PTNR Partner Communications Company Ltd

ADJUSTED EBITDA2 TOTALED NIS 233 MILLION

OPEX2 TOTALED NIS 496 MILLION, A DECLINE OF NIS 116 MILLION FROM Q1 2016

ADJUSTED FREE CASH FLOW2 TOTALED NIS 126 MILLION

First quarter 2017 highlights (compared with first quarter 2016)

• Total Revenues: NIS 803 million (US$ 221 million), a decrease of 18%
• Service Revenues: NIS 640 million (US$ 176 million), a decrease of 10%
• Equipment Revenues: NIS 163 million (US$ 45 million), a decrease of 39%
• Total Operating Expenses (OPEX): NIS 496 million (US$ 137 million), a decrease of 19%
• Adjusted EBITDA: NIS 233 million (US$ 64 million), an increase of 5%
• Adjusted EBITDA Margin2: 29% of total revenues compared with 23%
• Profit for the Period: NIS 51 million (US$ 14 million), an increase of 264%
• Net Debt: NIS 1,415 million (US$ 390 million), a decrease of NIS 664 million
• Adjusted Free Cash Flow (before interest): NIS 126 million (US$ 35 million), an increase of NIS 12 million
• Cellular ARPU: NIS 61 (US$ 17), a decrease of 9%
• Cellular Subscriber Base: approximately 2.66 million at quarter-end, a decrease of 1%

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 March 31, 2017.

Commenting on the first quarter 2017 results, Mr. Isaac Benbenisti, CEO of Partner noted:

"We began 2017 under continued momentum, with the significant measures we took over the last few quarters to streamline and improve processes, and unify the Company's operations, beginning to bear fruit.

In the cellular segment, we are continuing to expand our Post-Paid subscriber base, with net recruitment of approximately 18,000 subscribers in the first quarter, alongside the continued decline in Pre-Paid subscribers. This rising trend in Post-Paid subscribers, that has continued for seven consecutive quarters, results from the continued development of a quality service force while enhancing the platforms available to our subscribers in the service centers throughout the country, in our call centers and digital channels, in addition to investment in the development of Partner's cellular network.

We continue to invest in our cellular network, as well as develop capabilities available only on Partner's network, in order to maintain our leading edge network. In the first quarter we began the deployment of the 4.5G network (LTE-Advanced) and expanded the Wi-Fi Calling technology that enables cellular calls over a wireless internet network so that today the majority of our customers can use this unique feature of Partner's network. We also launched the "IoT Pro" network, the first “Internet of Things” (IoT) network in Israel that can recognize IoT devices and manage them in a unique and efficient manner.

In the fixed-line segment, in the first quarter we proceeded with the deployment of the fiber-optic network that will enable us to supply private customers with internet speeds of up to 1Gb using the most advanced technologies. These abilities support the growing demand amongst our private customers for a quality and fast network, mainly in light of the enormous increase that we see from each quarter to the next in content consumption, mostly television channels and content over the internet in HD and 4K qualities that require connection to a high quality infrastructure.

Partner's TV project, that will be launched as planned in the coming weeks, will be based on the Android TV operating system, with an advanced interface that has been adapted to the needs of Israeli viewers. Our TV subscribers will be able to enjoy linear channels and VOD content, and as part of the same interface, due to the inherent advantage of Android TV, will also be able to benefit from internet content through external applications.”

Mr. Dudu Mizrahi, Partner's Chief Financial Officer, commented on the first quarter results of 2017:

“During the first quarter of the year, the effects of the significant efficiency measures that the Company undertook were realized, leading to a sharp decrease in operating expenses of the Company. The extent of the decrease more than compensated for the erosion in revenues and contributed to growth in operating profit and profit. The streamlining of work procedures, unification of operations, the network sharing and other steps taken contribute to a sustainable reduction of the Company's operational costs.

During the quarter, the Post Paid subscriber base increased by approximately 18,000 subscribers, further to the increase of approximately 85,000 subscribers during 2016 that, together with the continued decline in the rate of ARPU erosion, resulted in a slowdown in the erosion of cellular service revenues.

During the quarter, the Company took several steps to improve the profitability of equipment sales and the results of the quarter reflect an improvement in the profit margin compared to the fourth quarter of 2016, a trend that we expect will continue in the coming quarters.

Adjusted free cash flow before interest payments in the first quarter totaled NIS 126 million, an increase of 11% compared to the first quarter 2016 and an increase of 42% compared to the fourth quarter 2016 (excluding the HOT Mobile payment in the amount of NIS 180 million that was received in the fourth quarter).”

NIS Million

 

Q1’17

 

Q4’16

 

Comments

Service Revenues   640   652   Decrease in cellular segment service revenues resulted from a decline of NIS 1 in ARPU, partially offset by the increase in Post-Paid subscribers. Decrease in fixed-line segment service revenues mainly reflected decrease in international calls revenues Equipment Revenues 163 169 Total Revenues 803 821 Gross profit from equipment sales 26 18 Increase mainly resulted from a change in product mix OPEX 496 570 Decrease reflected one-time increase in expenses in an amount of NIS 19 million in Q4 2016, the impact of various efficiency measures, the timing of seasonal expenses, as well as a one-time decrease in expenses of NIS 10 million in Q1 2017 Adjusted EBITDA 233 164 Profit (Loss) 51 (7) CAPEX additions 40 84

Adjusted free cash flow (before interest payments)

126 269 The decrease reflected the final payment of NIS 180 million from HOT Mobile of the lump sum and higher CAPEX payments. This was partially offset primarily by the increase in Adjusted EBITDA Net Debt   1,415   1,526                  

Q1’17

Q4’16

Cellular Post-Paid Subscribers (end of period, thousands) 2,259 2,241 Increase of 18 thousand subscribers during the quarter Cellular Pre-Paid Subscribers

(end of period, thousands)

399 445 Decrease of 46 thousand subscribers during the quarter Monthly Average Revenue per Cellular User (ARPU) (NIS) 61 62 Quarterly Cellular Churn Rate (%)   9.8%   9.4%    

Key Financial Results

NIS MILLION (except EPS)   Q1'17   Q1'16   % Change Revenues   803   977   -18% Cost of revenues 654 797 -18% Gross profit 149 180 -17% Operating profit 88 54 +63% Profit for the period 51 14 +264% Earnings per share (basic, NIS)

0.33

0.09 +275% Adjusted free cash flow (before interest)   126   114   +11%

Key Operating Indicators

    Q1'17   Q1'16   Change Adjusted EBITDA (NIS million)   233  

222

  +5% Adjusted EBITDA (as a % of total revenues) 29%

23%

+6 Cellular Subscribers (end of period, thousands) 2,658

2,692

-34 Quarterly Cellular Churn Rate (%) 9.8%

11.2%

-1.4 Monthly Average Revenue per Cellular User (ARPU) (NIS)   61  

67

  -6

Partner Consolidated Results

  Cellular Segment   Fixed-Line Segment   Elimination   Consolidated NIS Million   Q1'17   Q1'16   Change %   Q1'17   Q1'16   Change %   Q1'17   Q1'16   Q1'17   Q1'16   Change % Total Revenues 634   787   -19% 212   245   -13% (43)   (55) 803   977   -18% Service Revenues 489 543 -10% 194 222 -13% (43) (55) 640 710 -10% Equipment Revenues 145 244 -41% 18 23 -22% - - 163 267 -39% Operating Profit 61 11 +455% 27 43 -37% - - 88 54 +63% Adjusted EBITDA 172 142 +21% 61 80 -24% - - 233 222 +5%

Financial Review

In Q1 2017, total revenues were NIS 803 million (US$ 221 million), a decrease of 18% from NIS 977 million in Q1 2016.

Service revenues in Q1 2017 totaled NIS 640 million (US$ 176 million), a decrease of 10% from NIS 710 million in Q1 2016.

Service revenues for the cellular segment in Q1 2017 totaled NIS 489 million (US$ 135 million), a decrease of 10% from NIS 543 million in Q1 2016. The decrease was mainly the result of both the decline in revenues related to the network Right of Use Agreement with Hot Mobile, which was replaced by the Network Sharing Agreement from Q2 2016 and the continued price erosion of cellular services (both Post-Paid and Pre-Paid), due to the continued competitive market conditions.

Service revenues for the fixed-line segment in Q1 2017 totaled NIS 194 million (US$ 53 million), a decrease of 13% from NIS 222 million in Q1 2016. The decrease mainly reflected a decrease in revenues from international calls.

Equipment revenues in Q1 2017 totaled NIS 163 million (US$ 45 million), a decrease of 39% from NIS 267 million in Q1 2016, largely reflecting a decrease in the volume of equipment sales, mainly related to the tightening of the Company’s customer credit policy.

Gross profit from equipment sales in Q1 2017 was NIS 26 million (US$ 7 million), compared with NIS 56 million in Q1 2016, a decrease of 54%, mainly reflecting the decrease in the volume of equipment sales, as described above, as well as lower profit margins from sales.

Total operating expenses (‘OPEX’) totaled NIS 496 million (US$ 137 million) in Q1 2017, a decrease of 19% or NIS 116 million from Q1 2016. The decrease mainly reflected a decline in expenses related to the cellular network following the implementation of the Network Sharing Agreement with HOT Mobile, a decrease in rebranding related expenses, as well as decreases in other expenses reflecting the impact of various efficiency measures undertaken. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q1 2017 decreased by 18% compared with Q1 2016, mainly for the same reasons as explained above.

In Q1 2017, the Company recorded income with respect to the settlement agreement regarding the Orange brand in an amount of NIS 54 million (US$ 15 million), unchanged from Q1 2016.

Other income, net, totaled NIS 9 million (US$ 2 million) in Q1 2017, compared to NIS 14 million in Q1 2016, a decrease of 36%, mainly reflecting a decrease in income from the unwinding of trade receivables.

Operating profit for Q1 2017 was NIS 88 million (US$ 24 million), an increase of 63% compared with NIS 54 million in Q1 2016.

Adjusted EBITDA in Q1 2017 totaled NIS 233 million (US$ 64 million), an increase of 5% from NIS 222 million in Q1 2016. As a percentage of total revenues, Adjusted EBITDA in Q1 2017 was 29% compared with 23% in Q1 2016.

Adjusted EBITDA for the cellular segment was NIS 172 million (US$ 47 million), in Q1 2017, an increase of 21% from NIS 142 million in Q1 2016, reflecting the decrease in OPEX partially offset by a decrease in service revenues and gross profit from equipment sales. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q1 2017 was 27% compared with 18% in Q1 2016.

Adjusted EBITDA for the fixed-line segment was NIS 61 million (US$ 17 million) in Q1 2017, a decrease of 24% from NIS 80 million in Q1 2016, mainly reflecting the decrease in service revenues, partially offset by a decrease in OPEX. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q1 2017 was 29%, compared with 33% in Q1 2016.

Finance costs, net in Q1 2017 were NIS 23 million (US$ 6 million), a decrease of 4% compared with NIS 24 million in Q1 2016.

Income taxes for Q1 2017 were NIS 14 million (US$ 4 million), compared with NIS 16 million in Q1 2016.

Profit in Q1 2017 was NIS 51 million (US$ 14 million), compared with a profit of NIS 14 million in Q1 2016, an increase of 264%.

Based on the weighted average number of shares outstanding during Q1 2017, basic earnings per share or ADS, was NIS 0.33 (US$ 0.09), compared to basic earnings per share of NIS 0.09 in Q1 2016.

Cellular Segment Operational Review

At the end of the first quarter of 2017, the Company's cellular subscriber base (including mobile data and 012 Mobile subscribers) was approximately 2.66 million including approximately 2.26 million Post-Paid subscribers or 85% of the base, and approximately 399 thousand Pre-Paid subscribers, or 15% of the subscriber base.

During the first quarter of 2017, the cellular subscriber base declined by approximately 28 thousand subscribers. The Post-Paid subscriber base increased by approximately 18 thousand subscribers, while the Pre-Paid subscriber base declined by approximately 46 thousand subscribers.

The quarterly churn rate for cellular subscribers in Q1 2017 was 9.8%, compared with 11.2% in Q1 2016.

Total cellular market share (based on the number of subscribers) at the end of Q1 2017 was estimated to be approximately 26%, unchanged from Q1 2016.

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q1 2017 was NIS 61 (US$ 17), a decrease of 9% from NIS 67 in Q1 2016. The decrease mainly reflected the decrease in revenues as a result of termination of the Right of Use Agreement with HOT Mobile from the second quarter of 2016, as well as the continued price erosion in key cellular services due to the persistent competition in the cellular market.

Funding and Investing Review

In Q1 2017, Adjusted Free Cash Flow totaled NIS 126 million (US$ 35 million), an increase of 11% from NIS 114 million in Q1 2016.

Cash generated from operations increased by 20% to NIS 194 million (US$ 53 million) in Q1 2017 from NIS 162 million in Q1 2016. The increase mainly reflected the increase in Adjusted EBITDA and the smaller decrease in operating assets and liabilities, which was mainly explained by the significant decrease in the volume of equipment sales under long-term payment plans.

Cash capital expenditures (‘CAPEX payments’), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 69 million (US$ 19 million) in Q1 2017, an increase of 44% from NIS 48 million in Q1 2016. The increase reflected, among other factors, payments made in Q1 2017 for assets acquired during Q4 2016.

The level of Net Debt at the end of Q1 2017 amounted to NIS 1,415 million (US$ 390 million), compared with NIS 2,079 million at the end of Q1 2016.

Business Development

Further to the Company's previous reports, regarding plans to enter the television services market in the first half of 2017, the Company announces that it has entered into a long term agreement with R.G.E. Group Ltd. ("RGE") for broadcasting rights of a broad variety of content for which RGE holds exclusive broadcasting privileges. The agreement is for a period of five years, within which the Company has committed to pay RGE minimum amounts for the provision, editing and preparation of the content for broadcast. The agreement includes, among other items, liability and indemnity clauses and the Company has the right to terminate the agreement under certain circumstances as detailed in the agreement.

IFRS 15

In May 2014, a new revenue recognition standard was issued (IFRS 15). The new standard is effective for annual reporting periods beginning on or after January 1, 2018, according to its transition provisions. Earlier application is permitted.

The Company has identified a number of relevant issues. Currently the most significant issue identified is the treatment of the costs of obtaining contracts which, under the new standard, are to be capitalized under certain conditions, while currently these costs are generally recognized as incurred. According to the standard, sale commissions and incentives paid to employees and resellers for obtaining contracts with customers will be recognized as assets, and amortized to profit or loss when the related goods and services are transferred to the customers. The capitalization of these costs of obtaining contracts is expected to have a material positive effect on our results of operations in the coming years, which is expected to be leveled off in later years.

In addition, the Company is in the process of preparing for the implementation of the requirement of the standard to allocate revenues to performance obligations identified, including preparing for the application of the portfolio approach under certain conditions, establishing customer groupings and other related issues.

The Company has begun implementing the required adjustments into the Company's information systems which are expected to be completed in the second half of 2017. The Company aims to adopt the standard as early as possible, subject to the completion of the required adjustments to the information systems, and at the very latest, by January 1, 2018.

The Company plans to apply the standard according to the modified retrospective approach. Under this approach, entities will recognize transitional adjustments in retained earnings on the date of initial application, i.e. without restating the comparative period; and applying the new rules to contracts that are not completed as of the date of initial application.

The Company is currently unable to quantify the impact of the implementation of IFRS 15.

Conference Call Details

Partner will hold a conference call on Monday, May 22, 2017 at 10.00AM Eastern Time / 5.00PM Israel Time.

To join the call, please dial the following numbers (at least 10 minutes before the scheduled time):

International: +972.3.918.0610

North America toll-free: +1.888.407.2553

A live webcast of the call will also be available on Partner's Investors Relations website at: www.partner.co.il/en/Investors-Relations/lobby/

If you are unavailable to join live, the replay of the call will be available from May 22, 2017 until June 15, 2017, at the following numbers:

International: +972.3.925.5939

North America toll-free: +1.888.326.9310

In addition, the archived webcast of the call will be available on Partner's Investor Relations website at the above address for approximately three months.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Words such as "estimate", “believe”, “anticipate”, “expect”, “intend”, “seek”, “will”, “plan”, “could”, “may”, “project”, “goal”, “target” and similar expressions often identify forward-looking statements but are not the only way we identify these statements. Specific statements have been made regarding the Company's continued investment and development of capabilities of its cellular network in order to maintain its leading edge network; the Company’s future ability to supply its private customers in the fixed-line segment with higher internet speeds; the operating system, advanced interface and the variety of content that we expect to provide to our customers in the Company's TV project along with the expected benefits and advantages of the operating system; the future developments in the Israeli multi-channel television market; the sustainable reduction of operational costs due to steps taken by the Company; and the expected continued trend of an improvement in profitability from equipment sales. In addition, all statements other than statements of historical fact included in this press release regarding our future performance are forward-looking statements. We have based these forward-looking statements on our current knowledge and our present beliefs and expectations regarding possible future events. These forward-looking statements are subject to risks, uncertainties and assumptions, including: (i) technological, technical or other difficulties that might delay or block the Company from: (a) continuing to invest and develop its cellular network, (b) provide its customers with higher internet speeds in the fixed-line segment, and (c) achieving the Company’s TV project advantages based on the Android TV interface innovative capabilities; (ii) future developments in the Israeli multi-channel television market; (iii) the Company's continued ability to take further steps to reduce its operational costs and improve profitability from equipment sales; and (iv) whether the Company will have the financial resources and commercial strategies which allow it to successfully achieve its strategic Company projects. The future results may differ materially from those anticipated herein. For further information regarding risks, uncertainties and assumptions about Partner, trends in the Israeli telecommunications industry in general, the impact of current global economic conditions and possible regulatory and legal developments, and other risks we face, see “Item 3. Key Information - 3D. Risk Factors”, “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects”, “Item 8. Financial Information - 8A. Consolidated Financial Statements and Other Financial Information - 8A.1 Legal and Administrative Proceedings” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Reports on Form 20-F filed with the SEC, as well as its immediate reports on Form 6-K furnished to the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The quarterly financial results presented in this press release are unaudited financial results.

The results were prepared in accordance with IFRS, other than the non-GAAP financial measures presented in the section, “Use of Non-GAAP Financial Measures”.

The financial information is presented in NIS millions (unless otherwise stated) and the figures presented are rounded accordingly.

The convenience translations of the New Israeli Shekel (NIS) figures into US Dollars were made at the rate of exchange prevailing at March 31, 2017: US $1.00 equals NIS 3.632. The translations were made purely for the convenience of the reader.

Use of Non-GAAP Financial Measures

The following non-GAAP measures are used in this report. These measures are not financial measures under IFRS and may not be comparable to other similarly titled measures for other companies. Further, the measures may not be indicative of the Company’s historic operating results nor are meant to be predictive of potential future results.

Non-GAAP Measure   Calculation   Most Comparable IFRS Financial Measure

Adjusted EBITDA*

 

 

 

 

 

 

 

Adjusted EBITDA margin (%)

  Adjusted EBITDA:

Profit (Loss)

add

Income tax expenses,

Finance costs, net,

Depreciation and amortization expenses (including amortization of intangible assets, deferred expenses-right of use and impairment charges), Other expenses (mainly amortization of share based compensation)

 

Adjusted EBITDA margin (%):

Adjusted EBITDA

divided by

Total revenues

  Profit (Loss) Adjusted Free Cash Flow**   Adjusted Free Cash Flow:

Cash flows from operating activities

deduct

Cash flows from investing activities

add

Short-term investment in (proceeds from) deposits

  Cash flows from operating activities

deduct

Cash flows from investing activities

Total Operating Expenses (OPEX)   Total Operating Expenses:

Cost of service revenues

add

Selling and marketing expenses

add

General and administrative expenses

deduct

Depreciation and amortization expenses,

Other expenses (mainly amortization of employee share based compensation)

  Sum of:

Cost of service revenues,

Selling and marketing expenses,

General and administrative expenses

Net Debt   Net Debt:

Current maturities of notes payable and borrowings

add

Notes payable

add

Borrowings from banks and others

deduct

Cash and cash equivalents

deduct

Short-term deposits

  Sum of:

Current maturities of notes payable and borrowings,

Notes payable,

Borrowings from banks and others

* Adjusted EBITDA is fully comparable with EBITDA measure which was provided in reports for prior periods.

**Adjusted Free Cash Flow measure is fully comparable to Free Cash Flow measure which was provided in reports for prior periods.

About Partner Communications

Partner Communications Company Ltd. is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony and internet services). 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: http://www.partner.co.il/en/Investors-Relations/lobby

1 The quarterly financial results are unaudited.

2 For the definition of this and other Non-GAAP financial measures, see “Use of Non-GAAP Financial Measures” in this press release.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

New Israeli Shekels

 

Convenience translationinto U.S.Dollars

March 31   December 31 March 31 2017 2016 2017 (Unaudited) (Audited) (Unaudited) In millions CURRENT ASSETS Cash and cash equivalents 1,017 716 280 Short-term deposits 250 452 69 Trade receivables 948 990 261 Other receivables and prepaid expenses 33 57 9 Deferred expenses – right of use 49 28 14 Inventories 94 96 26 2,391 2,339 659   NON CURRENT ASSETS Trade receivables 286 333 79 Prepaid expenses and other 2 2 1 Deferred expenses – right of use 80 75 22 Property and equipment 1,158 1,207 319 Licenses and other intangible assets 749 793 206 Goodwill 407 407 112 Deferred income tax asset 47 41 12 2,729 2,858 751   TOTAL ASSETS 5,120 5,197 1,410

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

New Israeli Shekels

 

Conveniencetranslation into U.S. Dollars

March 31   December 31 March 31 2017 2016 2017 (Unaudited) (Audited) (Unaudited) In millions CURRENT LIABILITIES Current maturities of notes payable and borrowings 531 498 146 Trade payables 659 681 181 Payables in respect of employees 61 101 17 Other payables (mainly institutions) 18 28 5 Income tax payable 64 45 18 Deferred income with respect to settlement agreement with Orange 54 108 15 Deferred revenues from HOT mobile 31 31 9 Other deferred revenues 38 38 10 Provisions 76 77 21 1,532 1,607 422 NON CURRENT LIABILITIES Notes payable 647 646 178 Borrowings from banks and others 1,504 1,550 414 Liability for employee rights upon retirement, net 37 39 10 Dismantling and restoring sites obligation 28 35 8 Deferred revenues from HOT mobile 187 195 52 Other non-current liabilities 19 14 5 2,422 2,479 667   TOTAL LIABILITIES 3,954 4,086 1,089   EQUITY Share capital - ordinary shares of NIS 0.01

par value: authorized - December 31, 2016

and March 31, 2017 - 235,000,000 shares;

issued and outstanding -

2 2 1 December 31, 2016 – *156,993,337 shares March 31, 2017 – *157,006,663 shares Capital surplus 1,034 1,034 285 Accumulated retained earnings 413 358 114 Treasury shares, at cost

December 31, 2016 – **3,603,578 shares

March 31, 2017 – **3,603,578 shares

(283) (283) (79) TOTAL EQUITY 1,166 1,111 321 TOTAL LIABILITIES AND EQUITY 5,120 5,197 1,410

* Net of treasury shares.

** Including restricted shares in amount of 2,142,291 and 2,061,201 as of March 31, 2017 and December 31, 2016, respectively, held by trustee under the Company's Equity Incentive Plan, such shares will become outstanding upon completion of vesting conditions.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

New Israeli Shekels

 

Conveniencetranslation into U.S. Dollars

3 months ended March 31 2017   2016 2017 (Unaudited) (Unaudited) (Unaudited) In millions (except per share data) Revenues, net 803 977 221 Cost of revenues 654 797 180 Gross profit 149 180 41   Selling and marketing expenses

74

127

20 General and administrative expenses 50 67 14

Income with respect to settlement agreement with Orange

54 54 15 Other income, net 9 14 2 Operating profit 88 54 24 Finance income 2 13 1 Finance expenses 25 37 7 Finance costs, net 23 24 6 Profit before income tax 65 30 18 Income tax expenses 14 16 4 Profit for the period 51 14 14   Earnings per share Basic 0.33 0.09 0.09 Diluted 0.32 0.09 0.09

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

 

New Israeli Shekels

 

Conveniencetranslation into U.S. Dollars

3 months ended March 31 2017   2016   2017 (Unaudited) (Unaudited) (Unaudited) In millions

Profit for the period

51 14 14

Other comprehensive income for the period, net of income taxes

- - - TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 51 14 14

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

New Israeli Shekels 3 months ended March 31, 2017 In millions (Unaudited)

Cellularsegment

 

Fixed-linesegment

  Elimination   Consolidated Segment revenue - Services 484 156 640 Inter-segment revenue - Services 5 38 (43) Segment revenue - Equipment 145 18   163 Total revenues 634 212 (43) 803   Segment cost of revenues - Services 372 145 517 Inter-segment cost of revenues- Services 38 5 (43) Segment cost of revenues - Equipment 123 14   137 Cost of revenues 533 164 (43) 654 Gross profit 101 48 149   Operating expenses (3) 102 22 124 Income with respect to settlement agreement with Orange 54

54

Other income, net 8 1 9 Operating profit 61 27 88 Adjustments to presentation of Segment Adjusted EBITDA

–Depreciation and amortization

108 33 141

–Other (1)

3 1 4 Segment Adjusted EBITDA (2) 172 61 233

Reconciliation of profit for the period to Adjusted EBITDA

Profit for the period 51

- Depreciation and amortization

141

- Finance costs, net

23

- Income tax expenses

14

- Other (1)

4 Adjusted EBITDA (2) 233

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

New Israeli Shekels 3 months ended March 31, 2016 In millions (Unaudited)

Cellularsegment

 

Fixed-linesegment

  Elimination   Consolidated Segment revenue - Services 539 171 710 Inter-segment revenue - Services 4 51 (55) Segment revenue - Equipment 244 23   267 Total revenues 787 245 (55) 977   Segment cost of revenues - Services 436 150 586 Inter-segment cost of revenues- Services 50 5 (55) Segment cost of revenues - Equipment 193 18   211 Cost of revenues 679 173 (55) 797 Gross profit 108 72 180   Operating expenses (3) 164 30 194 Income with respect to settlement agreement with Orange 54

54

Other income, net 13 1 14 Operating profit 11 43 54 Adjustments to presentation of Segment Adjusted EBITDA

–Depreciation and amortization

117 38 155

–Other (1)

14 (1) 13 Segment Adjusted EBITDA (2) 142 80 222

Reconciliation of profit for the period to Adjusted EBITDA

Profit for the period 14

- Depreciation and amortization

155

- Finance costs, net

24

- Income tax expenses

16

- Other (1)

13 Adjusted EBITDA (2) 222 (1)   Mainly amortization of employee share based compensation. (2) Adjusted EBITDA as reviewed by the CODM represents Earnings Before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use and impairment charges) and Other expenses (mainly amortization of share based compensation). Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for 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 amortization of employee share based compensation and impairment charges; it is fully comparable to EBITDA information which has been previously provided for prior periods. (3) Operating expenses include selling and marketing expenses and general and administrative expenses.  

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

New Israeli Shekels

 

Convenience translationinto U.S. Dollars

3 months ended March 31 2017   2016 2017 (Unaudited) (Unaudited) (Unaudited) In millions CASH FLOWS FROM OPERATING ACTIVITIES: Cash generated from operations (Appendix) 195 169 54 Income tax paid (1) (7) * Net cash provided by operating activities 194 162 54  

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment (44) (32) (12) Acquisition of intangible assets (25) (16) (7) Proceeds from short-term deposits 202

56

Interest received 1 * * Proceeds from (repayment of) derivative financial instruments, net   *   Net cash provided by (used in) investing activities 134 (48) 37  

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options granted to employees * Interest paid (17) (25) (5) Repayment of non-current borrowings (10) (4) (3) Repayment of notes payable   (177)   Net cash used in financing activities (27) (206) (8)  

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

301 (92) 83  

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

716 926 197  

CASH AND CASH EQUIVALENTS AT END OF PERIOD

1,017 834 280

* Representing an amount of less than 1 million.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Appendix - Cash generated from operations and supplemental information

New Israeli Shekels

 

ConveniencetranslationintoU.S. Dollars

3 months ended March 31 2017   2016 2017 (Unaudited) (Unaudited) (Unaudited) In millions   Cash generated from operations: Profit for the period 51 14 14   Adjustments for: Depreciation and amortization 133 148 37 Amortization of deferred expenses - Right of use 8 7 2 Amortization of employee share based compensation 4 13 1 Liability for employee rights upon retirement, net (2) (2) (1) Finance costs, net (1) (7) * Change in fair value of derivative financial instruments * * * Interest paid 17 25 5 Interest received (1) * * Deferred income taxes (6) 14 (2) Income tax paid 1 7 * Changes in operating assets and liabilities: Decrease (increase) in accounts receivable: Trade 90 (39) 25 Other 24 3 6 Increase (decrease) in accounts payable and accruals: Trade 6 55 2 Other payables (53) (9) (15) Provisions (1) 1 * Deferred revenues with respect to settlement agreement with Orange (54) (54) (15) Deferred revenues from HOT mobile (8) (2) Other deferred revenues * (12) * Increase in deferred expenses - Right of use (34) (12) (9) Current income tax 19 (5) 5 Decrease (increase) in inventories 2 22 1 Cash generated from operations 195 169 54

* Representing an amount of less than 1 million.

At March 31, 2016 and 2017, trade and other payables include NIS 113 million and NIS 97 million ($27 million), respectively, in respect of acquisition of intangible assets and property and equipment; payments in respect thereof are presented in cash flows from investing activities.

These balances are recognized in the cash flow statements upon payment.

Reconciliation of Non-GAAP Measures:

Adjusted Free Cash Flow

 

New Israeli Shekels

 

Conveniencetranslation into U.S. Dollars

3 months ended March 31 2017   2016 2017 (Unaudited) (Unaudited) (Unaudited) In millions Net cash provided by operating activities 194 162 54 Net cash provided by (used in) investing activities 134 (48) 37 Proceeds from short-term deposits (202)   (56) Adjusted Free Cash Flow 126 114 35 Interest paid (17) (25) (5) Adjusted Free Cash Flow After Interest 109 89 30

Total Operating Expenses (OPEX)

New Israeli Shekels

Conveniencetranslation into U.S. Dollars

3 months ended March 31 2017 2016 2017 (Unaudited) (Unaudited)

(Unaudited)

In millions Cost of revenues – Services 517 586 142 Selling and marketing expenses 74 127 20 General and administrative expenses 50 67 14 Depreciation and amortization (141) (155) (39) Other (1) (4) (13) (1) OPEX 496 612 136

(1) Mainly amortization of employee share based compensation.

Key Financial and Operating Indicators (unaudited)*

NIS M unless otherwise stated   Q1' 15   Q2' 15   Q3' 15   Q4' 15   Q1' 16   Q2' 16   Q3' 16   Q4' 16   Q1' 17     2015   2016 Cellular Segment Service Revenues   579   581   587   550   543   527   531   498   489     2,297   2,099 Cellular Segment Equipment Revenues   277   271   234   269   244   188   139   158   145     1,051   729 Fixed-Line Segment Service Revenues   232   226   225   223   222   219   220   205   194     906   866 Fixed-Line Segment Equipment Revenues   18   16   12   22   23   17   12   11   18     68   63 Reconciliation for consolidation   (52)   (50)   (52)   (57)   (55)   (54)   (53)   (51)   (43)     (211)   (213) Total Revenues   1,054   1,044   1,006   1,007   977   897   849   821   803     4,111   3,544 Gross Profit from Equipment Sales   59   67   52   61   56   42   28   18   26     239   144 Operating Profit (Loss)   56   67   32   (48)   54   67   64   8   88     107   193 Cellular Segment Adjusted EBITDA   148   160   137   152   142   155   156   109   172     597   562 Fixed-Line Segment Adjusted EBITDA   79   76   59   65   80   73   64   55   61     279   272 Total Adjusted EBITDA   227   236   196   217   222   228   220   164   233     876   834 Adjusted EBITDA Margin (%)   22%   23%   19%   22%   23%   25%   26%   20%   29%     21%   24% OPEX   604   601   650   608   612   572   570   570   496     2,463   2,324 Impairment charges on operating profit               98                         98    

Income with respect to settlement agreement with Orange

          23   38   54   54   55   54   54     61   217 Finance costs, net   18   46   40   39   24   28   30   23   23     143   105 Profit (loss)   25   9   (9)   (65)   14   26   19   (7)   51     (40)   52 Capital Expenditures (cash)   128   111   64   56   48   57   44   47   69     359   196 Capital Expenditures (additions)   50   84   51   86   34   40   44  

84

  40     271   202 Adjusted Free Cash Flow   21   24   291   230   114   160   215   269   126     566   758

Adjusted Free Cash Flow (After Interest)

  8   (28)   277   172   89   119   201   241   109     429   650 Net Debt   2,581   2,626   2,355   2,175   2,079   1,964   1,768   1,526   1,415     2,175   1,526 Cellular Subscriber Base (Thousands)   2,774   2,747   2,739   2,718   2,692   2,700   2,693   2,686   2,658     2,718   2,686 Post-Paid Subscriber Base (Thousands)   2,112   2,112   2,136   2,156   2,174   2,191   2,215   2,241   2,259     2,156   2,241 Pre-Paid Subscriber Base (Thousands)   662   635   603   562   518   509   478   445   399     562   445 Cellular ARPU (NIS)   69   70   71   67   67   65   66   62   61     69   65 Cellular Churn Rate (%)   12.7%   10.9%   10.8%   11.1%   11.2%   9.8%   9.7%   9.4%   9.8%     46%   40% Number of Employees (FTE)   3,535   3,354   3,017   2,882   2,827   2,740   2,742   2,686   2,580     2,882   2,686

* See footnote 2 regarding use of non-GAAP measures.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170521005101/en/

Partner Communications Company Ltd.Dudu Mizrahi, +972-54-781-4951Chief Financial OfficerorLiat Glazer Shaft, +972-54-781-5051Head of Investor Relations and Corporate Projectsinvestors@partner.co.il