PTNR Partner Communications Company Ltd

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PARTNER COMMUNICATIONS REPORTS
SECOND QUARTER 2019 RESULTS¹

 

ADJUSTED EBITDA^{1, 2} TOTALED NIS 214 MILLION

 

NET DEBT² REMAINED BELOW NIS 1 BILLION

 

CELLULAR CHURN RATE DECREASED TO 7.9%, THE LOWEST LEVEL SINCE 2011

 

PARTNER’S CEO, ISAAC BENBENISTI, NOTED: “WHILE OUR COMPETITORS IN THE

TELECOMMUNICATIONS MARKET ARE FACING INSTABILITY AND IMPAIRMENTS,

PARTNER PRESENTS BUSINESS LEADERSHIP AND FINANCIAL STRENGTH.”

 

Second quarter 2019 highlights (compared with second quarter 2018)

 

Rosh Ha’ayin, Israel, August 27, 2019 – Partner Communications Company Ltd. (“Partner” or the “Company”) (NASDAQ and TASE: PTNR), a leading Israeli communications provider, announced today its results for the quarter ended June 30, 2019.

 

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Commenting on the results for the second quarter of 2019, Mr. Isaac Benbenisti, CEO of Partner noted:

 

“While our competitors in the telecommunications market are facing instability and impairments, Partner presents business leadership and financial strength.

 

Partner is more prepared than its competitors to cope with the complex challenges in the Israeli telecommunications market that suffers from ongoing market failures.

 

Partner continues to demonstrate positive trends in key KPI’s, a strong balance sheet and operational excellence while other competitors experience balance sheet write-downs and instability.

 

Partner today has an advantage in the range of services that we offer to over 3 million customers:

 

Cellular – Despite the ongoing competition, our ARPU has increased and churn rate has decreased, and is at the lowest level since 2011. This is attributed to our choice to provide our customers with value added services as part of our "MORE" Partner plans.

 

TV – For over two years Partner TV is the fastest growing TV service in Israel. At the end of the second quarter we report a net growth of 77 thousand subscribers compared with the corresponding quarter in 2018, and as of today, Partner TV has over 170 thousand subscribers. Unlike all of our competitors, Partner is the only company that does not need to replace its subscribers' set top boxes to be prepared for the new viewing habits: 100% of Partner TV set top boxes broadcast with 4K quality, support Catch Up and allow access to world leading content applications.

 

Fiber Optics – two years after the launch of Partner Fiber our fiber optic infrastructure reaches over 480 thousand households in Israel. We connect customers in dozens of cities nationwide to the fastest data internet speed in Israel of up to 1,000 mbps. In addition, we are working to switch wholesale internet customers to the independent infrastructure in order to reduce dependency on monopolies and increase the Company's profit.

 

The combination of all these services solidifies our status as a leading communications group and the positive figures in this report reflect Partner's leadership in a range of services within the highly competitive Israeli telecommunications market."  

 

Mr. Tamir Amar, Partner's Chief Financial Officer, commented on the results:

 

“Partner completed a positive quarter which was characterized by stability and even slight growth in cellular service revenues, alongside continued growth in the fixed line segment compared with Q2 2018 and Q1 2019, mainly reflecting the growth in our TV and Internet operations. The decline trend in our cellular churn rate continued, as churn rate decreased to the lowest level since the third quarter of 2011, totaling less than 8%. We continue to strive to maintain our customer base while creating value for our customers and limiting price erosion, through our strategic focus on profit rather than market share. Despite the decline in revenues from equipment we experienced only a slight decrease in gross profit from equipment sales.

 

The Adjusted EBITDA increased this quarter and totaled NIS 214 million compared with NIS 197 million in the previous quarter and NIS 172 million in the second quarter 2018. As we announced last quarter, the Company has adopted the IFRS 16 accounting standard, effective as of January 2019. The effect of the new standard totaled NIS 38 million in this quarter; thus even after eliminating the effect of IFRS 16 on Adjusted EBITDA, there was an increase compared with both periods. The increase was mainly a result of the increase in fixed line segment Adjusted EBITDA alongside stability in cellular segment Adjusted EBITDA.

 

Cash Flow from operating activities totaled NIS 216 million and Adjusted Free Cash Flow (before interest) totaled NIS 31 million this quarter. As part of our investment plan, CAPEX totaled NIS 143 million this quarter. The Company continues its investments in growth engines, through both the continued rapid deployment of our fiber optic infrastructure as well as our increased penetration rate in the TV market. These developments have all been pursued according to our strategic plans while maintaining financial strength and a strong balance sheet. As a result of the rapid deployment pace of the fiber optic project, we are expected to increase investment in the project in 2019 compared with 2018 but overall CAPEX is expected to remain unchanged from our original plans for 2019. In addition, in the coming years investments in the fiber optic project are expected to return to 2018 levels. Our investments place the Company at the technological forefront in Israel and have enabled us to reach over 480 thousand households with our fiber infrastructure and to connect customers to Partner's TV and Fiber services."

 

 

Key Financial Results Q2 2019 compared with Q2 2018

 

 

Financial Review

 

In Q2 2019, total revenues were NIS 781 million (US$ 219 million), a decrease of 2% from NIS 797 million in Q2 2018.

 

Service revenues in Q2 2019 totaled NIS 642 million (US$ 180 million), an increase of 4% from NIS 620 million in Q2 2018.

 

Service revenues for the cellular segment in Q2 2019 totaled NIS 453 million (US$ 127 million), approximately unchanged from NIS 454 million in Q2 2018. The stability was mainly the result of the continued price erosion of cellular services (both Post-Paid and Pre-Paid) due to the continued competitive market conditions being offset by a one-time provision which was recorded in Q2 2018 with respect to a class action.

 

Service revenues for the fixed-line segment in Q2 2019 totaled NIS 230 million (US$ 64 million), an increase of 10% from NIS 210 million in Q2 2018. The increase mainly reflected higher revenues from TV services and internet services, which were partially offset principally by the decline in revenues from international calling services.

 

Equipment revenues in Q2 2019 totaled NIS 139 million (US$ 39 million), a decrease of 21% from NIS 177 million in Q2 2018, mainly reflecting a lower volume of equipment sales partially offset by a change in product mix.

 

Gross profit from equipment sales in Q2 2019 was NIS 35 million (US$ 10 million), compared with NIS 37 million in Q2 2018, a decrease of 5%, mainly reflecting the decline in sales volumes, partially offset by higher profit margins from sales due to a change in the product mix.

 

Total operating expenses (‘OPEX’) totaled NIS 472 million (US$ 132 million) in Q2 2019, a decrease of 4% or NIS 20 million from Q2 2018. The decrease mainly reflected the impact of the implementation of IFRS 16 which totaled NIS 38 million, as well as decreases in credit losses and in marketing expenses. These decreases were partially offset by an increase in expenses relating to the growth in TV and internet services as well as the one-time cancellation in Q2 2018 of a provision for a class action in an amount of NIS 8 million. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q2 2019 increased by 3% compared with Q2 2018, the increase largely reflecting the increase in depreciation and amortization expenses related to IFRS 16.

 

Operating profit for Q2 2019 was NIS 22 million (US$ 6 million), unchanged compared with Q2 2018. Excluding the impact of the adoption of IFRS 16, operating profit in Q2 2019 would have been NIS 20 million. See Adjusted EBITDA analysis for each segment below.

 

Adjusted EBITDA in Q2 2019 totaled NIS 214 million (US$ 60 million), an increase of 24% from NIS 172 million in Q2 2018. The impact of the adoption of IFRS 16 on Adjusted EBITDA in Q2 2019 was an increase of NIS 38 million and, therefore, excluding the impact of IFRS 16, Adjusted EBITDA would have been NIS 176 million, an increase of NIS 4 million from Q2 2018. As a percentage of total revenues, Adjusted EBITDA in Q2 2019 was 27% compared with 22% in Q2 2018.

 

Adjusted EBITDA for the cellular segment was NIS 159 million (US$ 45 million) in Q2 2019, an increase of 26% from NIS 126 million in Q2 2018, mainly reflecting the impact of the adoption of IFRS 16 which increased cellular segment Adjusted EBITDA by NIS 35 million, as well as a decrease in other cellular operating expenses, and was partially offset by a decrease in gross profit from cellular equipment sales. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q2 2019 was 28% compared with 21% in Q2 2018.

 

Adjusted EBITDA for the fixed-line segment was NIS 55 million (US$ 15 million) in Q2 2019, an increase of 20% from NIS 46 million in Q2 2018, reflecting increases in fixed-line service revenues and in gross profit from equipment sales, partially offset by an increase in OPEX among other reasons as a result of the one-time cancellation in Q2 2018 of a provision for a class action in an amount of NIS 8 million. The impact of the adoption of IFRS 16 in Q2 2019 on the Adjusted EBITDA for the fixed-line segment was an increase of NIS 3 million. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q2 2019 was 22%, compared with 20% in Q2 2018.

 

Finance costs, net in Q2 2019 were NIS 16 million (US$ 4 million), an increase of 23% compared with NIS 13 million in Q2 2018. The increase largely reflected the impact of the adoption of IFRS 16, which resulted in an increase of NIS 5 million in finance costs.

 

Income tax expenses for Q2 2019 were NIS 3 million (US$ 1 million), a decrease of 57% compared with NIS 7 million in Q2 2018.

 

Profit in Q2 2019 was NIS 3 million (US$ 1 million), an increase of 50% compared with a profit of NIS 2 million in Q2 2018. The impact of the adoption of IFRS 16 in Q2 2019 on profit was a decrease of NIS 2 million.

 

Based on the weighted average number of shares outstanding during Q2 2019, basic earnings per share or ADS, was NIS 0.02 (US$ 0.006), compared with basic earnings per share of NIS 0.01 in Q2 2018.

 

Cellular Segment Operational Review

 

At the end of Q2 2019, the Company's cellular subscriber base (including mobile data, 012 Mobile subscribers and M2M subscriptions) was approximately 2.62 million, including approximately 2.34 million Post-Paid subscribers or 89% of the base, and approximately 279 thousand Pre-Paid subscribers, or 11% of the subscriber base.

 

During the second quarter of 2019, the cellular subscriber base decreased by approximately four thousand. The Pre-Paid subscriber base decreased by approximately one thousand, and the Post-Paid subscriber base decreased by approximately three thousand.

 

The quarterly churn rate for cellular subscribers in Q2 2019 was 7.9%, compared with 10.1% in Q2 2018 – the lowest level since Q3 2011.

 

Total cellular market share (based on the number of subscribers) at the end of Q2 2019 was estimated to be approximately 25%, unchanged from Q2 2018.

 

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q2 2019 was NIS 58 (US$ 16), an increase of 2% from NIS 57 in Q2 2018. Excluding a one-time provision recorded in Q2 2018, ARPU would have decreased by NIS 1 as a result of the continued price erosion in key cellular services due to the competition in the cellular market.

 

Funding and Investing Review

 

In Q2 2019, Adjusted Free Cash Flow (including lease payments) totaled NIS 31 million (US$ 9 million), a decrease of 44% from NIS 55 million in Q2 2018.

 

Cash generated from operating activities increased by 36% from NIS 159 million in Q2 2018 to NIS 216 million (US$ 61 million) in Q2 2019, mainly as a result of the adoption of IFRS 16 in 2019, under which lease payments are recorded in cash flows from financing activities instead of in cash flows from operating activities.

 

Lease payments, recorded in cash flows from financing activities under IFRS 16, totaled NIS 43 million (US$ 12 million) in Q2 2019.

 

Cash capital expenditures (‘CAPEX payments’), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 143 million (US$ 40 million) in Q2 2019, an increase of 38% from NIS 104 million in Q2 2018, mainly reflecting the increased investments in the fiber optics infrastructure.

 

The level of Net Debt at the end of Q2 2019 amounted to NIS 965 million (US$ 271 million), compared with NIS 893 million at the end of Q2 2018, an increase of NIS 72 million.

 

Regulatory Developments

 

Further to the description in the Company's annual report for 2018 regarding Policy principles for the deployment of fiber-optic infrastructure in Israel ("Call for Public Comments Document"), on July 24, 2019, the Ministry of Communications published two hearings (1) a hearing with respect to setting a maximum tariff for ultra-broadband access managed over the Bezeq fiber optic network and (2) a hearing with respect to changing the "reverse bundle" marketing format by Bezeq. On August 4, 2019, the Ministry published an additional hearing regarding the determination of a uniform tariff for fiber-optic based internet access services.

 

Based on the content of these hearings (the "Hearings"), the Hearings form part of the overall fiber optic strategy which the Ministry of Communications is formulating these days. The main provisions proposed in the hearings are as follows:

 

 

 

Conference Call Details

 

Partner will hold a conference call on Tuesday, August 27, 2019 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 August 27, 2019 until September 10, 2019, at the following numbers:

International: +972.3.925.5928

North America toll-free: +1.877.456.0009

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 steps to be taken by the Company in order to switch wholesale internet customers to Partner's independent infrastructure in order to reduce dependency on monopolies and increase the Company's profit, the continued investment in growth engines and the expected increased investment in the fiber optic project in 2019 compared with 2018, while the expected investments in the coming years is expected to remain similar to 2018. 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, whether market conditions will support the Company's goal to reduce dependency on monopolies and increase the Company's profit by switching customers to the Company's independent fiber optic infrastructure; whether the Company's financial resources and market conditions will enable it to continue to invest in its growth engines according to its plans; whether the Company's technological capabilities in fiber optics will enable it to continue to lead in telecommunication technology; and whether such leadership might be challenged by capabilities developed by competitors or by changes occurring in the regulatory environment. 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 June 30, 2019: US $1.00 equals NIS 3.566. The translations were made purely for the convenience of the reader.

 

About Partner Communications

 

Partner Communications Company Ltd. is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony, internet services and TV 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

Contacts:

 

*    See section 'IFRS 16' above regarding the adoption of IFRS 16 - Leases.

 

*         Representing an amount of less than 1 million.

**       See section 'IFRS 16' above regarding the adoption of IFRS 16 - Leases.

***     Net of treasury shares.

****   Including restricted shares in amount of 1,210,833 and 1,146,736 as of December 31, 2018 and June 30, 2019, respectively, held by a trustee under the Company's Equity Incentive Plan, such shares may become outstanding upon completion of vesting conditions.

 

 

*   Representing an amount of less than 1 million.

** See section 'IFRS 16' above regarding the adoption of IFRS 16 - Leases.

 

 

*   Representing an amount of less than 1 million.

** See section 'IFRS 16' above regarding the adoption of IFRS 16 - Leases.

 

 

*     Representing an amount of less than 1 million.

**   See section 'IFRS 16' above regarding the adoption of IFRS 16 - Leases. For the 6 months ended June 30, 2019 the impact of the adoption of IFRS 16 was an increase of NIS 77 million in the Adjusted EBITDA, an increase of NIS 69 million in the cellular segment Adjusted EBITDA and an increase of NIS 8 million in the fixed-line segment Adjusted EBITDA.

(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.

(3) Operating expenses include selling and marketing expenses, general and administrative expenses.

*    Representing an amount of less than 1 million.

**  See section 'IFRS 16' above regarding the adoption of IFRS 16 - Leases.