NETANYA, Israel, August 8, 2011 /PRNewswire/ --
This quarter reflects, as previously expected and reported, the continued impact of the regulatory changes and the increased competition
The shareholders meetings of both Netvision and Cellcom Israel approved the merger between Netvision and a subsidiary of Cellcom Israel
Cellcom Israel is the cellular company with the lowest number of customer complaints in the Israeli cellular market while having the largest customer base (as per reports of the "Public Trust" organization and the "Israel Consumer Council")
Cellcom Israel declares a second quarter dividend of NIS 2.33 per share (totals approx. NIS 232 million)
Second Quarter 2011 Highlights (compared to the second quarter 2010):
- Total Revenues decreased 6% to NIS 1,589 million ($465 million)
- Total Revenues from services decreased 24.5% to NIS 1,131 million ($331 million) as a result of the regulatory changes and the increased competition
- Revenues from content and value added services (including SMS) increased 5.2%, reaching 25% of services revenues
- EBITDA [1]decreased 17.2% to NIS 565 million ($165 million);
- EBITDA margin 35.6%, down from 40.3%
- Operating income decreased 20.4% to NIS 397 million ($116 million)
- Net income totaled NIS 244 million ($71 million),a 25.2% decrease
- Free cash flow [1] decreased 46.1% to NIS 174 million ($51 million)
- Subscriber base totaled approx. 3.366 million at the end of June 2011; During the second quarter 2011 the Company recruited approximately 20,000 net post-paid subscribers
- 3G subscribers reached approx. 1.22 million at the end of June 2011, representing 36.2% of total subscriber base, net addition of approx. 32,000 in the second quarter 2011
- The Company declared second quarter dividend of NIS 2.33 per share
Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel", the "Company"), announced today its financial results for the second quarter of 2011. Revenues for the second quarter 2011 totaled NIS 1,589 million ($465 million); EBITDA for the second quarter 2011 totaled NIS 565 million ($165 million), or 35.6% of total revenues; and net income for the second quarter 2011 totaled NIS 244 million ($71 million). Basic earnings per share for the second quarter 2011 totaled NIS 2.45 ($0.72).
Commenting on the results, Amos Shapira, Chief Executive Officer, said, "In the second quarter of 2011, we saw a strong impact of the regulatory changes that came into effect at the beginning of the year and impacted our results in the magnitude previously expected and reported. At the same time, we took additional measures in the fields of customer service and pricing plans, to better address the current market conditions.
Total revenues decreased by 6% and service revenues decreased by 24.5% compared with the second quarter last year, mostly due to the reduction of interconnect fees, but also due to the intensified competition. Revenues from content and value added services increased 5.2%, EBITDA decreased approximately 17% and net income decreased approximately 25% compared to the second quarter last year. As in the first quarter, regulatory changes and accelerated competition led to a material increase in the Company's gross recruitment of subscribers, as well as to a 137% increase in revenues from handsets and accessories compared to the second quarter last year, most of which resulted from an increased sale of smartphones and advanced 3G handsets.
As the number of customers' queries to our sales and service centers continued to increase, due to the regulatory changes and accelerated competition, and in order to provide our customers the best service as they deserve, during the second quarter we continued to enlarge our sales and customer service force. We are confident that these steps will serve us in face of the expected competition in the market.
I am very pleased with the work that we have done in the second quarter to improve our customer base, as well as to strengthen the connection with our customers, as reflected both in the 'Brands Index' and in the reports of the "Israel Consumer Council" and the "Public Trust" organization, as detailed below. During the quarter, we recruited approximately 20,000 net post-paid subscribers, characterized by higher economic value than average, while our pre-paid subscriber base decreased even more due to a decrease in the number of subscribers without any economic value. We are very pleased with this trend and expect it to continue.
I am very proud to note, that in the '2011 Brands Index', which ranks the top 100 brands in Israel, Cellcom Israel was ranked as the leading brand among all the Israeli brands, and specifically among all communications and cellular brands in Israel. Overall, Cellcom Israel was ranked number four in Israel, after 3 prestigious global brands. The Brands Index of Globes, the important Israeli financial newspaper, is considered the most prestigious index in Israel, and is based on professional analysis by leading research companies, combining market surveys and financial data. A Company's brand reflects its credibility among customers, and encompasses the quality of its products and services. A top brand represents the trust and preference among consumers for that brand, over other brands.
The results of the measures we took in the area of customer service and the quality of response to our customers, were also reflected in the report of the "Public Trust" organization for the first half of 2011 which was recently published. The report states that although Cellcom Israel has the largest subscriber base among the cellular companies in Israel, it receives the lowest number of customer complaints. This report is consistent with previous reports of the "Public Trust" organization and the "Israeli Consumer Council".
These two achievements are undoubtedly the result of our investment in all of the Company's units and especially in the customer service unit in the last few months, as well as over a long period of time. I am confident that these assets will be a good basis towards the continued increase in competition in the near future.
Following our previous announcements with regard to a potential merger with Netvision, recently both general meetings of shareholders of Cellcom Israel and Netvision approved the merger and additional approvals were received, including the approvals of the Ministry of Communications and the Israeli Antitrust Authority. We have already begun the preparations for the expected merger in order to extract the potential synergies and to create better capabilities to cope with the changing communications market. The implementation of this activity will be executed if and when the merger is completed, while maintaining the Company's focus on its core business."
Yaacov Heen, Chief Financial Officer, commented: "In the second quarter of this year, we continued to see the impact of the regulatory changes and the accelerated competition on our results as well as on the whole market. As we previously expected and reported, the reduction of interconnect fees and the continued price erosion had an adverse effect on our service revenues and profitability and we estimate that they will continue to affect our results. Furthermore, the increased sale of handsets caused a decrease in our free cash flow, due to an increase in the immediate payment to vendors for handset purchases, as opposed to spreading the proceeds from those sales, that are paid in installments by our customers (generally in 36 installments).
The Company will distribute a dividend of approximately NIS 232 million, representing approximately 95% of our net income for the second quarter to our shareholders."
Main Financial and Performance Indicators:
Q2/2011 Q2/2010 % Change Q2/2011 Q2/2010
million NIS million US$
(convenience
translation)
Total revenues 1,589 1,691 (6.0%) 465.3 495.2
Total Services revenues
(including revenues from
content and value added
services) 1,131 1,498 (24.5%) 331.2 438.7
Revenues from content and
value added services 283 269 5.2% 82.9 78.8
Handset and accessories
revenues 458 193 137.3% 134.1 56.5
Operating Income 397 499 (20.4%) 116.3 146.1
Net Income 244 326 (25.2%) 71.4 95.5
Free cash flow 174 323 (46.1%) 51.0 94.6
EBITDA 565 682 (17.2%) 165.4 199.7
EBITDA, as percent of
Revenues 35.6% 40.3% (11.7%)
Subscribers end of period
(in thousands) 3,366 3,341 0.7%
Monthly ARPU 108.2 146.6 (26.2%) 31.7 42.9
Average Monthly MOU 342 338 1.2%
Financial Review
Revenues for the second quarter of 2011 totaled NIS 1,589 million ($465 million), a 6% decrease compared to NIS 1,691 million ($495 million) in the second quarter last year. The decrease in revenues resulted from a decrease of 24.5% in service revenues, a result of the regulatory changes, from NIS 1,498 million ($439 million) in the second quarter of 2010 to NIS 1,131 million ($331 million) in the second quarter of 2011, which was partially offset by a 137% increase in handset and accessories revenues, from NIS 193 million ($57 million) in the second quarter last year, to NIS 458 million ($134 million) in the second quarter of 2011.
The decrease in service revenues resulted mainly from a significant decrease in interconnect fees paid to us by other local operators, due to the reduction in interconnect tariffs as of January 1, 2011, as well as from the ongoing airtime price erosion, due to the increased competition in the market. The decrease in service revenues was partially offset by an increase of 5.2% in content and value added services (including SMS) revenues in the second quarter 2011, compared to the second quarter last year. Revenues from content and value added services for the second quarter 2011 totaled NIS 283 million ($83 million), or 25% of service revenues.
The increase in handset and accessories revenues was due to an increase in the number of handsets sold during the second quarter of 2011 compared to the second quarter last year, as well as a change in the mix of handsets sold, in favor of smartphones and advanced 3G handsets. The increase in the number of handsets sold resulted from the accelerated competition following the regulatory changes.
Cost of revenues for the second quarter of 2011 totaled NIS 804 million ($235 million), a 4.1% decrease from NIS 838 million ($245 million) in the second quarter last year. This decline primarily resulted from a significant decrease in total interconnect fees paid to other local cellular operators following the reduction in interconnect tariffs as of January 1, 2011. The decrease in cost of revenues also resulted from a decrease in amortization expenses, attributed, among others, to capitalized handsets subsidies, due to a significant decrease in such subsidies. These decreases were partially offset by a significant increase in handsets cost resulted mainly from an increase in the number of handsets sold during the second quarter of 2011 compared to the second quarter last year, as well as from a change in the mix of handsets sold, in favor of smartphones and advanced 3G handsets.
Gross profit for the second quarter of 2011 decreased 8% to NIS 785 million ($230 million), compared to NIS 853 million ($250 million) in the second quarter of 2010. Gross profit margin for the second quarter 2011 decreased to 49.4% from 50.4% in the second quarter last year.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the second quarter of 2011 totaled NIS 388 million ($114 million), compared to NIS 353 million ($103 million) in the second quarter last year. The increase in SG&A Expenses reflects primarily the impact of the regulatory changes, resulting in an increase in the number of customers' queries to our sales and service centers, which led to an increase in the Company's sales and customer service force leading to an increase in payroll expenses, as well as an increase in sales commissions. The increase in sales commissions also resulted from an increase in the number of sales transactions in the second quarter of 2011 compared to the second quarter last year.
Operating income for the second quarter 2011 totaled NIS 397 million ($116 million), compared to NIS 499 million ($146 million) in the second quarter last year, a 20.4% decrease.
EBITDA for the second quarter 2011 decreased 17.2% to NIS 565 million ($165 million), compared to NIS 682 million ($200 million) in the second quarter of 2010. EBITDA as a percent of total revenues, totaled 35.6%, a decrease from 40.3% in the second quarter last year.
Financing expenses, net for the second quarter 2011 totaled NIS 75 million ($22 million), compared to NIS 61 million ($18 million) in the second quarter last year. The increase resulted mainly from increased interest expenses, associated with the Company's debentures, in the second quarter of 2011, compared to the second quarter of 2010, due to the higher debt level following the issuance of additional debentures in the first quarter this year. The increase also resulted from a decrease in gain from Consumer Price Index (CPI) hedging transactions due to lower inflation expectations in the second quarter this year compared to those in the second quarter of 2010, as well as a decrease in gain from currency hedging transactions due to a 1.9% appreciation of the NIS against the US dollar in the second quarter 2011 compared to a 4.4% depreciation in the second quarter last year. The increase in financing expenses was offset in part by an increase in deposit interest income in the second quarter 2011 compared to the second quarter last year, due to higher deposits balance and increased interest rate.
Net Income for the second quarter 2011 totaled NIS 244 million ($71 million), compared to NIS 326 million ($95 million) in the second quarter last year. This decrease mainly resulted from the decrease in service revenues.
Basic earnings per share for the second quarter 2011 totaled NIS 2.45 ($0.72), compared to NIS 3.30 ($0.97) in the second quarter 2010.
Operating Review
New Subscribers - at the end of June 2011 the Company had approximately 3.366 million subscribers. During the second quarter of 2011 the Company recruited approximately 20,000 net post-paid subscribers, characterized by higher economic value than average, while our pre-paid subscriber base decreased even more due to a decrease in the number of subscribers without any economic value. We estimate this phenomenon results from a change in the pre-paid subscribers' tendency to use several telephone lines at the same time.
In the second quarter of 2011, the Company added approximately 32,000 net new 3G subscribers to its 3G subscriber base, reaching approximately 1.220 million 3G subscribers at the end of June 2011, representing 36.2% of the Company's total subscriber base, an increase from the 32.2% 3G subscribers represented of total subscribers at the end of June 2010.
The Churn Rate in the second quarter 2011 was 6.4%, compared to 7.1% in the previous quarter and 4.9% in the second quarter last year. The churn in the second quarter of 2011 was affected by the intensified competition and the regulatory change regarding the reduction in early termination fees, enabling subscribers to terminate a contract with a commitment for a certain period by paying a negligible amount of early termination fee without having to wait to the end of the commitment period, which led to a reduction of double counted and inactive subscribers. Furthermore, the churn for both quarters was impacted by the churn of pre-paid subscribers, characterized by lower contribution, and subscribers with collection problems.
Average monthly Minutes of Use per subscriber ("MOU") in the second quarter 2011 totaled 342 minutes, compared to 338 minutes in the second quarter 2010, an increase of 1.2%.
The monthly Average Revenue per User (ARPU) for the second quarter 2011 decreased 26.2% and totaled NIS 108.2 ($31.7), compared to NIS 146.6 ($42.9) in the second quarter last year. The decrease is attributed to the reduction in interconnect tariffs and to the ongoing airtime price erosion.
Financing and Investment Review
Cash Flow
Free cash flow for the second quarter of 2011 totaled NIS 174 million ($51 million), compared to NIS 323 million ($95 million) generated in the second quarter of 2010. Cash flows from operating activities for the second quarter this year decreased, compared with the second quarter last year, mainly due to the significant increase in sales of handsets, which led to an increase in the immediate payment to vendors for handset purchases, as opposed to spreading the proceeds from handsets sales, that are paid in installments (generally in 36 installments). The decrease in service revenues, resulted from the regulatory changes, also attributed to the decrease in cash flows from operating activities. Cash flows from investing activities decreased in the second quarter this year compared to the second quarter last year, mainly as a result of a difference in timing of investments between the quarters and higher interest received on our cash deposits. The decrease in free cash flow resulted from a higher decrease in cash flows from operating activities than the decrease in cash flows from investing activities.
Shareholders' Equity
Shareholders' Equity as of June 30, 2011 amounted to NIS 298 million ($87 million), primarily consisting of accumulated undistributed retained earnings.
Investment in Fixed Assets and Intangible Assets
During the second quarter 2011, the Company invested NIS 80 million ($23 million) in fixed assets and intangible assets (including, among others, investments in information systems and software), compared to NIS 147 million ($43 million) in the second quarter 2010 (excluding the payment of NIS 108 million pursuant to the acquisition of assets and operation of Dynamica in the second quarter of 2010). The decrease resulted from the decrease in capitalization of handsets subsidies and sales commissions due to the regulatory change relating to early termination fees, as well as from a difference in timing of investments between the quarters.
Dividend
On August 7, 2011, the Company's board of directors declared a cash dividend in the amount of NIS 2.33 per share, and in the aggregate amount of approximately NIS 232 million (the equivalent of approximately $0.67 per share and approximately $66 million in the aggregate, based on the representative rate of exchange on August 4, 2011; The actual US$ 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 October 14, 2011), 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 October 5, 2011. The payment date will be October 17, 2011. According to the Israeli tax law, the Company will deduct at source 20% 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 second quarter of 2011 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, 2010 on Form 20-F, under "Item 8 - Financial Information - Dividend Policy".
Other Developments During the Second Quarter of 2011 and Subsequent to the End of the Reporting Period
Netvision
Following the Company's previous announcement regarding a proposed merger between the Company's subsidiary and Netvision Ltd., or Netvision, for the sum of approximately NIS 1.538 billion, the major conditions for the completion of the merger were met (including the approval of Company's and Netvision's shareholders meetings; the approval of the Ministry of Communications and the approval of the Israeli Antitrust Authority that the merger transaction does not require its approval). Consummation of the transaction is subject to certain additional conditions.
For details on the proposed merger transaction with Netvision and the conditions for its consummation see the Company's Proxy Statement filed on form 6-K on June 16, 2011, under "Item 3 - Approval of merger between the Company's subsidiary and Netvision".
Regulation
Cell Sites Sharing - Following previously reported review of mandatory cell site sharing, in July 2011 an inter ministry team of the Ministries of Communications, or MOC, Finance, Interior, Environmental Protection and the Anti-Trust Commissionaire, published its recommendations regarding cell site sharing. The recommendations include compulsory cell sites sharing in the construction of new cell sites or modification to existing cell sites which require a building permit (the MOC may exempt sharing for technological and engineering hindrance), while providing preference and leniencies to the new UMTS operators, as well as the reduction of existing non shared cell sites quantity. These recommendations or similar recommendations, if enacted, shall burden the construction of new cell sites and modifications to existing cell sites, and may adversely effect the Company's existing network, the network build-out and the Company's results of operations.
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2010, in relation to cell site sharing 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 under "Item 4. Information on the Company - B. Business Overview - Government Regulations - Additional UMTS Operators"; in relation to cell sited regulation under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We may not be able to obtain permits to construct cell sites" and under "Item 4. Information on the Company - B. Business Overview - Government Regulations - Permits for Cell Site Construction - Site licensing"; and in relation to new UMTS operators see the Company's immediate report regarding the Company's results of operations in the first quarter of 2011 on form 6-K dated May 16, 2011, under "Other developments during the first quarter of 2011 and subsequent to the end of the reporting period -new UMTS operators".
Non Ionising Radiation - In May, 2011, the International Agency for Research on Cancer, an agency of the World Health Organization, or WHO, issued a press release, classifying radiofrequency electromagnetic fields as possibly carcinogenic to humans (Group 2B), based on an increased risk for glioma, a malignant type of brain cancer, associated with wireless phone use. In June 2011, the WHO publication noted that to date, no adverse health effects have been established as being caused by mobile phone use and while an increased risk of brain tumors is not established, the increasing use of mobile phones and the lack of data for mobile phone use over time periods longer than 15 years warrant further research of mobile phone use and brain cancer risk, particularly given recent popular use by younger people with potentially longer period of exposure.
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2010, under "Item 3. Key Information - D. Risk Factors - Risks related to our business - Alleged risks relating to non-ionizing radiation generated from cell sites and cellular telecommunications devices may harm our business" and under "Item 4. Information on the Company - B. Business Overview - Government Regulations - Handsets" and the Company's immediate reports on form 6-K dated June 7, 2011 regarding a purported class action filed against the Company.
Israeli Restrictive Trade Practices Law - In July 2011, the previously reported amendment to the Israeli Restrictive Trade Practices Law, 1988, giving the Director General of the Israeli Antitrust Authority powers in determining that certain entities in a specific market act as an oligopoly, as well as to regulate and give instructions to all or some of the participants of an oligopolic market, was enacted.
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2010, 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 -Competition".
New UMTS operators - Following our previous report as to the UMTS spectrum tender winners, the Ministry of Communications disqualified Marathon Mobile X Ltd., the original winner (in addition to Mirs Communications Ltd. or Mirs, an existing cellular operator) for not fulfilling the terms of the tender and following a second disqualification of a third winner, announced Golan Telecom Ltd. as the second winner, in addition to Mirs.
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2010, 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 - Government Regulations - Additional UMTS Operators" and the Company's immediate report regarding the Company's results of operations in the first quarter of 2011 on form 6-K dated May 16, 2011, under "Other developments during the first quarter of 2011 and subsequent to the end of the reporting period -new UMTS operators".
Tariff Supervision
Interconnect Tariffs - Following the Company's previous announcements regarding the reduction of interconnect tariffs payable to cellular operators in Israel as of January 2011 according to the Israeli Communications Regulations (Telecommunications and Broadcasting) (Payment for Interconnecting), 2000 and the filing of a petition by the Company with the Israeli Supreme Court of Justice in that regard (two other cellular operators filed a similar petition), in June 2011 the petition was dismissed with prejudice with the Company's consent (the other petitions were dismissed with prejudice as well with the consent of the other petitioners).
Royalties - Following the Company's previous announcements regarding the Increase of the royalties rate payable to the State of Israel according to the Israeli Communications Regulations (Royalties), 2001 to 1.75% in 2011 and 2.5% in 2012 (subject to certain conditions) and the filing of a petition with the Israeli Supreme Court of Justice by the Company and two other cellular operators in that regard , in July 2011 the State announced it accepts the Supreme Court's suggestion to set the royalties' rate to 1.75% in 2011 and 2012 (subject to the same conditions) and to 0% starting 2013. The state reserved its right to charge royalties or other payments by primary legislation. The petitioners also accepted the Supreme Court's suggestion .
For additional details see the Company's most recent annual report on Form 20-F for the year ended December 31, 2010, under "Item 4. Information on the Company - B. Business Overview - Government Regulations - Tariff Supervision" and under " - Royalties".
Shelf Prospectus and Decision to raise Debt
In July 2011, the Company filed a shelf prospectus with the Israeli Securities Authority and the Tel Aviv Stock Exchange. The shelf prospectus will allow the Company, from time to time, to offer and sell debt, equity warrants and tradable papers in Israel, in one or more offerings, subject to a supplemental shelf offering report, in which the Company will describe the terms of the securities offered and the specific details of the offering. At this stage, no decision has been made as to the execution of any such offering, nor as to its scope, terms and timing, if executed, and there is no certainty that such offering will be executed.
In August 2011, the Company's board of directors decided to commence preparations for raising debt by offering to the public, in Israel only, debentures of a new series, one or more, in an aggregate principal amount of NIS 300-500 million, under the Company's shelf prospectus. The proposed offering is subject to the filing of a supplemental shelf offering report with the Israeli Securities Authority and the Tel Aviv Stock Exchange. The timing, terms and amount of such contemplated offering have not been determined yet and are subject to a further approval of the Company's board of directors. The Company intends to use the net proceeds of such contemplated offering, if executed, for the partial financing of the merger transaction with Netvision, if completed, as detailed above, and for general corporate purposes, which may include: financing its operating and investment activity, refinancing of outstanding debt under the Company's debentures, and continued dividend distribution as customary in the Company, subject to the decision of the Company's board of directors from time to time. There is no assurance that such offering will be executed, nor as to its timing, terms and amount.
The contemplated offering described in this press release, will be made in Israel to residents of Israel only. This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities. Any securities that may be offered pursuant to the Shelf Prospectus will not be and have not been registered under the U.S. Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
For additional details of the Company's public debentures, see the Company's annual report for the year ended December 31, 2010 on Form 20-F, under "Item 5 - Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Debt Service" and the Company's immediate report regarding the Company's results of operations in the first quarter of 2011 on form 6-K dated May 16, 2011, under "Other developments during the first quarter of 2011 and subsequent to the end of the reporting period - Issuance of Debentures". Regarding the merger transaction with Netvision see above. Regarding the Company's dividend policy see the Company's annual report for the year ended December 31, 2010 on Form 20-F, under "Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy".
Conference Call Details
The Company will be hosting a conference call on Monday, August 8, 2011 at 9:00 am ET, 6:00 am PST, 14:00 GMT, 16:00 Israel time. On the call, management will review and discuss the results, and will be available to answer questions. To participate, please either access the live webcast on the Company's website, or call one of the following teleconferencing numbers below. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.
US Dial-in Number: 1-888-407-2553 UK Dial-in Number: 0-800-917-9141
Israel Dial-in Number: 03-918-0610 International Dial-in Number:
+972-3-918-0610
at: 9:00 am ET; 6:00 am PST; 14:00 GMT; 16:00 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 3.366 million subscribers (as at June 30, 2011) 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 and TDMA 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 its customers technical support, account information, direct to the door parcel services, internet and fax services, dedicated centers for the hearing impaired, etc. As of 2006, Cellcom Israel, through its wholly owned subsidiary Cellcom Fixed Line Communications L.P., 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, 2010.
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$\New Israeli Shekel (NIS) conversion rate of NIS 3.415 = US$ 1 as published by the Bank of Israel on June 30, 2011.
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. 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 IFRS 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 plus short-term investment in tradable debentures. 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 US dollar
December
June 30, June 30, June 30, 31,
2011 2011 2010 2010
US$ NIS
NIS millions millions NIS millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Assets
Cash and cash equivalents 1,527 447 585 533
Current investments,
including derivatives 390 114 414 404
Trade receivables 1,571 460 1,588 1,478
Other receivables 70 21 59 64
Inventory 138 40 123 104
Total current assets 3,696 1,082 2,769 2,583
Trade and other receivables 858 251 573 597
Property, plant and
equipment, net 1,961 574 2,048 2,063
Intangible assets, net 672 197 788 753
Total non- current assets 3,491 1,022 3,409 3,413
Total assets 7,187 2,104 6,178 5,996
Liabilities
Debentures current maturities 594 174 343 348
Trade payables and
accrued expenses 767 224 694 716
Current tax liabilities 82 24 135 132
Provisions 101 30 97 84
Other current liabilities,
including derivatives 397 116 372 379
Dividend declared 292 85 - -
Total current liabilities 2,233 653 1,641 1,659
Debentures 4,575 1,340 4,026 3,913
Provisions 18 5 18 17
Other long-term liabilities 2 1 1 1
Deferred taxes 61 18 81 65
Total non- current
liabilities 4,656 1,364 4,126 3,996
Total liabilities 6,889 2,017 5,767 5,655
Shareholders' equity
Share capital 1 - 1 1
Cash flow hedge reserve (20) (6) (9) (21)
Retained earnings 317 93 419 361
Total shareholders' equity 298 87 411 341
Total liabilities and
shareholders' equity 7,187 2,104 6,178 5,996
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Income
Six-month period ended
June 30,
Convenience
translation
into US dollar
2011 2011 2010
NIS US$ NIS
millions millions millions
(Unaudited) (Unaudited) (Unaudited)
Revenues 3,176 930 3,271
Cost of revenues (1,554) (455) (1,639)
Gross profit 1,622 475 1,632
Selling and marketing
expenses (441) (129) (361)
General and administrative
expenses (313) (92) (314)
Other expenses, net - - (1)
Operating income 868 254 956
Financing income 61 18 47
Financing expenses (203) (60) (144)
Financing expenses, net (142) (42) (97)
Income before income tax 726 212 859
Income tax (176) (51) (219)
Net income 550 161 640
Earnings per share
Basic earnings
per share in NIS 5.53 1.62 6.47
Diluted earnings per
share in NIS 5.53 1.62 6.43
Condensed Consolidated Interim Statements of Income (cont'd)
Three-month period
ended June 30, Year ended December 31,
Convenience
translation
into US dollar
2011 2011 2010 2010
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues 1,589 465 1,691 6,662
Cost of revenues (804) (235) (838) (3,322)
Gross profit 785 230 853 3,340
Selling and marketing
expenses (232) (68) (198) (756)
General and administrative
expenses (156) (46) (155) (641)
Other expenses, net - - (1) (5)
Operating income 397 116 499 1,938
Financing income 45 13 47 106
Financing expenses (120) (35) (108) (336)
Financing expenses, net (75) (22) (61) (230)
Income before income tax 322 94 438 1,708
Income tax (78) (23) (112) (417)
Net income 244 71 326 1,291
Earnings per share
Basic earnings
per share in NIS 2.45 0.72 3.30 13.04
Diluted earnings per
share in NIS 2.45 0.72 3.28 12.98
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Cash Flows Six-month period ended
June 30,
Convenience
translation
into US dollar
2011 2011 2010
NIS US$ NIS
millions millions millions
(Unaudited) (Unaudited) (Unaudited)
Cash flows from
operating activities
Net income for the period 550 161 640
Adjustments for:
Depreciation and
Amortization 336 98 363
Share based payments 1 - -
Loss on sale of assets - - 1
Income tax expense 176 51 219
Financing expenses, net 142 42 97
Changes in operating assets
and liabilities:
Changes in inventories (38) (11) (5)
Changes in trade receivables
(including long-term amounts) (326) (95) 63
Changes in other receivables
(including long-term amounts) (6) (2) (13)
Changes in trade payables and
accrued expenses 117 34 (36)
Changes in other liabilities
(including long-term amounts) 12 4 (13)
Payments for derivative
hedging contracts, net (9) (3) (12)
Income tax paid (206) (60) (171)
Net cash from operating
activities 749 219 1,133
Condensed Consolidated Interim Statements of Cash Flows (cont'd)
Three-month period ended Year ended
June 30, December
Convenience 31,
translation
into US dollar
2011 2011 2010 2010
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Cash flows from
operating activities
Net income for the period 244 71 326 1,291
Adjustments for:
Depreciation and
Amortization 168 49 182 724
Share based payments 1 - - 1
Loss on sale of assets - - 1 5
Income tax expense 78 23 112 417
Financing expenses, net 75 22 61 230
Changes in operating assets
and liabilities:
Changes in inventories (19) (5) - -
Changes in trade receivables
(including long-term amounts) (209) (61) (13) 172
Changes in other receivables
(including long-term amounts) (2) (1) 12 (6)
Changes in trade payables
and accrued expenses (5) (1) (2) (42)
Changes in other liabilities
(including long-term amounts) (6) (2) (19) (16)
Payments for derivative
hedging contracts, net (6) (2) (7) (16)
Income tax paid (86) (25) (71) (380)
Net cash from operating
activities 233 68 582 2,380
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Interim Statements of Cash Flows (cont'd) Six-month period ended
June 30,
Convenience
translation
into US dollar
2011 2011 2010
NIS US$ NIS
millions millions millions
(Unaudited) (Unaudited) (Unaudited)
Cash flows from investing
activities
Acquisition of property,
plant, and equipment (135) (40) (212)
Acquisition of intangible assets (52) (15) (100)
Acquisition of operation - - (108)
Change in current investments, net 8 2 (138)
Payments for other derivative
contracts, net (9) (3) (8)
Proceeds from sales of
property, plant and equipment 2 1 1
Interest received 20 6 4
Net cash used in investing activities (166) (49) (561)
Cash flows from financing
activities
Proceeds from derivative contracts, net 10 3 17
Payments for short term borrowings - - (8)
Repayment of debentures (175) (51) (171)
Proceeds from issuance of
debentures, net of issuance costs 1,033 303 -
Dividend paid (334) (98) (611)
Interest paid (123) (36) (117)
Net cash provided from
(used in) financing activities 411 121 (890)
Changes in cash and cash equivalents 994 291 (318)
Balance of cash and cash equivalents
at beginning of the period 533 156 903
Balance of cash and cash
equivalents at end of the period 1,527 447 585
Condensed Consolidated Interim Statements of Cash Flows (cont'd)
Three-month period ended Year ended December
June 30,
Convenience 31,
translation
into US dollar
2011 2011 2010 2010
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Cash flows from
investing activities
Acquisition of property,
plant, and equipment (53) (15) (107) (441)
Acquisition of intangible
assets (18) (5) (42) (180)
Acquisition of operation - - (108) (108)
Change in current
investments, net 6 2 - (154)
Payments for other
derivative contracts, net (6) (2) (3) (17)
Proceeds from sales of
property, plant and equipment 1 - - 2
Interest received 17 5 1 9
Net cash used in investing
activities (53) (15) (259) (889)
Cash flows from financing
activities
Proceeds from derivative
contracts, net 6 2 4 34
Payments for short term
borrowings - - (5) (8)
Repayment of debentures - - - (343)
Proceeds from issuance of
debentures, net of issuance
costs - - - -
Dividend paid (303) (89) (355) (1,319)
Interest paid - - - (225)
Net cash provided from
(used in) financing activities (297) (87) (356) (1,861)
Changes in cash and cash
equivalents (117) (34) (33) (370)
Balance of cash and cash
equivalents at beginning of
the period 1,644 481 618 903
Balance of cash and cash
equivalents at end of the
period 1,527 447 585 533
Cellcom Israel Ltd.
(An Israeli Corporation)
Reconciliation for Non-IFRS Measures
EBITDA
The following is a reconciliation of net income to EBITDA:
Three-month period ended Year ended
June 30, December 31,
Convenience
translation
into US dollar
2011 2011 2010 2010
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Net income 244 71 326 1,291
Income taxes 78 23 112 417
Financing income (45) (13) (47) (106)
Financing expenses 120 35 108 336
Other expenses (income) - - 1 5
Depreciation and amortization 168 49 182 724
EBITDA 565 165 682 2,667
Free Cash Flow
The following table shows the calculation of free cash flow:
Three-month period ended Year ended
June 30, December
Convenience 31,
translation
into US dollar
2011 2011 2010 2010
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Cash flows from operating
activities 233 68 582 2,380
Cash flows from investing
activities (53) (15) (259) (889)
Short-term Investment in
tradable debentures (6) (2) - 154
Free cash flow 174 51 323 1,645
1. Please see "Use of Non-IFRS financial measures" section in this press release.
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.
Share this article