reflecting the impact of lower operating expenses and higher gross profit from equipment sales, partially offset by the decrease in service revenues. As a percentage of total cellular revenues, Adjusted EBITDA for the cellular segment in Q2 2014 was 24%, compared to 22% in Q2 2013. Adjusted EBITDA for the fixed line segment decreased by 2% from NIS 82 million in Q2 2013 to NIS 80 million (US$ 23 million) in Q2 2014, reflecting the decline in service revenues partially offset by lower operating costs and the increase in gross profit from fixed line equipment sales. As a percentage of total fixed line revenues, Adjusted EBITDA for the fixed line segment in Q2 2014 was 31%, compared with 29% in Q2 2013. Operating profit for Q2 2014 was NIS 118 million (US$ 34 million), an increase of 16% compared with operating profit in Q2 2013 of NIS 102 million. Finance costs, net in Q2 2014 were NIS 49 million (US$ 14 million), a decrease of 31%, compared with NIS 71 million in Q2 2013. The decrease was mainly a result of a decrease in interest expenses resulting from the lower level of average debt (see Funding and Investing Review below), as well as lower linkage expenses due to the lower CPI (Consumer Price Index) level, and a decrease in losses from foreign exchange movements. Profit in Q2 2014 was NIS 46 million (US$ 13 million), an increase of 130% compared with profit in Q2 2013 of NIS 20 million. The increase in profit reflects both the increase in Adjusted EBITDA and the lower finance costs, net. Based on the weighted average number of shares outstanding during Q2 2014, basic earnings per share or ADS, was NIS 0.30 (US$ 0.08), an increase of 131% compared to NIS 0.13 in Q2 2013. The effective tax rate for Q2 2014 was 33%, compared with 35% in Q2 2013. The decrease in the effective tax rate was mainly due to the lower percentage of unrecognized expenses than in the comparable quarter last year, due to the increase in profit before tax. Cellular Segment Operational Review At the end of the second quarter 2014, the Company's cellular subscriber base (including mobile data and 012 Mobile subscribers) was approximately 2.91 million, including approximately 2.14 million Post-Paid subscribers or 73% of the base, and approximately 776 thousand Pre-Paid subscribers, or 27% of the subscriber base. During the second quarter of 2014, the cellular subscriber base declined by approximately 22,000 subscribers. While the Pre-Paid subscriber base decreased by approximately 23,000 subscribers, the Post-Paid subscriber base increased by approximately 1,000 subscribers. The quarterly churn rate for cellular subscribers in Q2 2014 was 11.4%, compared with 9.4% in Q2 2013 (and 11.6% in Q1 2014), with the increase compared with Q2 2013 reflecting the intense competition in the cellular market. Total cellular market share (based on the number of subscribers) at the end of Q2 2014 was estimated to be approximately 29%, unchanged from the end of Q1 2014. The monthly Average Revenue per User ("ARPU") for cellular subscribers in Q2 2014 was NIS 76 (US$ 22), a decrease of 8% from NIS 83 in Q2 2013 and a decrease of 1% from NIS 77 in Q1 2014. The decrease in ARPU compared to the comparable quarter mainly reflects the continued price erosion due to the intense competition in the market, as described above. The decline in ARPU compared to the previous quarter resulted primarily from continued price erosion of cellular services, partially offset by an increase in revenues from national roaming services. Funding and Investing Review In Q2 2014, cash flow generated from operating activities before interest payments, net of cash flow used for investing activities ("Free Cash Flow"), totaled NIS 192 million (US$ 56 million), a decrease of 33% from NIS 287 million in Q2 2013. Cash generated from operations decreased by 30% to NIS 289 million (US$ 84 million) in Q2 2014 from NIS 415 million in Q2 2013. This was mainly explained by changes in operating working capital, partially offset by the increase in profit. Operating working capital in Q2 2014 increased by NIS 7 million compared with a decrease of NIS 95 million in Q2 2013, largely reflecting a smaller decrease in trade receivables. The level of cash capital expenditures in fixed assets (CAPEX) including intangible assets but excluding capitalized subscriber acquisition and retention costs, net, was NIS 98 million (US$ 29 million) in Q2 2014, a decrease of 20% from NIS 122 million in Q2 2013. Net debt at the end of Q2 2014 amounted to NIS 2,735 million (US$ 796 million), compared with NIS 3,446 million at the end of Q2 2013, a decrease of NIS 711 million. In April 2014, the Company made an early repayment of bank loans totaling NIS 100 million (whose original repayment schedule was for repayments of NIS 25 million in each of 2014, 2015, 2016, and 2017). On May 27, 2014, the Company engaged in a deferred unsecured loan agreement with a group of institutional corporations. According to the agreement, in December 2016, these institutional corporations will grant Partner a loan in a principal amount of NIS 250 million.7 Business and Regulatory Developments Business Developments Amendments to the Company's Equity Incentive Plan On June 18, 2014, the Company's Board of Directors approved certain amendments to the Company's Equity Incentive Plan (the "Plan"). The main amendments to the Plan include: (a) the extension of the Plan for an additional ten years from July 2014 until July 2024; (b) the increase of the number of shares which may be granted under the Plan by 6 million shares, which represents approximately 3.75% of the Company's issued share capital as of June 18, 2014; and (c) the addition of the ability to allocate restricted shares to the Company's employees and officers and necessary related amendments to the Plan (in particular, regarding the right to vote at the general meetings of shareholders and the right to receive dividends distributed with respect to the restricted shares). Regulatory Developments 1. Relief Regulations under the Centralization Law On June 11, 2014, the Promotion of Competition and the Reduction of Centralization Regulations (type of company which is not a layer company and provisions regarding the attribution of control), 5774-2014 (the "Relief Regulations") entered into effect (the Relief Regulations were published in the official gazette on July 21, 2014). The Relief Regulations exempt companies that fulfill certain conditions from the provisions of Section 25(d) of the Promotion of Competition and the Reduction of Centralization Law, 5774-2014 (the "Centralization Law"), with respect to strict corporate governance constraints on the Board structure of layer corporations during the interim period (until the implementation of the provisions of the Centralization Law regarding the reduction of the pyramid structures to only two layers). Based on the Relief Regulations and in accordance with the information that has been published by the Company's two main shareholders (S.B. Israel Telecom Ltd. and Scailex Corporation Ltd.) with respect to their holdings and the agreements between them, and in light of the Israel Securities Authority's (ISA) decision, according to which the ISA staff does not consider the Israeli entities that hold Company shares in accordance with the terms of the Company's MRT license as controlling parties of the Company, Partner meets the conditions set forth in the Relief Regulations and is not required to comply with the strict corporate governance constraints during the interim period set forth in the Centralization Law. For further information, see the Company's Annual Report on Form 20-F for the year ended December 31, 2013 ("2013 Annual Report"), "Item 3. Key Information - 3D. Risk Factors - 3D.1 Risks relating to the regulation of our industry - 3D.1j - New legislation in Israel to promote competition and reduce concentration of control over businesses may adversely affect the expansion of our business, require changes in our shareholder base, affect our share price and limit our ability to obtain bank credit" and "Item 4. Information on the Company - 4B. Business Overview - 4B.13 Regulation - 4B.13d Regulatory Developments - 4B.13d-vi The Promotion of Competition and the Reduction of Centralization Law". 2. Ministry of Communications Hearings and Decisions a) Hearing regarding operational continuity during a state of emergency On June 24, 2014, the Ministry of Communications (the "MOC") published a hearing regarding operational continuity during a state of emergency, which determines, among other things, that certain telecommunications licensees, including the Company, must formulate a plan to be approved by the board of directors, that would guarantee the ability of the licensee to operate continuously and limit the impact on the supply of telecommunications services during a state of emergency. In order to guarantee operational continuity, it is proposed as part of the hearing to determine various provisions with respect to network back-up, electrical and energy infrastructure, customer service operations and information technology security. For example, it is proposed that the network will be planned with no single point of failure and that the licensee will have independent capabilities to supply electrical power through independent generators to at least 3% of all its cellular sites. b) Hearing regarding roaming services abroad On August 12, 2014 the MOC published a hearing aimed at increasing competition in roaming services abroad currently provided by cellular licensees. As part of the hearing, the MOC proposes to enable every cellular subscriber to receive roaming service abroad from operators who are not his cellular provider while keeping his cellular number. These alternative roaming providers include other cellular licensees, MVNOs, ISPs, International call licensees and fixed telephony licensees. The MOC also suggests to determine various measures intended to improve transparency and to limit subscriber payments only to the exact volume of services consumed. Such measures include: 1. All roaming calls abroad (incoming and outgoing) would be billed using time units of 1 second; 2. All roaming data sessions would be billed using volume units of 1KB; 3. The billable duration of all voice calls would be from the second in which the call was connected and until it ended (explicitly excluding any wait period from pushing the "call" button until the call is connected). The parties to the hearing are allowed to submit their responses to the proposed measures by September 20, 2014. The Company is studying the content of the hearing and is preparing for the submission of its response. At this stage, the Company is unable to evaluate the scope of investments and expenses required in order to comply with the proposed measures, or their impact on revenues, insofar as these measures will be adopted "as is" at the end of this hearing process. c) Decision regarding Premium Rate Services The Ministry of Communications' decision in a hearing regarding the provision of premium rate services, which applies to certain telecommunications licensees, including the Company, will become effective as of October 24, 2014. In the Ministry of Communications' decision it was determined, among other things, that all premium rate services must be provided through only three prefixes, two of which shall be blocked as a default. The relevant licensees would be required to announce at the beginning of each premium rate call the nature of the service, its rate and maximum cost (and that such costs are in addition to the usual charges). The subscriber would be required to actively agree to accept the service (by pressing the digit 3) in order to receive the service. The Company's revenues may be adversely affected as a result of this decision. For further information, see the 2013 Annual Report, "Item 4. Information on the Company - 4B. Business Overview - 4B.13 Regulation - 4B.13d Regulatory Developments - 4B.13d-ix Hearings and Examinations".
Conference Call Details
Forward-looking statements
The financial results presented in this press release are unaudited
financial results. The convenience translations of the New Israeli Shekel (NIS) figures into US Dollars were made at the rate of exchange prevailing at June 30, 2014: US $1.00 equals NIS 3.438. The translations were made purely for the convenience of the reader.
Use of Non-GAAP Financial Measures About Partner Communications Partner Communications Company Ltd. ("Partner") is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony and internet services) under the orange™ brand and the 012 Smile brand. Partner's ADSs are quoted on the NASDAQ Global Select Market™ and its shares are traded on the Tel Aviv Stock Exchange (NASDAQ and TASE: PTNR). For more information about Partner, see: www.orange.co.il/en/Investors-Relations/lobby/
PARTNER COMMUNICATIONS COMPANY LTD.
PARTNER COMMUNICATIONS COMPANY LTD.
* Representing an amount less than 1 million
PARTNER COMMUNICATIONS COMPANY LTD.
PARTNER COMMUNICATIONS COMPANY LTD.
PARTNER COMMUNICATIONS COMPANY LTD.
* Representing an amount less than 1 million
PARTNER COMMUNICATIONS COMPANY LTD.
(1) Mainly employee share based compensation expenses (2) Adjusted EBITDA as reviewed by the CODM, represents Earnings Before Interest (finance costs, net), Taxes, Depreciation, Amortization (including amortization of intangible assets, deferred expenses-right of use, and share based compensation expenses) and impairment charges, as a measure of segment profit. Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures in other companies. Adjusted EBITDA may not be indicative of the Group's historic operating results nor is it meant to be predictive of potential future results. The usage of the term "Adjusted EBITDA" is to highlight the fact that the Amortization includes amortization of deferred expenses - right of use and employee share based compensation expenses; it is fully comparable to EBITDA information which has been previously provided for prior periods.
PARTNER COMMUNICATIONS COMPANY LTD.
* Representing an amount of less than 1 million
PARTNER COMMUNICATIONS COMPANY LTD. Appendix A - Cash generated from operations and supplemental information
*Representing an amount less than 1 million At June 30, 2014 and 2013, trade and other payables include NIS 181 million ($53 million) and NIS 180 million, respectively, in respect of acquisition of intangible assets and property and equipment
PARTNER COMMUNICATIONS COMPANY LTD.
* Representing an amount of less than 1 million Key Financial and Operating Indicators (unaudited)8
1 The financial results presented in this press release
are unaudited.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
