Cellcom Israel Announces Third Quarter 2019 Results
NETANYA, Israel, Nov. 27, 2019 /PRNewswire/ --
Third Quarter 2019 Highlights (compared to third quarter of 2018):
-- Total Revenues totaled NIS 938 million ($269 million) compared to NIS
910 million ($261 million) in the third quarter last year, an increase
of 3.1%
-- Service revenues totaled NIS 719 million ($206 million) compared to NIS
712 million ($204 million) in the third quarter last year, an increase
of 1.0%
-- Operating income totaled NIS 32 million ($9 million) compared to NIS 40
million ($11 million) in the third quarter last year, a decrease of
20.0%
-- Loss totaled NIS 2([2]) million ($1 million) compared to net income of
NIS 1 million ($0.3 million) in the third quarter last year.
-- Adjusted EBITDA([1]) totaled NIS 271([2]) million ($78 million) compared
to NIS 191 million ($55 million) in the third quarter last year, an
increase of 41.9%
-- Net cash from operating activities totaled NIS 273([2]) million ($78
million) compared to NIS 194 million ($56 million) in the third quarter
last year, an increase of 40.7%
-- Free cash flow([1]) totaled NIS 234 million ($67 million) compared to
NIS 34 million ($10 million) in the third quarter last year.
Nir Sztern, the Company's Chief Executive Officer, referred to the results of the third quarter of 2019: "In light of the continued fierce competition and low price levels in the Israeli telecommunications market, this quarter we announced the adoption of a restructuring plan in order to strengthen the Company and better address the market conditions.
"We are currently in the midst of comprehensive steps to implement the plan and to improve the Company's financial and operational metrics.
"Amongst the steps we have taken, we have called on the Company's suppliers to reduce their cost of services, we have made changes to the Company's investment plan, we have cut expenses and we are negotiating with the employee representatives.
"The effect of the reduction in some expenses has already had a clear positive impact by the end of this quarter, and is expected to increase in the coming quarters.
"While market conditions remain challenging, we are determined to implement the restructuring plan.
"In this quarter we recorded an increase in revenues and Adjusted EBITDA compared to the corresponding quarter last year, the Adjusted EBITDA in this quarter includes a positive effect of NIS 72 million as a result of initial implementation of IFRS 16 and a NIS 8 million gain from the sale of fiber optic infrastructure in residential areas to IBC. Excluding this positive effects, the Adjusted EBITDA in this quarter amounted NIS 191 million, similar to the corresponding quarter last year.
"Currently, over 300,000 households are connected to IBC's fiber infrastructure. IBC is continuing to deploy fiber optics and is preparing to significantly accelerate its deployment rate in 2020, incorporating IEC's rapid deployment capabilities.
We continue to focus on moving our Internet and TV customers onto the fiber infrastructure, while improving the segment's profitability and reducing the payments to Bezeq."
Shlomi Fruhling, Chief Financial Officer, said:
"The Company's service revenues in the third quarter of 2019 totaled NIS 719 million. This revenue level reflects a 3.5% increase over that of the previous quarter and 1.1% over the same quarter last year.
"Service revenues from the cellular segment in the third quarter of 2019 totaled NIS 439 million, an increase of 4.5% from the previous quarter. The increase is due to a positive seasonality in international roaming income and increased activities to enhance revenue.
"Service revenues from the fixed line segment in the third quarter of 2019 totaled NIS 321 million, an increase of 2.8% compared to the previous quarter. The increase was due to Cellcom's revenues for fiber-optic deployment to IBC, and an increase in Internet revenues that compensated for the decline in minute sales among international operators. The Company continues to transfer Internet customers to the fiber-optic infrastructure while improving the profitability of the segment and increasing its penetration in connected buildings.
"Adjusted EBITDA in the third quarter amounted to NIS 271 million, compared with NIS 233 million in the previous quarter, a 16% improvement. This is due to an increase in service revenues and a profit of NIS 8 million for the sale of the Company's fiber-optic infrastructure in residential areas to IBC.
"During the quarter, the Company completed the investment in IBC and the sale of the Company's fiber-optic infrastructure in residential areas to IBC. As part of the two transactions, the Company invested in the equity of IBC and gave shareholder loans to IBC at a total cumulative sum of 154 million, and received from IBC NIS 181 million for the fiber-optic sale. The net cash effect of the two transactions was a positive cash flow of NIS 27 million. Free cash flow for the third quarter of 2019 totaled NIS 234 million and included the sale of the fiber infrastructure for NIS 181 million.
"The Company is working to implement the recovery plan it recently announced. As part of the expense reduction plan, the Company contacted its suppliers to lower service costs, and began negotiations with employee representatives for the implementation of a manpower efficiency plan. At the same time, the Company is preparing to raise equity as soon as possible."
Cellcom Israel Ltd. (NYSE: CEL) (TASE: CEL) ("Cellcom Israel" or the "Company" or the "Group") announced today its financial results for the third quarter of 2019.
The Company reported that revenues for the third quarter of 2019 totaled NIS 938 million ($269 million); Adjusted EBITDA for the third quarter of 2019 totaled NIS 271 million ($78 million), or 28.9% of total revenues; loss for the third quarter of 2019 totaled NIS 2 million ($1 million). Basic loss per share for the third quarter of 2019 totaled NIS 0.01 ($0.003).
Main Consolidated Financial Results:
Q3/2019 Q3/2018 Change%
Q3/2019
Q3/2018
NIS million US$ million (convenience
translation)
Total revenues 938 910 3.1% 269 261
---
Operating Income 32 40 (20.0)% 9 11
---
Net Income (loss) (2) 1 N/A (1) (0.3)
---
Free cash flow 234 34 588.2% 67 10
---
Adjusted EBITDA 271 191 41.9% 78 55
---
Adjusted EBITDA, as percent of total 28.9% 21.0% 37.6%
revenues
===
Main Financial Data by Operating Segments:
Cellular (*) Fixed-line (**) Inter-segment Consolidated results
adjustments
(***)
NIS million Q3'19 Q3'18 Change Q3'19 Q3'18 Change Q3'19 Q3'18 Q3'19 Q3'18 Change
% % %
Total revenues 611 589 3.7% 368 362 1.7% (41) (41) 938 910 3.1%
---
Service revenues 439 443 (0.9)% 321 310 3.5% (41) (41) 719 712 1.0%
---
Equipment 172 146 17.8% 47 52 (9.6)% 219 198 10.6%
revenues
---
Adjusted 185 118 56.8% 86 73 17.8% 271 191 41.9%
EBITDA
---
Adjusted 30.3% 20.0% 51.5% 23.4% 20.2% 15.8% 28.9% 21.0% 37.6%
EBITDA, as
percent of total
revenues
===
(*) The segment includes the cellular communications services, end user cellular equipment and supplemental services.
(**) The segment includes landline telephony services, internet services, television services, transmission services, end user fixed-line equipment and supplemental services.
(***) Include cancellation of inter-segment revenues between "Cellular" and "Fixed-line" segments.
Financial Review (third quarter of 2019 compared to third quarter of 2018):
Revenues for the third quarter of 2019 increased 3.1% totaling NIS 938 million ($269 million), compared to NIS 910 million ($261 million) in the third quarter last year. The increase in revenues is attributed to a 10.6% increase in equipment revenues and a 1.0% increase in service revenues.
Service revenues totaled NIS 719 million ($206 million) in the third quarter of 2019, a 1.0% increase from NIS 712 million ($204 million) in the third quarter last year.
Service revenues in the cellular segment totaled NIS 439 million ($126 million) in the third quarter of 2019, a 0.9% decrease from NIS 443 million ($127 million) in the third quarter last year. This decrease resulted mainly from the ongoing erosion in the prices of these services as a result of the competition in the cellular market.
Service revenues in the fixed-line segment totaled NIS 321 million ($92 million) in the third quarter of 2019, a 3.5% increase from NIS 310 million ($89 million) in the third quarter last year. This increase resulted mainly from an increase in revenues from internet and TV services and revenues from fiber optic infrastructure deployment services to IBC. This increase was partially offset by a decrease in minute sales among international operators (hubbing).
Equipment revenues totaled NIS 219 million ($63 million) in the third quarter of 2019, a 10.6% increase compared to NIS 198 million ($57 million) in the third quarter last year. This increase resulted mainly from an increase in the amount of end user equipment sold in the cellular segment, which was partially offset by a decrease in equipment sales in the fixed-line segment.
Cost of revenues for the third quarter of 2019 totaled NIS 667 million ($192 million), compared to NIS 645 million ($185 million) in the third quarter of 2018, a 3.4% increase. This increase resulted mainly from an increase in the amount of end user equipment sold in the cellular segment, an increase in costs of TV services content and costs of fiber optic infrastructure deployment. This increase was partially offset by a decrease in the amount of end user equipment sold in the fixed line segment and decrease from minute sales among international operators (hubbing).
Gross profit for the third quarter of 2019 increased by 2.3% to NIS 271 million ($78 million), compared to NIS 265 million ($76 million) in the third quarter of 2018. Gross profit margin for the third quarter of 2019 amounted to 28.9%, down from 29.1% in the third quarter of 2018.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the third quarter of 2019 increased by 4.7% to NIS 243 million ($70 million), compared to NIS 232 million ($67 million) in the third quarter of 2018. This increase is primarily a result of an increase in amortization expenses of salaries and commissions expenses which were capitalized as part of customer acquisition costs, as a result of early adoption of an International Financial Reporting Standard (IFRS 15) as of the first quarter of 2017 (the "Adoption of IFRS15").
Operating income for the third quarter of 2019 decreased by 20.0% to NIS 32 million ($9 million) from NIS 40 million ($11 million) in the third quarter of 2018.
Adjusted EBITDA for the third quarter of 2019 increased by 41.9% totaling NIS 271 million ($78 million) compared to NIS 191 million ($55 million) in the third quarter of 2018. Adjusted EBITDA as a percent of revenues for the third quarter of 2019 totaled 28.9%, up from 21.0% in the third quarter of 2018.
Cellular segment Adjusted EBITDA for the third quarter of 2019 totaled NIS 185 million ($53 million), compared to NIS 118 million ($34 million) in the third quarter last year, an increase of 56.8%, which resulted mainly from a decrease in rent expenses in a total amount of NIS 65 million which were recognized as a right-of-use asset as a result of the initial implementation of IFRS 16 as of 1 January, 2019.
Fixed-line segment Adjusted EBITDA for the third quarter of 2019 totaled NIS 86 million ($25 million), compared to NIS 73 million ($21 million) in the third quarter last year, an 17.8% increase, which result mainly from capital gain from the sale of fiber optic infrastructure in residential areas of the Company, a decrease in rent expenses in a total amount of NIS 7 million which were recognized as a right-of-use asset as a result of the initial implementation of IFRS 16 as of 1 January, 2019 and an increase in revenues from TV and internet services. This increase was partially offset by a decrease in the amount of end user equipment sold in the fixed line segment.
Financing expenses, net for the third quarter of 2019 decreased by 16.2% and totaled NIS 31 million ($9 million), compared to NIS 37 million ($11 million) in the third quarter of 2018. The decrease resulted mainly from deflation of the Israeli Consumer Price Index in the third quarter of 2019 compared to inflation in the third quarter of 2018. This decrease was partially offset by an increase of financing expenses as a result of the initial implementation of IFRS 16 as of 1 January 2019.
Loss for the third quarter of 2019 totaled NIS 2 million ($1 million), compared to net income of NIS 1 million ($0.3 million) in the third quarter of 2018.
Basic loss per share for the third quarter of 2019 totaled NIS 0.01 ($0.003), compared to basic earnings per share of NIS 0.01 ($0.003) in the third quarter last year.
Operating Review
Main Performance Indicators - Cellular segment:
Q3/2019 Q3/2018 Change (%)
Cellular subscribers at the end of 2,767 2,825 (2.1)%
period (in thousands)
---
Churn Rate for cellular subscribers 11.4% 10.0% 14.0%
(in %)
---
Monthly cellular ARPU (in NIS) 53.2 52.5 1.3%
---
Cellular subscriber base - at the end of the third quarter of 2019 the Company had approximately 2.767 million cellular subscribers. During the third quarter of 2019 the Company's cellular subscriber base increased by approximately 22,000 net cellular subscribers.
Cellular Churn Rate for the third quarter of 2019 totaled 11.4%, compared to 10.0% in the third quarter last year.
The monthly cellular Average Revenue per User ("ARPU") for the third quarter of 2019 totaled NIS 53.2 ($15.3), compared to NIS 52.5 ($15.1) in the third quarter last year. The increase in ARPU resulted mainly due to prepaid and M2M subscribers' deletion from the Company's cellular subscriber base in the previous quarter.
Main Performance Indicators - Fixed-line segment:
Q3/2019 Q3/2018 Change (%)
Internet infrastructure field 276 259 6.6%
subscribers - (households) at
the end of period (in thousands)
---
TV field subscribers - 247 206 19.9%
(households) at the end of
period (in thousands)
===
In the third quarter of 2019, the Company's subscriber base in the TV field increased by 8,000 net households, and the Company's subscriber base in the internet infrastructure field decreased by approximately 2,000 net households compared to the last quarter. This decrease results from focusing on moving our Internet customers from wholesale market to the fiber infrastructure.
Financing and Investment Review
Cash Flow
Free cash flow for the third quarter of 2019 totaled NIS 234 million ($67 million), compared to NIS 34 million ($10 million) in the third quarter of 2018. The increase in free cash flow resulted mainly from the sale of independent fiber optic infrastructure of the company in residential areas to IBC in the amount of approx. NIS 181 million.
Total Equity
Total Equity as of September 30, 2019 amounted to NIS 1,629 million ($468 million) primarily consisting of undistributed accumulated retained earnings of the Company.
Cash Capital Expenditures in Fixed Assets and Intangible Assets and others
During the third quarter of 2019, the Company invested NIS 149 million ($43 million) in fixed assets and intangible assets and others (including, among others, investments in the Company's communications networks, investments in optic fibers deployment, information systems, software and TV set-top boxes and capitalization of part of the customer acquisition costs as a result of the Adoption of IFRS15), compared to NIS 160 million ($46 million) in the third quarter of 2018.
Dividend
On November 26, 2019, the Company's Board of Directors decided not to declare a cash dividend for the third quarter of 2019. In making its decision, the board of directors considered the Company's dividend policy and business status and decided not to distribute a dividend at this time, given the intensified competition and its continued adverse effect on the Company's results of operations, and in order to strengthen the Company's balance sheet. The board of directors will re-evaluate its decision in future quarters. No future dividend declaration is guaranteed and is subject to the Company's board of directors' sole discretion, as detailed in the Company's most recent annual report for the year ended December 31, 2018 on Form 20-F dated March 18, 2019, or the 2018 Annual Report, under "Item 8 - Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy."
Debentures, Material Loans and Financial Liabilities
For information regarding the Company's outstanding debentures as of September 30, 2019, see "Disclosure for Debenture Holders" section in this press release.
For information regarding the Company's material loans as of September 30, 2019, see "Aggregation of the Information regarding the Company's Material Loans" section in this press release.
For a summary of the Company's financial liabilities as of September 30, 2019, see "Disclosure for Debenture Holders" section in this press release.
Other Developments During the Third Quarter of 2019 and Subsequent to the End of the Reporting Period
Adverse Effects on our Financial Condition, Restructuring Plan, and Labor Dispute
In the third quarter of 2019 the Company's rating in relation to the Company's debentures traded on the Tel Aviv Stock Exchange was downgraded to ilA and the Company's rating outlook was maintained at "negative." Our and another cellular operator's controlling shareholder recognized a substantial impairment of goodwill expense associated with the Company and the other cellular operator, in their respective financial reports for the second quarter of 2019 and the already intense competition in the cellular market further heightened with campaigns announcing tariffs as low as US$ 3-4 per month for a cellular package. These developments had an adverse effect on the Company's financial condition and the perception of the Israeli telecommunications market in general and more specifically of the Company - given its substantial debt, resulting in the substantial decrease of the Company's shares, hardening requirements to access additional credit from banks and increase of the Company debentures yield, signifying increased cost of future debt raised from the capital market. Therefore, the Company may be required to raise debt on less favorable and costly terms to the Company than in previous debt raisings. Assuming there will be no adverse effects on the Company's condition, the Company expects to raise additional debt before 2021 year end, or earlier, depending on market conditions.
As previously reported, the Company is taking actions to improve its financial condition and strengthen the Company in light of the intense competition in the market. In September 2019 the Company announced that following extensive work and analysis of various courses of action carried out by the Company in the past several months (certain aspects of it in consultation with Deloitte Israel, a firm in the Deloitte Global Network), the Company's board of directors approved a comprehensive restructuring plan for the Company (the "Plan") and instructed the Company to take immediate action to execute the Plan.
The Plan sets the following goals, with a target to achieve them by the end of 2020:
(1) return to positive net income (excluding special and unusual items)
(2) reduce the Company's net debt to EBITDA (excluding IFRS16 ramifications and special and unusual items) ratio to below 3
(3) prepare the Company to better cope with market conditions, the intense competition and future investments
The Plan includes the following major components and target timetable:
1. Cutting expenses - annual reduction of appx. NIS 150 million from current OPEX level (to be executed by the end of 2020), including through substantial reduction of expenses and payments to suppliers, substantial reduction in manpower (which at this point will not include sale and service customer facing personnel) and reduction of landline wholesale access fees.
Cost cutting initiatives have begun immediately following the publication of the Plan and includes reduction of consideration to suppliers for a certain period, sale of internet services using IBC Israel Broadband Company (2013) Ltd. ("IBC")'s infrastructure under the previously reported Indefeasible Right of Use Agreement, or IRU instead of the more costly landline wholesale arrangement, and entering negotiations with the employees' representatives in order to change the current collective employment agreement and reach new agreements. As previously reported, in September 2019, the Histadrut, the union representing the Company's employees sent the Company a labor dispute announcement. Under the announcement, the Company's employees would be entitled to take organizational steps (including a strike), as of October 10, 2019. Notwithstanding the aforesaid, the employees' representatives commenced a sudden and unlawful strike encompassing the vast majority of the Company's operations which ended the following day following an understanding that negotiations would commence after the Jewish holidays of October, which happened. The negotiations do not annul the labor dispute announcement and do not prevent the employees' representatives from taking additional organizational steps, including a strike.
2. Cutting investments - reduction of the company CAPEX level to appx. NIS 450 - 500 million per annum, (to be executed by the end of 2020), excluding new frequencies related CAPEX which may require added investments. For additional details regarding such CAPEX see "Frequencies Tender" below.
3. Capital raising of appx. NIS 400 million.
To be executed prior to 2019 year-end, as part of the Plan. Specific timing and structure to be determined in accordance with the evolvement of the Plan.
The execution, timing, terms and amount of any such contemplated offering have not yet been determined and are subject to further approval of the Company's Board of Directors, publication of a supplemental offering report and the prior approval of the Tel Aviv Stock Exchange of the supplemental offering report. There is no assurance that such offering will be executed, nor as to its timing, terms or amount.
4. Factoring of customers' end-user equipment of appx. NIS 100 - 150 million.
Presently under negotiations with financial institutions. Subject to reaching agreements and entering a definitive agreement, which cannot be guaranteed.
5. Debt reduction - Open market repurchases of the Company's debentures up to NIS 150 million.
To be carried out by management, at its discretion, at such timing, amounts and structure, according to market conditions.
Execution of the Plan may entail significant one-time expenses. Those are not included in the Plan components above.
The Company cannot guarantee execution of the Plan, its timing and results, as they are subject to uncertainties and assumptions about the Company's ability to carry out the Plan, including its ability to reach agreements with the relevant parties and receive required approvals, including the Company's ability to reach agreement with the employees' representatives on changes to current collective employment agreement, the terms under which such agreements will be reached and their timing, Israeli capital market conditions and Israeli telecommunications market conditions. The final agreements and conditions could lead to materially different outcome than that set forth above.
Furthermore, whereas successful outcome of the Plan is expected to strengthen the Company and enable the Company to participate in mergers, acquisitions and other opportunities that may present themselves / arise in the telecommunications arena in the next few years, a less successful outcome or other adverse effects on the Company's results of operations may result in the strengthening of other competitors through mergers, acquisitions and the likes to which the Company is not a party, which may result in further weakening of the Company's competitive standing, including loss of its leading position in the cellular market and related benefits to size.
The Company actively pursues mergers, acquisitions and the like opportunities but cannot guarantee any such opportunities may arise or reach fruition.
For additional details, see the Company's annual report on Form 20-F for the year ended December 31, 2018 filed on March 18, 2019, or 2018 20-F, under ITEM 3. Key Information. - D. Risk Factors - "We operate in a heavily regulated industry, which can harm our results of operations. Regulation in Israel has materially adversely affected our results", "We face intense competition in all aspects of our business", "As a result of substantial and continuing changes in our regulatory and business environment, our operating results, profitability and cash flow have decreased significantly in the past several years, with a loss for 2018. Further decline may adversely affect our financial condition", "The unionizing of our employees may impede necessary organizational and personnel changes, result in increased costs or disruption to our operation", "We may be adversely affected by the significant technological and other changes in the telecommunications industry" and "Our substantial debt increases our exposure to market risks, may limit our ability to incur additional debt that may be necessary to fund our operations and could adversely affect our financial stability", ITEM 4. Information on the Company - B. Business Overview - Competition" and the Company's current reports on Form 6-K dated August 15, 2019 under "Other developments during the second quarter of 2019 and subsequent to the end of the reporting period - Rating downgrade in relation to debentures traded in Israel", September 23, 2019 and September 24, 2019".
For additional details regarding the holdings in the Company's outstanding share capital, see 2018 20-F under "Item 7. Major Shareholders and related party transactions - A. Major Shareholders".
This document does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities. Any securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. There is no intention to register any securities referred to herein in the United States or to make a public offering of the securities in the United States.
IBC
In July 2019, the Company reported the completion of an investment transaction in IBC and the sale of the Company's independent fiber-optic infrastructure in residential areas to IBC, which joins IBC's existing and future deployed fiber-optic infrastructure. As previously reported, the Company undertook to purchase IRU (as long as the network is active) to 10-15% of IBC's fiber-optic 'home pass' (i.e. fiber-optic actually reaching / connected to the building) as shall be deployed by IBC in the next 15 years (current undertaking of 15% and may decrease to 10% under certain conditions). The IRU consideration is subject to actual IBC's 'home pass' deployment. Currently the annual consideration the Company pays IBC for the IRU amounts to approximately NIS 18 million (substantially lower than the alternative payment to Bezeq) and is expected to increase in accordance with the actual addition of 'home passes' deployed in the future. The IRU consideration is paid to IBC in installments over a period of 9 years.
As the Company is presently IBC's sole IRU customer, IBC's revenues and financial position depend largely on the Company and therefore adverse effects to the Company's financial position, as previously discussed, may adversely affect IBC's ability to raise debt to finance its operations. Should IBC require additional investments in order to fund its operations, the Company, as indirect shareholder of IBC, is expected to invest additional funds in IBC for the continued deployment of its network, thereby adding further burden on the Company itself. Further, any adverse changes to IBC's competitive standing and increase of the competition level which IBC faces, such as Bezeq the Israeli Communications Company Ltd., or Bezeq, commencing to operate its fiber-optic network (Bezeq has already executed a substantial part of the investments thereof), may adversely affect the Company as IBC's indirect shareholder, as well as its customer, given the Company's 15 year undertaking to purchase IRU to IBC's network at the agreed price, regardless more favorable proposals should such be available to the Company in the future.
For developments which may influence the competition level in the fiber-optic infrastructure field and IBC's competitive standing, see also "Public hearing regarding fiber-optic deployment policy" below
For additional details see the Company's 2018 20-F under Item 4. "Information on the Company - B. Business Overview - Networks and Infrastructure - Fixed-line Segment - Fixed-line Infrastructure - Investment in IBC", the Company's current report on form 6-K dated August 15, 2019 under "Other developments during the second quarter of 2019 and subsequent to the end of the reporting period - Company's Investment Transaction in IBC and Company's sale of fiber-optic infrastructure transaction completed" and elsewhere in this report under "Adverse Effects on our Financial Condition and Restructuring Plan; Labor Dispute".
Frequencies Tender
In July 2019, the Company reported that the Israeli Ministry of Communications published a frequencies tender including for 5G services, expected to be conducted in Q4/2019. After carefully reviewing the tender documents, including the tender principles and license requirements, the Company is of the opinion that certain tender principles and license requirements are unreasonable and must be corrected before the tender process proceeds any further. The Company and its network sharing partners' requests to the Ministry of Communications, or MOC, to remedy the material failures noted by the operators and delay the tender process until such corrections are made, were not answered to the point and therefore the Company and its network sharing partners intend to petition the competent court to instruct the MOC to remedy the failures and delay the tender process until such failures were corrected. The Company cannot guarantee a favorable outcome to such petitions. Failure to remedy such shortcomings may result in the Company having to pay sums substantially higher than those paid by other contenders in the tender, not win frequencies or win a smaller quantity of frequencies than the quantity it requires and undertake to make material investments regardless of their economic viability, in order to maintain its competitive standing in the cellular market. Further more, the tender includes additional material economic uncertainties, some of which are relevant to all contenders, such as whether certain frequencies fees discounts proposed by the tender committee would be approved by the relevant Ministries, and others relevant only to part of the contenders, the Company included, such as in relation to the previously reported frequencies transfer. Failure to resolve such uncertainties before the tender is held, would require the Company to participate in the tender under material uncertain conditions and under unequal burdens. At this time, before the Company and its network sharing partners have submitted a joined proposal agreement for the tender committee's prior approval, as the Company may only participate through a joined proposal with its network sharing partners under the principles of the tender, and as the Company cannot anticipate what would be the minimum bids set by the MOC, nor what would be the final payment the Company would have to pay for the frequencies, the Company cannot evaluate its implications on the Company. Failure to agree on a, joint proposal agreement (or other solution, if possible), may prevent the Company from participating in the frequency tender and thereby materially adversely affect its competitive abilities. Further, winning additional frequencies would require the Company to make substantial investments in its cellular network, thereby imposing additional financial burden on the Company which may have adverse effects on the Company's financial condition and may lead to additional downgrade of its debentures' related rating. In addition, the additional frequencies require the construction or change of hundreds of cell sites. The difficulties in obtaining the required consents and permits, particularly building permits for cell sites from local planning and building authorities (none of the frequencies proposed in the tender are specifically detailed in the charts attached to the Israeli National Zoning Plan 36, to which several local planning and building authorities refuse to provide building permits in reliance on such plan) and the substantial limitations on the Company's ability to construct new cell sites or change existing cell sites based on an exemption from the requirement to obtain a building permits, may prevent the Company from meeting the deployment requirements which will be set in its license with relation to the frequencies proposed in the tender (should the Company win them) and from meeting the deployment requirements which may entitle the Company to performance based incentives, as well as expose the Company to additional litigation and such litigation's consequences.
For additional details see the Company's 2018 20-F under "Item 3. Key Information - D. Risk Factors - Risks Related to our Business - We operate in a heavily regulated industry, which can harm our results of operations. Regulation in Israel has materially adversely affected our results" "We face intense competition in all aspects of our business", "We may not be able to obtain permits to construct and operate cell sites", "We may be required to indemnify certain local planning and building committees in respect of claims against them", "We may be adversely affected by significant technological and other changes in the cellular communications industry" and "Item 4. Information on The Company - B. Business Overview - Network and Infrastructure- Spectrum allocation", " - Government Regulations - Permits for cell site construction", the Company's current report on form 6-K dated August 15, 2019 under "Other developments during the second quarter of 2019 and subsequent to the end of the reporting period- Frequencies Tender Published" and elsewhere in this report under "Adverse Effects on our Financial Condition and Restructuring Plan; Labor Dispute".
Public hearing regarding fiber-optic deployment policy
In November 2019, a joined team for the Israeli Communications and Treasury Offices and the Competition Authority, tasked with examining the need for updating fiber-optic deployment and service obligations of landline operators who own their own infrastructure (and under current regulation are required to universally deploy each network they deploy) and the need for deployment incentives in areas where no deployment obligations be determined, after economic viability tests, published its recommendations for public hearing. The recommendations include:
-- Under reasonable scenarios, no economic viability exists for one
company's universal deployment.
-- Bezeq will not be subject to universal deployment requirement in regards
to deploying fiber-optics but would rather select the areas in which to
deploy its fiber-optics and in those areas Bezeq will be obligated to
provide service to all homes within 5 years.
-- A trust established by the State of Israel for that purpose (the
"Trust") will conduct tenders to subsidize deployment of fiber-optic by
Bezeq's competitors in areas where Bezeq chooses not to deploy
fiber-optic ("Non-Bezeq Areas"), based on economic viability and
efficiency. The winner would be obligated to provide wholesale services
to other competitors at wholesale rates. Bezeq may not participate in
the tenders nor acquire wholesale service in those areas (though its
subsidiaries may do so). The winner of the subsidy tender may use
Bezeq's infrastructure in the Non-Bezeq Areas for rates significantly
lower than the current wholesale rates. Only the winner will be entitled
to the subsidy as well.
-- Subsidy will be funded through additional 0.5% tax levied on all Israeli
communications license holders revenues for the previous year (including
Bezeq), whose annual revenues exceed NIS 10 million, as of 2022 and
until all household in Israel are connected to fiber-optic. The funds
will be managed by the Trust.
-- Bezeq may not deploy fiber-optic in Non-Bezeq Areas for 3 years from the
date of each respective subsidy tender for that area. Non the less,
Bezeq may update its original deployment obligation by up to 10% and so
long as such Non-Bezeq Area was not being chosen as an area to receive
subsidy by the Fund.
Bezeq's obligations regarding its already existing infrastructure shall remain unchanged.
Adoption of the recommendations requires, among others, changes to applicable legislation and licenses.
Hot Telecom L.P.'s universal deployment obligations are still under examination of the joined team.
For additional details see "IBC" above, the Company's 2018 20-F under "Item 3. Key Information - D. Risk Factors - We operate in a heavily regulated industry, which can harm our results of operations. Regulation in Israel has materially adversely affected our results","-We face intense competition in all aspects of our business", and "Item 4. Information on The Company -B. Business Overview - Competition - Fixed-line Segment" and "- Government Regulations - Fixed-line Segment - Wholesale land-line market".
Changes to the Board of Directors and Management; Financial and accounting expert
In September 2019, following Mr. Sholem Lapidot's resignation from office as a director, the Company's board of directors elected Mr. Eran Saar to serve as a director of the Company, until the Company's next general shareholders meeting. In November 2019, the Board of Directors has determined that Mr. Saar also qualifies as financial and accounting expert as defined in the regulations promulgated under the Israeli Companies Law. Thereafter, the Company's financial and accounting experts are Messrs. Bior, Hauser and Saar. Mr. Hauser also qualifies as "audit committee financial expert" under US law.
Mr. Saar has served as CEO of Equital Group and Isramco Negev 2 from 2012. From 2011 to 2012 Mr. Saar served as CFO of Equital Group, from 2006 to 2010 Mr. Saar served as CEO of Isal Amlat Investments and CFO of Kaman Holding and from 1997 to 2005 Mr. Saar served as Deputy Director Corporations Dept., Israel Securities Authority. In September 2019, Mr. Saar was nominated as CEO of DIC (the Company's indirect controlling shareholder) and IDB Development Corporation Ltd., as of December 2019. Mr. Saar is an attorney and a Certified Public Accountant and holds an M.B.A (finance) in business Management, LL.B and a B.A. in accounting, all from the Hebrew University of Jerusalem.
In September 2019, following Ms. Sharon Amit's resignation form her position as VP of human resources of the Company, the Company's board of directors has nominated Ms. Orly Pascal as the Company's VP of human resources, effective January 1, 2020.
Ms. Orly Pascal has served as SVP, Senior HRBP for International Markets & Global Support Functions at Teva Pharmaceutical Industries Ltd. ("Teva") from 2018 and From 2015 to 2017, she served as SVP, HR Regional Lead for Israel and Sr. HRBP for Global Support Functions, at Teva. From 2013 to 2014, Ms. Pascal has served as VP, HR Strategy & Integration, at Teva, and From 2012 to 2013, she served as Head of Employee Engagement, at Teva. Ms. Pascal holds a B.A. in Political Science from the Hebrew university of Jerusalem and M.B.A. in Business and Organizational Management, from the College of Management ? Academic Studies.
In October 2019, following Mr. Yoni Sabag's resignation form his position as VP of Marketing in September 2019, the Company's board of directors has nominated Mr. Rafi Shauli, the Company's VP of television and content, as the Company's vice president of marketing, as well, effective December 1, 2019.
Mr. Shauli has served as the Company's VP of television and content since June 2019. From 2012 to 2019 he served as the Company's head of private customers marketing department. From 2008 to 2011, he served as director of products and business development in the marketing division of Yes and from 2011 to 2012 as director of products and business development in the marketing division of Bezeq. From 2005 to 2008, Mr. Shauli served as director of communications solutions for businesses in the marketing department of 013 Netvision. Mr. Shauli holds a B.A. in economics and statistics from the Hebrew university of Jerusalem.
For additional details, see the Company's annual report on Form 20-F for the year ended December 31, 2018 filed on March 18, 2019, under "Item 6. Directors, Senior Management and Employees - A. Directors and Employees" and the Company's current reports on Form 6-K dated September 24, 2019 and October 30, 2019.
Conference Call Details
The Company will be hosting a conference call regarding its results for the third quarter of 2019 on Thursday, November 27, 2019 at 09:00 am ET, 06:00 am PT, 14:00 UK time, 16:00 Israel time. On the call, management will review and discuss the results, and will be available to answer questions. To participate, please either access the live webcast on the Company's website, or call one of the following teleconferencing numbers below. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.
US Dial-in Number: 1 888 281 1167 UK Dial-in Number: 0 800 917 9141
Israel Dial-in Number: 03 918 0685 International Dial-in Number: +972 3 918 0685
at: 09:00 am Eastern Time; 06:00 am Pacific Time; 14:00 UK Time; 16:00 Israel Time
To access the live webcast of the conference call, please access the investor relations section of Cellcom Israel's website: www.cellcom.co.il. After the call, a replay of the call will be available under the same investor relations section.
About Cellcom Israel
Cellcom Israel Ltd., established in 1994, is a leading Israeli communications group, providing a wide range of communications services. Cellcom Israel is the largest Israeli cellular provider, providing its approximately 2.767 million cellular subscribers (as at September 30, 2019) with a broad range of services including cellular telephony, roaming services for tourists in Israel and for its subscribers abroad, text and multimedia messaging, advanced cellular content and data services and other value-added services in the areas of music, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure. The Company operates an LTE 4 generation network and an HSPA 3.5 Generation network enabling advanced high speed broadband multimedia services, in addition to GSM/GPRS/EDGE networks. Cellcom Israel offers Israel's broadest and largest customer service infrastructure including telephone customer service centers, retail stores, and service and sale centers, distributed nationwide. Cellcom Israel further provides OTT TV services, internet infrastructure and connectivity services and international calling services, as well as landline telephone services in Israel. Cellcom Israel's shares are traded both on the New York Stock Exchange (CEL) and the Tel Aviv Stock Exchange (CEL). For additional information please visit the Company's website http://investors.cellcom.co.il.
Forward-Looking Statements
The following information contains, or may be deemed to contain forward-looking statements (as defined in the U.S. Private Securities Litigation Reform Act of 1995 and the Israeli Securities Law, 1968). In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about the Company, may include projections of the Company's future financial results, its anticipated growth strategies and anticipated trends in its business. These statements are only predictions based on the Company's current expectations and projections about future events. There are important factors that could cause the Company's actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause such differences include, but are not limited to: changes to the terms of the Company's license, new legislation or decisions by the regulator affecting the Company's operations, new competition and changes in the competitive environment, the outcome of legal proceedings to which the Company is a party, particularly class action lawsuits, the Company's ability to maintain or obtain permits to construct and operate cell sites, and other risks and uncertainties detailed from time to time in the Company's filings with the U.S. Securities and Exchange Commission, including under the caption "Risk Factors" in its Annual Report for the year ended December 31, 2018.
Although the Company believes the expectations reflected in the forward-looking statements contained herein are reasonable, it cannot guarantee future results, level of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The Company assumes no duty to update any of these forward-looking statements after the date hereof to conform its prior statements to actual results or revised expectations, except as otherwise required by law.
The Company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). Unless noted specifically otherwise, the dollar denominated figures were converted to US$ using a convenience translation based on the New Israeli Shekel (NIS)/US$ exchange rate of NIS 3.482 = US$ 1 as published by the Bank of Israel for September 30, 2019.
Use of non-IFRS financial measures
Adjusted EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net (excluding expenses related to employee voluntary retirement plans and gain (loss) due to sale of subsidiaries); income tax; depreciation and amortization, profits (losses) of equity account investees and share based payments. This is an accepted measure in the communications industry. The Company presents this measure as an additional performance measure as the Company believes that it enables us to compare operating performance between periods and companies, net of any potential differences which may result from differences in capital structure, taxes, age of fixed assets and related depreciation expenses. Adjusted EBITDA should not be considered in isolation, or as a substitute for operating income, any other performance measures, or cash flow data, which were prepared in accordance with Generally Accepted Accounting Principles as measures of profitability or liquidity. Adjusted EBITDA does not take into account debt service requirements, or other commitments, including capital expenditures, and therefore, does not necessarily indicate the amounts that may be available for the Company's use. In addition, Adjusted EBITDA as presented by the Company may not be comparable to similarly titled measures reported by other companies, due to differences in the way these measures are calculated. See the reconciliation of net income to Adjusted EBITDA under "Reconciliation of Non-IFRS Measures" in the press release.
Free cash flow is a non-IFRS measure and is defined as the net cash provided by operating activities (including the effect of exchange rate fluctuations on cash and cash equivalents) excluding a loan to Golan Telecom, minus the net cash used in investing activities excluding short-term investment in tradable debentures and deposits and proceeds from sales of such debentures (including interest received in relation to such debentures) and deposits. See "Reconciliation of Non-IFRS Measures" below.
Financial Tables Follow
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Financial Position (Unaudited)
---
Convenience
translation
into US dollar
September 30,
September 30,
September 30,
December 31,
2018 2019 2019 2018
NIS millions
US$ millions
NIS millions
Assets
Cash and cash equivalents 773 698 200 1,202
Current investments, including derivatives 421 430 124 404
Trade receivables 1,172 1,153 331 1,152
Current tax assets 14 3 1 11
Other receivables 81 66 19 84
Inventory 64 67 19 94
Total current assets 2,525 2,417 694 2,947
Trade and other receivables 852 809 232 852
Property, plant and equipment, net 1,604 1,456 418 1,652
Intangible assets and others, net 1,287 1,301 374 1,298
Investments in equity accounted investees 150 43
Right-of-use assets, net and Investment property 735 211
Total non- current assets 3,743 4,451 1,278 3,802
Total assets 6,268 6,868 1,972 6,749
Liabilities
Current maturities of debentures and of loans 619 509 146 620
from financial institutions
Current taxation liabilities 8 2
Current maturities of lease liabilities 225 65
Trade payables and accrued expenses 609 662 190 696
Provisions 107 102 29 105
Other payables, including derivatives 269 272 78 257
Total current liabilities 1,604 1,778 510 1,678
Long-term loans from financial institutions 334 300 86 334
Debentures 2,531 2,517 723 2,911
Long-term lease liabilities 528 152
Provisions 20 22 6 20
Other long-term liabilities 4 3 1 16
Liability for employee rights upon retirement, net 15 14 4 14
Deferred tax liabilities 106 77 22 99
Total non- current liabilities 3,010 3,461 994 3,394
Total liabilities 4,614 5,239 1,504 5,072
Equity attributable to owners of the Company
Share capital 1 1 1
Share premium 259 335 97 325
Receipts on account of share options 17 10
Retained earnings 1,374 1,292 371 1,339
Non-controlling interests 3 1 2
Total equity 1,654 1,629 468 1,677
Total liabilities and equity 6,268 6,868 1,972 6,749
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Income (Unaudited)
---
Convenience
Convenience
translation
translation
into US dollar
into US dollar
For the nine
For the nine
For the three
For the three
For the
months ended months ended months ended months ended year ended
September 30, September 30, September 30, September 30, December 31,
2018 2019 2019 2018 2019 2019 2018
NIS millions
US$ millions
NIS millions
US$ millions
NIS millions
Revenues 2,770 2,786 800 910 938 269 3,688
Cost of revenues (1,985) (2,041) (586) (645) (667) (191) (2,661)
Gross profit 785 745 214 265 271 78 1,027
Selling and marketing (419) (468) (134) (143) (161) (46) (567)
expenses
General and administrative (274) (245) (70) (89) (82) (24) (360)
expenses
Other income (expenses), net (5) 15 4 7 4 1 1
Operating profit 87 47 14 40 32 9 101
Financing income 17 41 12 7 13 4 19
Financing expenses (137) (151) (43) (44) (44) (13) (190)
Financing expenses, net (120) (110) (31) (37) (31) (9) (171)
Profit (loss) before taxes on (33) (63) (17) 3 1 (70)
income
Tax benefit (taxes 4 10 2 (2) (3) (1) 6
on income)
Profit (loss) for the period (29) (53) (15) 1 (2) (1) (64)
Attributable to:
Owners of the Company (28) (52) (15) 2 (1) (1) (62)
Non-controlling interests (1) (1) (1) (1) (2)
Profit (loss) for the period (29) (53) (15) 1 (2) (1) (64)
Earnings (loss) per share
Basic earnings (loss) per (0.28) (0.45) (0.13) 0.01 (0.01) (0.003) (0.58)
share (in NIS)
Diluted earnings (loss) per (0.28) (0.45) (0.13) 0.01 (0.01) (0.003) (0.58)
share (in NIS)
Weighted-average number of 105,395,757 116,196,729 116,196,729 113,165,757 116,196,729 116,196,729 107,499,543
shares used in the calculation
of basic earnings (loss) per
share (in shares)
Weighted-average number of 105,395,757 116,196,729 116,196,729 113,165,757 116,196,729 116,196,729 107,499,543
shares used in the calculation
of diluted earnings (loss) per
share (in shares)
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Cash Flows (Unaudited)
Convenience
Convenience
translation
translation
into US dollar
into US dollar
For the nine
For the nine For the three
For the three
For the
months ended months ended months ended months ended year ended
September 30, September 30, September 30, September 30, December 31,
2018 2019 2019 2018 2019 2019 2018
NIS millions
US$ millions NIS millions
US$ millions
NIS millions
Cash flows from operating activities
Profit (loss) for the period (29) (53) (15) 1 (2) (1) (64)
Adjustments for:
Depreciation and amortization 429 665 191 151 226 65 584
Share based payments 2 5 1 3 1 2
Gain on sale of property, plant and (7) (2) (8) (2)
equipment, intangible assets and
others
Income tax expense (tax benefit) (4) (10) (2) 2 3 1 (6)
Net change in fair value of investment 4 1 4 1
property
Financing expenses, net 120 110 31 37 31 9 171
Other expenses 6 1 6 1
Changes in operating assets and
liabilities:
Change in inventory 6 27 9 4 (7) (2) (24)
Change in trade receivables (including 150 54 16 68 3 1 166
long-term amounts)
Change in other receivables (including (17) 22 6 (1) 21 6 (21)
long-term amounts)
Changes in trade payables, accrued (54) (44) (13) (43) (34) (10) (26)
expenses and provisions
Change in other liabilities (including 20 28 7 (21) 25 7 11
long-term amounts)
Receipts from (payments for) derivative (8) (2) 2 (1)
instruments, net
Income tax paid (20) (14) (4) (6) (7) (2) (23)
Income tax received 10 3 10 3
Net cash from operating activities 603 795 228 194 273 78 770
Cash flows from investing activities
Acquisition of property, plant, and (270) (274) (79) (102) (88) (25) (356)
equipment
Acquisition of intangible assets and (167) (172) (49) (58) (61) (18) (237)
others
Acquisition of equity accounted investee - (15) (4) (15) (4)
Acquisition of subsidiary, net of cash (2) (2)
acquired
Change in current investments, net (62) (9) (3) (25) (56)
Receipts from other derivative contracts, 3 8 2 3
net
Proceeds from sale of property, plant and 1 181 52 1 181 52 1
equipment, intangible assets and others
Grant of long-term loans to equity (139) (40) (139) (40)
accounted investees
Interest received 9 9 3 2 2 1 14
Proceeds from sale of shares in a 5
consolidated company, net of cash
disposed
Net cash used in investing activities (483) (411) (118) (184) (120) (34) (631)
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Cash Flows (Unaudited) (cont'd)
Convenience
Convenience
translation
translation
into US dollar
into US dollar
For the nine
For the nine For the three
For the three
For the
months ended months ended months ended months ended year ended
September 30, September 30, September 30, September 30, December 31,
2018 2019 2019 2018 2019 2019 2018
---
NIS millions
US$ millions NIS millions
US$ millions
NIS millions
Cash flows from financing activities
Payments for derivative contracts, net (1) (1) (15)
Receipt of long-term loans from 150 43 -
financial institutions
Payments for long-term loans from (78) (212) (61) (28) (78)
financial institutions
Repayment of debentures (556) (504) (145) (194) (196) (56) (556)
Proceeds from issuance of debentures, 618 222 997
net of issuance costs
Interest paid (115) (117) (34) (50) (42) (12) (126)
Acquisition of non-controlling interests (19) (19) (19)
Equity offering 275 275
Proceeds from exercise of share options 59
Lease payments (204) (58) (71) (21) -
Net cash from (used in) financing 125 (888) (255) (69) (310) (89) 537
activities
---
Changes in cash and cash equivalents 245 (504) (145) (59) (157) (45) 676
Cash and cash equivalents as at the 527 1,202 345 831 855 245 527
beginning of the period
Effect of exchange rate fluctuations 1 1 (1)
on cash and cash equivalents
Cash and cash equivalents as at the 773 698 200 773 698 200 1,202
end of the period
===
Cellcom Israel Ltd.
(An Israeli Corporation)
Reconciliation for Non-IFRS Measures
---
Adjusted EBITDA
The following is a reconciliation of net income to Adjusted EBITDA:
Three-month period ended
Year ended
September 30,
December 31,
---
2018 2019
Convenience 2018
translation
into US dollar
2019
---
NIS millions
US$ millions
NIS millions
---
Profit (loss) for the period.............................. 1 (2) (1) (64)
Taxes on income (tax benefit)...................... 2 3 1 (6)
Financing income.......................................... (7) (13) (4) (19)
Financing expenses...................................... 44 44 13 190
Other income ................................................ 10 3 -
Depreciation and amortization...................... 151 226 65 584
Share based payments................................ 3 1 2
Adjusted EBITDA.......................................... 191 271 78 687
===
Free cash flow
The following table shows the calculation of free cash flow:
Three-month period ended
Year ended
September 30,
December 31,
---
2018 2019
Convenience 2018
translation
into US dollar
2019
---
NIS millions
US$ millions
NIS millions
---
Cash flows from operating 195 202 58 769
activities(*)...............................................
Investment in equity accounted 154 44 -
investees.................................................
Cash flows from investing activities............ (184) (120) (34) (631)
Sale of short-term tradable 23 (2) (1) 43
debentures and deposits(**)...................
---
Free cash flow............................................. 34 234 67 181
===
(*) Including the effects of exchange rate fluctuations in cash and cash equivalents and lease payments.
(**) Net of interest received in relation to tradable debentures.
Cellcom Israel Ltd.
(An Israeli Corporation)
Key financial and operating indicators
---
NIS millions unless otherwise stated Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 FY-2018
--- ---
Cellular service revenues 437 434 443 416 404 420 439 1,730
Fixed-line service revenues 304 300 310 301 317 312 321 1,215
Cellular equipment revenues 193 157 146 159 158 162 172 655
Fixed-line equipment revenues 39 76 52 82 92 63 47 249
Consolidation adjustments (40) (40) (41) (40) (43) (37) (41) (161)
---
Total revenues 933 927 910 918 928 920 938 3,688
Cellular Adjusted EBITDA 119 78 118 103 146 163 185 418
Fixed-line Adjusted EBITDA 68 62 73 66 78 70 86 269
---
Total Adjusted EBITDA 187 140 191 169 224 233 271 687
Operating profit (loss) 52 (5) 40 14 9 6 32 101
Financing expenses, net 40 43 37 51 27 52 31 171
Profit (loss) for the period 7 (37) 1 (35) (16) (35) 1 (64)
Free cash flow 84 56 34 7 46 55 234 181
Cellular subscribers at the end of 2,822 2,809 2,825 2,851 2,853 2,745 2,767 2,851
period (in 000's)
Monthly cellular ARPU (in NIS) 51.8 51.8 52.5 49.0 47.2 51.9 53.2 51.3
Churn rate for cellular subscribers (%) 9.5% 12.6% 10.0% 11.1% 11.0% 11.3% 11.4% 43.2%
Cellcom Israel Ltd.
Disclosure for debenture holders as of September 30, 2019
Aggregation of the information regarding the debenture series issued by the Company( (1)), in million NIS
Series
Original
Principal
As of 30.09.2019 As of 27.11.2019 Interest Rate (fixed) Principal Repayment
Interest
Linkage
Trustee
Issuance on the Date of Dates Repayment
Date Issuance Dates (3)
Contact Details
---
Principal
Linked
Interest
Debenture
Market Value
Principal
Linked
From
To
Principal Accumulated Balance Balance on Principal
Balance on Balance in Books Value in Trade Balance
Trade Books (2)
---
F (4)(5)(6)
**
20/03/12 714.802 214.441 223.261 2.447 225.708 224.798 214.441 223.672 4.60%
05.01.17
05.01.20
January-5
Linked to CPI
Strauss Lazar Trust Company (1992)
Ltd. Ori Lazar. 17 Yizhak Sadeh St., Tel
and July-5 Aviv. Tel: 03- 6237777.
---
H (4)(5)(7)**
08/07/14 949.624 721.714 679.549 3.436 682.985 683.824 835.669 683.602 1.98%
05.07.18
05.07.24
January-5
Linked to CPI Mishmeret Trust Company Ltd. Rami Sebty. 48 Menachem Begin Rd. Tel Aviv. Tel:
03-6374355.
03/02/15*
and July-5
11/02/15*
---
I (4)(5)(7)**
08/07/14 804.010 643.208 624.271 6.347 630.618 615.550 723.609 625.151 4.14%
05.07.18
05.07.25
January-5
Not linked Mishmeret Trust Company Ltd. Rami Sebty. 48 Menachem Begin Rd. Tel Aviv. Tel:
03-6374355.
03/02/15*
and July-5
11/02/15*
28/03/16*
---
J (4)(5)
25/09/16 103.267 103.267 104.335 0.613 104.948 93.632 103.267 104.567 2.45%
05.07.21
05.07.26
January-5
Linked to CPI Mishmeret Trust Company Ltd. Rami Sebty. 48 Menachem Begin Rd. Tel Aviv. Tel:
03-6374355.
and July-5
---
K (4)(5)**
25/09/16 710.634 710.634 705.489 6.013 711.502 643.834 710.634 705.674 3.55%
05.07.21
05.07.26
January-5
Not linked Mishmeret Trust Company Ltd. Rami Sebty. 48 Menachem Begin Rd. Tel Aviv. Tel:
03-6374355.
and July-5
01/07/18*
10/12/18*
---
L(4)(5)**
24/01/18 613.937 613.937 588.563 11.27 599.833 518.531 613.937 589.221 2.50%
05.01.23
05.01.28
January-5
Not linked Strauss Lazar Trust Company (1992) Ltd. Ori Lazar. 17 Yizhak Sadeh St., Tel Aviv. Tel:
03-6237777.
10/12/18*
---
Total 3,896.274 3,007.201 2,925.468 30.126 2,955.594 2,780.169 3,201.557 2,931.887
---
Comments:
(1) For a summary of the terms of the Company's outstanding debentures see the Company's 2018 Annual Report under "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Debt Service - Public Debentures". In the reporting period, the Company fulfilled all terms of the debentures and Indentures. Debentures financial covenants - as of September 30, 2019 the net leverage *** was 2.51. In the reporting period, no cause for early repayment occurred. (2) Including interest accumulated in the books. (3) Semi annual payments other than regarding Series L. (4) Regarding the debentures, the Company undertook not to create any pledge on its assets, as long as debentures or loans are not fully repaid, subject to certain exclusions. (5) Regarding the debentures - the Company has the right for early redemption under certain terms. (6) Regarding debenture Series F, in June 2013, following a second decrease of the Company's debenture rating since their issuance, the annual interest rate has been increased by 0.25% to 4.60%, beginning July 5, 2013. (7) In February 2015, pursuant to an exchange offer of the Company's Series H and I debentures for a portion of the Company's outstanding Series D and E debentures, respectively, the Company exchanged approximately NIS 555 million principal amount of Series D debentures with approximately NIS 844 million principal amount of Series H debentures, and approximately NIS 272 million principal amount of Series E debentures with approximately NIS 335 million principal amount of Series I debentures. Series D and E debentures were fully repaid in July 2017 and in January 2017, respectively.
(*) On these dates additional debentures of the series were issued, the information in the table refers to the full series.
(**) As of September 30, 2019, debentures Series H, I, K and L are material, which represent 5% or more of the total liabilities of the Company, as presented in the financial statements.
(***) Net Leverage - the ratio of Net Debt to Adjusted EBITDA, excluding one-time influences. Net Debt defined as credit and loans from banks and others, debentures and interest payable, net of cash and cash equivalents and current investments in tradable securities. The definition of net leverage refers to Adjusted EBITDA for a period of 12 consecutive months. Accordingly, the net leverage ratio above includes the effects of the new standard IFRS 16 (applied by the Company as of January 1, 2019) on the Adjusted EBITDA for the first, second and third quarters of 2019. For details of the effects of IFRS 16 on the Company's results see footnote 2 on page 1 of this press release and note 3 to the Company's financial statement for the period ended on September 30, 2019, included elsewhere in this report.
Cellcom Israel Ltd.
Disclosure for debenture holders as of September 30, 2019 (cont'd)
Debentures Rating Details*
Series
Rating
Rating as of
Rating as of
Rating assigned upon
Recent date of rating as of Additional ratings between original issuance and the recent date
of rating as of
Company 30.09.2019 (1) 27.11.2019 issuance of the Series 27.11.2019 27.11.2019 (2)
--- ---
Rating
F
S&P Maalot
A
A
AA
08/2019
05/2012, 11/2012, 06/2013, 06/2014, 08/2014, 01/2015,
AA,AA-,A+,A (2)
09/2015, 03/2016, 08/2016, 06/2017, 01/2018, 06/2018,
08/2018, 12/2018, 03/2019, 08/2019
--- ---
H
S&P Maalot
A
A
A+
08/2019
06/2014, 08/2014, 01/2015, 09/2015, 03/2016, 08/2016,
A+,A (2)
06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019,
08/2019
--- ---
I
S&P Maalot
A
A
A+
08/2019
06/2014, 08/2014, 01/2015, 09/2015, 03/2016, 08/2016,
A+,A (2)
06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019,
08/2019
--- ---
J
S&P Maalot
A
A
A+
08/2019
08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019
A+,A (2)
--- ---
K
S&P Maalot
A
A
A+
08/2019
08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019
A+,A (2)
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L
S&P Maalot
A
A
A+
08/2019
01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019
A+,A (2)
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(1) In August 2019, S&P Maalot updated the Company's rating outlook from an "ilA+/negative" to an "ilA/negative".
(2) In May 2012, S&P Maalot updated the Company's rating from an "ilAA/negative" to an "ilAA-/negative". In November 2012, S&P Maalot affirmed the Company's rating of "ilAA-/negative". In June 2013, S&P Maalot updated the Company's rating from an "ilAA-/negative" to an "ilA+/stable". In June 2014, August 2014, January 2015, September 2015, March 2016, August 2016, June 2017, January 2018, June 2018, August 2018 and December 2018 S&P Maalot affirmed the Company's rating of "ilA+/stable". In March 2019, S&P Maalot updated the Company's rating outlook from an "ilA+/stable" to an "ilA+/negative". In August 2019, S&P Maalot updated the Company's rating outlook from an "ilA+/negative" to an "ilA/negative". For details regarding the rating of the debentures see the S&P Maalot report dated August 5, 2019, included in the Company's current report filled in the Israeli Securities Authority website ("MAGNA") on August 5, 2019.
* 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.
Cellcom Israel Ltd.
Aggregation of the information regarding the Company's Material Loans ((1)), in million NIS
Loan
Provision Date
Principal
Interest Rate Principal Repayment
Interest
Linkage
(nominal) Dates (annual Repayment
Amount as of
30.09.2019 payments)
Dates (semi-
annual
payments)
---
From
To
---
Loan from financial
06/2016 100 4.60%
30.06.18
30.06.21
June-30
Not linked
institution (2) (3) (4) (5) (6)
and
December-31,
commencing
December 31,
2016 through
June 30, 2021
---
Loan from financial
06/2017 150 5.10%
30.06.19
30.06.22
June-30 and
Not linked
institution (2) (3) (4) (5) (6) December-31,
commencing
June 30, 2017
through June
30, 2022
---
Loan from bank (2) (3) (4) (5) (6)
03/2019 150 4.00%
31.03.21
31.03.24
March-31
Not linked
and
September-30,
commencing
September 30,
2019 through
March 31,
2024
---
Total 400
---
Comments:
(1) For a summary of the terms of the Company's loan agreements see the Company's 2018 Annual Report under "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Other Credit Facilities" and the reference therein to "- Debt Service - Public Debentures". (2) In the reporting period, the Company fulfilled all terms of the loan agreements. (3) Loan agreements financial covenants - as of September 30, 2019 the net leverage* was 2.51. (4) In the reporting period, no cause for early repayment occurred. (5) In the loan agreements, the Company undertook not to create any pledge on its assets, as long as the loans are not fully repaid, subject to certain exclusions. (6) According to the loan agreements the Company may prepay the loans, subject to a prepayment fee.
(*) Net Leverage - the ratio of Net Debt to Adjusted EBITDA, excluding one-time influences. Net Debt defined as credit and loans from banks and others, debentures and interest payable, net of cash and cash equivalents and current investments in tradable securities. The definition of net leverage refers to Adjusted EBITDA for a period of 12 consecutive months. Accordingly, the net leverage ratio above includes the effects of the new standard IFRS 16 (applied by the Company as of January 1, 2019) on the Adjusted EBITDA for the first, second and third quarters of 2019. For details of the effects of IFRS 16 on the Company's results see footnote 2 on page 1 of this press release and note 3 to the Company's financial statement for the period ended on September 30, 2019, included elsewhere in this report.
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of September 30, 2019
a. Debentures issued to the public by the Company and held by the public, excluding such debentures 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 ILS not Euro Dollar Other
CPI linked to CPI
---
First
year 338,130 80,401 89,168
---
Second
year 168,806 218,830 78,430
---
Third
year 168,806 218,830 66,582
---
Fourth
year 168,806 310,657 54,734
---
Fifth
year
and on 210,186 1,135,125 90,174
---
Total 1,054,734 1,963,843 379,088
---
b. Private debentures and other non-bank credit, excluding such debentures 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 ILS not Euro Dollar Other
CPI linked to CPI
---
First
year 100,000 12,267
---
Second
year 100,000 7,390
---
Third
year 50,000 2,550
---
Fourth
year
---
Fifth
year
and on
---
Total 250,000 22,207
---
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 ILS not Euro Dollar Other
CPI linked to CPI
---
First
year 9,008
---
Second
year 37,500 5,248
---
Third
year 37,500 3,748
---
Fourth
year 37,500 2,248
---
Fifth
year
and
on 37,500 750
---
Total 150,000 21,002
---
d. Credit from banks abroad based on the Company's "Solo" financial data (in thousand NIS) - None.
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of September 30, 2019 (cont'd)
e. Total of sections a - d above, total credit from banks, non-bank credit and debentures based on the Company's "Solo" financial data (in thousand NIS).
Principal payments
Gross interest
payments
(without
deduction of tax)
ILS linked ILS not Euro Dollar Other
to CPI linked to
CPI
---
First
year 338,130 180,401 110,443
---
Second
year 168,806 356,330 91,067
---
Third
year 168,806 306,330 72,880
---
Fourth
year 168,806 348,157 56,982
---
Fifth
year
and on 210,186 1,172,625 90,925
---
Total 1,054,734 2,363,843 422,297
---
f. Out of the balance sheet Credit exposure based on the Company's "Solo" financial data - None.
g. Out of the 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 (in thousand NIS) - None.
h. Total balances of the credit from banks, non-bank credit and debentures of all the consolidated companies, excluding companies that are reporting corporations and excluding Company's data presented in sections a - d above (in thousand NIS) - None.
i. Total balances of credit granted to the Company by the parent company or a controlling shareholder and balances of debentures offered by the Company held by the parent company or the controlling shareholder (in thousand NIS) - 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 debentures offered by the Company held by companies held by the parent company or the controlling shareholder, which are not controlled by the Company (in thousand NIS).
Principal payments
Gross interest
payments
(without
deduction of tax)
ILS linked ILS not Euro Dollar Other
to CPI linked to
CPI
---
First
year 55 165
---
Second
year 236 326 160
---
Third
year 236 326 143
---
Fourth
year 236 590 125
---
Fifth
year
and on 867 2,693 252
---
Total 1,630 3,935 845
---
k. Total balances of credit granted to the Company by consolidated companies and balances of debentures offered by the Company held by the consolidated companies (in thousand NIS) - None.
([1]) Please see "Use of Non-IFRS financial measures" section in this press release.
([2]) As of January 1, 2019, the Company is applying International Financial Reporting Standard, IFRS 16, Leases. The effects of applying the standard in the third quarter of 2019 amounted to an increase of NIS 72 million in Adjusted EBITDA, an increase of NIS 71 million in Cash flows from operating activities and an increase of NIS 1 million in the loss.
Company Contact Investor Relations Contact
Shlomi Fruhling
Ehud Helft
Chief Financial Officer
GK Investor & Public Relations
investors@cellcom.co.il
cellcom@GKIR.com
Tel: +972-52-998-9735
Tel: +1-617-418-3096
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View original content:http://www.prnewswire.com/news-releases/cellcom-israel-announces-third-quarter-2019-results-300965961.html
SOURCE Cellcom Israel Ltd.
