Partner Communications Reports Third Quarter 2019 Results1

Partner Communications Reports Third Quarter 2019 Results1

Adjusted EBITDA1,2 Totaled NIS 225 Million

Net Debt2 Totaled NIS 956 Million

Cellular Churn Rate Continued to Decrease and Totaled 7.7%

Third quarter 2019 highlights (compared with third quarter 2018)

Total Revenues: NIS 825 million (US$ 237 million), an increase of NIS 3 million

Service Revenues: NIS 658 million (US$ 189 million), an increase of 1%

Equipment Revenues: NIS 167 million (US$ 48 million), a decrease of 1%

Total Operating Expenses (OPEX)2: NIS 474 million (US$ 136 million), a decrease of 6%

Adjusted EBITDA: NIS 225 million (US$ 65 million), an increase of 12%

Adjusted EBITDA Margin1,2: 27% of total revenues compared with 24%

Profit for the Period: NIS 7 million (US$ 2 million), a decrease of 73%

Net Debt: NIS 956 million (US$ 275 million), an increase of NIS 58 million

Adjusted Free Cash Flow (before interest)2: NIS 13 million (US$ 4 million), a decrease of NIS 57 million

Cellular ARPU: NIS 59 (US$ 17), a decrease of 2%

Cellular Subscriber Base: approximately 2.65 million at quarter-end, an increase of 1%

TV Subscriber Base: approximately 176 thousand subscribers at quarter-end, an increase of 70 thousand subscribers since the third quarter of 2018

ROSH HA’AYIN, Israel–(BUSINESS WIRE)–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 September 30, 2019.

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

“In the third quarter, Partner reported increases in revenues, in cellular subscribers, in Partner TV subscribers and in the number of households that we reached with our fiber optic infrastructure, “Partner Fiber”.

In the cellular segment, our strategy of enhancing the value to customers and focusing on customer service led to a net increase of 35 thousand subscribers this quarter, alongside a further decrease in the churn rate to 7.7%, the lowest rate in 8 years.

As of Today, Partner TV’s subscriber base has reached more than 183 thousand, the majority of whom are in offerings which also include Internet. Partner TV is the fastest growing TV service in Israel, and is suited to the current era as a super aggregator of international content services open to the Israeli viewer, in addition to our multi-channel offering. Our groundbreaking collaborations with the world’s largest content providers have started to be imitated by our competitors, and we are proud of the significant gap that we have opened compared to them.

Partner is leading today the fiber optic deployment field in Israel, with an independent infrastructure that is being rapidly deployed and has already reached over 540 thousand households, approximately 28% of Internet-connected households in Israel.

Partner’s vast fiber optic deployment, from the north of the country to Eilat in the south, supports the acceleration of the migration of wholesale internet subscribers to our independent infrastructure, as well as the recruitment of new customers and the expansion of Partner’s operations within the business sector across the country.

Partner’s financial strength and the positive trends in the cellular segment enable the Company to continue to implement our business plans for the fixed line segment, with the aim of improving profitability and customer loyalty while maintaining a stable level of debt.”

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

“The third quarter of 2019 ended with stability in service revenues, while continuing to report growth in the fixed-line segment in terms of subscribers and revenues, relative stability in OPEX over time and a positive net profit.

In the cellular segment, where the intensity of competition continues to remain high, a clear trend of decreasing erosion in service revenues can be seen for several quarters, as a result of our strategy according to which we operate. The churn rate totaled 7.7% in the quarter, continuing the declining trend from previous quarters. In addition, our subscriber base increased by 35 thousand subscribers and ARPU for the quarter totaled NIS 59, maintaining relative stability. We see in these results a reflection of our continued efforts to increase value to our customers through value added offerings and to strive for continued improvement in our customer service, which leads to a decline in price erosion and churn rates. We believe that the steps that we are taking improve our competitiveness in a very challenging business environment.

Adjusted EBITDA this quarter totaled NIS 225 million, demonstrating that the Company continues to manage its OPEX responsibly, alongside revenue growth in the fixed line segment mainly reflecting the impact of the Company’s growth engines.

In addition, Adjusted FCF (before interest) was positive and totaled NIS 13 million in the third quarter. Cash flow from operations totaled NIS 230 million. Capex totaled NIS 174 million and reflected the Company’s strategy to continue to be a technology leader while continuing to invest in its growth engines with a focus on deploying its fiber optic infrastructure and increasing penetration in the TV market. These investments are possible as a result of Partner’s financial stability and strong balance sheet. Accordingly, we report continued growth in the TV subscriber base which totals 183 thousand as of today, and in the rate of fiber optic deployment which remains high and reaches over 540 thousand households as of today.”

Q3 2019 compared with Q2 2019

NIS Million

Q2’19

Q3’19

Comments

Service Revenues

642

658

The increase resulted from increases both in cellular service revenues as a result of seasonality and in fixed-line segment service revenues

Equipment Revenues

139

167

The increase reflected a higher volume of equipment sales

Total Revenues

781

825

 

Gross profit from equipment sales

35

33

The stability in gross profit compared with the increase in equipment revenues mainly reflected a decrease in the average profit per sale and change in product mix

OPEX

472

474

 

Adjusted EBITDA

214

225

The increase resulted mainly from an increase in service revenues

Profit for the Period

3

7

 

Capital Expenditures (additions)

142

150

 

Adjusted free cash flow (before interest payments)

31

13

The decrease resulted from the increase in CAPEX payments

Net Debt

965

956

 

 

Q2’19

Q3’19

Comments

Cellular Post-Paid Subscribers (end of period, thousands)

2,337

2,366

Increase of 29 thousand subscribers

Cellular Pre-Paid Subscribers

(end of period, thousands)

279

285

Increase of 6 thousand subscribers

Monthly Average Revenue per Cellular User (ARPU) (NIS)

58

59

 

Quarterly Cellular Churn Rate (%)

7.9%

7.7%

Decrease in Post-Paid churn rate

Key Financial Results Q3 2019 compared with Q3 2018

NIS MILLION (except EPS)

Q3’18

Q3’19

% Change

Revenues

822

825

0%

Cost of revenues

657

687

+5%

Gross profit

165

138

-16%

Operating profit

48

26

-46%

Profit for the period

26

7

-73%

Earnings per share (basic, NIS)

0.16

0.04

 

Adjusted free cash flow (before interest)

70

13

-81%

Key Operating Indicators

 

Q3’18

Q3’19

Change

Adjusted EBITDA (NIS million)

201

225

+12%

Adjusted EBITDA margin (as a % of total revenues)

24%

27%

+3

Cellular Subscribers (end of period, thousands)

2,630

2,651

+21

Quarterly Cellular Churn Rate (%)

8.0%

7.7%

-0.3

Monthly Average Revenue per Cellular User (ARPU) (NIS)

60

59

-1

Partner Consolidated Results

 

Cellular Segment

Fixed-Line Segment

Elimination

Consolidated

NIS Million

Q3’18

Q3’19

Change
%

Q3’18

Q3’19

Change
%

Q3’18

Q3’19

Q3’18

Q3’19

Change
%

Total Revenues

619

608

-2%

245

258

+5%

(42)

(41)

822

825

0%

Service Revenues

476

466

-2%

220

233

+6%

(42)

(41)

654

658

+1%

Equipment Revenues

143

142

-1%

25

25

0%

168

167

-1%

Operating Profit

32

24

-25%

16

2

-88%

48

26

-46%

Adjusted EBITDA

145

170

+17%

56

55

-2%

201

225

+12%

Financial Review

In Q3 2019, total revenues were NIS 825 million (US$ 237 million), an increase of NIS 3 million from NIS 822 million in Q3 2018.

Service revenues in Q3 2019 totaled NIS 658 million (US$ 189 million), an increase of 1% from NIS 654 million in Q3 2018.

Service revenues for the cellular segment in Q3 2019 totaled NIS 466 million (US$ 134 million), a decrease of 2% from NIS 476 million in Q3 2018. The decrease 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.

Service revenues for the fixed-line segment in Q3 2019 totaled NIS 233 million (US$ 67 million), an increase of 6% from NIS 220 million in Q3 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 Q3 2019 totaled NIS 167 million (US$ 48 million), a decrease of 1% from NIS 168 million in Q3 2018.

Gross profit from equipment sales in Q3 2019 was NIS 33 million (US$ 9 million), compared with NIS 44 million in Q3 2018, a decrease of 25%, mainly reflecting a change in the product mix which led to a decrease in the average profit per sale.

Total operating expenses (‘OPEX’) totaled NIS 474 million (US$ 136 million) in Q3 2019, a decrease of 6% or NIS 30 million from Q3 2018. The decrease mainly reflected the impact of the implementation of IFRS 16 which totaled NIS 39 million, as well as decreases in other expenses, which were partially offset by an increase in expenses relating to the growth in TV and internet services. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q3 2019 increased by 2% compared with Q3 2018.

Operating profit for Q3 2019 was 26 million (US$ 7 million), a decrease of 46% compared with NIS 48 million in Q3 2018. The decrease resulted from the increase in depreciation and amortization expenses mainly as a result of the adoption of IFRS 16, partially offset by the increase in Adjusted EBITDA. See Adjusted EBITDA analysis for each segment below.

Adjusted EBITDA in Q3 2019 totaled NIS 225 million (US$ 65 million), an increase of 12% from NIS 201 million in Q3 2018. The impact of the adoption of IFRS 16 on Adjusted EBITDA in Q3 2019 was an increase of NIS 39 million. As a percentage of total revenues, Adjusted EBITDA in Q3 2019 was 27% compared with 24% in Q3 2018.

Adjusted EBITDA for the cellular segment was NIS 170 million (US$ 49 million) in Q3 2019, an increase of 17% from NIS 145 million in Q3 2018, mainly reflecting the impact of the adoption of IFRS 16 which increased cellular segment Adjusted EBITDA by NIS 35 million, partially offset by a decrease in gross profit from cellular equipment sales of NIS 9 million. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q3 2019 was 28% compared with 23% in Q3 2018.

Adjusted EBITDA for the fixed-line segment was NIS 55 million (US$ 16 million) in Q3 2019, a decrease of 2% from NIS 56 million in Q3 2018, reflecting the increase in OPEX, partially offset by the increase in fixed-line service revenues. The impact of the adoption of IFRS 16 in Q3 2019 on Adjusted EBITDA for the fixed-line segment was an increase of NIS 4 million. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q3 2019 was 21%, compared with 23% in Q3 2018.

Finance costs, net in Q3 2019 were NIS 18 million (US$ 5 million), an increase of 80% compared with NIS 10 million in Q3 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 Q3 2019 were NIS 1 million (US$ 0.3 million), compared with NIS 12 million in Q3 2018.

Profit in Q3 2019 was NIS 7 million (US$ 2 million), a decrease of 73% compared with a profit of NIS 26 million in Q3 2018. The impact of the adoption of IFRS 16 in Q3 2019 on profit was a decrease of NIS 2 million.

Based on the weighted average number of shares outstanding during Q3 2019, basic earnings per share or ADS, was NIS 0.04 (US$ 0.01), compared with basic earnings per share of NIS 0.16 in Q3 2018.

Cellular Segment Operational Review

At the end of Q3 2019, the Company’s cellular subscriber base (including mobile data, 012 Mobile subscribers and M2M subscriptions) was approximately 2.65 million, including approximately 2.37 million Post-Paid subscribers or 89% of the base, and approximately 285 thousand Pre-Paid subscribers, or 11% of the subscriber base.

During the third quarter of 2019, the cellular subscriber base increased by approximately 35 thousand. The Pre-Paid subscriber base increased by approximately 6 thousand, and the Post-Paid subscriber base increased by approximately 29 thousand.

The quarterly churn rate for cellular subscribers in Q3 2019 was 7.7%, compared with 8.0% in Q3 2018.

Total cellular market share (based on the number of subscribers) at the end of Q3 2019 was estimated to be approximately 25%, unchanged from Q3 2018.

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q3 2019 was NIS 59 (US$ 17), a decrease of 2% from NIS 60 in Q3 2018 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 Q3 2019, Adjusted Free Cash Flow (including lease payments) totaled NIS 13 million (US$ 4 million), a decrease of 81% from NIS 70 million in Q3 2018.

Cash generated from operating activities increased by 22% from NIS 188 million in Q3 2018 to NIS 230 million (US$ 66 million) in Q3 2019, 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 42 million (US$ 12 million) in Q3 2019.

Cash capital expenditures (‘CAPEX payments’), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 174 million (US$ 50 million) in Q3 2019, an increase of 49% from NIS 117 million in Q3 2018, mainly reflecting the impact of the change in the accounting treatment of PHI from the beginning of 2019, as well as the increased investments in the fiber optics infrastructure.

The level of Net Debt at the end of Q3 2019 amounted to NIS 956 million (US$ 275 million), compared with NIS 898 million at the end of Q3 2018, an increase of NIS 58 million.

Regulatory Developments

Holdings of approved Israeli shareholders in the Company

The provisions of the Company’s cellular license require, among others, that the “founding shareholders or their approved substitutes”, as defined in the cellular license, hold at least 26% of the means of control in the Company, including 5% which must be held by Israeli shareholders (Israeli citizens and residents), who were approved as such by the Minister of Communications.

The controlling stake of the Phoenix Group (One of the Company’s approved Israeli shareholders) has been sold to foreign entities. On November 12, 2019, the Israeli Ministry of Communications issued a temporary order (ending on November 1, 2020) amending the Company’s cellular license and reducing the percentage that the approved Israeli shareholders are required to hold by the amount of shares now held by the foreign entities (from 5% down to 3.82% of the means of control in the Company). This temporary order will allow the Ministry and the Company one year in which to resolve the issue of holdings of approved Israeli shareholders in the Company.

Transition to IPv6 internet protocol

On the July 3, 2019, the Ministry of Communications published its decision regarding the transition to the IPv6 protocol, which is the most recent version of internet protocol. The Ministry decided, among others, that telecom operators (such as the Company) will adapt their network and its components to fully support the IPv6 protocol. ISPs and domestic fixed-line operators will be required to complete this transition within 48 months of the decision while cellular operators will be required to complete it within 24 months.

The subscribers will be transitioned gradually to the IPv6 protocol according to milestones so that 100% of subscribers are transitioned to the IPv6 protocol at the end of the time periods mentioned above.

Operators will be obliged to replace terminal equipment which their subscribers have rented or leased from them and which does not support the IPv6 protocol. Operators will not be obliged to transition subscribers which own terminal equipment that does not support the IPv6 protocol, provided that such subscribers have refused to replace their terminal equipment and have signed a written waiver on this issue.

Inter-Ministerial recommendations on Bezeq’s FTTH/B Universal Service obligations

On November 5, 2019, an Inter-Ministerial team published a hearing regarding the universal service obligations applicable to Bezeq with regards to Fiber Optic infrastructure (FTTH/B) deployment. The recommendations of the Inter-Ministerial team include the following:

Bezeq will be allowed to decide for itself in which areas it will roll out its fiber-optic network. Within such areas, Bezeq will be required to connect 100% of households to its fiber-optic network within a timeframe set out in its license;

In the areas where Bezeq decides not to lay a fiber-optic network, another operator will be chosen (by a reverse tender process) to deploy a fiber-optic network to all households in the area. Such operator will receive an incentive for such deployment from a universal service fund and will enjoy exclusivity in deploying a fiber optic network in this area (but will be obliged to provide other operators with a wholesale Bit Stream Access (BSA) service provided over their fiber optic network;

The universal service fund incentive plan will be financed by a tax on all telecommunications operators (including Bezeq and Partner) at an annual rate of 0.5% of all income;

In the areas where Bezeq decides not to lay a fiber-optic network, it and its subsidiaries will not be allowed to deploy a fiber-optic network.

The Company is studying the hearing documents and examining its position regarding the provisions proposed therein.

Conference Call Details

Partner will hold a conference call on Tuesday, November 26, 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: +972.3.918.0685North America toll-free: +1.888.407.2553A 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 November 26, 2019 until December 10, 2019, at the following numbers:International: +972.3.925.5925North America toll-free: +1.888.782.4291In 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 ability to continue to implement its business plans for the fixed line segment with the aim of improving the Company’s profitability and customer loyalty while maintaining a stable level of debt and the Company’s strategy to continue to be a leading company in terms of technology while continuing to invest in its growth engines with a focus on deploying a fiber optic infrastructure and increasing penetration in the TV market. 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 improve profitability and customer loyalty while maintaining a stable level of debt by implementing its business plans for the fixed line segment as well as enable it to continue to invest in its growth engines with a focus on deploying a fiber optic infrastructure and increasing penetration in the TV market and whether the Company’s technological capabilities in fiber optics will enable it to continue to lead in telecommunication technology. 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 September 30, 2019: US $1.00 equals NIS 3.482. 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, deferredexpenses-right of use and impairment charges),Other expenses (mainly amortization of sharebased 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

deduct

Lease payments

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

add

Advances on account of notes payables

add

Financial liabilities at fair value

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,

Advances on account of notes payables,

Financial liabilities at fair value

 

Contacts
Tamir AmarChief Financial OfficerTel: +972-54-781-4951

Liat Glazer ShaftHead of Investor Relations and Corporate ProjectsTel: +972-54-781-5051E-mail: [email protected]
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