Partner Communications Company Ltd.
(Nasdaq:PTNR)(TASE:PTNR):
Q3 2009 Highlights (compared with Q3 2008) 2
- Total Revenues: NIS 1,575
million (US$ 419 million), a decrease of 3.3%
- Service Revenues: NIS
1,389 million (US$ 370 million), a decrease of 4.3%
- Operating Profit: NIS 401
million (US$ 107 million), a decrease of 23.2%
- Net Income: NIS 263
million (US$ 70 million), a decrease of 20.3%
- EBITDA: NIS 570 million
(US$ 152 million), a decrease of 10.9%
- EBITDA3
Margin 4: 36.2% of total revenues compared
with 39.3%
- Free Cash Flow
5: NIS 301 million (US$ 80 million), a decrease of
35.1%
- Subscriber Base: 64,000
net additions in the quarter, to reach 3.008 million, including
1.199 million 3G subscribers
- Dividend Declared: NIS
1.94 (52 US cents) per share or ADS (in total approximately
NIS 300 million or US$ 80 million) for Q3 2009
Partner Communications Company Ltd. ("Partner" or the
"Company") (Nasdaq:PTNR)(TASE:PTNR), a leading Israeli mobile
communications operator, today announced its results for the third
quarter of 2009. Partner reported total revenues of
NIS 1.6 billion (US$ 419 million) in Q3 2009, EBITDA of
NIS 570 million (US$ 152 million), and net income of
NIS 263 million (US$ 70 million).
Mr. David Avner, Partner's CEO, commented on the quarter's
results: "I am pleased with Partner's results this quarter.
Partner's continuous commitment to provide the best service to its
customers has been recently rewarded by a survey run by "The
Marker", which attributes to Partner the best score in service
level out of all the Israeli cellular companies, in all the survey
parameters. Our ability to continually attract new customers is
also reflected in the high level of our net additions this quarter.
In a highly saturated market, our customer-oriented approach has
enabled us to recruit an impressive 64 thousand subscribers, and we
are proud to have surpassed 3 million subscribers."
"We continue to experience a challenging competitive and
regulatory environment, which is pushing tariffs downwards and
pressuring margins. In such challenging times, the Company needs to
adjust its cost structure. We have already started an efficiency
program that should bear fruits during 2010 with the key aim to
improve our profitability levels."
"At the same time, Partner continues to invest in its strategic
initiatives and new domains of activity. Partner is committed to
innovation and I am very proud that for the third time in a row,
the Company was designated by top Israeli business managers the
most innovative company in Israel by a wide margin. The recent
developments in the Israeli telecoms landscape support Partner's
vision and place the Company in a strong position to take advantage
of new opportunities and achieve its goal to become a comprehensive
communication service provider."
"Partner is, and will stay committed to returning value to its
shareholders, as demonstrated by the the distribution of NIS 300
million this quarter."
"I would like to conclude by congratulating Scailex Corporation,
its business partners and Scailex's chairman, Mr. Ilan Ben-Dov, for
the successful completion of the acquisition of Partner's
controlling interest and warmly welcome them on board. I would also
like to thank Hutchison Telecom and its chairman, Mr. Canning Fok,
for creating such a high standard company and providing Partner
with an everlasting support that has made it the leading telecom
company it is today."
Mr. Ilan Ben Dov, Partner's chairman, added: "I am thrilled and
proud to have successfully completed the acquisition of the
controlling interest in Partner and very excited at the prospect of
joining such a valued company. Partner is one of the strongest and
most valued companies in the Israeli economy, and I look forward to
working with Partner's excellent management team and dedicated
employees to continue and prosper in the future."
Key Financial and Operational Parameters
Q3 2009
Q3 2008
Q3'09 vs Q3'08
Revenues (NIS millions) 1,575 1,629 -3.3% Operating Profit (NIS
millions) 401 522 -23.3% Net Income (NIS millions) 263 330 -20.3%
Cash flow from operating activities net of investing activities
(NIS millions) 301 464 -35.1% EBITDA (NIS
millions) 570 640 -10.9% Subscribers (end of period, in thousands)
3,008 2,882 +4.4% Quarterly Churn Rate (%) 4.2 3.9 +0.3 Average
Monthly Usage per Subscriber (minutes) 369 376 -1.9% Average
Monthly Revenue per Subscriber (NIS) 151 165
-8.5%
Financial
Review
In Q3 2009 net revenues totaled NIS 1,575 million (US$
419 million), decreasing by 3.3% from NIS 1,629 million in Q3
2008.
Within the total, service revenues contributed NIS 1,389
million (US$ 370 million), representing a decrease of 4.3% from NIS
1,452 million in Q3 2008. As in the previous quarters of 2009, the
decrease is primarily due to lower outgoing voice revenues
reflecting both the competitive market conditions which continue to
dilute the outgoing voice tariff and the reduction in the billing
interval in 2009 as mandated by the Ministry of Communications, as
well as the impact of lower roaming activity. Positive impacts on
revenues included the growth in total network minutes reflecting
the approximate 4.4% increase in the subscriber base and an
increase in the proportion of higher-than average ARPU post-paid
subscribers, as well as increases in content and data revenues
(including SMS services) and revenues from non-cellular
services.
Revenues from content and data services excluding SMS in
Q3 2009 were NIS 128 million (US$ 34 million) or 9.2% of service
revenues, similar to NIS 128 million or 8.8% of service revenues in
Q3 20086.
SMS service revenues increased by 9.2% from NIS 87
million or 6.0% of service revenues in Q3 2008, to NIS 95 million
(US$ 25 million) or 6.8% of service revenues, in Q3 2009.
The gross profit from services for the third
quarter 2009 was NIS 543 million (US$ 144 million), representing a
decrease of 20.7% compared with NIS 685 million in Q3 2008. This
decrease is attributed to the 10.3% increase in the cost of service
revenues, from NIS 767 million in Q3 2008 to NIS 846 million (US$
225 million) in Q3 2009, in addition to the effect of the decrease
in service revenues. The increase in the cost of service revenues
reflects additional expenses associated with the new fixed line
services, an approximate NIS 27 million increase in depreciation
expenses resulting from the accumulated capitalized handset sales
costs from the beginning of 2009, and a further increase of
approximately NIS 14 million in depreciation expenses due to
network equipment disposals.
Non-capitalized equipment revenues in Q3 2009 were NIS
186 million (US$ 49 million), an increase of 5.1% from NIS 177
million in Q3 2008. The increase in revenues reflects a significant
increase in the number of transactions and an increase in the
revenue per transaction due to the higher proportion of 3G sales.
This increase was partially offset by the impact of handset sales
capitalization of those sales where the conditions for
capitalization under IFRS were met7. Equipment revenues were
reduced by approximately NIS 58 million due to the capitalization
of handset sales in Q3 2009.
The gross profit from non-capitalized equipment
sales totaled NIS 29 million (US$ 8 million) in Q3 2009,
compared with a gross loss on equipment sales of NIS 14 million in
Q3 2008. This change reflects the approximate NIS 36 million net
impact of the capitalization of handset subsidies (handset revenues
less handset costs) under IFRS in Q3 2009, partially offset by the
increase in transactions and the increase in cost per transaction
due to the higher proportion of 3G sales.
Total gross profit for Q3 2009 was NIS 572 million (US$
152 million), representing a decrease of 14.8% from NIS 671 million
in Q3 2008.
Selling, marketing, general and administration expenses
amounted to NIS 187 million (US$ 50 million) in Q3 2009, an
increase of 14.7% from NIS 163 million in Q3 2008. The increase
reflects the additional marketing and selling costs related to the
ISP and fixed telephony initiatives, and larger provisions for
doubtful accounts from receivables on handset sales following an
increase in the number of handsets sold through the monthly
customer bill rather than through a separate secured credit card
transaction. The increase in selling expenses was partially offset
by the net impact of the capitalization of sales commissions under
IFRS which reduced expenses by approximately NIS 6 million in Q3
2009.
Overall, operating profit in Q3 2009 was NIS 401 million
(US$ 107 million), compared with NIS 522 million in Q3 2008, a
decrease of 23.2%.
EBITDA for Q3 2009 totaled NIS 570 million (US$ 152
million), or 41.0% of service revenues and 36.2% of total revenues.
Compared with NIS 640 million in Q3 2008 (44.0% of service revenues
and 39.3% of total revenues), this represents a decrease of 10.9%.
Excluding the impact of capitalization of handset sales in Q3 2009,
EBITDA would have been NIS 528 million in Q3 2009, a decrease of
17.5% compared with Q3 2008. The decrease is largely explained by
the additional expenses related to the ramp-up of the ISP and fixed
telephony initiatives in the amount of approximately NIS 41 million
for the quarter, and the effect of the reduction in service
revenues.
Finance costs, net were NIS 61 million (US$ 16 million)
in Q3 2009, representing a decrease of 14.1% from NIS 71 million in
Q3 2008. The decrease primarily reflects an increase in gains from
currency exchange movements, partially offset by higher linkage
expenses due to the increase in the CPI level from 2.1% in Q3 2008
to 2.4% in Q3 2009.
Net income totaled NIS 263 million (US$ 70 million), a
decrease of 20.3% from NIS 330 million in Q3 2008. Again, the
decrease primarily reflects the supplementary expenses related to
the ramp-up of the ISP and fixed telephony services, as well as the
impact of the reduction in service revenues including roaming
revenues.
Based on the average number of shares outstanding during Q3
2009, basic earnings per share or ADS, was NIS 1.71 (46 US
cents) in Q3 2009, a decrease of 20.1% from NIS 2.14 in
Q3 2008.
Funding and Investing
Review
In Q3 2009 cash flows generated from operating activities,
net of cash flows used for investing activities (Free Cash
Flow) totaled NIS 301 million (US$ 80 million), compared with NIS
464 million in Q3 2008, a decrease of 35.1%. The decrease largely
reflects the reduction in cash flows generated from operating
activities, as well as a 39.3% increase in cash flows used for
investing activities, reflecting the impact of capitalization of
handset sales costs under IFRS on investments in intangible fixed
assets. Net investment in fixed assets for Q3 2009 was NIS 112
million or 7.1% of total revenues, approximately no change from NIS
111 million in Q3 2008.
Dividend
The Board of Directors approved the distribution of a dividend
for Q3 2009 of NIS 1.94 (US 52 cents) per share or ADS (in a total
of approximately NIS 300 million or US$ 80 million) to shareholders
and ADS holders of record on November 25, 2009. The dividend is
expected to be paid on December 10, 2009.
The Company is currently reviewing its dividend policy for 2010.
The Company is also considering a capital reduction in order to
distribute a one-time dividend of over NIS 1 billion. If approved
by the Board of Directors and the applicable court, the
contemplated capital reduction will likely take place during the
first quarter of 2010.
Operational
Review
Approximately 64,000 net new subscribers joined Partner
Communications in Q3 2009. The active subscriber base stood
at approximately 3,008,000 on September 30, 2009. This included
approximately 2,210,000 postpaid subscribers (73.5% of the base)
and 798,000 prepaid subscribers. The quarterly churn rate
for Q3 2009 was 4.2% compared with 3.9% in Q3 2008, the increase
being attributable to higher churn of lower contribution pre-paid
subscribers.
By quarter-end, approximately 1,199,000 subscribers were
subscribed to the 3G network. Total market share at
the end of the quarter is estimated to be approximately 32%, no
significant change from the previous quarter.
Average minutes of use per subscriber ("MOU") were 369
minutes in Q3 2009, compared with 376 minutes in Q3 2008. As in the
first two quarters of 2009, the decrease reflects the large number
of free minutes that were granted to subscribers as part of special
campaigns during 2008. Excluding the impact of these free minutes,
MOU increased slightly in Q3 2009 compared with the parallel
quarter of 2008.
The average revenue per user ("ARPU") in Q3 2009 was NIS
151 (US$ 40), compared with NIS 165 in Q3 20088. The decrease
reflects the tariff reduction resulting from the increasingly
competitive market conditions and the reduction in the billing
interval, as well as lower roaming revenues.
Other
Mr. Jacob Perry, who had been appointed as a Director of the
Company's Board on behalf of the Company's Israeli founding
shareholders and their approved substitutes, announced his
resignation from the Board of Directors. Mr. Perry informed the
Board that his resignation was due to his other business
occupations and not from a legal constraint.
Outlook and
Guidance
Commenting on the Company's results, Mr. Emanuel Avner,
Partner's Chief Financial Officer said: "This quarter we continued
to face tough economic and market conditions. We also invested this
quarter significant funds in our new ISP and fixed line services.
Nevertheless, when compared with the results of our record third
quarter of 2008, the results of this quarter clearly reveal the
need to drive profitability higher. We have begun to put together a
wide-ranging operating efficiency program, with the help of
McKinsey consultants, which is aimed to reduce operating costs from
2010.
In the short term, we expect the gap in profitability for the
fourth quarter 2009 compared with the parallel quarter of 2008 to
be more moderate than it was in the third quarter."
Conference Call
Details
Partner Communications will hold a conference call to discuss
the company’s third quarter results on Monday, November 09, 2009,
at 16:00 Israel local time (9AM EST). Please call the following
numbers (at least 10 minutes before the hour) in order to
participate:
North America toll-free: 1 888 281 1167, International: +972 3
918 0687
This conference call will also be broadcasted live over the
Internet and can be accessed by all interested parties through our
investor relations web site at:
http://www.orange.co.il/investor_site/.
To listen to the broadcast, please go to the web site at least
15 minutes prior to the start of the call to register, download and
install any necessary audio software. For those unable to listen to
the live broadcast, an archive of the call will be available via
the Internet (at the same location as the live broadcast) shortly
after the call ends, and until midnight of November 16, 2009.
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 "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. All statements other than statements of
historical fact included in this press release regarding our future
performance, plans to increase revenues or margins or preserve or
expand market share in existing or new markets, reduce expenses and
any statements regarding other future events or our future
prospects, 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 about Partner,
consumer habits and preferences in cellular telephone usage, trends
in the Israeli telecommunications industry in general, the impact
of current global economic conditions and possible regulatory and
legal developments. For a description of some of the risks we face,
see "Item 3D. Key Information - Risk Factors", "Item 4. -
Information on the Company", "Item 5. - Operating and Financial
Review and Prospects", "Item 8A. - Consolidated Financial
Statements and Other Financial Information - Legal and
Administrative Proceedings" and "Item 11. Quantitative and
Qualitative Disclosures about Market Risk" in the form 20-F filed
with the SEC on April 27, 2009. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed
in this press release might not occur, and actual results may
differ materially from the results anticipated. 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 financial results presented in this press release are
preliminary un-audited financial results.
The results were prepared in accordance with IFRS, other than
EBITDA which is a non-GAAP financial measure.
The financial information is presented in NIS millions and
the figures presented are rounded accordingly.
The convenience translations of the Nominal New Israeli Shekel
(NIS) figures into US Dollars were made at the rate of exchange
prevailing at September 30, 2009: US $1.00 equals NIS 3.758. The
translations were made purely for the convenience of the
reader.
Use of Non-GAAP Financial Measure:
Earnings before financial interest, taxes, depreciation,
amortization, exceptional items and capitalization of intangible
assets ('EBITDA') is presented because it is a measure commonly
used in the telecommunications industry and is presented solely to
enhance the understanding of our operating results. EBITDA,
however, should not be considered as an alternative to operating
income or income for the year as an indicator of our operating
performance. Similarly, EBITDA should not be considered as an
alternative to cash flow from operating activities as a measure of
liquidity. EBITDA is not a measure of financial performance under
generally accepted accounting principles and may not be comparable
to other similarly titled measures for other companies. EBITDA may
not be indicative of our historic operating results nor is it meant
to be predictive of potential future results.
Reconciliation between our net cash flow from operating
activities and EBITDA is presented in the attached summary
financial results.
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. The Company provides mobile communications services to over
3 million subscribers in Israel (as of September 30, 2009).
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).
Partner is an approximately 45%-owned subsidiary of Scailex
Corporation Ltd. ("Scailex"). Scailex's shares are traded on the
Tel Aviv Stock Exchange under the symbol SCIX and are quoted on
"Pink Quote" under the symbol SCIXF.PK. Scailex currently operates
in three major domains of activity: 1) the sole import,
distribution and maintenance of Samsung mobile handset and
accessories products primarily to the three major cellular
operators in Israel; 2) distribution and sale of various
manufacturers' mobile handsets, accessories and provision of
maintenance services, through a chain of retail stores and booths
("Dynamic"), to end customers of Cellcom (as part of the
acquisition of the controlling stake in Partner, Scailex announced
to Cellcom the termination of the distribution agreement through
Dynamic, effective July 1, 2010) and; (3) management of its
financial assets.
For more information about Scailex, see
http://www.scailex.com.
For more information about Partner, see
http://www.orange.co.il/investor_site.
PARTNER COMMUNICATIONS COMPANY
LTD.
(An Israeli Corporation)
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
New Israeli shekels
Conveniencetranslation
into U.S. dollars
September 30,
December 31, September 30, 2009
2008 2009 (Unaudited) (Unaudited)
(Unaudited) In millions CURRENT ASSETS Cash
and cash equivalents 33 184 9 Trade receivables 1,234 1,103
329
Other receivables 43 32 11 Inventories 147 125
39
Income tax receivable 9 2 Derivative financial instruments 32 27 9
1,498 1,471 399
NON CURRENT ASSETS Trade Receivables
452
417
120
Property and equipment 2,048 1,935
545
Licenses and other intangible assets
1,270
1,261
338
Deferred income taxes 37 81 10 3,807 3,694 1,013
TOTAL
ASSETS 5,305 5,165 1,412
New Israeli shekels
Conveniencetranslation
intoU.S. dollars
September 30, December 31, September
30, 2009 2008 2009 (Unaudited)
(Unaudited) (Unaudited) In millions CURRENT
LIABILITIES Current maturities of long term liabilities and
short term loans
751
568
200
Trade payables
868
819
231
Parent group - trade
3
4
1
Other liabilities
266
294
70
Provisions 29
8
Derivative financial instruments 21 7 6 Dividend payable
230
61
Income tax payable 42
2,168
1,734
577
NON CURRENT LIABILITIES Notes payable
1,115
1,613
297
Liability for employee rights upon retirement, net
46
53
12
Asset retirement obligation
26
23
7
Other liabilities
9
10
2
1,196
1,699
318
TOTAL LIABILITIES
3,364
3,433
895
EQUITY Share capital - ordinary shares of NIS 0.01
par value: authorized - December
31, 2008, and September 30, 2009 - 235,000,000 shares; issued and
outstanding -
December 31, 2008 – 153,419
,394 shares September 30, 2009
- 154,070,722 shares
2
2
1
Capital surplus
2,470
2,446
657
Accumulated deficit
(180)
(365)
(48)
Treasury shares, at cost -
December 31, 2008 and September
30, 2009 - 4,467,990 shares
(351)
(351)
(93)
TOTAL EQUITY
1,941
1,732
517
TOTAL EQUITY AND LIABILITIES
5,305
5,165
1,412
PARTNER COMMUNICATIONS COMPANY
LTD.
(An Israeli Corporation)
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
New Israeli shekels
Convenience
translationinto U.S. dollars
9 monthperiod ended September 30 3
monthperiod ended September 30
9
monthperiodended September 30,
3 month
periodended September 30,
2009 2008 2009 2008
2009 2009 (Unaudited) (Unaudited)
(Unaudited) (Unaudited) (Unaudited)
(Unaudited) In millions (except per share data)
Revenues
4,501 4,749 1,575 1,629
1,198 419 Cost of revenues
2,773 2,908
1,003 958 738 267 Gross profit
1,728 1,841 572 671 460
152 Selling and marketing expenses
292
298 107 94 78 29 General and
administrative
expenses
222 201 80 69 59 21 Other
income
55 51 16 14 15 4
Operating profit 1,269 1,393 401
522
338
106 Finance income
22 42 7 3
6
2 Finance expenses
157 189 68 74
42
18 Finance costs, net
135 147 61
71 36 16 Profit before income tax
1,134 1,246 340 451 302
90 Income tax expenses
287 338 77
121 76 20 Profit for the period
847 908 263 330 225 70
Earnings per share Basic
5.
51
5.
82
1.71
2.
14 1.
47 0.4
6 Diluted
5.
48 5.
77
1.70
2.
12 1.
46 0.4
5
Weighted average number of shares outstanding (in thousands)
Basic
153,671
156,011
153,902
154,383
153,671
153,902
Diluted
154,525
157,275
154,827
155,532
154,525
154,827
PARTNER COMMUNICATIONS COMPANY
LTD.
(An Israeli Corporation)
INTERIM CONDENSED CONSOLIDATED
STATEMENTS
OF COMPREHENSIVE INCOME
New Israeli shekels
Convenience
translationinto U.S. dollars
9 monthperiod ended September 30 3
monthperiod ended September 30
9 month period ended
September 30,
3 month period ended September 30,
2009 2008 2009 2008
2009 2009 (Unaudited) (Unaudited)
(Unaudited) (Unaudited) (Unaudited)
(Unaudited) In millions Profit for the period
847 908 263 330 225 70
Other comprehensive income (losses) Actuarial gains (losses)
from defined benefit plan
8 (2) (1) 2
Tax
(2) 1 Other
comprehensive income
for the period, net of
tax
6 (1) (1) 2 TOTAL
COMPREHENSIVE INCOME FOR THE PERIOD, NET OF TAX 853
907 262 330 227 70
PARTNER COMMUNICATIONS COMPANY
LTD.
(An Israeli Corporation)
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
New Israeli shekels
Conveniencetranslation
into U.S. dollars
9 month period endedSeptember 30, 2009
2008 2009 (Unaudited) (Unaudited)
(Unaudited) In millions CASH FLOWS FROM OPERATING
ACTIVITIES: Cash generated from operations (Appendix)
1,615 1,766 430 Income tax paid
(290)
(299) (77) Net cash provided by operating activities
1,325 1,467 353
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property and equipment
(429) (329)
(114) Acquisition of intangible assets
(167)
(24) (44) Proceeds from (payments for) derivative
financial instruments, net
31 (26) 8 Net cash
used in investing activities
(565) (379) (150)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options granted to employees
24 14 6 Dividend paid
(471)
(694) (125) Repayment of capital lease
(6)
(5) (2) Purchase of company's shares by the company
(
351) Interest paid
(68) (68) (18)
Short term loans
(20) 20 (5) Repayment of long
term bank loans
(21) Repayment of notes payable
(370)
(99) Net cash used in financing activities
(911) (1,105) (243)
DECREASE IN CASH AND CASH EQUIVALENTS
(151) (17) (40)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
184 148 49
CASH AND CASH EQUIVALENTS AT
END OF PERIOD
33 131 9
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
Convenience translation
into U.S. dollars
9 month period endedSeptember 30, 2009
2008 2009 (Unaudited) (Unaudited)
(Unaudited) In millions Cash generated from
operations: Profit for the period
847 908
225 Adjustments for net income for the period: Depreciation
and amortization
414 350 110 Amortization of
deferred compensation related to employee stock option grants, net
15 7 4 Liability for employee rights upon
retirement, net
1 4 Finance costs, net
74
103 20 Gain from change in fair value of derivative
financial instruments
(22) (16) (6) Interest paid
68
68 18 Deferred income taxes
42 26
11 Income tax paid
290 299 77 Capital
loss on sale of fixed assets
2
1
1
Changes in operating assets and liabilities: Decrease (increase) in
accounts receivable: Trade
(166) 83 (44) Other
(11) 8
(3)
Increase (decrease) in accounts payable and accruals: Parent group-
trade
(1)
2 Trade
104 (62) 28 Other
31
(33) 8 Income tax payable
(51) 12
(14) Increase in inventories
(22) 6 (
5)
Cash generated from operations:
1,615 1,
766
430
At September 30, 2009 and 2008, trade payables include NIS 165
million ($44 million) (unaudited) and NIS 182 million
(unaudited) in respect of acquisition of fixed assets,
respectively.
These balances will be given recognition in these statements
upon payment.
PARTNER COMMUNICATIONS COMPANY
LTD.
(An Israeli Corporation)
RECONCILIATION BETWEEN OPERATING
CASH FLOWS AND EBITDA
New Israeli shekels
Conveniencetranslation
intoU.S. dollars
9 Month Period Ended
September 30,
9 Month Period
Ended
September 30,
2009 2008 2009 (Unaudited) In
millions Net cash provided by operating activities 1,325
1,467
353 Liability for employee rights upon retirement (1) (4)
Accrued interest and exchange and linkage differences on long-term
liabilities (142) (171) (38) Increase (decrease) in accounts
receivable: Trade 166 (83) 44 Other, including derivative financial
instruments 33 8 9 Decrease (increase) in accounts payable and
accruals: Trade
(104)
63 (28) Shareholder – current account 1 (2) Other (excluding tax
provision) 264 333 71 Increase (decrease) in inventories 22 (6) 6
Increase in Assets Retirement Obligation 1 (1) Financial Expenses
130 138 35 EBITDA 1,696 1,742 452
* The convenience translation of the New Israeli Shekel (NIS)
figures into US dollars was made at the exchange prevailing at
September 30, 2009 : US $1.00 equals 3.758 NIS.
** Financial expenses excluding any charge for the amortization
of pre-launch financial costs.
APPENDIX: EFFECT OF TRANSITION TO
IFRS:
An explanation of how the transition from US GAAP to IFRSs has
affected the Company’s financial position and financial performance
is set out in the following tables and the notes that accompany the
tables.
Exemptions from full retrospective application elected by the
Company:
1.
Fair value as deemed cost
exemption
The Company has elected to measure property and equipment at fair
value as at 1 January 2008. See A below. 2.
Business combinations
exemption
The Company has applied the business combinations exemption in IFRS
1. It has not restated business combinations that took place prior
to the 1 January 2008 transition date.
The following adjustments relate to the effect of the transition
to reporting under IFRS, as issued by the International Accounting
Standards Board, as do the explanations with respect to these
adjustments and with respect to the exemptions that the Company has
elected to apply upon the transition to the IFRS reporting regime.
The adjustments are presented as follows:
a. Adjustments to the consolidated statements of
income for the periods of nine and three months ended September 30,
2008. b. Adjustments to certain equity items as of September 30,
2008. c. The provision of explanations with respect to the above
adjustments, together with a description of the exemptions adopted
by the Company under IFRS 1 during the course of the transition to
the IFRS regime.
Consolidated interim statement
of income:
Nine months ended September 30, 2008
ReportedunderUS
GAAP
Effect of transition
to IFRS
IFRS
(Unaudited) New Israeli shekels Note In
millions, except per share data Revenues 4,749 4,749 Cost of
revenues A, B, C 3,071 (163) 2
,908
Gross Profit 1,678
163 1,841 Selling and marketing expenses 301 (3) 298 General
and administrative expenses L 181 20 201 Other income L 51
51
Operating profit 1,196 197 1,393 Finance income
43
43
Finance expenses
190
190
Finance costs, net C, F, L 112 (112)
Profit before income
tax 1,084 162
1,246
Income tax expense A, C 297 41
338
Profit for the period 787 121 908
Earnings per share
Basic 5.04 0.78 5.82 Diluted 5.01 0.76 5.77
Weighted
average number of shares outstanding (in thousands) Basic
156,011 156,011 Diluted 157,096 179
157,275
Consolidated interim statement
of income:
Three months ended September 30, 2008
ReportedunderUS
GAAP
Effect oftransition
to IFRS
IFRS
(Unaudited) New Israeli shekels Note In
millions, except per share data Revenues 1,629 1,629 Cost of
revenues A, B, C 1,001 (43) 958
Gross Profit 628 43 671
Selling and marketing expenses 97 (3) 94 General and
administrative expenses L 62 7 69 Other income L 14 14
Operating profit 469 53
522
Finance income 4 4 Finance expenses 75 75 Finance costs, net
C, F, L 64 (64)
Profit before income tax 405 46 451
Income tax expense A, C 109 12 121
Profit for the period 296
34 330
Earnings per share Basic 1.92 0.22 2.14 Diluted 1.91
0.21
2.12
Weighted average number of shares outstanding (in
thousands) Basic 154,383 154,383 Diluted 155,356 176
155,532
Consolidated reconciliation of
equity:
NIS in millions
Note
Sharecapital
Capitalsurplus
Accumulateddeficit
Treasuryshares
Total
As of September 30, 2008 Reported
under US GAAP
(Unaudited)
2
2,566
(810)
(351)
1,407
Effect of adjustments, net for: Options to employees K (257) 257
CPI adjustment - equity B 135 (135) Property and equipment A 200
200 CPI adjustment- licenses B 39 39 Software adjustment B 31 31
Liability for employee rights
upon retirement
C 16 16 Derivatives F (1) (1) Asset retirement obligation E
(6) (6)
As of September 30, 2008 under IFRS
(Unaudited) 2 2,444 (409)
(351)
1,686
A. Property and equipment
At the transition date, the Company chose to state the property
and equipment at their fair value and to determine that value as
deemed cost, in accordance with the exemption of IFRS 1. As part of
the deemed cost, the company made an estimation of the remaining
useful life of each significant component of property and
equipment. Depreciation is calculated using the straight line
method for each individual significant component of an item of
property and equipment. See also changes in property and equipment
in respect of asset retirement obligation in E below.
As a result, the property and equipment balances increased by
NIS 269 million as at September 30, 2008, while the deferred tax
balances deriving from the differences in the measurement of the
property and equipment for tax purposes decreased compared with the
presentation of property and equipment for accounting purposes, by
approximately NIS 68 million at September 30, 2008. The Accumulated
deficit has decreased on this date by the respective net
amounts.
The deemed cost evaluation included lengthening of the estimated
useful lives of the property and equipment as follows:
Beforeevaluation
Afterevaluation
years Communications network: Physical layer and infrastructure
5-10 10-25 Other Communication network 5-10 3-15 Computers,
hardware and software for information systems 3-7 3-10 Office
furniture and equipment 7-15 7-10 Optic fibers and related assets
10-15 7-25
As a result, the depreciation expenses for the nine and three
months ended September 30, 2008 has decreased by NIS 157 million,
and NIS 39 million respectively. As a result the income tax
increased by NIS 39 million, and NIS 10 million for the nine and
three months ended September 30, 2008, respectively.
B. Inflation Adjustment
The value of non monetary assets and equity items that were
measured on the basis of historical cost under US GAAP, have been
adjusted for changes in the general purchasing power of the Israeli
currency - NIS, based upon changes in the Israeli Consumer Price
Index (“CPI”) until December 31, 2003; as until that date the
Israeli economy was considered hyperinflational according to IFRS,
as a result:
1. Capital Surplus increased by NIS 135 million at
September 30, 2008.
2. License intangible asset increased by NIS 52 million
at September 30, 2008, while the deferred tax balances deriving
from the differences in its measurement tax purposes decreased, by
approximately NIS 13 million at September 30, 2008. As a result,
the cost of sales increased for the nine and three months ended
September 30, 2008 by NIS 3 million and NIS 1 million,
respectively; while the income tax expense for the nine months
ended September 30, 2008 decreased by NIS 1 million.
3. Software intangible asset increased by NIS 41 million
at September 30, 2008, while the deferred tax balances deriving
from the differences in its measurement tax purposes decreased, by
approximately NIS 10 million at September 30, 2008. As a result,
the cost of sales increased for the nine and three months ended
September 30, 2008 by NIS 2 million and NIS 2 million,
respectively;
C. Liability for employee rights upon retirement,
net
Under US GAAP, the Liability for severance pays for employees'
rights upon retirement was measured by multiplying the years of
tenure by the last monthly salary of the employee (i.e. one monthly
salary for each year of tenure) at each balance sheet date, and the
amount funded for severance pay that has been accumulated for this
liability is measured based on redemption values at each balance
sheet date. In addition, under US GAAP, amounts funded with
severance pay funds were presented as long term investments. Under
IFRS, the liability for employee rights upon retirement is computed
under the provisions of IAS 19 Employee benefits (hereafter – IAS
19). Under the provisions of IAS 19, the severance pay plan of the
Company considered ”defined benefit plan" as detailed in IAS 19.
Hence, the liability for employee rights upon retirement that arise
from the plan is measured on an actuarial basis, and takes into
account, among other things, future salary rises and turnover.
The actuarial calculations were performed by an external
expert.
In addition, the amount funded is measured at its fair value.
The said amounts funded comprise “plan assets” as defined in
IAS 19, and hence, were set off from the liability for
employee rights upon retirement for the purpose of statement of
financial position presentation.
As a result, the liability for employee rights upon retirement,
before deduction the fair value of plan assets, decreased as of
September 30, 2008 by NIS 21 million, while the deferred tax
balances decreased by approximately NIS 5 million at September 30,
2008.
The Company elected as its accounting policy to recognize
actuarial gains (loss) arising from the valuation of the plan,
according to IAS 19, on a current basis to other comprehensive
income.
Actuarial losses in the amounts of NIS 2 million, net of tax,
for the period of nine months ending September 30, 2008 were
charged to other comprehensive income.
Finance income (expenses) in the amounts of NIS (3) million and
NIS (1) million for the nine and three months ended September 30,
2008, were charged to statements of income. Cost of sales decreased
for the nine and three months ended September 30, 2008 by NIS 9
million, and NIS 6 million respectively. The income tax expense for
the nine and three months ended September 30, 2008 increased by NIS
3 million, and NIS 2 million, respectively.
D. Licenses and other intangible assets
1. The values of the Licenses and other
intangible assets have been adjusted for changes in the general
purchasing power of the Israeli currency, see B above. 2. Under US
GAAP costs to acquire and to retain telecommunication customers are
expensed in the period incurred.
Under IFRS costs to acquire or retain postpaid mobile
telecommunication customers, pursuant to a contract with early
termination penalties are in some cases capitalized if (1) such
costs are identifiable and controlled; (2) it is probable that
future economic benefits will flow from the customers to the
Company; and (3) such costs can be measured reliably. Subsidies on
handsets sales, which are calculated by deducting the customer's
payment toward the handset from the cost of the handset, and sales
commissions, are included in the customer acquisition and retention
costs. Capitalized customer acquisition and retention costs are
amortized over their expected useful life which is not longer than
their minimum enforceable period, which is generally a period of 18
months, using the straight-line method. In the event that a
customer churns off the network within the period, any unamortized
customer acquisition or retention costs are written off in the
period in which the customer churns.
Accordingly, when handsets are sold to end customers for purpose
of acquiring new customers or retaining existing customers, the
Company subsidizes the sale of the handset by selling it at a price
below its cost to secure a fixed-term service contract. The handset
sale is then treated as a non-revenue-generating transaction and
accordingly, no revenue is recognized from these types of handset
sales. As of 2009, the said costs fulfill the above mentioned
conditions and therefore the subsidy, which represents the
difference between the cost of the handset and the payment received
from the customer for the handset, is capitalized as an element of
customer acquisition and retention costs and included in intangible
assets.
Costs to acquire pre-paid telecommunication customers are
expensed in the period incurred.
E. Asset Retirement Obligation
The Company recognizes a liability in respect of asset
retirement obligation (ARO) associated with the retirement of a
tangible long lived asset in the period in which it is incurred and
becomes determinable, with an offsetting increase in the carrying
amount of the associated asset. The cost of the tangible asset,
including the initially recognized ARO, is depreciated such that
the cost of the ARO is recognized over the useful life of the
asset. Under US GAAP, the interest rate used for measuring changes
in the liability would be the credit-adjusted, risk-free rate that
existed when the liability, or portion thereof, was initially
measured. Under IFRS, the Company uses a pretax discount rate that
reflects current market assessments of the time value of money and
the risks specific to the liability in accordance with IAS 37. The
application of the exemption of deemed-cost for property and
equipment described in note A above resulted that property and
equipment were revalued to their fair values at the transition
date.
As a result, the provision for asset retirement obligation
increased by NIS 8 million as of September 30, 2008; while the
deferred tax balances increased by NIS 2 million, as of September
30, 2008.
Finance costs for the nine months ended September 30, 2008
increased by NIS 1 million.
Under US GAAP the provisions were presented as part of other
liabilities. Under IFRS the provisions are presented separately on
the statement of financial position.
F. Derivative financial instruments
US GAAP does not require bifurcation of a foreign currency
embedded derivative if payment is denominated in the local currency
of a substantial party to the contract. Under IFRS,
bifurcation is not required also if payments are denominated in any
currency that is commonly used to purchase or sell such items in
the economic environment in which the transaction takes place.
Until December 31, 2006, Israel was considered economy which the
USD is "commonly used". Accordingly there are some transaction in
which foreign currency embedded derivative was bifurcated
under US GAAP but not under IFRS.
The effect of applying IFRS as of September 30, 2008 includes a
decrease in current derivative financial assets in the amount of
NIS 2 million with corresponding amount (net of tax) to accumulated
deficit. As a result, the finance expenses for the nine months
ended September 30, 2008 increased by NIS 2 million.
Under US GAAP derivative financial instruments were presented in
the statement of financial position within other receivables and
other liabilities. Under IFRS, the derivatives are financial
instruments that are measured at fair value through profit and loss
and therefore are presented separately on the statement of
financial position.
Hereafter additional differences between US GAAP and IFRS
which relate to presentation:
G. Share based compensation expenses
Under US GAAP, Share based compensation expenses were charged to
profit and loss through corresponding increase to capital reserve.
In accordance with IFRS, and on the basis of the accounting policy
applied by the Company, the Company has reclassified this capital
reserve to the accumulated deficit. As a result, the balance of the
capital reserve decreased as of September 30, 2008 in the amount of
NIS 257 million with against accumulated deficit.
H. Classification of Finance income and expenses
Under US GAAP, financial income and expenses included interest
and exchange differences, and fair value gains and losses on
derivative financial instruments were also presented in finance
income or loss, at their net value, below the "operating income"
line item. Under IFRS, the Company presents interest income on long
term receivables as part of normal operations in its statement of
income under "other income" above "operating income" line item.
Financial income and expenses are presented in two different line
items – finance income and expenses, below the "operating income"
line item.
As a result, finance income from sale of handsets in
installments was reclassified from finance income to other income
in the amounts of NIS 51 million and NIS 14 million for the nine
and three months ended September 30, 2008. Credit card commission
expenses were reclassified from finance expenses to general and
administrative expenses in the amounts of NIS 21 million and NIS 7
million for the nine and three months ended September 30, 2008.
According to US GAAP, financial income and expenses are
presented net in the income statement. According to IFRS, financial
income is disclosed separately from financial expenses in the
income statement and accordingly, the Company separately presented
financial expenses and income.
I. Explanation of material adjustments to the statements of
cash flow
1. Interest paid in the amounts of NIS 68 million during the
nine months ended September 30, 2008, that were included in
operating cash flows under US GAAP, were classified as financing
cash flows under IFRS.
2. Under US GAAP deposits in funds in respect of employee rights
upon retirement were recognized as investing cash flows. Under
IFRS, these deposits are recognized as operating cash flows. As a
result, amount of NIS 2 million for the nine months ended September
30, 2008 was reclassified from investing activity to operating
activity in the statements of cash flows.
3. Under US GAAP funds paid or received from settlement of
derivative financial instruments are classified as operating
activity. Under IFRS, these amounts are classified under investing
activities. As a result, amount of NIS 26 million, net, paid for
derivative financial instruments in the nine months ended September
30, 2008, were classified to investing activity.
J. Other comprehensive income
Under US GAAP the Company had no comprehensive income components
other than net income. Therefore, no reconciliation has been
presented.
K. Reclassifications
Certain comparative figures have been reclassified to conform to
the current period presentation. The change is immaterial.
1 The capital reduction is subject to the approval of the Board
of Directors and the applicable Israeli Court.
2 On January 1, 2009, the Company adopted the International
Financial Reporting Standards ("IFRS"), replacing the previous
reporting standard of US GAAP. Comparative data for 2008
have been restated to retrospectively reflect the application of
IFRS as from January 1, 2008. See further explanations in the press
release of May 21, 2009.
3 For definition of EBITDA measure, see “Use of Non-GAAP
Financial Measures” below (p10)
4 Equivalent to 41.0% of service revenues in Q3 2009, compared
with 44.0% of service revenues in Q3 2008
5 Cash flows generated from operating activities, net of cash
flows used for investing activities
6 Content and data revenues for Q3 2008 have been reclassified
to conform to the current year presentation. The company does not
consider the changes material.
7 Whilst the financial statements have been prepared on the
basis of the application of IFRS as from January 1 2008, the
capitalization of subscriber acquisition and retention costs
(including relevant handset revenues) only began on January 1 2009,
the first period in which the conditions for capitalization as
described in the relevant accounting policy were fulfilled.
8 See footnote 6.
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