NETANYA, Israel, May 15, 2012 /PRNewswire/ --
Cellcom Israel implemented efficiency measures, which led to a decrease of approximately NIS 80 million in expenses and contributed to improved results in the first quarter 2012 compared with the fourth quarter 2011
Cellcom Israel declares a first quarter dividend of NIS 1.31 per share (totals approx. NIS 130 million), representing approximately 75% of net income
First Quarter 2012 Highlights[1] (compared to the first quarter 2011):
- Total Revenues totaled NIS 1,585 million ($427 million), a 0.1% decrease
- Total Revenues from services totaled NIS 1,186 million ($319 million), a 1.6% decrease
- Revenues from content and value added services (including SMS) increased 10.9%, representing approximately 33.4% of services revenues[2]
- EBITDA[3]totaled NIS 475 million ($128 million), a 25.7% decrease
- EBITDA margin 30%, down from 40.3%
- Operating income totaled NIS 275 million ($74 million), a 41.6% decrease
- Net income totaled NIS 173 million ($47 million), a 43.5% decrease
- Free cash flow[3] to NIS 144 million ($39 million), a 64.1% decrease
- Cellular Subscriber base totaled approx. 3.362 million at the end of March 2012
- 3G cellular subscribers reached approx. 1.388 million at the end of March 2012, representing 41.3% of total cellular subscriber base
- The Company declared first quarter dividend of NIS 1.31 per share
Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel", the "Company"), announced today its financial results for the first quarter of 2012. Revenues for the first quarter 2012 totaled NIS 1,585 million ($427 million); EBITDA for the first quarter 2012 totaled NIS 475 million ($128 million), or 30% of total revenues; and net income for the first quarter 2012 totaled NIS 173 million ($47 million). Basic earnings per share for the first quarter 2012 totaled NIS 1.74 ($0.47).
Commenting on the results, Nir Sztern, Chief Executive Officer, said: "I am pleased with the success of the Netvision merger, which already had a positive effect on costs and contributed to revenues, this quarter. Comparing the results of the first quarter of 2012 with the first quarter of 2011, we see a decline in profitability as a result of the regulatory changes and increased competition. However, if we compare the first quarter 2012 with the fourth quarter 2011, we can see a decrease in the Company's expenses of approximately NIS 80 million as a result of the efficiency measures we implemented.
"The intensified competition which characterized this past year, led to a continued reduction in service revenues. The decline in service revenues will continue in the following quarters and may even escalate as a result of the new competition, and so, we intend to implement additional efficiency measures regarding costs and merger synergies, but we estimate that these measures will only partly compensate for the decrease in revenues."
On revenues from Data services as a potential growth engine, Nir Sztern commented: "We continue to deepen our focus on cellular internet growth by introducing data devices, such as the new iPad, for which we were the first cellular company in Israel to introduce this product, as well as sales of a wide variety of tablets and smartphones. Revenues from content and value added services rose 10.9% compared with the first quarter of last year.
"I congratulate the Ministry of Communications for its decision to open the landline market for competition. We see this as an opportunity to grow and strengthen Cellcom Israel's position as a communications group providing a wide variety of solutions to business and private customers. However, the success of opening this market to competition still depends on the active involvement and supervision of the regulator for the benefit of creating competition in the market.
"We continue to make every effort to ensure that Cellcom Israel is ready to face the challenges expected this year. We are the company with the best consumer conduct from among the Israeli cellular operators (according to the Public Trust organization), our brand is the leading brand in the cellular market (according to Globes brand index) and we are in the midst of upgrading our network to enable future surfing speeds of up to 84 Mbps.
"I am confident that all these, together with the qualified human resources of the company will assist in continuing our leadership in the coming years."
Yaacov Heen, Chief Financial Officer, commented: "The operational synergy of the Netvision merger and the efficiency measures we implemented at the end of 2011, affected the first quarter of 2012, and demonstrate our efforts to adjust the expense structure to the level of revenues. We did, in fact, succeed to compensate for the decrease in revenues through our noted efficiency measures in the first quarter. In the second quarter of 2012 the impact of revenue erosion will be significantly higher than the effect of further efficiency measures and therefore, we foresee a decline in profitability compared with the first quarter of this year.
"This quarter, we benefited from lower financing expenses as the Consumer Price Index (CPI) remained unchanged. However, in the next quarter, should the market expectations of higher inflation be realized, we anticipate a substantial increase in our financing expenses, which will have a material impact on our net income for the second quarter of 2012, compared with the first quarter 2012.
"The free cash flow for the first quarter 2012 totaled NIS 144 million, a 64.1% decrease compared with the first quarter of 2011, but an improvement compared with the fourth quarter 2011. For the first quarter of 2012, the Company will distribute a dividend of approximately NIS 130 million, representing approximately 75% of the first quarter net income to our shareholders."
Main Consolidated Financial Results (financial data for Q1/2012 only, includes Netvision's results):
Q1/2012 Q1/2011 % Change Q1/2012 Q1/2011 million US$ (convenience million NIS translation) Total revenues 1,585 1,587 (0.1%) 426.6 427.2 Operating Income 275 471 (41.6%) 74.0 126.8 Net Income 173 306 (43.5%) 46.6 82.4 Free cash flow 144 401 (64.1%) 38.8 107.9 EBITDA 475 639 (25.7%) 127.9 172.0 EBITDA, as percent of total revenues 30.0% 40.3% (25.6%)
Main Financial Data by Companies:
Cellcom Israel without Consolidation adjustments Consolidated Netvision Netvision (*) results Change Q1/2012 Q1/2011 (%) Q1/2012 Q1/2012 Total revenues 1,327 1,587 (16.4%) 275 (17) 1,585 Total service revenues (including revenues from content and value added services) 945 1,205 (21.6%) 258 (17) 1,186 Revenues from content and value added services 316 285 10.9% - - 316 Equipment revenues 382 382 - 17 - 399 Operating Income 263 471 (44.2%) 37 (25) 275 EBITDA 410 639 (35.8%) 65 - 475 EBITDA, as percent of total revenues 30.9% 40.3% (23.3%) 23.6% - 30.0%
(*)Include inter-company revenues between Cellcom Israel and Netvision, and amortization expenses attributable to the merger.
Main Performance Indicators (data refers to cellular subscribers only):
Change Q1/2012 Q1/2011 (%) Cellular subscribers at the end of period (in thousands) 3,362 3,395 (0.9%) Churn Rate for cellular subscribers (in %) 6.3% 7.1% (11.3%) Monthly cellular ARPU (in NIS) 90.5 115.2 (21.4%) Average Monthly cellular MOU (in minutes) 365 334 9.3%
Financial Review (financial data for Q1/2012 only in this section, includes Netvision's data)
Revenues for the first quarter of 2012 totaled NIS 1,585 million ($427 million), a slight decrease compared to NIS 1,587 million ($427 million) in the first quarter last year. The decrease in revenues is attributed to a 1.6% decrease in service revenues, which totaled NIS 1,186 million ($319 million) in the first quarter 2012 as compared to NIS 1,205 million ($324 million) in the first quarter last year. The majority of this decrease was offset by a 4.5% increase in equipment revenues, which totaled NIS 399 million ($107 million) in the first quarter 2012 as compared to NIS 382 million ($103 million) in the first quarter last year. Netvision's contribution to total revenues for the first quarter of 2012 totaled NIS 258 million ($69 million) excluding inter-company revenues. Excluding Netvision's contribution, total revenues decreased by 16.4% compared with the first quarter last year.
The decrease in service revenues resulted mainly from the ongoing price erosion, due to the increased competition in the market. The decrease was partially offset by an increase of 10.9% in content and value added services (including SMS) revenues in the first quarter 2012, compared to the first quarter last year. Revenues from content and value added services for the first quarter 2012 totaled NIS 316 million ($85 million), or 33.4% of service revenues (excluding Netvision's service revenues). After elimination of Netvision's contribution to service revenues for the first quarter of 2012 in the amount of NIS 241 million ($65 million) (excluding inter-company revenues), service revenues decreased by 21.6%.
Equipment revenues increased by 4.5%, from NIS 382 million ($103 million) in the first quarter last year, to NIS 399 million ($107 million) in the first quarter 2012. Netvision's contribution to those revenues for the first quarter of 2012 totaled NIS 17 million ($5 million). After elimination of Netvision's contribution to equipment revenues for the first quarter of 2012, equipment revenues were similar to those for the first quarter last year.
Cost of revenues for the first quarter of 2012 increased by 19.9% totaling NIS 899 million ($242 million). Netvision's contribution to cost of revenues for the first quarter of 2012 totaled NIS 188 million ($51 million) (after elimination of inter-company expenses of NIS 17 million ($5 million)). After elimination of Netvision's contribution, cost of revenues decreased by 5.2% and totaled NIS 711 million ($191 million) in the first quarter of 2012, compared to NIS 750 million ($202 million) in the first quarter last year. This decline in cost of revenues after elimination of Netvision's contribution primarily resulted from a decrease in cost of content services and in cost of cellular handsets repair services due to efficiency measures implemented in these areas. The decrease in cost of revenues also resulted from a decrease in amortization expenses, attributable mainly to a decrease in amortization expenses associated with capitalized handsets subsidies.
Gross profit for the first quarter of 2012 decreased 18% to NIS 686 million ($185 million), compared to NIS 837 million ($225 million) in the first quarter of 2011. Gross profit margin for the first quarter 2012 decreased to 43.3% from 52.7% in the first quarter last year.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the first quarter of 2012 increased by 11.5% to NIS 408 million ($110 million), compared to NIS 366 million ($99 million) in the first quarter of 2011. SG&A Expenses for the first quarter of 2012 excluding Netvision's contribution decreased by 3.8%. The decrease in SG&A Expenses after elimination of Netvision's contribution mainly resulted from a decrease in amortization expenses related to capitalized sales commissions. Netvision's contribution to SG&A Expenses for the first quarter of 2012 amounted to NIS 57 million ($15 million), including amortization expenses of intangible assets, attributable to the merger, in the amount of NIS 25 million ($7 million).
Operating income for the first quarter of 2012 totaled NIS 275 million ($74 million), compared to NIS 471 million ($127 million) in the first quarter last year, a 41.6% decrease.
EBITDA for the first quarter of 2012 decreased 25.7% to NIS 475 million ($128 million) representing 30.0% of total revenues, compared to NIS 639 million ($172 million) represented 40.3% of total revenues in the first quarter 2011. Netvision's contribution to EBITDA for the first quarter 2012 totaled NIS 65 million ($18 million). EBITDA as a percent of total revenues for the first quarter of 2012 after elimination of Netvision's contribution to EBITDA and total revenues totaled 30.9%.
Financing expenses, net for the first quarter of 2012 totaled NIS 36 million ($10 million), compared to NIS 67 million ($18 million) in the first quarter last year. This decrease was primarily due to a decrease in Consumer Price Index (CPI) linkage expenses, associated with the Company's debentures, since the CPI did not change in the first quarter this year while it increased by 0.9% in first quarter last year. The decrease in financing expenses, net, also resulted from an increase in interest income, associated with handsets sales. These effects were partially offset by an increase in interest expenses, associated with the Company's debentures, in the first quarter of 2012, compared to the first quarter of 2011, due to the higher debt level following the issuance of additional debentures.
Net Income for the first quarter of 2012 totaled NIS 173 million ($47 million), compared to NIS 306 million ($82 million) in the first quarter last year, a 43.5% decrease. This decrease mainly resulted from the decrease in service revenues.
Basic earnings per share for the first quarter of 2012 totaled NIS 1.74 ($0.47), compared to NIS 3.09 ($0.83) in the first quarter 2011.
Operating Review (data refers to cellular subscribers only)
New Cellular Subscribers - at the end of March 2012 the Company had approximately 3.362 million cellular subscribers. During the first quarter of 2012 the Company recruited approximately 13,000 net subscribers (all of them post-paid subscribers).
In the first quarter of 2012, the Company added approximately 57,000 net new 3G cellular subscribers to its 3G subscriber base, reaching approximately 1.388 million 3G subscribers at the end of March 2012, representing 41.3% of the Company's total cellular subscriber base, an increase from the 35% 3G subscribers represented of total subscribers at the end of March 2011.
The Churn Rate of cellular subscribers in the first quarter 2012 was 6.3%, compared to 7.1% in the first quarter last year. The churn rate for both quarters was impacted, among others, by the churn of pre-paid subscribers, characterized by lower contribution, and subscribers with collection problems.
Average monthly cellular Minutes of Use per subscriber ("MOU") in the first quarter 2012 totaled 365 minutes, compared to 334 minutes in the first quarter 2011, an increase of 9.3%.
The monthly cellular Average Revenue per User (ARPU) for the first quarter of 2012 decreased 21.4% and totaled NIS 90.5 ($24.4), compared to NIS 115.2 ($31.0) in the first quarter last year. The decrease is attributed to the ongoing airtime price erosion.
Financing and Investment Review (financial data for q1/2012 only, includes netvision's data)
Cash Flow
Free cash flow for the first quarter of 2012 totaled NIS 144 million ($39 million), compared to NIS 401 million ($108 million) generated in the first quarter 2011. Cash flows from operating activities for the first quarter this year decreased, compared with the first quarter last year, mainly as a result of the decrease in service revenues, due to the intensified competition. Net cash used in investing activities for the first quarter of 2012 (excluding changes in short-term investment in deposits and tradable debentures) increased, compared with the first quarter last year, mainly due to an increased investment in the upgrade of the Company's UMTS and transmission networks during the first quarter of 2012.
Total Equity
Total Equity as of March 31, 2012 amounted to NIS 282 million ($76 million), primarily consisting of accumulated undistributed retained earnings.
Capital expenditure
The Company's accrual capital expenditure for the first quarter 2012, totaled NIS 188 million ($51 million) (including, among others, rights of use of communication lines, information systems and software), compared to NIS 73 million ($20 million) in the first quarter 2011. The increase primarily resulted from an increased investment in the upgrade of the Company's UMTS and transmission networks during the first quarter of 2012 compared with the first quarter last year. Furthermore, the consolidated capital expenditure for the first quarter of 2012 includes Netvision's capital expenditure, while it was not consolidated in the first quarter last year.
Dividend
On May 14, 2012, the Company's board of directors declared a cash dividend in the amount of NIS 1.31 per share, and in the aggregate amount of approximately NIS 130 million (the equivalent of approximately $0.34 per share and approximately $34 million in the aggregate, based on the representative rate of exchange on May 10, 2012; The actual US$ amount for dividend paid in US$ will be converted from NIS based upon the representative rate of exchange published by the Bank of Israel on July 24, 2012), subject to withholding tax described below. The dividend will be payable to all of the Company's shareholders of record at the end of the trading day in the NYSE on July 11, 2012. The payment date will be July 26, 2012. According to the Israeli tax law, the Company will deduct at source 25% of the dividend amount payable to each shareholder, as aforesaid, subject to applicable exemptions. The dividend per share that the Company will pay for the first quarter of 2012 does not reflect the level of dividends that will be paid for future quarterly periods, which can change at any time in accordance with the Company's dividend policy. A dividend declaration is not 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, 2011 on Form 20-F, under "Item 8 - Financial Information - Dividend Policy".
In making the decision of dividend distribution, the Company's board of directors considered and determined the following: (1) the distribution complies with the Profit Test given that the Company's cumulative retained earnings, as such term is defined in the applicable Israeli law, as of March 31, 2012 (NIS 277 million) exceeds the amount of dividend declared (and after the reduction of the dividend declared will total approximately NIS 147 million); (2) the distribution complies with the Solvency Test after considering the Company's financial condition, including the Company's free cash flow, the Company's financial debt balance, the Company's net debt, including the Company's investment portfolio, the Company's forecasted cash flows for the years 2012-2014 and the Company's ability to raise additional debt; (3) the distribution complies with the license limitation and the Company's covenants in certain of its debentures related to dividend distribution; (4) the distribution of the dividend shall not materially adversely effect the Company's financial condition, including the Company's capital structure, leverage level, liquidity, the fulfillment of the Company's covenants and undertakings and the Company's ability to continue the Company's operation as conducted prior to the dividend declaration, including the Company's ability to fulfill our investments plans. In making the aforementioned determinations, which involve forecasts, the board assumed (a) the Company will continue to be leveraged at a rate complying with the Company's covenants and undertakings; and (b) market and regulation conditions will not change drastically.
Debentures
For information regarding the Company's summary of financial undertakings and details regarding the Company's outstanding debentures as of March 31, 2012, see "Disclosure for Debenture Holders" section in this press release.
Other developments during the first quarter of 2012 and subsequent to the end of the reporting period
Regulation
Annulment of Early Termination Fees - In March 2012, the previously reported bill proposing to completely annul Early Termination Fees in relation to new cellular customers with less than a certain number of phone lines, was enacted by the Israeli parliament and will apply retroactively as of November 2011. In addition, this law also prohibits cellular operators to make any linkage between a cellular services transaction and a handset purchase transaction, including by way of offering airtime rebates or refunds for handsets, as of January 1, 2013.
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2011, 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" as well as under "Item 4. Information on the Company - Competition" and "- Government Regulation - Tariff Supervision".
Additional Cellular Operators - In May 2012, Golan Telecom Ltd., a new UMTS operator, and Mirs Communications Ltd., announced the launch of their UMTS services. Additionally, Home Cellular Ltd. and Alon Cellular Ltd., both mobile virtual operators, commenced operations during April and May 2012, respectively.
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2011, 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" and " - We face intense competition in all aspects of our business" as well as under "Item 4. Information on the Company - B. Business Overview - The Telecommunications Industry in Israel - Cellular services"; "Competition" and "Government Regulations - Mobile Virtual Network Operator" and " - Additional UMTS Operators".
Wholesale market in the wireline communications market - In May 2012, the Israeli Minister of Communications published a policy document in relation to the wholesale market in the wireline communications market in Israel. The document adopts the main recommendations of the public committee appointed by the Ministry of Communications to examine Bezeq's tariffs structure and tariffs for wireline wholesale services. The policy includes mainly the following:
- The wholesale market's tariffs and terms of agreement shall be agreed through negotiations between the owners of the wireline infrastructure (Bezeq and Hot) and the other operators. An infrastructure owner that reaches an agreement with such other operator, shall be obligated to offer the same terms, without discrimination, to all operators, including its affiliates. The Ministry of Communications shall intervene in the negotiations or in the terms of the agreement between the parties in case an agreement has not been reached within six months from the date of the policy document or in case the agreement between the parties includes terms that may harm the competition or the public. In addition, the Minister may intervene in a retail tariff that was set by the owner of wireline infrastructure or its affiliate that harms the competition, through changing of the wholesale tariff.
- The structural separation between an owner of wireline infrastructure and its international landline operator and internet service provider affiliates shall be annulled within nine months from the date of execution of an agreement between such owner of wireline infrastructure and other operator and shall be replaced by an accounting separation. The Minister shall consider providing leniencies in relation to or annulment of the structural separation between an owner of wireline infrastructure and its cellular operator affiliate according to the pace of development of a wholesale market and the state of competition in the market. In case an effective wholesale market does not develop within twenty four months from the date of the policy document, the Ministry of Communications shall act to impose a structural separation in the owners of the wireline infrastructure between the infrastructure and the services provided through this infrastructure.
- The Minister of Communications shall consider to annul the structural separation in relation to television broadcasting services if there is a reasonable possibility to provide a basic package of television services through the internet. The Minister of Communications shall consider imposing a requirement to provide television broadcasting services for the same price within a package of telecommunications services and separately.
In relation to the supervision of Bezeq's tariffs the policy is similar to the previously reported final recommendations of the committee.
For additional details see the Company's most recent annual report on form 20-F for the year ended on December 31, 2011 under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We face intense competition in all aspects of our business", and "- Risks related to our wholly owned subsidiary Netvision - changes in the regulatory environment could adversely affect Netvision's business", as well as under "Item 4. Information on the Company - Competition" and under "NETVISION - ISP Business - Competition" and " NETVISION - Telephony Business - Competition".
End User Equipment Agreement
In March 2012, the Company entered an agreement with Apple Sales International, for the purchase and distribution of iPad products in Israel. Under the terms of the agreement, the Company has committed to purchase a minimum quantity of iPad products over a period of three years, which is expected to represent a significant portion of the Company's expected tablets purchase amount over that period. The total amount of the purchases will depend on the iPad products purchase price at the time of purchase.
Shelf Prospectus and Debt Raising
In March 2012, the Company published an amendment to its July 2011 shelf prospectus and indenture filed within such shelf prospectus, after having received the Israeli Securities Authority and the Tel Aviv Stock Exchange approvals. The amendment to the shelf prospectus included also an undertaking of the Company to comply with certain reporting obligations under the Israeli securities law in relation to information to be provided to debenture holders (which have not previously applied to the Company pursuant to Israeli law as it is a dual company traded both in Israel and in the US).
In March 2012, the Company issued new series F debentures in a principal amount of NIS 714,802,000 at an interest rate of 4.35% per annum, linked to the Israeli Consumer Price Index, or CPI. The series was sold at par value (NIS 1,000 per unit).
The Company also issued new series G debentures in a principal amount of NIS 285,198,000, at an interest rate of 6.74% per annum, without linkage. The series was sold at par value (NIS 1,000 per unit).
The debentures (rated ilAA/Negetive) were issued in a public offering in Israel based on the Company's Israeli amended shelf prospectus and were listed for trading on the Tel Aviv Stock Exchange.
The total net consideration received by the Company is approximately NIS 991.6 million.
The Company intends to use the net proceeds from the offering for general corporate purposes, which may include financing its operating and investment activity, refinancing of outstanding debt under its debentures, and continued dividend distributions as customary in the Company, subject to certain restrictions that apply to dividend distributions made by the Company and to the decisions of the Company's board of directors from time to time.
The offering described in this press release, was made in Israel to residents of Israel only. The said debentures will not be registered under the U.S. Securities Act of 1933 and will not be offered or sold in the United States. This press release shall not constitute an offer to sell or the solicitation of an offer to buy any debentures.
For additional details of the Company's Israeli shelf prospectus, public debentures and debt raising see the Company's annual report for the year ended December 31, 2011 on Form 20-F, under "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Debt Service - Shelf prospectus" and " - Public Debentures", the Company's current reports on Form 6-K filed on March 8, 2012, March 13, 2012, March 19, 2012 and March 20, 2012; for details of the Company's dividend policy see the Company's annual report for the year ended December 31, 2011 on Form 20-F under "Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy".
Changes in Management - Vice President of Engineering and Network Operation
In April 2012, the Company received Mr. Issaiah Rozenberg's request to resign from office as the Company's VP of Engineering and Network Operation, effective August 2012.
2006 Share Incentive Plan
In May 2012, our board of directors resolved to enlarge the pool of options or restricted stock units, or RSUs, of the Company's 2006 Share Incentive Plan, or the Plan, by 1 million options or RSUs and to grant 1,550,000 options to certain non director officers and senior employees, out of which 275,000 options to the Company's CEO, at an exercise price of US$ 11.77 per share. The options granted will be vested in 2 equal installments on each of the first and second anniversary of the date of the grant. The options of the first installment may be exercised within 24 months from their vesting and the second installment may be exercised with 18 month from their vesting.
For additional details see the Company's annual report for the year ended December 31, 2011 on Form 20-F, under "Item 6 - Directors, Senior Management and Employees - Share Ownership - 2006 Share Incentive Plan".
Conference Call Details
The Company will be hosting a conference call on Tuesday, May 15, 2012 at 10:00 am ET, 7:00 am PST, 15:00 UK time, 17:00 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: 1 888 407 2553 UK Dial-in Number: 0 800 917 9141 Israel Dial-in Number: 03 918 0610 International Dial-in Number: +972 3 918 0610
at: 10:00 am ET; 7:00 am PST; 15:00 UK time; 17:00 Israel Time
To access the live webcast of the conference call, please access the investor relations section of Cellcom Israel's website: http://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 the leading Israeli cellular provider; Cellcom Israel provides its approximately 3.362 million subscribers (as at March 31, 2012) with a broad range of value added services including cellular and landline telephony, roaming services for tourists in Israel and for its subscribers abroad and additional services in the areas of music, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure. The Company operates 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. Through its broad customer service network Cellcom Israel offers technical support, account information, direct to the door parcel delivery services, internet and fax services, dedicated centers for the hearing impaired, etc. In August 2011, Cellcom Israel completed the acquisition of Netvision Ltd. its whose wholly owned subsidiary, 013 Netvision Ltd., is a leading Israeli provider of internet connectivity services and international calling services. Cellcom Israel, through its wholly owned subsidiaries, also provides landline telephone communication services in Israel, in addition to data communication services. 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://www.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 us, may include projections of our future financial results, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our 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 our license, new legislation or decisions by the regulator affecting our operations, the outcome of legal proceedings to which we are a party, particularly class action lawsuits, our ability to maintain or obtain permits to construct and operate cell sites, and other risks and uncertainties detailed from time to time in our filings with the U.S. Securities and Exchange Commission, including under the caption "Risk Factors" in our Annual Report for the year ended December 31, 2011.
Although we believe the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We assume no duty to update any of these forward-looking statements after the date hereof to conform our 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 US$\New Israeli Shekel (NIS) exchange rate of NIS 3.715 = US$ 1 as published by the Bank of Israel on March 31, 2012.
Use of non-IFRS financial measures
EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net; income tax; depreciation and amortization; 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. 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. 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, EBITDA 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 between the net income and the EBITDA presented at the end of this Press Release.
Free cash flow is a non-IFRS measure and is defined as the net cash provided by operating activities minus the net cash used in investing activities excluding short-term investment in tradable debentures and deposits or proceeds from sales of such debentures and deposits. See the reconciliation note at the end of this Press Release.
Financial Tables Follow
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Financial position
Convenience translation Into U.S. dollar March December March 31, 31, March 31, 31, 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Assets Cash and cash equivalents 1,644 588 158 920 Current investments, including derivatives 400 902 243 290 Trade receivables 1,495 1,868 503 1,859 Other receivables 65 110 29 93 Inventory 123 163 44 170 Total current assets 3,727 3,631 977 3,332 Trade and other receivables 710 1,419 382 1,337 Property, plant and equipment, net 2,017 2,155 580 2,168 Intangible assets, net 704 1,643 442 1,680 Deferred tax assets - 37 10 40 Total non-current assets 3,431 5,254 1,414 5,225 Total assets 7,158 8,885 2,391 8,557 Liabilities Short-term credit and current maturities of long-term loans and debentures 590 752 202 674 Trade payables and accrued expenses 790 930 250 1,026 Current tax liabilities 89 84 23 69 Provisions 87 149 40 148 Other payables, including derivatives 339 471 127 547 Dividend declared 303 72 19 189 Total current liabilities 2,198 2,458 661 2,653 Long-term loans from banks - 19 5 19 Debentures 4,536 5,879 1,583 5,452 Provisions 16 21 6 21 Other long-term liabilities 2 46 12 41 Liability for employee rights upon retirement, net - 15 4 10 Deferred tax liabilities 62 165 44 174 Total non- current liabilities 4,616 6,145 1,654 5,717 Total liabilities 6,814 8,603 2,315 8,370 Equity attributable to owners of the Company Share capital 1 1 - 1 Cash flow hedge reserve (21) - - 7 Retained earnings 364 277 75 175 Non-controlling interest - 4 1 4 Total equity 344 282 76 187 Total liabilities and shareholders' equity 7,158 8,885 2,391 8,557
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Income
Three-month period ended Year ended December March 31, 31, Convenience translation into U.S. dollar 2011 2012 2012 2011 NIS millions NIS millions US$ millions NIS millions Revenues 1,587 1,585 427 6,506 Cost of revenues (750) (899) (242) (3,408) Gross profit 837 686 185 3,098 Selling and marketing expenses (209) (236) (64) (990) General and administrative expenses (157) (172) (46) (685) Other expenses, net - (3) (1) (1) Operating income 471 275 74 1,422 Financing income 19 45 12 116 Financing expenses (86) (81) (22) (409) Financing expenses, net (67) (36) (10) (293) Profit before taxes on income 404 239 64 1,129 Taxes on income (98) (66) (17) (304) Profit for the period 306 173 47 825 Profit for the period attributable to: Owners of the Company 306 173 47 824 Non-controlling interests - - - 1 Profit for the period 306 173 47 825 Earnings per share Basic earnings per share (in NIS ) 3.09 1.74 0.47 8.28 Diluted earnings per share( in NIS ) 3.09 1.74 0.47 8.28
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Cash Flows
Year Three-month period ended ended December March 31, 31, Convenience translation into U.S. dollar 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Cash flows from operating activities: Profit for the period 306 173 47 825 Adjustments for: Depreciation and amortization 168 196 53 738 Share based payments - 1 - 6 Loss on sale of property, plant, and equipment - 1 - - Income tax expense 98 66 18 304 Financing expenses, net 67 36 10 293 Other expenses - 1 - 2 Changes in operating assets and liabilities: Changes in inventory (19) 7 2 (67) Changes in trade receivables (including long-term amounts) (117) (58) (16) (585) Changes in other receivables (including long-term amounts) (4) (18) (5) 61 Changes in trade payables, accrued expenses and provisions 122 (69) (19) 146 Changes in other liabilities (including long-term amounts) 18 19 5 (52) Proceeds from (payments for) derivative hedging contracts, net (3) 3 1 (14) Income tax paid (120) (55) (15) (325) Net cash from operating activities 516 303 81 1,332 Cash flows from investing activities Acquisition of property, plant, and equipment (82) (135) (37) (333) Acquisition of intangible assets (34) (27) (7) (99) Acquisition of subsidiary, net of cash acquired - - - (1,458) Change in current investments, net 2 (621) (167) 197 Proceeds from (payments for) other derivative contracts, net (3) 2 1 1 Proceeds from sale of property, plant and equipment 1 - - 3 Interest received 3 2 1 33 Loan to equity accounted investee - (1) - - Net cash used in investing activities (113) (780) (209) (1,656) Cash flows from financing activities Proceeds from derivative contracts, net 4 (1) - 11 Repayment of long-term loans from banks - - - (4) Repayments of debentures (175) (479) (129) (354) Proceeds from issuance of debentures, net of issuance costs 1,033 992 267 2,165 Dividend paid (31) (189) (51) (858) Interest paid (123) (181) (49) (245) Net cash from financing activities 708 142 38 715 Cash balance presented under assets held for sale - 3 1 (4) Changes in cash and cash equivalents 1,111 (332) (89) 387 Cash and cash equivalents as at the beginning of the period 533 920 247 533 Cash and cash equivalents as at the end of the period 1,644 588 158 920
Cellcom Israel Ltd.
(An Israeli Corporation)
Reconciliation for Non-IFRS Measures
EBITDA
The following is a reconciliation of net income to EBITDA:
Year Three-month period ended ended December March 31, 31, Convenience translation into US dollar 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Profit for the period 306 173 47 825 Taxes on income 98 66 17 304 Financing income (19) (45) (12) (116) Financing expenses 86 81 22 409 Other expenses (income) - 3 1 1 Depreciation and amortization 168 196 53 738 Share based payments - 1 - 6 EBITDA 639 475 128 2,167
Free Cash Flow
The following table shows the calculation of free cash flow:
Year ended Three-month period ended December March 31, 31, Convenience translation into US dollar 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Cash flows from operating activities 516 303 81 1,332 Cash flows from investing activities (113) (780) (209) (*)(198) Short-term Investment in (sale of) tradable debentures and deposits (2) 621 167 (197) Free cash flow 401 144 39 937
(*) After elimination of the net cash flows used for the acquisition of Netvision in the amount of NIS 1,458 million (net of cash acquired in the amount of NIS 120 million).
Cellcom Israel Ltd.
Disclosure for debenture holders as of March 31, 2012
Aggregation of the information regarding the debenture series issued by the company(1), in million NIS
Principal As of 31.03.2012 Original on the Principal Linked Interest Debenture Market Issuance Date of Balance Principal Accumulated Balance Value Series Date Issuance on Trade Balance in Books Value in Books(2) A(4) 22/12/2005 1,065 118.333 138.031 1.631 139.661 140.782 *10/01/06 *31/05/06 B(4) ** 22/12/2005 925.102 925.102 1,079.09 13.439 1,092.53 1,151.66 *02/01/06 *05/01/06 *10/01/06 *31/05/06 C 07/10/2007 326 72.444 82.448 0.309 82.758 84.774 *03/02/08 D ** 07/10/2007 2,423.08 2,423.08 2,757.68 107.147 2,864.83 3,037.33 *03/02/08 *06/04/09 *30/03/11 *18/08/11 E ** 06/04/2009 1,798.96 1,499.14 1,499.14 21.82 1,520.96 1,581.59 *30/03/11 *18/08/11 F(4)(5) ** 20/03/2012 714,802 714.802 714.802 0.937 715.739 716.232 G(4) (5) 20/03/2012 285,198 285.198 285.198 0.597 285.777 287.508 Total 7,538.14 6,038.09 6,556.39 145.88 6,702.25 6,999.87
Table Continued
Series As of 07.05.2012 Interest Principal Interest Linkage Trustee A(4) Principal Linked Rate Repayment Repayment Contact Balance Principal (fixed) Dates (3) Dates Details on Trade Balance From To 118.333 138.562 5.00% 05.07.08 05.07.12 Jan 5 Linked Reznik, And Jul 5 to CPI Paz, Nevo Trusts Ltd. Accountant Yossi Reznik. 14 Yad Haruzim St., Tel Aviv. Tel: 03-6393 311. B(4) ** 925.102 1,083.24 5.30% 05.01.13 05.01.17 Jan 5 Linked Hermetic to CPI Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Aviv. Tel: 03-5274 867. C 72.444 82.766 4.60% 01.03.09 01.03.13 Mar 1 Linked Reznik, and to CPI Paz, Sep 1 Nevo Trusts Ltd. Accountant Yossi Reznik. 14 Yad Haruzim St., Tel Aviv. Tel: 03-6393 311. D ** 2,423.08 2,768.29 5.19% 01.07.13 01.07.17 July 1 Linked Hermetic to CPI Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Aviv. Tel: 03-5274 867. E ** 1,499.14 1,499.14 6.25% 05.01.12 05.01.17 Jan 5 Not Hermetic Linked Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Aviv. Tel: 03-5274 867. F(4)(5) Strauss ** 714.802 717.551 4.35% 05.01.17 05.01.20 Jan 5 Linked Lazar And Jul 5 to CPI Trust Company (1992) Ltd 17 Yizhak Sadeh St., Tel Aviv. Tel: 03- 6237777 G(4)(5) 285.198 285.198 6.74% 05.01.17 05.01.19 Jan 5 Not Strauss And Jul 5 Linked Lazar Trust Company (1992) Ltd 17 Yizhak Sadeh St., Tel Aviv. Tel: 03- 6237777 Total 6038.09 6574.743
Comments:
(1) In the reported period, the company fulfilled all terms of the debentures. The company also fulfilled all terms of the Indentures. Debentures F and G financial covenants - as of March 31, 2012 the net leverage (net debt to EBITDA ratio- see definition in the Company's annual report for the year ended December 31, 2011 on Form 20-F, under "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Debt Service - Shelf prospectus") was 2.55. (2) Including interest accumulated in books. (3) Annual payments, excluding series A, C, F and G debentures in which the payments are semi annual. (4) Regarding Debenture series A, B, F and G- the company undertook not to create any pledge on its assets, as long as debentures are not fully repaid, subject to certain exclusions. (5) Regarding Debenture series F and G - the company has the right for early redemption under certain terms (see the Company's annual report for the year ended December 31, 2011 on Form 20-F, under "Item 5. Operating and Financial Review and Prospects- B. Liquidity and Capital Resources - Debt Service - Shelf prospectus").
(*) On these dates the additional debentures of the series were issued, the information in the table refers to the full series.
(**) Series B, D, E and F are material, which represent 5% or more of the total liabilities of the Company, as presented in the separate financial statements.
Cellcom Israel Ltd.
Disclosure for debenture holders as of March 31, 2012 (Cont.)
Debentures Rating Details*
Rating assigned upon issuance Rating as of Rating as of of the Series Rating Company 31.3.2012 (1) 07.05.2012 Series A S&P Maalot AA AA AA- B S&P Maalot AA AA AA- C S&P Maalot AA AA AA- D S&P Maalot AA AA AA- E S&P Maalot AA AA AA F S&P Maalot AA AA AA G S&P Maalot AA AA AA
Table Continued
Additional ratings between Recent date of original issuance and the rating as of recent date of rating as of Series 07.05.2012 07.05.2012 (2) Date Rating 5/2006, 9/2007, 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, A 03/2012 3/2012 AA-, AA (2) 5/2006, 9/2007, 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, B 03/2012 3/2012 AA-, AA (2) 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, C 03/2012 3/2012 AA-, AA (2) 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, D 03/2012 3/2012 AA-, AA (2) 9/2010, 8/2011, E 03/2012 1/2012, 3/2012 AA (2) F 03/2012 AA (2) G 03/2012 AA (2)
- In August 2011, S&P Maalot reaffirmed the AA rating but changed the outlook of rating from Stable to Negative.
- In September 2007, S&P Maalot issued a notice that the AA- rating for debentures issued by the Company was in the process of recheck with positive implications (Credit Watch Positive). In October 2008, S&P Maalot issued a notice that the AA- rating for debentures issued by the Company is in the process of recheck with stable implications (Credit Watch Stable). This process was withdrawn upon assignment of AA rating in March 2009. In August 2011, S&P Maalot issued a notice that the AA rating for debentures issued by the Company is in the process of recheck with negative implications (Credit Watch Negative). For details regarding the rating of the debentures see the Company's current report dated August 8, 2011.
* Asecurities rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to suspension, revision or withdrawal at any time, andeach rating should be evaluated independently of any otherrating.
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of March 31, 2012
- 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 statements (in thousand NIS).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to to CPI CPI Euro Dollar Other First year 412,010 293,272 - - - 326,488 Second year 730,129 293,272 - - - 301,142 Third year 730,129 293,272 - - - 244,694 Fourth year 730,129 293,272 - - - 188,246 More than five years 1,940,996 564,227 - - - 232,956 One time liability - - - - - - Total 4,543,393 1,737,317 - - - 1,293,526
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 statements (in thousand NIS) - None
c. Credit from banks in Israel based on the Company's "Solo" financial statements (in thousand NIS) - None
d. Credit from banks abroad based on the Company's "Solo" financial statements (in thousand NIS) - None
e. Total of sections a - d above, total credit from banks, non-bank credit and debentures based on the Company's "Solo" financial statements (in thousand NIS).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to to CPI CPI Euro Dollar Other First year 412,010 293,272 - - - 326,488 Second year 730,129 293,272 - - - 301,142 Third year 730,129 293,272 - - - 244,694 Fourth year 730,129 293,272 - - - 188,246 More than five years 1,940,996 564,227 - - - 232,956 One time liability - - - - - - Total 4,543,393 1,737,317 - - - 1,293,526
f. Out of the balance sheet Credit exposure based on the Company's "Solo" financial statements - 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
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of March 31, 2012 (cont.)
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).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to CPI to CPI Euro Dollar Other First year - 15,221 - - - 1,607 Second year - 8,791 - - - 846 Third year - 5,041 - - - 453 Fourth year - 5,041 - - - 150 More than five years - 5 - - - - One time liability - - - - - - Total - 34,099 - - - 3,055
- 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).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to CPI to CPI Euro Dollar Other First year - 12 - - - 4 Second year - 12 - - - 3 Third year - 12 - - - 2 Fourth year - 12 - - - 1 More than five years - 12 - - - 1 One time liability - - - - - - Total - 58 - - - 11
j. Total balances of credit granted to the Company by companied 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).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to CPI to CPI Euro Dollar Other First year 24,288 6,543 - - - 13,930 Second year 37,226 6,543 - - - 13,005 Third year 37,226 6,543 - - - 10,652 Fourth year 37,226 6,543 - - - 8,298 More than five years 92,698 20,786 - - - 10,663 One time liability - - - - - - Total 228,663 46,959 - - - 56,548
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of March 31, 2012 (cont.)
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)
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to CPI to CPI Euro Dollar Other First year - - - - - - Second year - 80,000 - - - 7,663 Third year - - - - - - Fourth year - - - - - - More than five years - - - - - - One time liability - - - - - - Total - 80,000 - - - 7,663
1. The Company consolidated financial results for the first quarter 2012 include the results of Netvision Ltd., or Netvision, while the consolidated financial results for the first quarter 2011 do not include Netvision's results (due to the completion of Netvision's acquisition by the Company on August 31, 2011).
2. Excluding Netvision's services revenues.
3. Please see "Use of Non-IFRS financial measures" section in this press release.
Company Contact IR Contacts Yaacov Heen Porat Saar Chief Financial Officer CCG Investor Relations Israel & US [email protected] [email protected] Tel: +972-52-998-9755 Tel: +1-646-233-2161
SOURCE Cellcom Israel Ltd.
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