NETANYA, Israel, August 14, 2012 /PRNewswire/ --
During the first half of 2012 the Company successfully completed further strategic steps in adjustment to the market conditions:
- Successful merger of Cellcom Israel with Netvision - forming unified headquarters with substantial cost savings. The Company's subsidiary, Netvision, is retaining its profitability level, and presenting an EBITDA[1] of NIS 140 million for the first half of 2012, despite the increased competition in the ISP market
- Efficiency measures - operational efficiency measures which will lead to savings at an annual run rate of NIS 300 million
- Winning the Israeli Defense Force (IDF) tender for cellular services
- Transition from a cellular company to a communications group - offering integrated communications packages such as "Cellcom Total"
For the second half of 2012:
- The Company intends to cope with the changing market conditions by taking further significant operational efficiency measures
- Strengthening Cellcom Israel's position as a communications group while laying the foundation for future opportunities and entry into new areas of activity such as the landline wholesale market, cellular credit card and the examination of entry into IPTV
- The Company will add approx. 60,000 new IDF subscribers and will approach additional related potential subscribers
Second Quarter 2012 Highlights[2] (compared with the second quarter 2011):
- Free cash flow[3] totaled NIS 284 million ($73 million), a 63.2% increase
- Total Revenues totaled NIS 1,498 million ($382 million), a 5.7% decrease
- Total Revenues from services totaled NIS 1,182 million ($301 million), a 4.5% increase
- EBITDA totaled NIS 474 million ($121 million), a 16.3% decrease
- EBITDA margin 31.6%, down from 35.6%
- Operating profit totaled NIS 282 million ($72 million), a 29.0% decrease
- Net income totaled NIS 121 million ($31 million), a 50.4% decrease
- Cellular Subscriber base totaled approx. 3.333 million at the end of June 2012
Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel", the "Company"), announced today its financial results for the second quarter of 2012. Revenues for the second quarter 2012 totaled NIS 1,498 million ($382 million); EBITDA for the second quarter 2012 totaled NIS 474 million ($121 million), or 31.6% of total revenues; and net income for the second quarter 2012 totaled NIS 121 million ($31 million). Basic earnings per share for the second quarter 2012 totaled NIS 1.22 ($0.31).
Ami Arel, Chairman of the Company's Board of Directors, said: "In the first half of 2012 a new management was formed, and the results demonstrate that this management, led by Nir Sztern, is working to achieve the required efficiency measures. I am pleased with the new management's function which is planning and executing the changes needed in order to adjust the Company to market conditions".
Commenting on the results, Nir Sztern, Chief Executive Officer, said: "In our second quarter 2012 results, we see the successful continued implementation of the Company's strategy: the Netvision merger, operational excellence and the transition into a communications group.
The Company completed the merger of Netvision and Cellcom Israel quickly and determinedly while maintaining similar levels of Netvision's profitability compared with the parallel period before the merger, despite the increased competition in the ISP market. The aggressive efficiency measures implemented by the Company through adjustments to the existing head count, a reduction in overhead expenses and improvement of work processes, have led, thus far, to savings at a run rate of NIS 300 million per year. In addition, unique marketing plans were launched, such as "Cellcom Total". A plan that combines an unlimited package for three cellular subscribers, internet and landline services, and which has been greatly successful among our customers and reflects the first step towards materializing our future growth potential as a communications group".
Regarding the competition in the market, Nir Sztern noted: "This quarter does not reflect the full impact of the increased market competition following the entry of the new competitors and the new pricing plans, characterized by unlimited packages at significantly lower prices, from mid May of this year, whose full impact we will see in the coming quarters. While we are witnessing an increase in churn rate, most of our customers are choosing to remain loyal to the Company thanks to our quality customer service.
In the coming quarters, the Company will continue to implement efficiency measures in order to achieve additional significant savings, and act to retain its customer base while recruiting new customers, including approximately 60,000 subscribers of the Israeli Defense Forces (IDF) and approaching additional potential subscribers related to them, following our winning the IDF's tender. We are encouraged by the success of "Cellcom Total" and estimate that the landline wholesale market together with entry into additional areas of activity such as cellular credit card and examination of the entry into IPTV, will be an opportunity to continue and establish our position as a leading communications group. In addition, we expect an increase in revenues from hosting services we provide Golan Telecom and Home Cellular, which begun operating during the second quarter".
Yaacov Heen, Chief Financial Officer, commented: "The efficiency measures we implemented had a positive impact on the second quarter results and demonstrate our continued efforts in adjusting our expense structure to the revenue level.
As we anticipated in the previous quarter, our financing expenses increased due to the increase in the Israeli Consumer Price Index (CPI), which resulted in a significant decrease in our net income for the second quarter of 2012 compared with the first quarter.
Due to the accumulated impact of customers transferring to the new price plans we expect additional erosion to the Company's revenues in the following quarters. Furthermore, we expect that the efficiency measures, which were realized in the first half of 2012 and their continuum in the coming quarters, will moderate this effect.
Our free cash flow for the second quarter of 2012 totaled NIS 284 million, an approximately 63% increase compared with the second quarter 2011, and approximately 97% increase compared with the previous quarter. The improvement in free cash flow is primarily due to a decrease in handset sales, which led to a decrease in purchase of handsets, as well as due to our continued efficiency measures.
The second quarter results and the improvement in free cash flow demonstrate the Company's strength and ability to satisfy its obligations. With that, given the changing competitive environment and the desire to take precaution measures, the Company's board of directors decided not to distribute a dividend for the second quarter of 2012. The board of directors will re-evaluate its decision in the coming quarters."
Main Consolidated Financial Results (financial data for Q2/2012 only, includes Netvision's results):
Q2/2012 Q2/2011 % Change Q2/2012 Q2/2011 million US$ (convenience million NIS translation) Total revenues 1,498 1,589 (5.7%) 381.9 405.0 Operating profit 282 397 (29.0%) 71.9 101.2 Net income 121 244 (50.4%) 30.8 62.2 Free cash flow 284 174 63.2% 72.4 44.4 EBITDA 474 566 (16.3%) 120.8 144.3 EBITDA, as percent of total revenues 31.6% 35.6% (11.2%)
Main Financial Data by Companies:
Cellcom Israel without Consolidation adjustments Consolidated Netvision Netvision (*) results Change Q2/2012 Q2/2011 (%) Q2/2012 Q2/2012 Total revenues 1,239 1,589 (22.0%) 277 (18) 1,498 Total service revenues [4] 942 1,131 (16.7%) 258 (18) 1,182 Equipment revenues 297 458 (35.2%) 19 - 316 Operating profit 256 397 (35.5%) 55 (29) 282 EBITDA 399 566 (29.5%) 75 - 474 EBITDA, as percent of total revenues 32.2% 35.6% (9.6%) 27.1% - 31.6%
(*)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 Q2/2012 Q2/2011 (%) Cellular subscribers at the end of period (in thousands) 3,333 3,366 (1.0%) Churn Rate for cellular subscribers (in %) 8.1% 6.4% 26.6% Monthly cellular ARPU (in NIS) 90.3 108.2 (16.5%) Average Monthly cellular MOU (in minutes) 375 342 9.6%
Financial Review (financial data for Q2/2012 only in this section, includes Netvision's data)
Revenues for the second quarter of 2012 totaled NIS 1,498 million ($382 million), a 5.7% decrease compared to NIS 1,589 million ($405 million) in the second quarter last year. The decrease in revenues is attributed to a 31% decrease in equipment revenues, which totaled NIS 316 million ($81 million) in the second quarter 2012 as compared to NIS 458 million ($117 million) in the second quarter last year. This decrease was partially offset by a 4.5% increase in service revenues, which totaled NIS 1,182 million ($301 million) in the second quarter 2012 as compared to NIS 1,131 million ($288 million) in the second quarter last year. Netvision's contribution to total revenues for the second quarter of 2012 totaled NIS 259 million ($66 million) excluding inter-company revenues. Excluding Netvision's contribution, total revenues decreased by 22% compared with the second quarter last year.
The increase in service revenues is attributed to Netvision's contribution to service revenues for the second quarter of 2012 in the amount of NIS 240 million ($61 million) (excluding inter-company revenues). After elimination of Netvision's contribution to service revenues for the second quarter of 2012, service revenues decreased by 16.7% mainly due to the ongoing price erosion, resulting from the intensified competition in the market. The Company has ceased to detail separately the revenues from content, SMS and value added services, since most of the marketing plans, which are currently sold, include service packages which include unlimited air time minutes and SMS as well as cellular surfing.
Equipment revenues decreased by 31%, from NIS 458 million ($117 million) in the second quarter last year, to NIS 316 million ($81 million) in the second quarter 2012. Netvision's contribution to those revenues for the second quarter of 2012 totaled NIS 19 million ($5 million). After elimination of Netvision's contribution to equipment revenues for the second quarter of 2012, equipment revenues decreased by 35.2% compared to those revenues for the second quarter last year.
Cost of revenues for the second quarter of 2012 increased by 4.2% totaling NIS 838 million ($214 million). Netvision's contribution to cost of revenues for the second quarter of 2012 totaled NIS 176 million ($45 million) (after elimination of inter-company expenses of NIS 18 million ($5 million)). After elimination of Netvision's contribution, cost of revenues decreased by 17.7% and totaled NIS 662 million ($169 million) in the second quarter of 2012, compared to NIS 804 million ($205 million) in the second quarter last year. This decline in cost of revenues after elimination of Netvision's contribution primarily resulted from a significant decrease in cellular handsets cost due to a decrease in the number of handsets sold during the second quarter of 2012 compared with the second quarter last year. The decrease in cost of revenues also 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, as well as a decrease in amortization expenses, attributable mainly to a decrease in amortization expenses associated with capitalized handsets subsidies, and a reversal of an accrual for compensation in the amount of approximately NIS 9 million ($2 million), which will not be paid, in light of the expected continued adverse effect on our results of operations, resulting from the intensified competition in the market.
Gross profit for the second quarter of 2012 decreased 15.9% to NIS 660 million ($168 million), compared to NIS 785 million ($200 million) in the second quarter of 2011. Gross profit margin for the second quarter 2012 decreased to 44.1% from 49.4% in the second quarter last year.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the second quarter of 2012 decreased 1.8% to NIS 381 million ($97 million), compared to NIS 388 million ($99 million) in the second quarter of 2011. SG&A Expenses for the second quarter of 2012 excluding Netvision's contribution decreased by 17.5%. The decrease in SG&A Expenses after elimination of Netvision's contribution mainly resulted from a decrease in payroll expenses, mainly due to efficiency measures and in amortization expenses related to capitalized sales commissions, as well as a decrease in advertising expenses and a reversal of an accrual for compensation in the amount of approximately NIS 15 million ($4 million), which will not be paid, as detailed above. Netvision's contribution to SG&A Expenses for the second quarter of 2012 amounted to NIS 61 million ($16 million), including amortization expenses of intangible assets, attributable to the merger, in the amount of NIS 29 million ($7 million).
Operating profit for the second quarter of 2012 totaled NIS 282 million ($72 million), compared to NIS 397 million ($101 million) in the second quarter last year, a 29% decrease.
EBITDA for the second quarter of 2012 decreased 16.3% to NIS 474 million ($121 million) representing 31.6% of total revenues, compared to NIS 566 million ($144 million) represented 35.6% of total revenues in the second quarter 2011. Netvision's contribution to EBITDA for the second quarter 2012 totaled NIS 75 million ($19 million). EBITDA as a percent of total revenues for the second quarter of 2012 after elimination of Netvision's contribution to EBITDA and total revenues totaled 32.2%.
Financing expenses, net for the second quarter of 2012 totaled NIS 117 million ($30 million), compared to NIS 75 million ($19 million) in the second quarter last year. This increase primarily resulted from an increase in Consumer Price Index (CPI) linkage expenses and interest expenses, associated with the Company's debentures, due to the higher debt level following the issuance of additional debentures in August 2011 and March 2012.
Net Income for the second quarter of 2012 totaled NIS 121 million ($31 million), compared to NIS 244 million ($62 million) in the second quarter last year, a 50.4% decrease.
Basic earnings per share for the second quarter of 2012 totaled NIS 1.22 ($0.31), compared to NIS 2.45 ($1.22) in the second quarter 2011.
Operating Review (data refers to cellular subscribers only)
New Cellular Subscribers - at the end of June 2012, the Company had approximately 3.333 million cellular subscribers. During the second quarter of 2012, the Company's cellular subscriber base decreased by approximately 29,000 net subscribers.
In the second quarter of 2012, the Company added approximately 42,000 net new 3G cellular subscribers to its 3G subscriber base, reaching approximately 1.430 million 3G subscribers at the end of June 2012, representing 42.9% of the Company's total cellular subscriber base, an increase from the 36.2% 3G subscribers represented of total subscribers at the end of June 2011.
The Churn Rate of cellular subscribers in the second quarter 2012 was 8.1%, compared to 6.4% in the second quarter last year. The increase in the churn rate mainly resulted from the increased competition in the market following the entrance of the new operators during the second quarter 2012.
Average monthly cellular Minutes of Use per subscriber ("MOU") in the second quarter 2012 totaled 375 minutes, compared to 342 minutes in the second quarter 2011, an increase of 9.6%.
The monthly cellular Average Revenue per User (ARPU) for the second quarter of 2012 decreased 16.5% and totaled NIS 90.3 ($23.0), compared to NIS 108.2 ($27.6) in the second quarter last year. The decrease is attributed to the ongoing price erosion.
Financing and Investment Review (financial data for Q2/2012 only, includes Netvision's data)
Cash Flow
Free cash flow for the second quarter of 2012 increased by 63.2% and totaled NIS 284 million ($73 million), compared to NIS 174 million ($44 million) generated in the second quarter 2011. Cash flows from operating activities for the second quarter this year increased, compared with the second quarter last year, mainly as a result of a decrease in payments related to cellular handsets purchases due to the decrease in sales of these handsets. Net cash used in investing activities for the second quarter of 2012 (excluding changes in current investments, net) increased, compared with the second quarter last year, mainly due to an increased investment in the upgrade of the Company's UMTS and transmission networks during the first half of 2012.
Total Equity
Total Equity as of June 30, 2012 amounted to NIS 280 million ($71 million), primarily consisting of accumulated undistributed retained earnings.
Capital expenditure
The Company's accrual capital expenditure for the second quarter of 2012, totaled NIS 110 million ($28 million) (including, among others, investment in information systems and software), compared to NIS 80 million ($20 million) in the second quarter of 2011. The increase primarily resulted from an increased investment in the upgrade of the Company's UMTS and transmission networks during the second quarter of 2012 compared with the second quarter last year. Furthermore, the consolidated capital expenditure for the second quarter of 2012 includes Netvision's capital expenditure, whereas it was not consolidated in the second quarter last year.
Dividend
On August 13, 2012, the Company's board of directors decided not to declare a cash dividend for the second quarter of 2012. In making its decision, the board of directors considered the Company's dividend policy and business status and determined, that although the Company can satisfy its existing and foreseeable obligations, given the challenging regulatory environment, intensified competition and substantial changes in pricing and their current and expected adverse effect on the Company's results of operations, it would be prudent not to distribute dividends at this time. 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, 2011 on Form 20-F, under "Item 8 - Financial Information - Dividend Policy".
Debentures
For information regarding the Company's summary of financial undertakings and details regarding the Company's outstanding debentures as of June 30, 2012, see "Disclosure for Debenture Holders" section in this press release.
Other developments during the second quarter of 2012 and subsequent to the end of the reporting period
Regulation
Royalties
Following previous reports as to the expected changes in royalties paid by the Company to the Ministry of Communications, following a petition filed by the Company and two other cellular operators, the Communications Regulations (Bezeq and Transmissions) (Royalties) 2001, were amended on August 1., as follows:
- For cellular services - from January 1, 2012 to May 23, 2012 - 2.5%; from May 24, 2012 to July 31, 2012 - 1%; from August 1, 2012 to December 31, 2012 - 0.292% provided the 2012 annual rate shall be 1.3% and as of January 1, 2013 - 0%.
- For landline and long distance services (for which the Company pays 1% for 2012) - as of January 1, 2013 - 0%.
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2011 under "Item 4. Information on the Company - Government Regulations - Royalties" and " - Tariff Supervision".
Long distance services or ILD services
In a hearing published by the Ministry of Communications on July 2012 regarding proposed changes to cooperation of cellular operators with ILD operators for prepaid calling cards, which, if adopted, would eliminate any such cooperation, the Ministry of Communications noted that a revised examination of the ILD market structure and its independence is required. The Company cannot estimate at this stage what changes, if any, would be introduced in relation to ILD services.
For additional details regarding ILD services see the Company's most recent annual report for the year ended December 31, 2011, on Form 20-F, under Item 4. Information on the Company - Government Regulations - Long Distance Services" and "Netvision - Telephony Business".
Changes in the Board of Directors
Messrs. Shay Livnat, Tal Raz and Assaf Topaz concluded their term as directors of the Company in July and August 2012. Mr. Ari Bronshtein, a member of the Company's board of directors, was designated by Discount Investment Company Ltd. as its appointee to the Company's Board of Directors, as of August 1, 2012, instead of Mr. Topaz. Mr. Bronshtein's appointment is in accordance with the requirement of the Company's telecommunications license and articles of association that at least 20% of the Company directors be appointed by Israeli citizens and residents from among the Company's founding shareholders.
For further details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2011 under "Item 6. Directors, Senior Management and Employees - C. Board Practices- Board of Directors and Officers" and "External Directors - Israeli-Appointed Directors".
2006 Share Incentive Plan
In August 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 2,688,726 options to certain non director officers and senior employees, out of which 350,000 options to the Company's CEO, at an exercise price of US$ 5.91 per share. The board of directors further decided to annul the previous grant of 1,550,000 options to certain non-director officers and senior employees, including the Company's CEO, which the board had approved in May 2012, but was not carried out. The options granted will be vested in 2 equal installments on each of the first and second anniversary of the date of the board's decision. 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" and the Company's current report on the Company's results of operations in the first quarter 2012, on Form 6-K filed on May 15, 2012 under "Other developments during the first quarter of 2012 and subsequent to the end of the reporting period - 2006 Share Incentive Plan".
Conference Call Details
The Company will be hosting a conference call on Tuesday, August 14, 2012 at 11:00 am EST, 8:00 am PST, 16:00 UK time, 18:00 Israel time. On the call, management will review and discuss the results, and will be available to answer questions. To participate, please either access the live webcast on the Company's website, or call one of the following teleconferencing numbers below. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.
US Dial-in Number: 1-888-281-1167 UK Dial-in Number: 0-800-917-9141 Israel Dial-in Number: 03-918-0644 International Dial-in Number: +972-3-918-0644 at: 11:00 am EST; 8:00 am PST; 16:00 UK time; 18:00 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 3.333 million subscribers (as at June 30, 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 hearing impaired, etc. Cellcom Israel further provides through its wholly owned subsidiaries internet connectivity services and international calling services, as well as 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, new competition and changes in the competitive environment, 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 New Israeli Shekel (NIS)\US$ exchange rate of NIS 3.923 = US$ 1 as published by the Bank of Israel for June 30, 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 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. 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 December June 30, June 30, June 30, 31, 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions (Unaudited) (Unaudited) (Unaudited) (Audited) Assets Cash and cash equivalents 1,527 736 188 920 Current investments, including derivatives 390 974 248 290 Trade receivables 1,571 1,922 490 1,859 Other receivables 70 93 24 93 Inventory 138 129 33 170 Total current assets 3,696 3,854 983 3,332 Trade and other receivables 858 1,355 345 1,337 Property, plant and equipment, net 1,961 2,120 541 2,168 Intangible assets, net 672 1,597 407 1,680 Deferred tax assets - 56 14 40 Total non-current assets 3,491 5,128 1,307 5,225 Total assets 7,187 8,982 2,290 8,557 Liabilities Short-term credit and current maturities of long-term loans and debentures 594 758 193 674 Trade payables and accrued expenses 767 835 213 1,026 Current tax liabilities 82 108 28 69 Provisions 101 157 40 148 Other payables, including derivatives 397 528 135 547 Dividend declared 292 130 33 189 Total current liabilities 2,233 2,516 642 2,653 Long-term loans from banks - 15 4 19 Debentures 4,575 5,929 1,512 5,452 Provisions 18 21 5 21 Other long-term liabilities 2 44 11 41 Liability for employee rights upon retirement, net - 15 4 10 Deferred tax liabilities 61 162 41 174 Total non- current liabilities 4,656 6,186 1,577 5,717 Total liabilities 6,889 8,702 2,219 8,370 Equity attributable to owners of the Company Share capital 1 1 - 1 Cash flow hedge reserve (20) 8 2 7 Retained earnings 317 270 69 175 Non-controlling interest - 1 - 4 Total equity 298 280 71 187 Total liabilities and equity 7,187 8,982 2,290 8,557
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Income
Year Three-month period ended Six-month period ended ended December June 30, June 30, 31, Convenience Convenience translation translation into US into US dollar dollar 2011 2012 2012 2011 2012 2012 2011 US$ US$ NIS NIS millions millions NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Revenues 3,176 3,083 786 1,589 1,498 382 6,506 Cost of revenues (1,554) (1,737) (443) (804) (838) (214) (3,408) Gross profit 1,622 1,346 343 785 660 168 3,098 Selling and marketing expenses (441) (456) (116) (232) (220) (56) (990) General and administrative expenses (313) (333) (85) (156) (161) (41) (685) Other income (expenses), net - - - - 3 1 (1) Operating profit 868 557 142 397 282 72 1,422 Financing income 61 83 21 45 45 11 116 Financing expenses (203) (236) (60) (120) (162) (41) (409) Financing expenses, net (142) (153) (39) (75) (117) (30) (293) Profit before taxes on income 726 404 103 322 165 42 1,129 Taxes on income (176) (110) (28) (78) (44) (11) (304) Profit for the period 550 294 75 244 121 31 825 Profit for the period attributable to: Owners of the Company 550 294 75 244 121 31 824 Non-controlling interests - - - - - - 1 Profit for the period 550 294 75 244 121 31 825 Earnings per share Basic earnings per share in NIS 5.53 2.96 0.75 2.45 1.22 0.31 8.28 Diluted earnings per share in NIS 5.53 2.96 0.75 2.45 1.22 0.31 8.28
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Cash Flows
Year ended Six-month period ended Three-month period ended December June 30, June 30, 31, Convenience Convenience translation translation into into US dollar US dollar 2011 2012 2012 2011 2012 2012 2011 US$ US$ NIS NIS millions millions NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Cash flows from operating activities Profit for the period 550 294 75 244 121 31 825 Adjustments for: Depreciation and Amortization 336 389 99 168 193 49 738 Share based payment 1 3 1 1 2 1 6 Loss on sale of property, plant and equipment - 1 - - - - - Income tax expense 176 110 28 78 44 11 304 Financing expenses, net 142 153 39 75 117 30 293 Other expenses - 1 - - - - 2 Changes in operating assets and liabilities: Change in inventory (38) 38 10 (19) 31 8 (67) Change in trade receivables (including long-term amounts) (326) (34) (8) (209) 24 6 (585) Change in other receivables (including long-term amounts) (6) (42) (11) (2) (24) (6) 61 Change in trade payables, accrued expenses and provisions 117 (89) (23) (5) (20) (5) 146 Change in other liabilities (including long-term amounts) 12 16 4 (6) (3) (1) (52) Proceeds from (payments for) derivative hedging contracts, net (9) 8 2 (6) 5 1 (14) Income tax paid (206) (117) (30) (86) (55) (14) (325) Income tax received - 15 4 - 8 2 - Net cash from operating activities 749 746 190 233 443 113 1,332
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Cash Flows (cont'd)
Year ended Six-month period ended Three-month period ended December June 30, June 30, 31, Convenience Convenience translation translation into into US dollar US dollar 2011 2012 2012 2011 2012 2012 2011 US$ US$ NIS NIS millions millions NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Cash flows from investing activities Acquisition of property, plant, and equipment (135) (284) (73) (53) (149) (38) (333) Acquisition of intangible assets (52) (52) (13) (18) (25) (6) (99) Acquisition of subsidiary, net of cash acquired - - - - - - (1,458) Change in current investments, net 8 (672) (171) 6 (51) (13) 197 Proceeds from (payments for) other derivative contracts, net (9) 3 1 (6) 1 - 1 Proceeds from sale of property, plant and equipment 2 1 - 1 1 - 3 Interest received 20 8 2 17 6 2 33 Loan to equity accounted investee - (1) - - - - - Proceeds from sale of subsidiary - 7 2 - 7 2 - Net cash used in investing activities (166) (990) (252) (53) (210) (53) (1,656) Cash flows from financing activities Proceeds from (payments for) derivative contracts, net 10 (6) (2) 6 (5) (2) 11 Repayment of long-term loans from banks - (4) (1) - (4) (1) (4) Repayment of debentures (175) (479) (122) - - - (354) Proceeds from issuance of debentures, net of issuance costs 1,033 992 253 - - - 2,165 Dividend paid (334) (261) (67) (303) (72) (18) (858) Interest paid (123) (182) (46) - (1) - (245) Net cash provided from (used in) financing activities 411 60 15 (297) (82) (21) 715 Cash balance presented under assets held for sales/ Cash outflow due to sale of assets held for sale - - - - (3) (1) (4) Changes in cash and cash equivalents 994 (184) (47) (117) 148 38 387 Cash and cash equivalents at beginning of the period 533 920 235 1,644 588 150 533 Cash and cash equivalents at end of the period 1,527 736 188 1,527 736 188 920
Cellcom Israel Ltd.
(An Israeli Corporation)
Reconciliation for Non-IFRS Measures
EBITDA
The following is a reconciliation of net income to EBITDA:
Year ended Three-month period ended December June 30, 31, Convenience translation into US dollar 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Profit for the period 244 121 31 825 Taxes on income 78 44 11 304 Financing income (45) (45) (11) (116) Financing expenses 120 162 41 409 Other expenses (income) - (3) (1) 1 Depreciation and amortization 168 193 49 738 Share based payments 1 2 1 6 EBITDA 566 474 121 2,167
Free Cash Flow
The following table shows the calculation of free cash flow:
Year ended Three-month period ended December June 30, 31, Convenience translation into US dollar 2011 2012 2012 2011 NIS NIS US$ NIS millions millions millions millions Cash flows from operating activities 233 443 113 1,332 Cash flows from investing activities (53) (210) (53) (*)(198) Short-term Investment in (sale of) tradable debentures and deposits (6) 51 13 (197) Free cash flow 174 284 73 937
(*) 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 June30, 2012
Aggregation of the information regarding the debenture series issued by the company(1), in million NIS
Principal Original on the Issuance Date of Series Date Issuance As of 30.06.2012 Principal Debenture Linked Interest Balance Balance Principal Accumulated Value in Market on Trade Balance in Books Books(2) Value A(4) 22/12/05 (6) 10/01/06* 31/05/06* 1,065 118.333 139.756 3.398 143.154 143.005 B(4) 22/12/05 ** 02/01/06* 05/01/06* 10/01/06* 31/05/06* 925.102 925.102 1,092.582 28.004 1,120.586 1,140.559 C 07/10/07 03/02/08* 326 72.444 83.479 1.263 84.742 84.832 D** 07/10/07 03/02/08* 06/04/09* 30/03/11* 18/08/11* 2,423.075 2,423.075 2,792.153 144.517 2,936.670 2,840.571 E** 06/04/09 30/03/11* 18/08/11* 1,798.962 1,499.135 1,499.135 45.179 1,544.314 1,530.617 F(4) (5) ** 20/03/12 714.802 714.802 723.737 8.900 732.637 655.902 G(4) (5) 20/03/12 285.198 285.198 285.198 5.410 290.608 267.173 Total 7,538.139 6,038.089 6,616.039 236.671 6,852.711 6,662.659
(Table continues)
Principal As of 14.08.2012 Interest Repayment Dates Series Rate(fixed) (3) Principal Linked Balance Principal on Trade Balance From To A(4) (6) - - 5.00% 05.07.08 05.07.12 B(4) ** 925.102 1,089.486 5.30% 05.01.13 05.01.17 C 72.444 83.241 4.60% 01.03.09 01.03.13 D ** 2,423.075 2,784.198 5.19% 01.07.13 01.07.17 E ** 1,499.135 1,499.135 6.25% 05.01.12 05.01.17 F(4) (5) ** 714.802 721.675 4.35% 05.01.17 05.01.20 G(4) (5) 285.198 285.198 6.74% 05.01.17 05.01.19 Total 5,919.756 6,462.933
(Table continues)
Interest Trustee Repayment Series Dates Linkage Contact Details Reznik, Paz, Nevo Trusts Ltd. Accountant Yossi Reznik. 14 Yad January 5 Haruzim St., Tel A(4) Linked to Aviv. Tel: (6) and July 5 CPI 03-6393311. Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Linked to Tel Aviv. Tel: B(4) ** January 5 CPI 03-5274867. Reznik, Paz, Nevo Trusts Ltd. Accountant Yossi March 1 Reznik. 14 Yad and Haruzim St., Tel September Linked to Aviv. Tel: C 1 CPI 03-6393311. Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Linked to Tel Aviv. Tel: D ** July 1 CPI 03-5274867. Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Not Tel Aviv. Tel: E ** January 5 linked 03-5274867. Strauss Lazar Trust Company (1992) Ltd F(4) January 5 17 Yizhak Sadeh (5) ** Linked to St., Tel Aviv. and July 5 CPI Tel: 03- 6237777 Strauss Lazar Trust Company (1992) Ltd January 5 17 Yizhak Sadeh G(4) Not St., Tel Aviv. (5) and July 5 linked Tel: 03- 6237777 Total
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 June 30, 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 2.60. (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"). (6) At 05/07/2012 Debenture series A fully repaid.
(*) On these dates 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 financial statements.
Cellcom Israel Ltd.
Disclosure for debenture holders as of June 30, 2012 (cont.)
Debentures rating details*
Rating assigned upon Rating as of Rating as of issuance of Series Rating Company 30.6.2012 (1) 14.08.2012 the 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
Additional ratings between original Recent date of issuance and the rating as of recent date of rating Series 14.08.2012 as of 14.08.2012 (2) Date Rating 5/2006, 9/2007, 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, A 05/2012 3/2012, 5/2012 AA-, AA,AA- (2) 5/2006, 9/2007, 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, B 05/2012 3/2012, 5/2012 AA-, AA,AA- (2) 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, C 05/2012 3/2012, 5/2012 AA-, AA,AA- (2) 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, D 05/2012 3/2012, 5/2012 AA-, AA,AA- (2) 9/2010, 8/2011, 1/2012, 3/2012, E 05/2012 5/2012 AA,AA- (2) F 05/2012 5/2012 AA,AA- (2) G 05/2012 5/2012 AA,AA- (2)
- In May 2012, S&P Maalot updated the Company's rating from an "ilAA/negative" to an "ilAA-/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). In May 2012, S&P Maalot updated the Company's rating from an "ilAA/negative" to an "ilAA-/negative". For details regarding the rating of the debentures see the Company's current report dated May 31, 2012.
* A securities rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to suspension, revision or withdrawal at any time, and each rating should be evaluated independently of any other rating.
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of June 30, 2012
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).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to Euro to CPI CPI Dollar Other First year 420,584 291,052 - - - 328,806 Second year 738,224 291,052 - - - 303,309 Third year 738,224 291,052 - - - 246,576 Fourth year 738,224 291,052 - - - 189,844 More than five years 1,957,237 571,350 - - - 235,460 Total 4,592,494 1,735,556 - - - 1,303,995
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) - None
c. Credit from banks in Israel based on the Company's "solo" financial data (in thousand NIS) - None
d. Credit from banks abroad based on the Company's "solo" financial data (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 data (in thousand NIS).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked to Euro to CPI CPI Dollar Other First year 420,584 291,052 - - - 328,806 Second year 738,224 291,052 - - - 303,309 Third year 738,224 291,052 - - - 246,576 Fourth year 738,224 291,052 - - - 189,844 More than five years 1,957,237 571,350 - - - 235,460 Total 4,592,494 1,735,556 - - - 1,303,995
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
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of June 30, 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 Euro to CPI to CPI Dollar Other First year - 16,366 - - - 1,394 Second year - 5,041 - - - 756 Third year - 5,041 - - - 453 Fourth year - 5,036 - - - 150 More than five years - - - - - - Total - 31,484 - - - 2,752
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).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked Euro to CPI to CPI Dollar Other First year - 12 - - - 4 Second year - 12 - - - 3 Third year - 12 - - - 2 Fourth year - 12 - - - 1 More than five years - 12 - - - 1 Total - 58 - - - 11
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).
Gross interest payments (without deduction Principal payments of tax) ILS not ILS linked linked Euro to CPI to CPI Dollar Other First year 21,168 8,764 - - - 14,653 Second year 38,723 8,764 - - - 13,588 Third year 38,723 8,764 - - - 11,018 Fourth year 38,723 8,764 - - - 8,448 More than five years 101,878 13,664 - - - 10,465 Total 239,213 48,720 - - - 58,172
Cellcom Israel Ltd.
Summary of Financial Undertakings (according to repayment dates) as of June 30, 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 Euro to CPI to CPI Dollar Other First year - - - - - 1,234 Second year - 26,371 - - - 1,234 Third year - - - - - - Fourth year - - - - - - More than five years - - - - - - Total - 26,371 - - - 2,468
1. Please see "Use of Non-IFRS financial measures" section in this press release.
2. The Company consolidated financial results for the second quarter 2012 include the results of Netvision Ltd., or Netvision, while the consolidated financial results for the second quarter 2011 do not include Netvision's results (due to the completion of Netvision's acquisition by the Company on August 31, 2011).
3. Please see "Use of Non-IFRS financial measures" section in this press release.
4. Including revenues from content, SMS and value added services. The Company has ceased to detail separately the revenues from content, SMS and value added services, since most of the marketing plans which are sold nowadays include service packages which include unlimited air time minutes and SMS as well as cellular surfing.
Company Contact
Yaacov Heen
Chief Financial Officer
[email protected]
Tel: +972-52-998-9755
IR Contacts
Porat Saar
CCG Investor Relations Israel & US
[email protected]
Tel: +1-646-233-2161
.
SOURCE Cellcom Israel Ltd.
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