Market Overview

Cellcom Israel Announces Second Quarter 2018 Results

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Cellcom Israel Announces Second Quarter 2018 Results

PR Newswire

NETANYA, Israel, Aug. 16, 2018 /PRNewswire/ --

Nir Sztern, Cellcom Israel's CEO said:

  • "This quarter concluded with a loss, due to several specific events which burdened the Company's expenses, primarily a retirement of approximately 200 employees, which resulted in an expense of approximately NIS 26 million. The positive effect of reduction of the Company's expenses, shall be seen from the next quarter
  • Despite the fierce competition, the Company succeeded to maintain the revenue level as compared with the first quarter of 2018, with total revenues of NIS 927 million in this quarter, compared to NIS 933 million in the first quarter (a decrease of approximately 0.6%), among others, through a successful marketing of the quatro packages
  • Entering into the MOU for an investment in IBC, which we recently announced, is of strategic significance to Cellcom Israel and a ground breaking event in the field of internet services in Israel. The cooperation between the companies will allow offering fast and advanced internet services over fiber-optic infrastructure also in the periphery of Israel and to a wide population of approximately one million households, within several years"

Second Quarter 2018 Highlights (compared to second quarter of 2017):

  • Total Revenues totaled NIS 927 million ($254 million) compared to NIS 962 million ($264 million) in the second quarter last year, a decrease of 3.6%
  • Service revenues totaled NIS 694 million ($190 million) compared to NIS 731 million ($200 million) in the second quarter last year, a decrease of 5.1%
  • Operating loss totaled NIS 12 million ($3 million) compared to operating income of NIS 102 million ($28 million) in the second quarter last year. Operating loss for the second quarter of 2018, includes an expense for a new employee voluntary retirement plan in the amount of approximately NIS 26 million ($7 million)
  • Loss totaled NIS 37 million ($10 million) compared to net income of NIS 45 million ($12 million) in the second quarter last year
  • EBITDA1 totaled NIS 133 million ($36 million) compared to NIS 237 million ($65 million) in the second quarter last year, a decrease of 43.9%. EBITDA for the second quarter of 2018, includes an expense for a new employee voluntary retirement plan in the amount of approximately NIS 26 million ($7 million)
  • Net cash from operating activities totaled NIS 179 million ($49 million) compared to NIS 278 million ($76 million) in the second quarter last year, a decrease of 35.6%
  • Free cash flow1 totaled NIS 56 million ($15 million) compared to NIS 77 million ($21 million) in the second quarter last year, a decrease of 27.3%

[1]

Please see "Use of Non-IFRS financial measures" section in this press release.

Nir Sztern, the Company's Chief Executive Officer, referred to the results of the second quarter of 2018:

"This quarter concluded with a loss, due to several specific events which burdened the Company's expenses, primarily a retirement of approximately 200 employees, which resulted in an expense of approximately NIS 26 million. The positive effect of reduction of the Company's expenses, shall be seen from the next quarter.

Despite the fierce competition, the Company succeeded to maintain the revenue level as compared with the first quarter of 2018, with total revenues of NIS 927 million in this quarter, compared to NIS 933 million in the first quarter (a decrease of approximately 0.6%), among others, through a successful marketing of the quatro packages.

We are pleased to have signed a memorandum of understanding (MOU) with IBC, IEC and other IBC shareholders and stakeholders of IBC, for an investment of Cellcom Israel in IBC.

Entering into the MOU, is of strategic significance to Cellcom Israel and a ground breaking event in the field of internet services in Israel. The cooperation between the companies will allow offering fast and advanced internet services over fiber-optic infrastructure also in the periphery of Israel and to a wide population of approximately one million households, within several years.

We expect that our investment in IBC will place us in a significant competitive position in the advanced fixed-line infrastructure (fiber-optic) market as well, and will allow us, if the transaction is completed, significant savings in payments to Bezeq for Internet infrastructure, an ability to offer our customers new and advanced services and furthers our activities in the landline market.

The continued competition in the cellular segment is reflected in the current quarter as well, with revenues from services in the cellular sector declining by approximately 9.8% compared with the corresponding quarter last year, mainly due to the continued price erosion of those services as a result of the competition in the cellular market. Alongside the ongoing competition in the cellular segment, revenues from services in the fixed-line segment increased by 2.7% compared with the corresponding quarter last year.

The TV revolution that we have brought to the Israeli television market is evident; we are the leading player in the 'new television' services over the internet, with more than 200,000 households (as of today), thanks to the continued trust from our customers each quarter. A quality, innovative and enjoyable viewing experience, has made Cellcom tv, which is also offered through triple and quad-play packages, what it is - the best television service in Israel.

We continue to offer our customers rich and varied content and at the end of the second quarter, we launched our first original TV series: Mashiach, exclusively for our customers, in cooperation with Keshet Studios and starring Israeli actor Udi Kagan. In only a month since it was aired, the series has enjoyed unprecedented popularity, achieving over one million views by our customers.

Our success in the television market received further recognition as we won the prestigious Platinum Award at the Effie Awards, an international competition across 40 countries including Israel, for the significant change we have brought to the Israeli television market.

In the second quarter, we implemented a significant streamlining and voluntary retirement program covering more than 200 employees, alongside a renewal of the collective agreement with the employees' representatives and the Histadrut until the end of 2020."

Shlomi Fruhling, Chief Financial Officer, said:

"During the second quarter of 2018, the increased competition in the cellular market continued, among others due to Xfone's entry into the market as an additional cellular operator, which was reflected in an increase in customers transferring between operators over a short period, and a further decline in prices in the market. As a result, we experienced a continued decline in revenues from cellular services compared with the previous quarter, which was partly compensated by an increase in revenues from cellular services abroad and revenues from the network sharing agreement with Xfone.

Revenues from services in the fixed-line segment continued to grow due to recruitment of subscribers for television and internet services. The growth in these revenues was partially offset by a decrease in revenues from international call services.

Revenues from end-user equipment of the Company were similar to those of the previous quarter, but there was a change in the sales mix, which included growth in the fixed-line segment, mainly from the sale of television screens and solutions to business customers, and a decline in sales in the cellular segment. This change in mix slightly eroded the profit margins from end-user equipment compared to the previous quarter.

The EBITDA of the Company was negatively affected this quarter also by an expense of NIS 26 million for a voluntary retirement plan of employees, while we expect the savings in associated salary costs to be seen gradually from the third quarter of this year, from settling accounts differences in relation to the Company's network sharing agreement with Golan, and an update in provisions for legal proceedings.

Free cash flow in the second quarter of 2018 was NIS 56 million, a decrease of 27.3% compared with the corresponding period last year. The decrease in free cash flow was mainly due to an increase in payments to end user equipment suppliers in the cellular segment, which was partially offset by an increase in receipts from international operators. The second quarter cash flow does not include the cost of the voluntary retirement program that is expected to be paid out during the third quarter.

During the quarter, the Company issued ordinary shares and options, for an immediate net proceeds of NIS 275 million. The proceeds from the issuance will be used for general purposes and to strengthen the Company's balance sheet.

The Company's Board of Directors decided not to distribute dividends for the second quarter of 2018, in view of the continued intensified competition in the market and its negative impact on the Company's operating results and in order to continue to strengthen the Company's balance sheet. The Board of Directors will review its decision in accordance with the development of market conditions and taking into account the Company's needs."

Cellcom Israel Ltd. (NYSE:CEL, TASE: CEL)) ("Cellcom Israel" or the "Company" or the "Group") announced today its financial results for the second quarter of 2018.

The Company reported that revenues for the second quarter of 2018 totaled NIS 927 million ($254 million); EBITDA for the second quarter of 2018 totaled NIS 133 million ($36 million), or 14.3% of total revenues; loss for the second quarter of 2018 totaled NIS 37 million ($10 million). Basic loss per share for the second quarter of 2018 totaled NIS 0.36 ($0.10).

Main Consolidated Financial Results:


Q2/2018

Q2/2017

Change%

Q2/2018

Q2/2017


NIS million

US$ million

 (convenience translation)

Total revenues

927

962

(3.6)%

254

264

Operating Income (loss)

(12)

102

N/A

(3)

28

Net Income (loss)

(37)

45

N/A

(10)

12

Free cash flow

56

77

(27.3)%

15

21

EBITDA

133

237

(43.9)%

36

65

EBITDA, as percent of total revenues

14.3%

24.6%

(41.9)%



Main Financial Data by Operating Segments:


Cellular (*)

Fixed-line (**)

Consolidation
adjustments
(***)

Consolidated results

NIS million

Q2'18

Q2'17

Change

%

Q2'18

Q2'17

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