Cellcom Israel Announces Fourth Quarter and Full Year 2019 Results

NETANYA, Israel, March 23, 2020 /PRNewswire/ --

2019 Full Year Highlights (compared to 2018):

• Total Revenues totaled NIS 3,708 million ($1,073 million) compared to NIS 3,688 million ($1,067 million) last year, an increase of 0.5%
• Service revenues totaled NIS 2,776 million ($803 million) compared to NIS 2,784 million ($806 million) last year, a decrease of 0.3%
• Operating income totaled NIS 24 million ($7 million) compared to NIS 101 million ($29 million) last year, a decrease of 76.2%
• Loss totaled NIS 107 million ($31 million) compared to a loss of NIS 64 million ($18 million) an increase of 67.2%
• Adjusted EBITDA¹ totaled NIS 940 million ($272 million) compared to NIS 687 million ($199 million) last year, an increase of 36.8%
• Net cash from operating activities totaled NIS 1,036 million ($299 million) compared to NIS 770 million ($223 million) last year, an increase of 34.5%
• Free cash flow¹ totaled NIS 391 million ($113 million) compared to NIS 181 million ($52 million) last year, an increase of 116.0%

Fourth Quarter 2019 Highlights (compared to fourth quarter of 2018):

• Total Revenues totaled NIS 932 million ($270 million) compared to NIS 918 million ($266 million) in the fourth quarter last year, an increase of 1.5%
• Service revenues totaled NIS 694 million ($201 million) compared to NIS 677 million ($196 million) in the fourth quarter last year, an increase  of 2.5%
• Operating loss totaled NIS 27 million ($8 million) compared to Operating profit NIS 14 million ($4 million) in the fourth quarter last year.
• Loss totaled NIS 54 million ($16 million) compared to of NIS 35 million ($10 million) in the fourth quarter last year, an increase of 54.3%
• Adjusted EBITDA¹ totaled NIS 212 million ($61 million) compared to NIS 169 million ($47 million) in the fourth quarter last year, an increase of 25.4%
• Net cash from operating activities totaled NIS 241 million ($70 million) compared to NIS 167 million ($48 million) in the fourth quarter last year, an increase of 44.3%
• Free cash flow¹ totaled NIS 56 million ($16 million) compared to NIS 7 million ($2 million) in the fourth quarter last year, an increase of 700%

Shlomi Fruhling, Chief Financial Officer, said:

"2019 was characterized by continued increased competition in the cellular segment, while we saw growth in the fixed line segment. During the year and thereafter, we made significant strategic moves such as completing the IBC acquisition and selling of the fiber-optic network in residential neighborhoods, signing a Memorandum of Understanding to acquire Golan Telecom shares (in February 2020), ongoing execution of a comprehensive restructuring plan that included a voluntary 450-employee retirement agreement, a move for reducing vendor payments and raising equity of over NIS 300 million which is intended to strengthen the Company's financial stability.

"Mobile services revenue decreased 2.9% year-over-year. The erosion of revenues as a result of aggressive competition in the market was partially offset by an increase in revenue from the network sharing agreements.

"Fixed-line service revenues grew 3.5% year-over-year. The increase was mainly due to continued customer recruitment to Cellcom tv and Internet services.

"Continued growth in the fixed-line segment and the reduction in the erosion of the mobile segment, resulted in the Company's total service revenue has remained stable compared to the previous year.

"Equipment revenue in 2019, grew by 3.1% year-over-year. Despite the increase in revenues, profitability and gross margins from equipment sales eroded compared to last year as a result of increased competition and lower equipment prices. We expect continued erosion of gross profit from this activity during 2020 as well.

"The Company's Adjusted EBITDA amounted to NIS 940 in 2019 and was favorably affected by the adoption of IFRS16 compared with that of the previous year. In addition, this year, an expense of NIS 45 million was recorded for a voluntary employee retirement plan. Excluding these two effects, Adjusted EBITDA amounted to NIS 710, similar to that of the previous year.

"The free cash-flow for 2019 amounted to NIS 391 million, and included the NIS 181 million cash received from the sale of the fiber-optic infrastructure. Even when excluding this sale, the free cash-flow increased by 16% compared to last year. The increase in free cash-flow was mainly due to a decrease in cash investments and payroll and tax payments.

"The Company has successfully implemented the main components of the restructuring plan previously announced. As part of the actions taken, an agreement was signed with the employee representatives for the voluntary retirement of 450 employees. We expect to see the cost savings gradually start from the second quarter of 2020. The Company issued ordinary shares and options for a net immediate consideration of NIS 309 million. The proceeds from the issuance will serve us for general purposes and to strengthen the Company's balance sheet. We have taken the necessary steps to meet an annual investment target of NIS 450-500 million, and we continue to implement the overall efficiency plan for all the expense components of the Company.

"We are in the midst of a global economic crisis as a result of the Coronavirus pandemic. As this crisis continues, it is expected to adversely affect the Company's results of operations, particularly the revenues of the Company's roaming services abroad and the roaming services of tourists in Israel, revenues from end-user equipment and sales to new customers, resulting from the closure of service centers and frontal sales points and substantial reduction of call centers operation, in accordance with regulatory instructions. In addition, in the first quarter of 2020, the Company is expected to record losses on its managed investment portfolio due to sharp decline in capital markets in Israel and worldwide. On the other hand, the Company is acting to mitigate the expected adverse effect by reducing expenses and investments during the crisis. At this stage it is difficult to anticipate the duration of the crisis and therefore, the scope of the adverse effect to the Company's results of operations. 

"The company signed a Memorandum of Understanding to acquire Golan Telecom shares for NIS 590 and additional payments. We consider this acquisition an opportunity to strengthen our position as a leading telecommunications Company. Upon completion of the transaction, which is subject to certain conditions including regulatory approvals, and the extraction of operating synergies, Golan is expected to contribute to the Adjusted EBITDA and free cash flow of Cellcom, significant amounts on top of what has being paid by Golan to Cellcom Israel today.

"The Company's Board of Directors decided not to distribute a dividend for the fourth quarter of 2019, in view of continued increased market competition and its negative impact on the Company's operating results, in order to continue to strengthen the Company's balance sheet. The Board of Directors will review its decision in accordance with the development of market conditions, while taking into account the needs of the Company." 

Cellcom Israel Ltd. (NYSE: CEL; TASE: CEL) ("Cellcom Israel" or the "Company") announced today its financial results for the fourth quarter and full year ended December 31, 2019.

The Company reported that revenues for the fourth quarter and full year 2019 totaled NIS 932 million ($270 million) and NIS 3,708 million ($1,073 million), respectively; Adjusted EBITDA for the fourth quarter 2019 totaled NIS 212 million ($61 million), or 22.7% of total revenues, and for the full year 2019 totaled NIS 940 million ($272 million), or 25.4% of total revenues; loss for the fourth quarter and full year 2019 totaled NIS 54 million ($16 million) and NIS 107 million ($31 million), respectively. Basic loss per share for the fourth quarter and full year 2019 totaled NIS 0.43 ($0.12) and NIS 0.90 ($0.26), respectively.

Main Consolidated Financial Results:

Main Financial Data by Operating Segments:

Financial Review (2019 full year compared to 2018):

Revenues for 2019 Increased 0.5% totaling NIS 3,708 million ($1,073 million), compared to NIS 3,688 million ($1,067 million) last year. The increase in revenues is attributed to a 3.1% increase in equipment revenues which was partially offset by a 0.3% decrease in service revenues.

Service revenues for 2019 totaled NIS 2,776 million ($803 million), a 0.3% decrease from NIS 2,784 million ($806 million) last year.

Service revenues in the cellular segment totaled NIS 1,679 million ($486 million) in 2019, a 2.9% decreased from NIS 1,730 million ($501 million) last year. This decrease resulted mainly from the ongoing erosion intense in the price of these services as a result of the competition in the cellular market.

Service revenues in the fixed-line segment totaled NIS 1,258 million ($364 million) in 2019, a 3.5% increase from NIS 1,215 million ($352 million) last year. This increase resulted mainly from an increase in revenues from TV and internet services, which was partially offset by a decrease in revenues from international calling services and minutes sales among international operators (hubbing services).

Equipment revenues totaled NIS 932 million ($270 million) in 2019, a 3.1% increase compared to NIS 904 million ($261 million) last year. This increase resulted mainly from an increase in the quantity of end user equipment sold in the fixed-line segment during 2019 compared to 2018.

Cost of revenues totaled NIS 2,725 million ($788 million) in 2019, compared to NIS 2,661 million ($770 million) in 2018, a 2.4% increase. This increase resulted mainly from an increase in of end user equipment sold in the fixed-line segment as well of an increase in content costs related to the TV field and in costs related to internet services as a result of increased of usage. This increase was partially offset by a decrease in costs of international calling services and hubbing services.

Gross profit for 2019 decreased 4.3% to NIS 983 million ($285 million), compared to NIS 1,027 million ($297 million) in 2018. Gross profit margin for 2019 amounted to 26.5%, down from 27.8% in 2018.

Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for 2019 increased 1.3% to NIS 939 million ($272 million), compared to NIS 927 million ($268 million) in 2018. This increase is primarily a result of an increase in depreciation expenses due to the capitalization of part of the customer acquisition costs, as a result of early adoption of an International Financial Reporting Standard (IFRS 15) as of the first quarter of 2017. This increase was partially offset by a decrease of salaries expenses and doubtful accounts expenses.

Other expenses for 2019 totaled NIS 20 million ($6 million), compared to other income of NIS 1 million ($0.3 million) in 2018. Other expenses for 2019, include mainly an expense totaling NIS 45 million in 2019  as part of a voluntary retirement plan (compared with NIS 26 million in 2018), which was partially offset by profit from the sale of fiber infrastructure in residential neighborhoods

Operating income for 2019 totaled NIS 24 million ($7 million) compared to NIS 101 million ($29 million) in 2018.

Adjusted EBITDA for 2019 increased by 36.8% totaling NIS 940 million ($272 million) compared to NIS 687 million ($199 million) in 2018. Adjusted EBITDA for 2019, as a percent of revenues, totaled 25.3% increase from 18.6% in 2018. The increase of Adjusted EBITDA  resulted mainly from a decrease in rent expenses in a total amount of NIS 275 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, which was partially offset by an expense for employee voluntary retirement plan in the fourth quarter of 2019 which totaled NIS 45 million (compared with NIS 26 million in 2018). 

Cellular segment Adjusted EBITDA for 2019 totaled NIS 627 million ($181 million), compared to NIS 418 million ($121 million) last year, an increase of 50%, which resulted mainly from a decrease in rent expenses in a total amount of NIS 247 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, which was partially offset by an expense for employee voluntary retirement plan in the fourth quarter of 2019 which totaled NIS 30 million.

Fixed-line segment Adjusted EBITDA for 2019 totaled NIS 313 million ($91 million), compared to NIS 269 million ($78 million) last year, a 16.4% increase, which resulted mainly from a decrease in rent expenses in a total amount of NIS 28 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 a profit from the sale of fiber infrastructure in residential neighborhoods which was partially offset by an expense for employee voluntary retirement plan in the fourth quarter of 2019 which totaled NIS 15 million.  

Financing expenses, net for 2019 decreased to NIS 144 million ($42 million), compared to NIS 171 million ($49 million) in 2018. The finance expenses net, decreased as a result of finance income from gain in the Company's tradable investment portfolio and decrease in interest expenses which was partially offset, inter alia, by an increase of financing expenses as a result of the initial implementation of IFRS 16 as of 1 January 2019.

Tax benefit for 2019 totaled NIS 23 million ($7 million), compared to NIS 6 million ($2 million) of in 2018. This results mainly from the Company's loss before tax for which the Company recorded a tax income, which was partially offset by non-deductible expenses for tax purposes.

Loss for 2019 totaled NIS 107 million ($31 million), compared to a loss of NIS 64 million ($18 million) in 2018.

Basic loss per share for 2019 totaled NIS 0.90 ($0.26), compared to basic earnings per share of NIS 0.58 ($0.17) last year.

Financial Review (fourth quarter of 2019 compared to fourth quarter of 2018):

Revenues for the fourth quarter of 2019 increased 1.5% totaling NIS 932 million ($270 million), compared to NIS 918 million ($266 million) in the fourth quarter last year. The increase in revenues is attributed to a 2.5% increase in service revenues which was partially offset by a 1.2% decrease in equipment revenues.

Service revenues totaled NIS 694 million ($201 million) in the fourth quarter of 2019, a 2.5% increase from NIS 677 million ($196 million) in the fourth quarter last year. This increase resulted mainly from an increase in revenues from TV and internet services.

Service revenues in the cellular segment totaled NIS 416 million ($120 million) in the fourth quarter of 2019, similar to the fourth quarter of 2018.

Service revenues in the fixed-line segment totaled NIS 318 million ($92 million) in the fourth quarter of 2019, a 5.6% increase from NIS 301 million ($87 million) in the fourth quarter last year. This increase resulted mainly from an increase in revenues from TV and internet services

Equipment revenues in the fourth quarter of 2019 totaled NIS 238 million ($69 million), a 1.2% decrease compared to NIS 241 million ($70 million) in the fourth quarter last year. This decrease resulted mainly from a decrease in the quantity of end user equipment sold in the fixed-line segment which was partially offset by an increase in end user equipment sold in the cellular segment.

Cost of revenues for the fourth quarter of 2019 totaled NIS 692 million ($200 million), compared to NIS 676 million ($196 million) in the fourth quarter of 2018, a 2.4% increase. This increase resulted mainly from an increase in content costs related to the TV field and in costs related to internet services in the fixed-line segment and an increase in the cost of end user equipment resulting from an increase in equipment sales in cellular segment.

Gross profit for the fourth quarter of 2019 decreased 0.8% to NIS 240 million ($69 million), compared to NIS 242 million ($70 million) in the fourth quarter of 2019. Gross profit margin for the fourth quarter of 2019 amounted to 25.8%, down from 26.4% in the fourth quarter of 2018.

Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the fourth quarter of 2019 decreased 3.4% to NIS 226 million ($65 million), compared to NIS 234 million ($68 million) in the fourth quarter of 2018. This decrease is primarily a result of a decrease in salaries expenses, and  doubtful accounts expenses, which was partially offset by an increase in amortization expenses due to the capitalization of part of the customer acquisition costs.

Operating loss for the fourth quarter 2019 totaled NIS 27 million ($8 million), compared to operating profit of NIS 14 million ($4 million) in the fourth quarter of 2018. The operating loss for the fourth quarter 2019 include an expense for employee voluntary retirement plan, which totaled NIS 45 million. Excluding this effect, there is an improvement in the company's operating profit compared to the same quarter last year.

Adjusted EBITDA for the fourth quarter of 2019 increased by 25.4% totaling NIS 212 million ($61 million) compared to NIS 169 million ($49 million) in the fourth quarter of 2018.  Adjusted EBITDA as a percent of revenues for the fourth quarter of 2019 totaled 22.7%, up from 18.4% in the fourth quarter of 2018.

Cellular segment adjusted EBITDA for the fourth quarter of 2019 increased by 29.1% totaling NIS 133 million ($38 million) compared to NIS 103 million ($30 million) in the fourth quarter last year. This 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, which was partially offset by an increase in an expense for employee voluntary retirement plan totaled NIS 30 million ($9 million).  

Fixed-line segment adjusted EBITDA for the fourth quarter of 2019 totaled NIS 79 million ($23 million), compared to NIS 66 million ($19 million) in the fourth quarter last year, a 19.7% increase, which resulted mainly from 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, which was partially offset by an increase in an expense for employee voluntary retirement plan which totaled NIS 15 million ($4 million).

Financing expenses, net for the fourth quarter of 2019 decreased 33.3% and totaled NIS 34 million ($10 million), compared to NIS 51 million ($15 million) in the fourth quarter of 2018. The decrease resulted mainly from losses in the Company's tradable investment portfolio due to a sharp decrease in the securities market in the fourth quarter of 2018 and a decrease in interest expenses.

Tax benefit for the fourth quarter of 2019 totaled NIS 13 million ($4 million), compared to NIS 2 million ($1 million) in the fourth quarter of 2018. Income tax resulted mainly from the Company's loss before tax for which the Company recorded a tax income, which was partially offset by non-deductible expenses for tax purposes.

Loss for the fourth quarter of 2019 totaled NIS 54 million ($16 million), compared to NIS 35 million ($10 million) in the fourth quarter of 2018. The loss in the fourth quarter of 2019 was affected by an expense for employee voluntary retirement plan, which totaled NIS 45 million. (NIS 35 million, net of tax)

Basic loss per share for the fourth quarter of 2019 totaled NIS 0.43 ($0.12), compared to basic loss per share NIS 0.3 ($0.08) in the fourth quarter last year.

OPERATING REVIEW

MAIN PERFORMANCE INDICATORS - Cellular segment:

Cellular subscriber base - at the end of 2019 the Company had approximately 2.744 million cellular subscribers, a decrease of approximately 107,000 subscribers net, compared to the cellular subscriber base at the end of 2018. The decrease resulted mainly because the company deleted 153,000 subscribers from its subscriber base count at the end of the first quarter of 2019 due to a change in the counting method of the company's cellular subscriber base. These subscribers generate negligible revenues to the Company. Excluding this effect the Company's subscribers base increased by approximately 46,000 subscribers net. In the fourth quarter of 2019, the Company's cellular subscriber base decreased by approximately 23,000 subscribers net.

Cellular Churn Rate for 2019 totaled 48.8%, compared to 43.2% in 2018. The cellular churn rate for the fourth quarter of 2019 totaled 11.3%, compared to 11.1% in the fourth quarter last year. Due to the significant influence of M2M subscribers on the reported churn rate of the company, which is mostly technical, the Company is examining a new counting method of M2M subscribers' churn, which is similar to other companies in Israel from the first quarter of 2020. This change, if and when applicable, is expected to significantly reduce the reported churn rate of the Company.

The monthly cellular Average Revenue per User ("ARPU") for 2019 totaled NIS 50.7 ($14.7) compared to NIS 51.3 ($14.8) in 2018. ARPU for the fourth quarter of 2019 totaled NIS 50.5 ($14.6), compared to NIS 49.0 ($14.2) in the fourth quarter last year. The decrease in ARPU, both annually and quarterly resulted, among others, from the ongoing erosion in the prices of cellular services, resulting from the intense competition in the cellular market.

MAIN PERFORMANCE INDICATORS - FIXED-LINE SEGMENT:

In 2019, the Company's subscriber base in the internet infrastructure field increased by approximately 9,000 households net, and the Company's subscriber base in the TV field increased by 39,000 households net. In the fourth quarter of 2019, the Company's subscriber base in the internet infrastructure field increased by approximately 2,000 households net, and the Company's subscriber base in the TV field increased by 11,000 households net.

FINANCING AND INVESTMENT REVIEW

Cash Flow

Free cash flow for 2019 totaled NIS 391 million ($113 million), compared to NIS 181 million ($52 million) in 2018, a 116% increase. 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, a decrease in salaries expenses as a result of employee voluntary retirement plan of 2018 and a decrease in tax payments, net in 2019 compared to 2018.

Free cash flow for the fourth quarter of 2019 totaled NIS 56 million ($16 million), compared to NIS 7 million ($2 million) in the fourth quarter of 2018, a 700% increase. The increase in quarterly free cash flow resulted mainly from an increase in receipts from customers, decrease in salaries payments and decrease in payments for end-user equipment suppliers.

Total Equity

Total Equity as of December 31, 2019 amounted to NIS 1,887 million ($546 million) primarily consisting of undistributed accumulated retained earnings of the Company.

Cash Capital Expenditures in Fixed Assets and Intangible Assets and others

During 2019 and the fourth quarter of 2019 the Company invested NIS 557 million ($161 million) and NIS 111 million ($32 million), respectively, in fixed assets and intangible assets and others (including, among others, investments in the Company's communications networks, investment in optic-fiber 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 593 million ($172 million) and NIS 156 million ($45 million) in 2018 and the fourth quarter of 2018, respectively.

Dividend

On March 22, 2020, the Company's Board of Directors decided not to declare a cash dividend for the fourth quarter of 2020. 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 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 annual report for the year ended December 31, 2019 on Form 20-F dated March 23, 2020, or the Company's 2019 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 December 31, 2019, see "Disclosure for Debenture Holders" section in this press release.

For information regarding the Company's material loans as of December 31, 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 December 31, 2019, see "Disclosure for Debenture Holders" section in this press release.

CONFERENCE CALL DETAILS

The Company will be hosting a conference call regarding its results for the year 2019 and for the fourth quarter of 2019 on Monday, March 23, 2020 at 10:00 am ET, 07:00 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.

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.

ANNUAL REPORT FOR 2019

Cellcom Israel will be filing its annual report for the year ended December 31, 2019 (on Form 20-F) with the US Securities and Exchange Commission on March 23, 2020. The annual report will be available for download from the investor relations section of Cellcom Israel's website: www.cellcom.co.il. Cellcom Israel will furnish a hard copy to any shareholder who so requests, without charge. Such requests may be sent through the Company's website or by sending a postal mail request to Cellcom Israel Ltd., 10 Hagavish Street, Netanya, Israel (attention: Chief Financial Officer).

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 2.744 million cellular subscribers (as at December 31, 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, 2019. 

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 3.456 = US$ 1 as published by the Bank of Israel for December 31, 2019.

Use of non-IFRS financial measures

Adjusted EBITDA is a non-IFRS measure and is defined as income before interest (financing expenses, net), taxes, other income (expenses) (except for expenses in respect of voluntary retirement plans for employees, and gain (loss) due to sale of subsidiaries), 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

Comments:

(1) For a summary of the terms of the Company's outstanding debentures see the Company's 2019 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 December 31, 2019 the net leverage *** was 2.03. 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. (8) On January, 2020, after the end of the reporting period, the Company repaid principal payments of approximately NIS 214 million of Series F debentures that were fully repaid. 9) In December 2019, the Company repurchased Series L Debentures for approximately NIS 10 million.

(*) On these dates additional debentures of the series were issued, the information in the table refers to the full series. (**) As of December 31, 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 year ended in December 31, 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 2 F to the Company's financial statement for the period ended on December 31, 2019, included elsewhere in this report.

Cellcom Israel Ltd.

(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.

Comments:

(1) For a summary of the terms of the Company's loan agreements see the Company's 2019 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 December 31, 2019 the net leverage* (net debt to Adjusted EBITDA excluding one-time events ratio- see definition in the reference above to the Company's 2019 Annual Report (The definition of Adjusted EBITDA is identical to the definition of EBITDA (which the Company used in previous periods)) was 2.03. (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 year ended in December 31, 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 2 F to the Company's financial statement for the period ended on December 31, 2019 included elsewhere in this report.

 

Cellcom Israel Ltd.

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

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).

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

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 December 31, 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).

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).

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 annual and fourth quarter of 2019 amounted to an increase of NIS 275 million and NIS 72 million in Adjusted EBITDA respectively, an increase of NIS 280 million and NIS 76 million in Cash flows from operating activities respectively and an increase of NIS 6 million in the loss.

SOURCE Cellcom Israel Ltd.

Related Links

https://www.cellcom.co.il/