Partner Communications Reports Fourth Quarter and Annual 2018 Results(1)

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ANNUAL ADJUSTED EBITDA2 TOTALED NIS 722 MILLION

ANNUAL PROFIT TOTALED NIS 56 MILLION

PARTNER'S CEO, ISAAC BENBENISTI, NOTED: "PARTNER TV IS THE FASTEST GROWING TV SERVICE IN ISRAEL, WITH A TV SUBSCRIBER BASE OF 140 THOUSAND SUBSCRIBERS AS OF TODAY, AND 'PARTNER FIBER' OPTIC INFRASTRUCTURE HAS REACHED, AS OF TODAY, OVER 350 THOUSAND HOUSEHOLDS ACROSS ISRAEL, NEARLY 20% OF ALL HOUSEHOLDS CONNECTED TO THE INTERNET IN ISRAEL."

NET DEBT2 REMAINS BELOW NIS 1 BILLION WITH NET DEBT TO EBITDA RATIO OF 1.3

2018 Annual Highlights (compared with 2017)

  • Total Revenues: NIS 3,259 million (US$ 870 million), a decrease of NIS 9 million
  • Service Revenues: NIS 2,524 million (US$ 673 million), a decrease of 2%
  • Equipment Revenues: NIS 735 million (US$ 196 million), an increase of 7%
  • Total Operating Expenses (OPEX)2: NIS 1,996 million (US$ 533 million), an increase of 3%
  • Adjusted EBITDA2: NIS 722 million (US$ 193 million), a decrease of 21%
  • Adjusted EBITDA Margin2: 22% of total revenues compared with 28%
  • Profit for the Year: NIS 56 million (US$ 15 million) a decrease of 51%
  • Net Debt: NIS 950 million (US$ 253 million), an increase of NIS 44 million
  • Adjusted Free Cash Flow (before interest)2: NIS 124 million (US$ 33 million), a decrease of NIS 475 million
  • Cellular ARPU: NIS 58 (US$ 15), a decrease of 6%
  • Cellular Subscriber Base3: approximately 2.65 million at year-end, a decrease of 1%
  • TV Subscriber Base: approximately 122 thousand subscribers at year-end, an increase of 79 thousand subscribers (an increase of 184%)

Fourth quarter 2018 highlights (compared with fourth quarter 2017)

  • Total Revenues: NIS 814 million (US$ 217 million), a decrease of 2%
  • Service Revenues: NIS 625 million (US$ 167 million), a decrease of 1%
  • Equipment Revenues: NIS 189 million (US$ 50 million), a decrease of 7%
  • Total Operating Expenses (OPEX): NIS 502 million (US$ 134 million), a decrease of 3%
  • Adjusted EBITDA: NIS 172 million (US$ 46 million), an increase of 9%
  • Adjusted EBITDA Margin: 21% of total revenues compared with 19%
  • Profit for the Period: NIS 19 million (US$ 5 million), an increase of NIS 69 million
  • Net Debt: NIS 950 million (US$ 253 million), an increase of NIS 44 million
  • Adjusted Free Cash Flow (before interest): Negative NIS 22 million (US$ -6 million), a decrease of NIS 85 million
  • Cellular ARPU: NIS 57 (US$ 15), a decrease of 3%
  • Cellular Subscriber Base: approximately 2.65 million at quarter-end, a decrease of 1%
  • TV Subscriber Base: approximately 122 thousand subscribers at quarter-end, an increase of 79 thousand subscribers (an increase of 184%)

1 The quarterly financial results are unaudited.
2 For the definition of this and other Non-GAAP financial measures, see "Use of Non-GAAP Financial Measures" in this press release.
3 As from Q4 2018, M2M subscriptions are included in the post-paid subscriber base on a standardized basis – for more info please see "Cellular Segment Operational Review".

Partner Communications Company Ltd. ("Partner" or the "Company") (NASDAQ and TASE: PTNR), a leading Israeli communications provider, announced today its results for the quarter and year ended December 31, 2018.

Commenting on the results for the fourth quarter and full year 2018, Mr. Isaac Benbenisti, CEO of Partner noted:

"The 2018 annual results express Partner's strength in the Israeli telecommunications market. In the complex competitive reality, Partner succeeded in ending the fourth quarter with a profit of NIS 19 million and an annual profit of NIS 56 million.

We continue to focus on, among other matters, providing value to the customer, for example through exclusive technologies such as VoLTE and WiFi calling, and investing significant resources on maintaining the customer satisfaction of our existing customer base, in order to preserve our particularly low churn rate.

Partner TV is the fastest growing TV service in Israel with a subscriber base of 140 thousand subscribers as of today, while, in 2018 alone, 79 thousand subscribers were added. Partner TV's advanced interface is best adapted to new viewing habits and has set a new standard in the multi-channel television market in Israel.

Partner's fiber optic infrastructure, Partner Fiber, is growing at the fastest rate in the market. In recent months, we have expanded our deployment in dozens of cities, and today we are already reaching over 350 thousand households with Partner's fiber, nearly 20% of all households connected to the internet in Israel.

In addition, and in light of the challenges facing the companies operating in the telecommunications sector, we succeeded, in cooperation with the employees' representatives and the Histadrut labor union, to reach at the beginning of this month, a new collective agreement that takes care of the employees' welfare, and directly links Partner's success to employee compensation."

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

"During 2018, Partner further consolidated its status as a total service communications provider with impressive growth in the Company's new revenue engines of TV services and fiber optics infrastructure.

We invested significant resources in smart and extensive deployment of our fiber-optic network, while maintaining relatively low levels of debt leverage. We intend to realize to the full the advantage we have over our competitors in network coverage and in our value propositions that combine TV and internet services, in order to increase profitability in the fixed-line segment and in support of our efforts to establish Partner as a leading communications infrastructure company. The new revenue engines are developing rapidly, and serve to strengthen the Company's resilience in light of the unrestrained competition in the Israeli cellular market – competition which was further intensified with the entrance of an additional, sixth cellular operator, and which led to even stronger price erosion than during the preceding year.

The Company intends to deploy a fiber optic network with an extensive and significant coverage of potential households in Israel within three to four years from today, with an expected payback period for the project overall of seven years. Capex payments relating to the fiber optic network are expected to remain stable at a level similar to that in 2018.

Profit for the year 2018 was NIS 56 million, a decrease of 51% compared with 2017. Adjusted EBITDA in 2018 totaled NIS 722 million, a decrease of 21% from 2017. Adjusted EBITDA for the cellular segment decreased by 26% mainly reflecting the impact of the decreases in service revenues and in income with respect to the settlement agreement with Orange, which ceased being recognized from the end of the second half of 2017; these decreases were partially offset mainly by the reduction in OPEX. Despite the decrease in profit which resulted from the unrestrained competition in the cellular market from price players, Partner focused on a strategy of providing value to the customer, the unique technological advantages of our network and our customer service, the results of which were reflected by one of the lowest churn rates in the market and an ARPU of NIS 57 for the fourth quarter and NIS 58 for the year 2018.

While total operating expenses (OPEX) increased in 2018 compared to 2017 by NIS 50 million, this was explained principally by increased expenses related to the growth in TV services as well as internet services.

Adjusted EBITDA for the fixed-line segment decreased in 2018 compared to 2017 by 4%, mainly reflecting the increased OPEX related to TV services and internet services, which more than offset the increases in revenues from TV services and internet services and in gross profit from equipment sales.

The gross profit margin from equipment sales further improved in 2018, from 21% in 2017 to 23% in 2018, together with a continued improvement in the quality of equipment sales as reflected by, among other things, the significant decrease of 42% in credit losses, from NIS 52 million in 2017 to NIS 30 million in 2018.

Adjusted Free Cash Flow (before interest) totaled NIS 124 million in 2018, after the Company's significant investments to support its new revenue engines related to the fiber optics network and TV services; Capex payments, including investments in new revenue engines, totaled NIS 502 million in 2018, an increase of 34% from 2017. The Company also made additional payments for deferred expenses – Rights of Use (ROU) totaling NIS 107 million in 2018, compared with NIS 113 million in 2017.

The Company's balance sheet demonstrates its financial strength, with net debt remaining below NIS 1 billion and a net debt to EBITDA ratio of 1.3 at year-end 2018. During 2018 we executed a buy-back of our shares and acquired 6.5 million shares at a total cost of NIS 100 million (including commissions) at an average price of NIS 15.38 per share. Our relatively low level of debt leverage, together with our ability to access additional fund sources through existing future debt issuance commitments, leaves us in a good position to be able to continue to invest in new growth opportunities, as necessary.

In the previous quarter, we announced the first step of our plan to expand the Company's activities to the fintech and finance areas, under the name "Partner Finance". We continue to examine possible activities in the finance arena, both within the Company and through co-operation with external parties."

             
NIS Million   Q3'18   Q4'18   Comments
Service Revenues   654   625   The decrease resulted from a decrease in cellular service revenues as a result of seasonality
Equipment Revenues 168 189 The increase mainly reflected a change in the product mix
Total Revenues 822 814
Gross profit from equipment sales 44 42
OPEX 504 502
Adjusted EBITDA 201 172 The decrease mainly reflected the decrease in service revenues
Profit for the Period 26 19 The decrease mainly resulted from the decrease in Adjusted EBITDA, partially offset by one-time income as a result of an income tax audit
Capital Expenditures (additions) 111 177 The increase resulted mainly from increased investments in the optic fiber network and in IT systems
Adjusted free cash flow (before interest payments) 70

(22)

The decrease mainly reflected the decrease in Adjusted EBITDA and the larger increase in operating assets and liabilities
Net Debt   898   950    
             
    Q3'18   Q4'18   Comments
Cellular Post-Paid Subscribers (end of period, thousands)   2,333  

2,3614

  Increase of 28 thousand subscribers. Excluding the impact of the addition of M2M subscribers, the cellular Post-Paid subscriber base would have decreased by 6 thousand subscribers
Cellular Pre-Paid Subscribers

(end of period, thousands)

297 285 Decrease of 12 thousand subscribers
Monthly Average Revenue per Cellular User (ARPU) (NIS) 60 57 The decrease mainly reflected seasonality effects
Quarterly Cellular Churn Rate (%)   8.0%   8.5%   Increase in both Pre-Paid and Post-Paid churn rates

Key Financial Results

                     
NIS MILLION (except EPS)   2014  

20155

  2016   2017*   2018*
Revenues   4,400   4,111   3,544   3,268   3,259
Cost of revenues 3,419 3,472 2,924 2,627 2,700
Gross profit 981 639 620 641 559
S,G&A and credit losses 631 640 689 465 471

Income with respect to settlement agreement with Orange

61 217 108
Other income 50 47 45 31 28
Operating profit 400 107 193 315 116
Finance costs, net 159 143 105 180 53
Income tax expenses 79 4 36 21 7
Profit (Loss) for the year 162 (40) 52 114 56
Earnings (Loss) per share (basic, NIS)   1.04   (0.26)   0.33   0.70   0.34

4 As from Q4 2018, M2M subscriptions are included in the post-paid subscriber base on a standardized basis. This change had the effect of increasing the Post-Paid subscriber base at December 31, 2018, by approximately 34 thousand subscribers. See also ‘Cellular Segment Operational Review' section below.
5 In Q4 2015, the Company recorded an impairment charge on its fixed-line assets which reduced operating profit by NIS 98 million and profit by NIS 72 million in 2015.

* The Company adopted IFRS 15 from the beginning of 2017. For more information see the Company's Annual Report on Form 20-F for the year ended December 31, 2018.

                     
NIS MILLION (except EPS)   Q4'17   Q1'18   Q2'18   Q3'18   Q4'18
Revenues   834   826   797   822   814
Cost of revenues 711 688 661 657 694
Gross profit 123 138 136 165 120
S,G&A and credit losses 130 113 121 124 113
Other income 7 7 7 7 7
Operating profit 0 32 22 48 14
Finance costs, net 88 18 13 10 12
Income tax expenses (income) (38) 5 7 12 (17)
Profit (loss) for the period (50) 9 2 26 19
Earnings (loss) per share (basic, NIS)   (0.30)   0.05   0.01   0.16   0.12
             
NIS MILLION (except EPS)   Q4'17   Q4'18   % Change
Revenues   834   814   -2%
Cost of revenues 711 694 -2%
Gross profit 123 120 -2%
Operating profit 0 14
Profit (loss) for the period (50) 19
Earnings (loss) per share (basic, NIS) (0.30) 0.12
Adjusted free cash flow (before interest)   63   (22)    

Key Operating Indicators

                     
    2014   2015   2016   2017   2018
Adjusted EBITDA (NIS million)   1,096   876   834   917   722
Adjusted EBITDA (as a % of total revenues) 25% 21% 24% 28% 22%
Adjusted Free Cash Flow (NIS millions) 520 566 758 599 124
Cellular Subscribers (end of period, thousands) 2,837 2,718 2,686 2,662 2,646
Estimated Cellular Market Share (%) 28% 27% 26% 25% 25%
Annual Cellular Churn Rate (%) 47% 46% 40% 38% 35%
Average Monthly Revenue per Cellular Subscriber (ARPU) (NIS) 75 69 65 62 58
TV subscribers (end of period, thousands)               43   122
             
    Q4'17   Q4'18   Change
Adjusted EBITDA (NIS million)   158   172   +9%
Adjusted EBITDA (as a % of total revenues) 19% 21% +2
Cellular Subscribers (end of period, thousands) 2,662 2,646 -16
Quarterly Cellular Churn Rate (%) 9.9% 8.5% -1.4
Monthly Average Revenue per Cellular User (ARPU) (NIS)   59   57   -2

Partner Consolidated Results

                 
  Cellular Segment   Fixed-Line Segment   Elimination   Consolidated
NIS Million   2017   2018   Change %   2017   2018   Change %   2017   2018   2017   2018   Change %
Total Revenues 2,588   2,486   -4% 853   944   +11% (173)   (171) 3,268   3,259   0%
Service Revenues 1,978 1,843 -7% 777 852 +10% (173) (171) 2,582 2,524 -2%
Equipment Revenues 610 643 +5% 76 92 +21% - - 686 735 +7%
Operating Profit 244 68 -72% 71 48 -32% - - 315 116 -63%
Adjusted EBITDA   710   524   -26%   207   198   -4%   -   -   917   722   -21%
                 
  Cellular Segment   Fixed-Line Segment   Elimination   Consolidated
NIS Million   Q4'17   Q4'18   Change %   Q4'17   Q4'18   Change %   Q4'17   Q4'18   Q4'17   Q4'18   Change %
Total Revenues 660   612   -7% 219   244   +11% (45)   (42) 834   814   -2%
Service Revenues 478 447 -6% 197 220 +12% (45) (42) 630 625 -1%
Equipment Revenues 182 165 -9% 22 24 +9% - - 204 189 -7%
Operating Profit (Loss) 2

2

0% (2) 12 - - 0 14
Adjusted EBITDA   124   119   -4%   34   53   +56%   -   -   158   172   +9%

Financial Review

In 2018, total revenues were NIS 3,259 million (US$ 870 million), compared with NIS 3,268 million in 2017.

Annual service revenues in 2018 totaled NIS 2,524 million (US$ 673 million), a decrease of 2% from NIS 2,582 million in 2017.

Service revenues for the cellular segment in 2018 totaled NIS 1,843 million (US$ 492 million), a decrease of 7% from NIS 1,978 million in 2017. The decrease was mainly a result of the continued downward pressures on the prices of Post-Paid and Pre-Paid cellular services as a result of the continued competition in the cellular market.

Service revenues for the fixed-line segment in 2018 totaled NIS 852 million (US$ 227 million), an increase of 10% from NIS 777 million in 2017. This increase mainly reflected an increase in revenues from TV services and from internet services, partially offset by a decrease in revenues from international calling services (including the market for wholesale international traffic) which were adversely affected both by the increased penetration of internet-based solutions and increased competition from other service providers.

In Q4 2018, total revenues were NIS 814 million (US$ 217 million), a decrease of 2% from NIS 834 million in Q4 2017.

Service revenues in Q4 2018 totaled NIS 625 million (US$ 167 million), a decrease of 1% from NIS 630 million in Q4 2017.

Service revenues for the cellular segment in Q4 2018 totaled NIS 447 million (US$ 119 million), a decrease of 6% from NIS 478 million in Q4 2017. 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 Q4 2018 totaled NIS 220 million (US$ 59 million), an increase of 12% from NIS 197 million in Q4 2017. The increase reflected revenues from TV services (which started in Q3 2017) and internet services, which were partially offset principally by the decline in revenues from international calling services.

Equipment revenues in 2018 totaled NIS 735 million (US$ 196 million), an increase of 7% from NIS 686 million in 2017, largely reflecting an increase in sales volumes of both cellular devices and other digital audio, visual and related equipment.

Gross profit from equipment sales in 2018 was NIS 166 million (US$ 44 million), compared with NIS 142 million in 2017, an increase of 17%. This increase reflected increases in gross profit from equipment sales for both the cellular and fixed-line segments, largely a result of higher volumes of equipment sales in both segments.

Equipment revenues in Q4 2018 totaled NIS 189 million (US$ 50 million), a decrease of 7% from NIS 204 million in Q4 2017, reflecting both a lower volume of equipment sales as well as a lower average price per sale due to a change in the product mix.

Gross profit from equipment sales in Q4 2018 was NIS 42 million (US$ 11 million), compared with NIS 40 million in Q4 2017, an increase of 5%, mainly reflecting higher profit margins from sales due to a change in the product mix.

Total operating expenses (‘OPEX') totaled NIS 1,996 million (US$ 533 million) in 2018, an increase of 3% or NIS 50 million from 2017. This increase mainly reflected an increase in expenses related to TV services and internet services. Excluding the effect of the increase in these costs on operating expenses, total operating expenses would have decreased in 2018, mainly reflecting decreases in (i) international call expenses, (ii) credit losses and (iii) other expense items, including as a result of various efficiency measures. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in 2018 increased by 2% compared with 2017, mainly for the same reasons as explained above.

Total operating expenses (‘OPEX') totaled NIS 502 million (US$ 134 million) in Q4 2018, a decrease of 3% or NIS 17 million from Q4 2017. The decrease mainly reflected decreases in (i) international call expenses, (ii) legal claims expenses, (iii) credit losses, (iv) advertising and marketing expenses and (v) other expense items. These decreases more than offset the 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 Q4 2018 decreased by 3% compared with Q4 2017.

In 2017, the Company recorded income with respect to the settlement agreement of the Orange brand agreement in an amount of NIS 108 million. No income was recorded in 2018, and none will be recorded for future periods, with respect to the settlement agreement.

Operating profit for 2018 totaled NIS 116 million (US$ 31 million), a decrease of 63% compared with NIS 315 million in 2017. See Adjusted EBITDA analysis for each segment below.

Adjusted EBITDA in 2018 totaled NIS 722 million (US$ 193 million), a decrease of 21% from NIS 917 million in 2017. As a percentage of total revenues, Adjusted EBITDA in 2018 was 22% compared with 28% in 2017.

Adjusted EBITDA for the cellular segment was NIS 524 million (US$ 140 million) in 2018, a decrease of 26% from NIS 710 million in 2017, reflecting the impact of the decreases in service revenues and in income with respect to the settlement agreement with Orange, which was partially offset by the reduction in total operating expenses, and the increase in gross profits from cellular segment equipment sales. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in 2018 was 21% compared with 27% in 2017.

Adjusted EBITDA for the fixed-line segment was NIS 198 million (US$ 53 million) in 2018, a decrease of 4% from NIS 207 million in 2017, mainly reflecting the increased operating expenses related to TV and internet services, which more than offset the increase in revenues from TV services and internet services and in gross profit from equipment sales. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in 2018 was 21%, compared with 24% in 2017.

Operating profit for Q4 2018 was NIS 14 million (US$ 4 million), an increase of NIS 14 million compared to Q4 2017. See Adjusted EBITDA analysis for each segment below.

Adjusted EBITDA in Q4 2018 totaled NIS 172 million (US$ 46 million), an increase of 9% from NIS 158 million in Q4 2017. As a percentage of total revenues, Adjusted EBITDA in Q4 2018 was 21% compared with 19% in Q4 2017.

Adjusted EBITDA for the cellular segment was NIS 119 million (US$ 32 million) in Q4 2018, a decrease of 4% from NIS 124 million in Q4 2017, mainly reflecting the decrease in cellular service revenues and in gross profit from equipment sales, partially offset by the decline in cellular OPEX. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q4 2018 was 19% unchanged from Q4 2017.

Adjusted EBITDA for the fixed-line segment was NIS 53 million (US$ 14 million) in Q4 2018, an increase of 56% from NIS 34 million in Q4 2017, mainly reflecting the increase in fixed line service revenues and gross profit from equipment sales, partially offset by the increase in OPEX mainly relating to TV and internet services. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q4 2018 was 22%, compared with 16% in Q4 2017.

Finance costs, net in 2018 were NIS 53 million (US$ 14 million), a decrease of 71% compared with NIS 180 million in 2017. The decrease largely reflected the impact of early debt repayment expenses in 2017 in an amount of NIS 94 million which were mainly related to the early repayment of borrowings during 2017 in a total amount of NIS 1,283 million, in addition to a decrease in interest expenses reflecting the lower average level of indebtedness and a lower average interest rate, partially offset by early loan repayment expenses of NIS 9 million recorded in 2018.

Finance costs, net in Q4 2018 were NIS 12 million (US$ 3 million), a decrease of 86% compared with NIS 88 million in Q4 2017. The decrease largely reflected impact of the early debt repayment expenses that were recorded in Q4 2017 in an amount of NIS 65 million, as well as lower interest expenses in view of the lower average debt level and a lower average interest rate.

Income tax expenses for 2018 were NIS 7 million (US$ 2 million), a decrease of 67% compared with NIS 21 million in 2017. An income tax audit of the Company, concluded in 2017, resulted in a one-time income of NIS 10 million in income tax expenses and in an additional one-time deferred tax income of NIS 9 million. A one-time income of NIS 16 million in income tax expenses was recorded in 2018, mainly due to an income tax audit of the Company's subsidiary.

Income tax expenses for Q4 2018 were an income of NIS 17 million (US$ 5 million), compared with income of NIS 38 million in Q4 2017, largely reflecting the change in profit/loss before income tax and the one-time impacts described above.

Overall, the company's profit in 2018 totaled NIS 56 million (US$ 15 million), a decrease of 51% compared with profit of NIS 114 million in 2017.

Profit in Q4 2018 was NIS 19 million (US$ 5 million), compared with a loss of NIS 50 million in Q4 2017, an increase of NIS 69 million.

Based on the weighted average number of shares outstanding during 2018, basic earnings per share or ADS, was NIS 0.34 (US$ 0.09) compared with NIS 0.70 in 2017.

Based on the weighted average number of shares outstanding during Q4 2018, basic earnings per share or ADS, was NIS 0.12 (US$ 0.03), compared with basic loss per share of NIS 0.30 in Q4 2017.

Cellular Segment Operational Review

At the end of 2018, the Company's cellular subscriber base (including mobile data, 012 Mobile subscribers and M2M subscriptions) was approximately 2.65 million, including approximately 2.36 million Post-Paid subscribers or 89% of the base, and approximately 285 thousand Pre-Paid subscribers, or 11% of the subscriber base.

Over 2018, the cellular subscriber base declined by approximately 16 thousand. The Pre-Paid subscriber base decreased by approximately 69 thousand, while the Post-Paid subscriber base increased by approximately 53 thousand.

The number of post-paid subscribers for the quarters between the fourth quarter of 2017 and the third quarter of 2018 were retrospectively decreased related to an amendment in the large business customer subscriber base.

In view of the expected growing impact of M2M (machine to machine) activity on our business, as from Q4 2018, M2M subscriptions are included in the Post-Paid subscriber base on a standardized basis, according to which the number of M2M subscriptions included is calculated by dividing total revenues from M2M subscriptions by the average revenue from a dedicated data package subscriber. This change had the effect of increasing the Post-Paid subscriber base for Q4 2018 by approximately 34 thousand subscribers. Excluding the inclusion of M2M subscriptions, the Post-Paid subscriber base would have increased by approximately 19 thousand in 2018 and the total cellular subscriber base would have declined, net, by approximately 50 thousand.

The annual churn rate for cellular subscribers in 2018 was 35%, a decrease of 3 percentage points compared with 38% in 2017, and a decrease of 5 percentage points compared with 40% in 2016.

The monthly Average Revenue per User ("ARPU") for cellular subscribers in 2018 was NIS 58 (US$ 15), a decrease of 6% from NIS 62 in 2017 (the impact on ARPU of the inclusion of M2M subscriptions in the subscriber base from Q4 2018 was negligible). The decrease mainly reflected the continued price erosion in cellular services due to the persistently high competition in the cellular market.

Total cellular market share (based on the number of subscribers) at the end of 2018 was estimated to be approximately 25%, unchanged from year-end 2017.

During the fourth quarter of 2018, the cellular subscriber base increased by approximately 16 thousand subscribers. The Post-Paid subscriber base increased by approximately 28 thousand subscribers, while the Pre-Paid subscriber base decreased by approximately 12 thousand subscribers. Excluding the inclusion of M2M subscriptions as explained above, the Post-Paid subscriber base would have decreased during the fourth quarter by approximately 6 thousand and the total cellular subscriber base would have declined, net, by approximately 18 thousand.

The quarterly churn rate for cellular subscribers in Q4 2018 was 8.5%, compared with 9.9% in Q4 2017.

The monthly Average Revenue per User ("ARPU") for cellular subscribers in Q4 2018 was NIS 57 (US$ 15), a decrease of 3% from NIS 59 in Q4 2017. The decrease mainly reflected the continued price erosion in key cellular services due to the competition in the cellular market.

Funding and Investing Review

In 2018, Adjusted Free Cash Flow totaled NIS 124 million (US$ 33 million), a decrease of 79% from NIS 599 million in 2017.

Cash generated from operations totaled NIS 625 million (US$ 167 million) in 2018 compared with NIS 973 million in 2017, a decrease of 36%. The decrease mainly reflected a smaller decrease in trade receivables of NIS 124 million in 2018 compared with NIS 283 million in 2017 which was mainly explained by fewer receipts from customers for previous equipment sales under long-term payment plans. Cash generated from operations in 2018 was also adversely affected by a decrease in trade payables.

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Cash capital expenditures (CAPEX payments), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 502 million (US$ 134 million) in 2018, an increase of 34% from NIS 376 million in 2017. The increase mainly reflected the increased investments in the optic fiber network, and the costs of equipment, including installation, leased to subscribers (mainly related to TV services).

In Q4 2018, Adjusted Free Cash Flow totaled negative NIS 22 million (US$ -6 million), a decrease of 135% from NIS 63 million in Q4 2017.

Cash generated from operating activities decreased by 31% to NIS 121 million (US$ 32 million) in Q4 2018 from NIS 176 million in Q4 2017. The decrease mainly reflected the decrease in trade payables and other payables.

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$ 38 million) in Q4 2018, an increase of 27% from NIS 113 million in Q4 2017, mainly reflected increased investments in the optic fiber network.

The level of Net Debt at the end of 2018 amounted to NIS 950 million (US$ 253 million), compared with NIS 906 million at the end of 2017.

Change in PHI's governance from January 1, 2019

At the beginning of January 2019, an amendment to the NSA between the Company and Hot Mobile was signed, as a result of which, control over PHI is now borne 50-50 by the Company and Hot Mobile, and each nominates an equal number of directors (3 directors). Since, thereafter, decisions about the Relevant Activities of PHI require the unanimous consent of both the Company and Hot Mobile, PHI is now considered a joint arrangement controlled by the Company and Hot Mobile (joint operation). For further details and implications, see note 9 to our consolidated financial statements and Item 5A.1d in the Company's Annual Report on Form 20-F for the year ended December 31, 2018.

IFRS 16

The new leases standard, IFRS 16, comes into effect on 1 January 2019. The standard will affect primarily the accounting for the Group's operating leases. As described in note 9 to our consolidated financial statements, in January 2019 the governance of PHI was changed and PHI will be accounted for as a joint operation by the Company. Therefore the below estimates of the expected effect of the standard are presented including the Company's share in relation to its interests in the assets, liabilities and expenses of PHI. The below estimates of impacts from the implementation of IFRS 16 are based on contract terms and discount rates that existed as of December 31, 2018, and under the assumption that they will not change during 2019. Upon the implementation of IFRS 16 on January 1, 2019 the Group expects to recognize right-of-use assets of approximately NIS 660 million, lease liabilities of approximately NIS 690, a charge to accumulated earnings of approximately NIS 20 million, and a deferred tax asset in an immaterial amount.

In the consolidated statement of income for 2019 lease expenses are expected to decrease by approximately NIS 150 million, amortization expenses and interest expenses are expected to increase by approximately NIS 160 million, and profit is expected to decrease by an immaterial amount. In the consolidated statement of cash flows for 2019 cash from operating activities is expected to increase by approximately NIS 140 million and cash from financing activities is expected to decrease by approximately NIS 140 million. See also note 3 to our consolidated financial statements.

Other developments

On March 26, 2019, the Company's Board of Directors authorized the Company's management to examine the possible deferred expansion of series G debentures of the Company, subject to prior approval of the Board of Directors and market conditions.

Conference Call Details

Partner will hold a conference call on Wednesday, March 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: +972.3.918.0664
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 March 27, 2019 until April 11, 2019, at the following numbers:

International: +972.3.925.5927
North America toll-free: +1.888.326.9310

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

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Words such as "estimate", "believe", "anticipate", "expect", "intend", "seek", "will", "plan", "could", "may", "project", "goal", "target" and similar expressions often identify forward-looking statements but are not the only way we identify these statements. Specific statements have been made regarding the investment of significant resources in order to maintain customer satisfaction and preserve low churn rate; the realization of the advantages that we have over our competitors in order to increase profitability in the fixed-line segment and establish the Company as a leading communications infrastructure company; the Company's expectation that its new revenue engines will serve to strengthen the Company's resilience in light of competition; the Company's ability to continue to invest in new growth opportunities in light of its relatively low level of debt leverage; the possible expansion of the Company's activities in the fintech and finance sectors, with respect to the implementation of the IFRS 16 standard on the results of the Company and PHI and on their financial statements; and the possible deferred expansion of series G debentures. 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, the availability of financing to enable the Company to maintain customer satisfaction and to preserve low churn rate; the Company's technical and financial ability to continue to realize the advantages it has over its competitors in order to increase profitability in the fixed-line segment and establish the Company as a leading communications infrastructure company; anticipated benefits from the investment in the Company's fiber optic infrastructure and TV service in light of competition; as well as the risks entailed in the entry into new sectors and markets. 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 December 31, 2018: US $1.00 equals NIS 3.748. The translations were made purely for the convenience of the reader.

Use of Non-GAAP Financial Measures

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

         
Non-GAAP Measure   Calculation   Most Comparable IFRS Financial Measure
Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin (%)

  Adjusted EBITDA:

Profit (Loss)

add

Income tax expenses,

Finance costs, net,

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

 

Adjusted EBITDA margin (%):

Adjusted EBITDA

divided by

Total revenues

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

Cash flows from operating activities

deduct

Cash flows from investing activities

add

Short-term investment in (proceeds from) deposits

  Cash flows from operating activities

deduct

Cash flows from investing activities

Total Operating Expenses (OPEX)   Total Operating Expenses:

Cost of service revenues

add

Selling and marketing expenses

add

General and administrative expenses

add

Credit losses

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,

Credit losses

Net Debt   Net Debt:

Current maturities of notes payable and borrowings

add

Notes payable

add

Borrowings from banks and others

deduct

Cash and cash equivalents

deduct

Short-term deposits

  Sum of:

Current maturities of notes payable and borrowings,

Notes payable,

Borrowings from banks and others

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

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

   

New Israeli Shekels

Convenience
translation into
U.S. Dollars

2017   2018 2018
In millions
CURRENT ASSETS
Cash and cash equivalents 867 416 111
Short-term deposits 150
Trade receivables 808 656 175
Other receivables and prepaid expenses 48 33 9
Deferred expenses – right of use 43 51 14
Inventories 93 98 26
2,009 1,254 335
 
NON CURRENT ASSETS
Trade receivables 232 260 69
Prepaid expenses and other 5 4 1
Deferred expenses – right of use 133 185 49
Property and equipment 1,180 1,211 323
Intangible and other assets 697 617 164
Goodwill 407 407 109
Deferred income tax asset 55 38 10
2,709 2,722 725
 
TOTAL ASSETS 4,718 3,976 1,060

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

New Israeli Shekels

Convenience
translation into
U.S. Dollars

2017   2018 2018
In millions
CURRENT LIABILITIES
Current maturities of notes payable and borrowings 705 162 43
Trade payables 787 711 190
Payables in respect of employees 91 96 26
Other payables (mainly institutions) 31 10 3
Income tax payable 50 35 9
Deferred revenues from HOT mobile 31 31 8
Other deferred revenues 41 41 11
Provisions 75 64 17
1,811 1,150 307
NON CURRENT LIABILITIES
Notes payable 975 1,013 270
Borrowings from banks and others 243 191 51
Liability for employee rights upon retirement, net 40 40 11
Dismantling and restoring sites obligation 27 13 3
Deferred revenues from HOT mobile 164 133 35
Other non-current liabilities 24 30 8
1,473 1,420 378
 
TOTAL LIABILITIES 3,284 2,570 685
 
EQUITY
Share capital - ordinary shares of NIS 0.01

par value: authorized - December 31, 2017

and December 31, 2018 - 235,000,000 shares;

issued and outstanding -

2 2 1
December 31, 2017 – **168,243,913 shares
December 31, 2018 – **162,628,397 shares
Capital surplus 1,164 1,102 294
Accumulated retained earnings 491 563 150
Treasury shares, at cost

December 31, 2017 – ***2,850,472 shares

December 31, 2018 – ***8,560,264 shares

(223) (261) (70)
Non-controlling interests   * *
TOTAL EQUITY 1,434 1,406 375
TOTAL LIABILITIES AND EQUITY 4,718 3,976 1,060

* Representing an amount of less than 1 million.
** Net of treasury shares.
*** Including, restricted shares in amount of 1,376,381 and 1,210,833 as of and December 31, 2017 and December 31, 2018, respectively, held by a trustee under the Company's Equity Incentive Plan, such shares may become outstanding upon completion of vesting conditions.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

         
Convenience
translation
New Israeli Shekels into U.S. dollars
Year ended December 31
2016 2017   2018 2018
In millions (except earnings per share)
Revenues, net 3,544 3,268 3,259 870
Cost of revenues 2,924 2,627 2,700 720
Gross profit 620 641 559 150
 
Selling and marketing expenses 426 269 293 78
General and administrative expenses 181 144 148 39
Credit losses 82 52 30 8
Income with respect to settlement
agreement with Orange 217 108
Other income, net 45 31 28 7
Operating profit 193 315 116 32
Finance income 13 4 2 1
Finance expenses 118 184 55 16
Finance costs, net 105 180 53 15
Profit before income tax 88 135 63 17
Income tax expenses 36 21 7 2
Profit for the year 52 114 56 15
Attributable to:
Owners of the Company 52 114 57 15
Non-controlling interests     (1) *
Profit for the year 52 114 56 15
 
Earnings per share

Basic

0.33 0.70 0.34 0.09
Diluted 0.33 0.69 0.34 0.09

* Representing an amount of less than 1 million.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

   

New Israeli Shekels

Convenience
translation into
U.S.

dollars

Year ended December 31
2016   2017   2018 2018
In millions

Profit for the year

52 114 56 15
Other comprehensive income, items
that will not be reclassified to profit or loss
Remeasurements of post-employment benefit
obligations (8) (2) 1 *
Income taxes relating to remeasurements of
post-employment benefit obligations 2 1 * *
Other comprehensive income (loss)
for the year, net of income taxes (6) (1) 1 *
 
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 46 113 57 15
Total comprehensive income attributable to:
Owners of the Company 46 113 58 15
Non-controlling interests     (1) *
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 46 113 57 15

* Representing an amount of less than 1 million.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 
New Israeli Shekels
Year ended December 31, 2018
In millions
Cellular segment   Fixed-line segment  

Elimination

 

Consolidated

Segment revenue - Services 1,827 697 2,524
Inter-segment revenue - Services 16 155 (171)
Segment revenue - Equipment 643 92   735
Total revenues 2,486 944 (171) 3,259
 
Segment cost of revenues - Services 1,435 696 2,131
Inter-segment cost of revenues- Services 154 17 (171)
Segment cost of revenues - Equipment 509 60   569
Cost of revenues 2,098 773 (171) 2,700
Gross profit 388 171 559
 
Operating expenses (3) 343 128 471
Other income, net 23 5 28
Operating profit 68 48 116
Adjustments to presentation of segment
Adjusted EBITDA
–Depreciation and amortization 442 150
–Other (1) 14  
Segment Adjusted EBITDA (2) 524 198
 

 

  New Israeli Shekels
Year ended December 31, 2018
In millions
Reconciliation of segments subtotal Adjusted EBITDA to profit for the year
Segments subtotal Adjusted EBITDA (2) 722
Depreciation and amortization (592)
Finance costs, net (53)
Income tax expenses (7)
Other (1) (14)
Profit for the year 56

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 
New Israeli Shekels
Year ended December 31, 2017
In millions
Cellular segment   Fixed-line segment  

Elimination

 

Consolidated

Segment revenue - Services 1,960 622 2,582
Inter-segment revenue - Services 18 155 (173)
Segment revenue - Equipment 610 76   686
Total revenues 2,588 853 (173) 3,268
 
Segment cost of revenues - Services 1,470 613 2,083
Inter-segment cost of revenues- Services 154 19 (173)
Segment cost of revenues - Equipment 490 54   544
Cost of revenues 2,114 686 (173) 2,627
Gross profit 474 167 641
 
Operating expenses (3) 367 98 465
Income with respect to settlement
agreement with Orange 108 108
Other income, net 29 2 31
Operating profit 244 71 315
Adjustments to presentation of segment
Adjusted EBITDA
–Depreciation and amortization 445 135
–Other (1) 21 1
Segment Adjusted EBITDA (2) 710 207
 

 

  New Israeli Shekels
Year ended December 31, 2017
In millions

Reconciliation of segments subtotal Adjusted EBITDA to profit for the year

Segments subtotal Adjusted EBITDA (2) 917
Depreciation and amortization (580)
Finance costs, net (180)
Income tax expenses (21)
Other (1) (22)
Profit for the year 114

(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 and credit losses.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
New Israeli shekels Convenience translation into U.S. dollars

12 month
period ended
December 31,

 

3 month
period ended
December 31

12 month
period ended
December 31,

 

3 month
period ended
December 31,

2017   2018 2017   2018 2018 2018
(Audited) (Audited) (Unaudited) (Unaudited) (Audited) (Unaudited)
In millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash generated from operations (Appendix) 1,002 627 198 123 168 33
Income tax paid (29) (2) (22) (2) (1) (1)
Net cash provided by operating activities 973 625 176 121 167 32

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment (223) (343) (77) (102) (92) (27)
Acquisition of intangible and other assets (153) (159) (36) (41) (42) (11)
Proceeds from short-term deposits, net 302 150 291 40 78
Interest received 2 1 * * * *
Consideration received from sales of property and equipment * 3 * * 1 *
Payment for acquisition of subsidiary, net of cash acquired   (3)     (1)  
Net cash used in investing activities (72) (351) (113) 148 (94) 40

CASH FLOWS FROM FINANCING ACTIVITIES:

Share issuance 190
Acquisition of treasury shares (100) (18) (27)

(5)

Proceeds from issuance of notes payable, net of issuance costs 650 150 398 150 40

40

Interest paid (165) (69) (80) (15) (18)

(4)

Non-current borrowings received 350 350
Repayment of non-current borrowings (1,332) (382) (431) (7) (102)

(2)

Repayment of notes payables (443) (324) (443) (324) (86) (86)
Net cash used in financing activities (750) (725) (206)

(214)

(193)

(57)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

151 (451) (143) 55 (120) 15
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 716 867 1,010 361 231 96
CASH AND CASH EQUIVALENTS AT END OF PERIOD 867 416 867 416 111 111
 
* Representing an amount of less than 1 million.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   

Appendix - Cash generated from operations and supplemental information

 
New Israeli shekels Convenience translation into U.S. dollars

12 month
period ended
December 31,

 

3 month
period ended
December 31,

12 month
period ended
December 31,

 

3 month
period ended
December 31,

2017   2018 2017   2018 2018 2018
(Audited) (Audited) (Unaudited) (Unaudited) (Audited) (Unaudited)
In millions
Cash generated from operations:
Profit (Loss) for the period 114 56 (50) 19 15 5
Adjustments for:
Depreciation and amortization 540 545 141 139 145 37
Amortization of deferred expenses - Right of use 40 47 12 16 13 4
Employee share based compensation expenses 20 15 4 4 4 1
Liability for employee rights upon retirement, net (1) 1 2 * * *
Finance costs, net (2) (7) 1 (6) (2) (2)
Change in fair value of derivative financial instruments * * 1 * * *
Interest paid 165 69 80 15 18 4
Interest received (2) (1) * (3) * (1)
Deferred income taxes (13) 16 (27) (1) 4 *
Income tax paid 29 2 22 2 1 1
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable:
Trade 283 124 7 14 33 4
Other 6 16 11 18 4 5
Increase (decrease) in accounts payable and accruals:
Trade 69 (69) 24 (23) (18) (6)
Other payables (3) (18) 46 11 (5) 3
Provisions (2) (11) (3) (5) (3) (1)
Deferred revenues with respect to settlement agreement with Orange (108)
Deferred revenues from HOT mobile (31) (31) (8) (8) (8) (2)
Other deferred revenues 3 * (2) 1 * *
Increase in deferred expenses - Right of use (113) (107) (27) (30) (28) (8)
Current income tax liability 5 (15) (33) (22) (4) (6)
Decrease (increase) in inventories 3 (5) (3) (18) (1) (5)
Cash generated from operations 1,002 627 198 123 168 33

* Representing an amount of less than 1 million.

Reconciliation of Non-GAAP Measures:

Adjusted Free Cash Flow

 

 

New Israeli Shekels

 

Convenience
translation into
U.S. Dollars

 

Convenience
translation into
U.S. Dollars

12 months   12 months   3 months   3 months 12 months 3 months
period ended period ended period ended period ended period ended period ended
December 31, December 31, December 31, December 31, December 31, December 31,
2017 2018 2017 2018 2018 2018
(Audited) (Audited) (Unaudited) (Unaudited) (Audited) (Unaudited)
In millions
Net cash provided by operating activities 973 625 176 121 167 32
Net cash used in investing activities (72) (351) (113) 148 (94) 40
Short-term investment in deposits (302) (150)   (291) (40) (78)
Adjusted Free Cash Flow 599 124 63 (22) 33 (6)
Interest paid (165) (69)

(80)

(15) (18) (4)
Adjusted Free Cash Flow After Interest 434 55 (17) (37) 15

(10)

Total Operating Expenses (OPEX)

 

New Israeli Shekels

 

Convenience
translation into
U.S. Dollars

 

Convenience
translation into
U.S. Dollars

12 months   12 months   3 months   3 months 12 months 3 months
period ended period ended period ended period ended period ended period ended
December 31, December 31, December 31, December 31, December 31, December 31,
2017 2018 2017 2018 2018 2018
(Audited) (Audited) (Unaudited) (Unaudited) (Audited) (Unaudited)
In millions
Cost of revenues – Services 2,083 2,131 547 547 569 146
Selling and marketing expenses 269 293 80 72 78 19
General and administrative expenses 144 148 40 37 39 10
Credit losses 52 30 10 4 8 1
Depreciation and amortization (580) (592) (153) (155) (158) (41)
Other (1)

(22)

(14) (5) (3) (3) (1)
OPEX

1,946

1,996

519 502 533 134

(1) Mainly amortization of employee share based compensation.

Key Financial and Operating Indicators (unaudited)**

                                                     
NIS M unless otherwise stated   Q3' 16   Q4' 16   Q1' 17   Q2' 17   Q3' 17   Q4' 17   Q1' 18   Q2' 18   Q3' 18   Q4' 18       2017   2018
Cellular Segment Service Revenues   531   498   489   497   514   478   466   454   476   447       1,978   1,843
Cellular Segment Equipment Revenues   139   158   145   145   138   182   178   157   143   165       610   643
Fixed-Line Segment Service Revenues   220   205   194   192   194   197   202   210   220   220       777   852
Fixed-Line Segment Equipment Revenues   12   11   18   14   22   22   23   20   25   24       76   92
Reconciliation for consolidation  

(53)

 

(51)

 

(43)

 

(43)

 

(42)

 

(45)

 

(43)

 

(44)

 

(42)

 

(42)

     

(173)

 

(171)

Total Revenues   849   821   803   805   826   834   826   797   822   814       3,268   3,259
Gross Profit from Equipment Sales   28   18   26   33   43   40   43   37   44   42       142   166
Operating Profit   64   8   105   118   92   0   32   22   48   14       315   116
Cellular Segment Adjusted EBITDA   156   109   187   210   189   124   134   126   145   119       710   524
Fixed-Line Segment Adjusted EBITDA   64   55   64   59   50   34   43   46   56   53       207   198
Total Adjusted EBITDA   220   164   251   269   239   158   177   172   201   172       917   722
Adjusted EBITDA Margin (%)   26%   20%   31%   33%   29%   19%   21%   22%   24%   21%       28%   22%
OPEX   570   570   478   472   477   519   498   492   504   502       1,946   1,996
Income with respect to settlement agreement                                                    
with Orange   55   54   54   54                               108    
Finance costs, net   30   23   23   54   15   88   18   13   10   12       180   53
Profit (Loss)   19   (7)   64   46   54   (50)   9   2   26   19       114   56
Capital Expenditures (cash)   44   47   82   76   105   113   138   104   117   143       376   502
Capital Expenditures (additions)   44  

84

  58   78   107   174   113   98   111   177       417   499
Adjusted Free Cash Flow   215   269   126   208   202   63   21   55   70   (22)       599   124
Adjusted Free Cash Flow (after interest)   201   241   109   150   192   (17)   (14)   44   62   (37)       434   55
Net Debt   1,768   1,526   1,415   1,081   887   906   919   893   898   950       906   950
Cellular Subscriber Base (Thousands)*   2,693   2,686   2,658   2,662   2,677   2,662   2,649   2,623   2,630   2,646       2,662   2,646
Post-Paid Subscriber Base (Thousands)*   2,215   2,241   2,259   2,273   2,306   2,308   2,318   2,323   2,333   2,361       2,308   2,361
Pre-Paid Subscriber Base (Thousands)   478   445   399   389   371   354   331   300   297   285       354   285
Cellular ARPU (NIS)   66   62   61   62   64   59   58   57   60   57       62   58
Cellular Churn Rate (%)*   9.7%   9.4%   9.8%   9.0%   9.3%   9.9%   8.9%   10.1%   8.0%   8.5%       38%   35%
Number of Employees (FTE)   2,742   2,686   2,580   2,582   2,696   2,797   2,778   2,808   2,821   2,782       2,797   2,782

* The number of post-paid subscribers for the quarters between the fourth quarter of 2017 and the third quarter of 2018 were retrospectively decreased related to an amendment in the large business customer subscriber base. This led to a marginal change in the cellular churn rate for the first and the second quarters of 2018 only. ARPU figures for the said quarters were unaffected. In addition, as from Q4 2018, M2M subscriptions are included in the post-paid subscriber base on a standardized basis. This change had the effect of increasing the Post-Paid subscriber base at December 31, 2018, by approximately 34 thousand subscribers. See also ‘Cellular Segment Operational Review' section.
** See footnote 2 regarding use of non-GAAP measures. Figures from 2017 include impact of adoption of IFRS15.

Disclosure for notes holders as of December 31, 2018

Information regarding the notes series issued by the Company, in million NIS

                                 
Series   Original issuance date   Principal on the date of issuance   As of 31.12.2018   Interest rate   Principal repayment dates   Interest repayment dates   Linkage   Trustee contact details
      Principal book value   Linked principal book value   Interest accumulated in books   Market value     From   To            
D   25.04.10

04.05.11*

  400

146

  327   327   **   332   1.737%

 

(MAKAM+1.2%)

  30.12.17   30.12.21   30.03, 30.06, 30.09, 30.12   Variable interest MAKAM (4)   Hermetic Trust (1975) Ltd. Merav Offer. 113 Hayarkon St., Tel Aviv. Tel: 03-5544553.
F

(1) (3)

  20.07.17

12.12.17*

04.12.18*

  255

389

150

  794   794   **   786   2.16%   25.06.20   25.06.24   25.06, 25.12   Not Linked   Hermetic Trust (1975) Ltd.

Merav Offer. 113 Hayarkon St., Tel Aviv. Tel: 03-5544553.

G

(2) (3)

  06.01.19   225   N/A   N/A   N/A   N/A   4%   25.06.22   25.06.27   25.06   Not Linked   Hermetic Trust (1975) Ltd.

Merav Offer. 113 Hayarkon St., Tel Aviv. Tel: 03-5544553.

(1) In December 2018, the Company issued an additional Series F Notes in a principal amount of NIS 150 million. In December 2017 and January 2018, the Company entered into agreements with Israeli institutional investors to issue in December 2019, in the framework of a private placement, additional Series F notes, in an aggregate principal amount of NIS 227 million. S&P Maalot has rated the additional deferred issuances with an 'ilA+' rating. For additional details see the Company's press releases dated September 13 and 17, 2017, December 27, 2017 and January 9, 2018.
(2) In January 2019, the Company issued Series G Notes in a principal amount of NIS 225 million.
(3) Regarding Series F and G Notes, the Company is required to comply with a financial covenant that the ratio of Net Debt to Adjusted EBITDA shall not exceed 5. Compliance will be examined and reported on a quarterly basis. For the definitions of Net Debt and Adjusted EBITDA see 'Use of non-GAAP measures' section above. For the purpose of the covenant, Adjusted EBITDA is calculated as the sum total for the last 12 month period, excluding adjustable one-time items. As of December 31, 2018, the ratio of Net Debt to Adjusted EBITDA was 1.3. Additional stipulations regarding Series F and G Notes mainly include: shareholders' equity shall not decrease below NIS 400 million and NIS 600 million, respectively; the Company shall not create floating liens subject to certain terms; the Company has the right for early redemption under certain conditions; the Company shall pay additional annual interest of 0.5% in the case of a two-notch downgrade in the Notes rating and an additional annual interest of 0.25% for each further single-notch downgrade, up to a maximum additional interest of 1%; the Company shall pay additional annual interest of 0.25% during a period in which there is a breach of the financial covenant. In any case, the total maximum additional interest for Series F and G, shall not exceed 1.25% or 1%, respectively. For more information see the Company's Annual Report on Form 20-F for the year ended December 31, 2018.
In the reporting period, the Company was in compliance with all financial covenants and obligations and no cause for early repayment occurred.
(4) 'MAKAM' is a variable interest based on the yield of 12 month government bonds issued by the government of Israel. The interest rate is updated on a quarterly basis.

* On these dates additional Notes of the series were issued. The information in the table refers to the full series.
** Representing an amount of less than NIS 1 million.

Disclosure for Notes holders as of December 31, 2018 (cont.)

Notes Rating Details*

                     
Series   Rating Company   Rating as of 31.12.2018 and 27.03.2019 (1)   Rating assigned upon issuance of the Series   Recent date of rating as of 31.12.2018 and 27.03.2019   Additional ratings between the original issuance date and the recent date of rating (2)
          Date   Rating
D   S&P Maalot   ilA+   ilAA-   12/2018 and 01/2019   07/2010, 09/2010,

10/2010, 09/2012,

12/2012, 06/2013,

07/2014, 07/2015,

07/2016, 07/2017,

08/2018, 11/2018, 12/2018, 01/2019

  ilAA-/Stable, ilAA-/Stable,

ilAA-/Negative, ilAA-/Watch Neg,

ilAA-/Negative, ilAA-/Stable,

ilAA-/Stable, ilA+/Stable,

ilA+/Stable, ilA+/Stable,

ilA+/Stable, ilA+/Stable, ilA+/Stable, ilA+/Stable

F   S&P Maalot   ilA+   ilA+   12/2018 and 01/2019   07/2017, 09/2017,

12/2017, 01/2018,

08/2018, 11/2018, 12/2018, 01/2019

  ilA+/Stable, ilA+/Stable,

ilA+/Stable, ilA+/Stable,

ilA+/Stable, ilA+/Stable, ilA+/Stable, ilA+/Stable

G (3)   S&P Maalot   ilA+   ilA+   01/2019   01/2019   ilA+/Stable

(1) In August 2018, S&P Maalot affirmed the Company's rating of "ilA+/Stable".

(2) For details regarding the rating of the notes see the S&P Maalot report dated August 13, 2018.

(3) In January 2019, the Company issued Series G Notes in a principal amount of NIS 225 million.

* A securities rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to suspension, revision or withdrawal at any time, and each rating should be evaluated independently of any other rating

Summary of Financial Undertakings (according to repayment dates) as of December 31, 2018

a. Notes issued to the public by the Company and held by the public, excluding such notes held by the Company's parent company, by a controlling shareholder, by companies controlled by them, or by companies controlled by the Company, based on the Company's "Solo" financial data (in thousand NIS).

         
    Principal payments   Gross interest payments (without deduction of tax)
    ILS linked to CPI   ILS not linked to CPI   Euro   Dollar   Other  
First year   -   109,228   -   -   -   22,840
Second year   -   268,035   -   -   -   19,228
Third year   -   268,035   -   -   -   13,902
Fourth year   -   158,807   -   -   -   8,576
Fifth year and on   -   317,613   -   -   -   6,860
Total   -   1,121,718   -   -   -   71,406

b. Private notes and other non-bank credit, excluding such notes held by the Company's parent company, by a controlling shareholder, by companies controlled by them, or by companies controlled by the Company, based on the Company's "Solo" financial data – None.

c. Credit from banks in Israel based on the Company's "Solo" financial data (in thousand NIS).

         
    Principal payments   Gross interest payments (without deduction of tax)
    ILS linked to CPI   ILS not linked to CPI   Euro   Dollar   Other  
First year   -   52,132   -   -   -   5,448
Second year   -   52,132   -   -   -   4,182
Third year   -   52,132   -   -   -   2,915
Fourth year   -   52,132   -   -   -   1,643
Fifth year and on   -   34,119   -   -   -   746
Total   -   242,647   -   -   -   14,934

Summary of Financial Undertakings (according to repayment dates) as of December 31, 2018 (cont.)

d. Credit from banks abroad based on the Company's "Solo" financial data – None.

e. Total of sections a - d above, total credit from banks, non-bank credit and notes based on the Company's "Solo" financial data (in thousand NIS).

         
    Principal payments   Gross interest payments (without deduction of tax)
    ILS linked to CPI   ILS not linked to CPI   Euro   Dollar   Other  
First year   -   161,360   -   -   -   28,288
Second year   -   320,167   -   -   -   23,410
Third year   -   320,167   -   -   -   16,817
Fourth year   -   210,939   -   -   -   10,219
Fifth year and on   -   351,732   -   -   -   7,606
Total   -   1,364,365   -   -   -   86,340

f. Off-balance sheet Credit exposure based on the Company's "Solo" financial data (in thousand NIS) – 50,000 (Guarantees on behalf of an associate, without expiration date).

g. Off-balance sheet Credit exposure of all the Company's consolidated companies, excluding companies that are reporting corporations and excluding the Company's data presented in section f above – None.

h. Total balances of the credit from banks, non-bank credit and notes of all the consolidated companies, excluding companies that are reporting corporations and excluding Company's data presented in sections a - d above - None.

i. Total balances of credit granted to the Company by the parent company or a controlling shareholder and balances of notes offered by the Company held by the parent company or the controlling shareholder - None.

j. Total balances of credit granted to the Company by companies held by the parent company or the controlling shareholder, which are not controlled by the Company, and balances of notes offered by the Company held by companies held by the parent company or the controlling shareholder, which are not controlled by the Company – None.

k. Total balances of credit granted to the Company by consolidated companies and balances of notes offered by the Company held by the consolidated companies - None.

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Posted In: Press Releases
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