Cellcom Israel Announces Third Quarter 2010 Results
NETANYA, Israel, November 10, 2010 /PRNewswire-FirstCall/ --
- Cellcom Israel Presents an Increase in all Financial Parameters
Despite the Ongoing Tariff Erosion
- EBITDA[1] up by 9.3%[2]; EBITDA Margin 41.4%[2]; Net Income up by
14.9%[3]
- Cellcom Israel Declares a Third Quarter Dividend of NIS 4.03
per Share (Totals Approx. NIS 400 Million)
Third Quarter 2010 Highlights (compared to the third quarter
2009):
- Total Revenues (including revenues from end-user equipment) increased
3.2% to NIS 1,729 million ($472 million)
- Revenues from content and value added services (including SMS)
increased 24.9%, reaching 19% of services revenues
- Total Revenues from services increased 1.1% to NIS 1,509 million
($412 million)
- EBITDA[2] increased 9.3% to NIS 716 million ($195 million); EBITDA
margin 41.4%, up from 39.1%[2]
- Operating income increased 14.1% to NIS 534 million ($146 million)
- Net income[3] increased 14.9% to NIS 332 million ($91 million)
- Free cash flow[1] increased 13% to NIS 513 million ($140 million)
- Subscriber base increased approx. 35,000 during the third quarter 2010,
all post-paid subscribers; reaching approx. 3.376 million at the end of
September 2010
- 3G subscribers reached approx. 1.114 million at the end of September
2010, net addition of approx. 38,000 in the third quarter 2010
- The Company Declared third quarter dividend of NIS 4.03 per
share
Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel", the "Company"), announced today its financial results for the third quarter of 2010. Revenues for the third quarter 2010 totaled NIS 1,729 million ($472 million); EBITDA for the third quarter 2010 totaled NIS 716 million ($195 million), or 41.4% of total revenues; and net income for the third quarter 2010 totaled NIS 332 million ($91 million). Basic earnings per share for the third quarter 2010 totaled NIS 3.36 ($0.92).
Commenting on the results, Amos Shapira, Chief Executive Officer said, "This has been a strong quarter for Cellcom Israel during which we presented growth across all of our financial parameters including, among others, revenues, EBITDA, operating income and net income, despite the ongoing airtime price erosion. These positive results are attributable to our efforts in generating new revenue sources while continuing with efficiency measures.
Moreover, we increased our subscriber base by approximately 35,000 during the quarter, all of which are post-paid subscribers, reaching approximately 3.376 million subscribers by the end of September 2010. Compared with the third quarter of 2009, we increased our subscriber base by 3.6%. This quarter we also continued to expand our 3G subscriber base by approximately 38,000, reaching approximately 1.114 million subscribers by the end of September 2010, representing 33% of our total subscriber base.
We remain committed to focusing on cellular communications, where we have a relative advantage, while at the same time, identifying new opportunities that are synergetic with our core business. This is exemplified by our coming entry into the financial services market, as well as our offering of landline service to business customers, which leverages our infrastructure layout to industrial centers in Israel. I believe that pursuing this strategy enables us to improve our financial and operational results.
As we previously announced, in September 2010 the MOC published its decision to reduce the interconnect tariffs payable to cellular operators[4] in Israel, with the first reduction expected to take place in January 2011. After having reviewed the decision, we intend to shortly file a petition with the Israeli Supreme Court of Justice, although we cannot predict the ultimate outcome of such a petition, if filed. Additionally, we have begun the required preparations to deal with the impact of the reduction in interconnect tariffs, in relation to both our operational efficiency as well as to identifying additional sources of revenue. "
Yaacov Heen, Chief Financial Officer, commented: "We are happy to present a solid third quarter with year over year growth in all key areas, including a 3.2% increase in revenues with a 24.9% increase in content and value added services revenues, a 14.1% increase in operating income, a 9.3% increase in EBITDA with an EBITDA margin of 41.4% and a 14.9% increase in net income. These increases are a direct result of our efforts to expand our array of services and revenue sources while constantly striving to improve our operational efficiency. In the third quarter of 2010 we also continued to present a strong free cash flow totaling NIS 513 million, an increase of 13% from the third quarter of 2009. Accordingly, we will distribute a dividend of approximately NIS 400 million, representing approximately 120% of net income for the third quarter, to our shareholders."
Main Financial and Performance Indicators:
Q3/2010 Q3/2009 % Change Q3/2010 Q3/2009
million NIS million US$
(convenience
translation)
Total revenues 1,729 1,675 3.2% 471.8 457.0
Total Services revenues
(including revenues from
content and value added
services) 1,509 1,493 1.1% 411.7 407.4
Revenues from content and
value added services 286 229 24.9% 78.0 62.5
Handset and accessories
revenues 220 182 20.9% 60.0 49.7
Operating Income 534 468 14.1% 145.7 127.7
Net Income[5] 332 289 14.9% 90.6 78.9
Free cash flow 513 454 13.0% 140.0 123.9
EBITDA[6] 716 655 9.3% 195.4 178.7
EBITDA, as percent of
Revenues[6] 41.4% 39.1% 5.9%
Subscribers end of period
(in thousands) 3,376 3,259 3.6%
Monthly ARPU 145.9 150.4 (3.0%) 39.8 41.0
Average Monthly MOU 334 338 (1.2%)
Financial Review
Revenues for the third quarter of 2010 totaled NIS 1,729 million ($472 million), a 3.2% increase compared to NIS 1,675 million ($457 million) in the third quarter last year. The increase in revenues resulted mainly from a 20.9% increase in handset and accessories' revenues, reaching NIS 220 million ($60 million), compared to NIS 182 million ($50 million) in the third quarter last year. This increase is attributed, among others, to an increase in the number of smartphones sold in the third quarter this year compared to the third quarter last year. The increase in total revenues also resulted from a 1.1% increase in revenues from services, reaching NIS 1,509 million ($412 million) in the third quarter of 2010, up from NIS 1,493 million ($407 million) in the third quarter last year. The higher service revenues resulted mainly from an increase of approximately 25% in content and value added services (including SMS) revenues in the third quarter 2010, compared to the third quarter last year. Revenues from content and value added services reached NIS 286 million ($78 million), or 19% of service revenues. Furthermore, the increase in landline services revenues during the quarter also contributed to the higher service revenues. These increases were partially offset by a decrease in airtime revenues mainly due to fewer working days in the third quarter of 2010 than in the third quarter last year as a result of the Jewish holidays' season, characterized by reduced usage, and due to airtime price erosion.
Cost of revenues for the third quarter of 2010 totaled NIS 838 million ($229 million), a 2.1% decrease from NIS 856 million ($234 million) in the third quarter last year. This decrease primarily resulted from measures taken by the Company, including improvement of the handsets repair process by, among other, performance of repairs by advanced regional labs instead of local labs, which contributed to both logistical efficiency as well as to improved customer service. The decrease in cost of revenues was also due to a decrease in the rate of royalties paid to the Ministry of Communications, as well as to the effect of the one-time provision in the amount of NIS 15 million ($4 million) recorded in the third quarter of 2009 with regard to a dispute between the Company and the Ministry of Communications regarding frequencies fees, pending decision by the Israeli Supreme Court. These decreases were partially offset by a quantitative increase in the number of outgoing calls completed in other operators' networks resulted in an increase in total interconnect fees paid to other operators, and an increase in the cost of content and value added services due to increased usage.
Gross profit for the third quarter of 2010 increased 8.8% reaching NIS 891 million ($243 million), compared to NIS 819 million ($223 million) in the third quarter of 2009. Gross profit margin for the third quarter 2010 increased to 51.5% from 48.9% in the third quarter last year.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the third quarter of 2010 totaled NIS 356 million ($97 million), compared to NIS 351 million ($96 million) in the third quarter last year. The increase in SG&A Expenses resulted mainly from an increase in the Company's sales and customer service force, due to, among others, the acquisition of Dynamica, which led to an increase in payroll expenses and rent expenses. These increases were partially offset by a decrease in advertising expenses.
Operating income for the third quarter 2010 increased 14.1%, reaching NIS 534 million ($146 million), compared to NIS 468 million ($128 million) in the third quarter last year.
EBITDA for the third quarter 2010 increased 9.3%, reaching NIS 716 million ($195 million), compared to NIS 655 million ($179 million) in the third quarter of 2009. EBITDA as a percent of total revenues, reached 41.4% compared to 39.1% in the third quarter last year (After elimination of the above mentioned one-time provision, EBITDA for the third quarter 2009 totaled NIS 670 million ($183 million) and EBITDA margin for the third quarter 2009 totaled 40%. Accordingly, after such elimination, EBITDA for the third quarter 2010 increased 6.9% compared to the third quarter of 2009).
Financing expenses, net for the third quarter 2010 totaled NIS 88 million ($24 million), compared to NIS 122 million ($33 million) in the third quarter last year, a 27.9% decrease. The decrease resulted mainly from lower Israeli Consumer Price Index, or CPI, linkage expenses, associated with the Company's debentures, in the third quarter 2010 compared to the third quarter 2009, resulting mainly from a lower inflation of 1.2% in the third quarter this year, compared to 2.4% in the third quarter last year. This decrease was partially offset by a decreased income from the CPI hedging transactions in the third quarter 2010 compared to the third quarter last year, due to the lower inflation.
Income tax for the third quarter 2010 totaled NIS 114 million ($31 million) compared to NIS 57 million ($16 million) in the third quarter last year. The increase is attributed mainly to the reduction of deferred tax liabilities and the recognition of a one-time tax income in the third quarter of 2009 in the amount of approximately NIS 41 million ($11 million), following the Israeli parliament enactment of the law of "Economic efficiency improvement"' which provided, among other, for a gradual reduction of the Corporate tax rate from 25% in 2010 up to 18% in the year 2016 onward.
Net Income for the third quarter 2010 increased 14.9% and totaled NIS 332 million ($91 million), compared to NIS 289 million ($79 million) in the third quarter last year (After elimination of the above mentioned one-time effects, net income for the third quarter 2009 totaled NIS 259 million ($71 million) and net income for the third quarter 2010 increased 28.2%). Basic earnings per share for the third quarter 2010 totaled NIS 3.36 ($0.92), compared to NIS 2.94 ($0.80) in the third quarter 2009.
Operating Review
New Subscribers - at the end of September 2010 the Company had approximately 3.376 million subscribers. During the third quarter of 2010 the Company added approximately 35,000 net new subscribers, all of them post-paid subscribers.
In the third quarter of 2010, the Company added approximately 38,000 net 3G subscribers to its 3G subscriber base, reaching approximately 1.114 million 3G subscribers at the end of September 2010, representing 33% of the Company's total subscriber base, an increase from the 28.9% 3G subscribers represented of total subscribers at the end of September 2009.
The Churn Rate in the third quarter 2010 was 4.6%, compared to 4.9% in the third quarter last year. The churn for both quarters was primarily impacted by the churn of pre-paid subscribers, characterized by lower contribution, and subscribers with collection problems.
Average monthly subscriber Minutes of Use ("MOU") in the third quarter 2010 totaled 334 minutes, compared to 338 minutes in the third quarter 2009, a decrease of 1.2%. The decline in usage level is mainly due to fewer working days in the third quarter of 2010 than in the third quarter last year as a result of the Jewish holidays' season, characterized by reduced usage.
The monthly Average Revenue per User (ARPU) for the third quarter 2010 totaled NIS 145.9 ($39.8), compared to NIS 150.4 ($41.0) in the third quarter last year, a decrease of 3%. The decrease is attributed mainly to fewer working days in the third quarter of 2010 than in the third quarter last year as a result of the Jewish holidays' season, as well as to airtime price erosion.
Financing and Investment Review
Cash Flow
Free cash flow for the third quarter of 2010 totaled NIS 513 million ($140 million), compared to NIS 454 million ($124 million) generated in the third quarter of 2009, an increase of 13%.
Shareholders' Equity
Shareholders' Equity as of September 30, 2010 amounted to NIS 426 million ($116 million), primarily consisting of accumulated undistributed retained earnings.
Investment in Fixed Assets and Intangible Assets
During the third quarter 2010, the Company invested NIS 152 million ($42 million) in fixed assets and intangible assets (including, among others, deferred sales commissions and handsets subsidies and investments in information systems and software), compared to NIS 156 million ($43 million) in the third quarter 2009.
Dividend
On November 9, 2010, the Company's board of directors declared a cash dividend in the amount of NIS 4.03 per share, and in the aggregate amount of approximately NIS 400 million (the equivalent of approximately $1.12 per share and approximately $111 million in the aggregate, based on the representative rate of exchange on November 8, 2010; The actual US$ 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 December 27, 2010), subject to withholding tax described below. The total dividend amount may increase to up to approximately NIS 401 million if new shares are issued prior to the dividend record date, as a result of the exercise of options under the Company's "2006 Share Incentive Plan" (for additional details please see the Company's most recent annual report for the year ended December 31, 2009 on Form 20-F under "Item 5. Operating and Financial Review and Prospects - A. Operating Results - 2006 Share Incentive Plan" and "Item 6. Directors, Senior Management and Employees - E. Share Ownership - 2006 Share Incentive Plan"). 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 December 15, 2010. The payment date will be December 29, 2010. 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 third quarter of 2010 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, 2009 on Form 20-F, under "Item 8 - Financial Information - Dividend Policy".
Other developments during the third quarter of 2010 and subsequent to the end of the reporting period
Regulation
Tariff Supervision
In September 2010, following the previously reported Israeli Ministry of Communications, or MOC' announcement that it is considering reducing interconnect tariffs payable to cellular operators in Israel, the MOC announced its decision to amend the applicable Israeli regulations as follows:
- to reduce the maximum interconnect tariff payable by a landline
operator or a cellular operator for the completion of a call on another
cellular network from the current tariff of NIS 0.251 per minute to NIS
0.0687 per minute from January 1, 2011; to 0.0634 per minute from
January 1, 2012; to NIS 0.0591 per minute from January 1, 2013; and to
NIS 0.0555 from January 1, 2014.
- to reduce the maximum interconnect tariff payable by a cellular
operator for sending an SMS message to another cellular network from
the current tariff of NIS 0.0285 to NIS 0.0016 from January 1, 2011; to
NIS 0.0015 from January 1, 2012; to NIS 0.0014 from January 1, 2013;
and to NIS 0.0013 from January 1, 2014.
- the tariffs do not include VAT and will be updated annually from
January 1, 2011, based on the change in the Israeli CPI published in
November of the year preceding to the update date from the average
annual Israeli CPI for 2009. The tariffs will also be increased by the
percentage of royalties payable to the MOC by the operator.
The reduction is expected to have a material adverse effect on the Company's results. As previously reported, such adverse effects include both the direct effect of the reduction and indirect effects.
Absent any efforts to mitigate the expected loss of revenues, these changes are expected to have an annual direct adverse effect (based on the Company's current calls and SMS data) of approximately NIS 420 million on the Company's annual EBITDA and approximately NIS 320 million on the Company's annual net income, for the first reduction.
The Company cannot predict the actual indirect adverse effects the reduction would have on the Company's results, including from fewer calls being made as subscribers switch to landline and callback services. Any usage of the interconnect tariff as the basis for other tariffs, if regulated, such as for the provision of services to MVNO[7] or the provision of national roaming services (if such services are allowed), may have additional material adverse effect on the Company's results.
The Company intends to take measures to mitigate as much as possible the expected adverse effects of such reduction, through revenue enhancement as well as cost reduction, but cannot assure that these will be successful.
The Company believes the MOC's decision is mistaken and unlawful and intends to shortly file a petition with the Israeli Supreme Court of Justice. The Company cannot predict the ultimate outcome of such petition , if filed.
For additional details see the Company's most recent annual report for the year ended December 31, 2009 on Form 20-F under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We operate in a heavily regulated industry, which can harm our results of operations" 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" and "Government Regulations -Tariff Supervision", the Company's immediate report regarding its results of operations in the first quarter of 2010 on form 6-K dated May 17, 2010, under "Other developments during the first quarter of 2010 and subsequent to the end of the reporting period - Regulation - Tariff Supervision" and the Company's immediate report regarding its results of operations in the second quarter of 2010 on form 6-K dated August 26, 2010, under "Other developments during the second quarter of 2010 and subsequent to the end of the reporting period - Regulation ".
Forward Looking Statement -The information contained in this press release 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). Said forward-looking statements, relating to the impact of the reduction of interconnect tariffs on the Company's results of operations, are subject to uncertainties and assumptions about the outcome of the aforesaid petition ,if filed; the actual effects of the reduction (including customer reaction and substitution of other products, as well as general trends in the Company's business that could change the number of subscribers, minutes of use and pricing); the entry of MVNOs or new operators to the market and their actual effect on the market and the Company's results; the existence of national roaming services and the regulator's intervention in setting tariffs for MVNO and national roaming services, the tariffs actually set and the effects of such services and tariffs on the market and the Company's results; and the Company's ability to mitigate the expected lost revenues. The actual effect of the reduction and other regulatory changes, as well as the Company's ability to mitigate the expected lost revenues, could lead to materially different outcome than that set forth above.
UMTS Spectrum Tender
In September 2010, the MOC published a UMTS spectrum tender for two additional UMTS operators. Participation will be allowed for new operators and Mirs Communications Ltd., or Mirs (an existing niche operator). The winners will be awarded a general license for the provision of cellular services (in Mirs' case, its current license shall be amended). The tender does not set a completion date for the tender process. The tender conditions are subject to changes.
The tender includes certain benefits and leniencies, such as a low minimum license fee and a reduction mechanism based on the market share gained by the winner and a prolonged timetable for network coverage completion. The tender committee, comprising of MOC and Ministry of Finance representatives, annexed to the tender a recommendation letter to the Minister of Communications, which is not part of the tender terms, recommending to award the winners with rebates on spectrum fees, based on market share gained. The tender committee mentioned in its recommendation letter to the Minister, the importance of regulating cell site sharing and national roaming, to increase the winners' ability to create competition in the market, but did not provide specific recommendations, as both issues are already being reviewed or under progress (see Economic Policy for the years 2011-2012 Bill below for additional details).
Additional UMTS operators are expected to further increase competition in the market and could adversely influence the Company's results of operations.
For additional details see the Company's most recent annual report for the year ended December 31, 2009 on Form 20-F, under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We operate in a heavily regulated industry, which can harm our results of operations" 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" and the Company's immediate report regarding the Company's results of operations in the second quarter of 2010 on form 6-K dated August 26, 2010, under "Other developments during the first quarter of 2010 and subsequent to the end of the reporting period - Other regulatory developments".
Economic Policy for the Years 2011-2012 Bill
In October 2010, following the previously reported approval by the Israeli Government of the Israeli Economic Policy for the years 2011-2012 (which included various proposed changes to the regulatory conditions under which the Company operates), the Israeli Economic Policy for the years 2011-2012 Bill, or the Economic Policy Bill, passed the first reading (the first stage of legislation) out of three, in the Israeli Parliament. The Economic Policy Bill includes essentially the proposed changes previously reported by the Company, however the reduction of early termination fees and the prohibition on any limitation on the possibility to use a cellular handset in any similar cellular network, shall also apply to existing pricing plans and handsets (by prohibiting a fee collection for removing such existing limitations), respectively. In addition, in October 2010 the MOC published a hearing with regards to the engineering aspects of the compulsory national roaming services also included in the Economic Policy Bill.
For additional details regarding the proposed changes included in the Economic Policy Bill see the Company's immediate report regarding its results of operations in the second quarter of 2010 on form 6-K dated August 26, 2010, under "Other developments during the second quarter of 2010 and subsequent to the end of the reporting period - Other Regulatory Developments".
Cell sites
Radio Access Devices - In September 2010, the Israeli Supreme Court issued an interim order prohibiting further construction of radio access devices in cellular networks, in reliance on the exemption from the requirement to obtain a building permit. The interim order, that was issued pursuant to the Israeli Attorney General's request, will be in effect until the enactment of the draft regulations setting the conditions for the application of the exemption (submitted in March 2010 for the approval of the Economy Committee of the Israeli Parliament) or other decision by the court.
Inability to rely on, or substantial limitation of, the exemption could adversely affect the Company's existing network and network build-out, particularly given the objection of some local planning and building authorities to grant due permits where required, and consequently may adversely affect the Company's results of operations.
Amendment of the Non Ionizing Radiation Law Bill - In October 2010, a bill amending the Non Ionizing Radiation Law so as to prohibit the grant of permits for the construction and operation for cell sites, under such law, situated within 75 meters from senior citizens' institutions, education institutions, shelters and hospitals, passed a preliminary reading (a preliminary stage of legislation) in the Israeli Parliament. According to the bill, such permits granted prior to the enactment of the bill shall expire within 6 months from its effective date. The proposed change, if enacted, shall adversely affect our existing network and network build out, specifically in urban areas, and could adversely affect the Company's results of operations.
For additional details see the Company's most recent annual report for the year ended December 31, 2009 on Form 20-F, 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" as well as under "Item 4. Information on the Company - B. Business Overview - Government Regulations - Permits for Cell Site Construction -Site licensing", the Company's immediate report regarding the Company's results of operations in the first quarter of 2010 on form 6-K dated May 17, 2010, under "Other developments during the first quarter of 2010 and subsequent to the end of the reporting period - Cell Sites" and the Company's immediate report regarding its results of operations in the second quarter of 2010 on form 6-K dated August 26, 2010, under "Other developments during the second quarter of 2010 and subsequent to the end of the reporting period - Cell sites - National Zoning Plan 36".
Board of Directors - Appointment of new Director
In November 2010, the Company's Board of Directors appointed Mr. Ephraim Kunda as a member of the Company's Board of Directors and as a member of the Company's Audit and Analysis Committees, as of November 9, 2010 . Mr. Kunda qualifies as an "independent director" under the rules of Securities and Exchange Commission and the New York Stock Exchange applicable to audit committee members. Mr. Kunda's initial term will expire at the next annual meeting of the shareholders of the Company, at which time, his re-election for an additional term, if nominated by the Company's Board of Directors, and his proposed director's fee will be brought for shareholder approval.
Mr. Ephraim Kunda is an Israeli businessman and is the owner and managing director of a private consulting company that provides economic consultancy and business mediation services. Since 2007, Mr. Kunda has served as the Chairman of the Board of Directors of Ravad Ltd., a public real estate investment company. From 2003 to 2007, Mr. Kunda served as an external director of Property and Building Corporation Ltd., a public real estate company that is a member of the IDB group. Mr. Kunda holds a B.A. in Economics from Tel Aviv University.
Conference Call Details
The Company will be hosting a conference call on Wednesday, November 10, 2010 at 9:30 am ET, 6:30 am PT, 14:30 UK time, 16:30 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: 0-800-917-5108
Israel Dial-in Number: 03-918-0610
International Dial-in Number: +972-3-918 0610
at: 09:30 am ET; 06:30 am PT; 14:30 UK Time; 16:30 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 3.376 million subscribers (as at September 30, 2010) 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 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, 2009.
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$\New Israeli Shekel (NIS) conversion rate of NIS 3.665 = US$ 1 as published by the Bank of Israel as of September 30, 2010.
Use of non-GAAP financial measures
EBITDA is a non-GAAP 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 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-GAAP 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 marketable debentures. See the reconciliation note at the end of this Press Release.
Financial Tables Follow
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Financial position
Convenience
translation
into US
dollar
September September September December
30, 30, 30, 31,
2010 2010 2009 2009
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited)(Audited)
Assets
Cash and cash equivalents 777 212 976 903
Current investments,
including derivatives 414 113 213 272
Trade receivables 1,563 427 1,584 1,579
Other receivables 75 20 73 63
Inventory 115 31 123 149
Total current assets 2,944 803 2,969 2,966
Trade and other receivables 597 163 622 606
Property, plant and
equipment, net 2,043 557 2,066 2,096
Intangible assets, net 765 209 707 711
Total non- current assets 3,405 929 3,395 3,413
Total assets 6,349 1,732 6,364 6,379
Liabilities
Debentures current
maturities 347 95 341 350
Trade payables and accrued
expenses 697 190 788 806
Current tax liabilities 161 44 127 67
Provisions 107 29 78 84
Other current liabilities,
including derivatives 317 86 345 405
Dividend declared 310 85 - -
Total current liabilities 1,939 529 1,679 1,712
Debentures 3,891 1,062 4,179 4,185
Provisions 18 5 17 16
Other long-term liabilities 1 - 1 1
Deferred taxes 74 20 99 91
Total non- current
liabilities 3,984 1,087 4,296 4,293
Total liabilities 5,923 1,616 5,975 6,005
Shareholders' equity
Share capital 1 - 1 1
Cash flow hedge reserve (17) (4) (24) (23)
Retained earnings 442 120 412 396
Total shareholders' equity 426 116 389 374
Total liabilities and
shareholders' equity 6,349 1,732 6,364 6,379
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Income
Nine-month period ended
September 30,
Convenience
translation
into US
dollar
2010 2010 2009
NIS US$ NIS
millions millions millions
(Unaudited) (Unaudited) (Unaudited)
Revenues 5,000 1,364 4,844
Cost of
revenues 2,477 676 2,486
Gross profit 2,523 688 2,358
Selling and
marketing
expenses 554 151 520
General and
administrative
expenses 477 130 485
Other
expenses, net 2 - 4
Operating
income 1,490 407 1,349
Financing
income 68 18 141
Financing
expenses (253) (69) (302)
Financing
income
(expenses),
net (185) (51) (161)
Income before
income tax 1,305 356 1,188
Income tax 333 91 277
Net income 972 265 911
Earnings per
share
Basic earnings
per share in
NIS 9.83 2.68 9.26
Diluted
earnings per
share in NIS 9.77 2.67 9.17
Condensed Consolidated Statements of Income (Cont'd)
Three-month period ended Year ended
September 30, December
31,
Convenience
translation
into US
dollar
2010 2010 2009 2009
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues 1,729 472 1,675 6,483
Cost of
revenues 838 229 856 3,333
Gross profit 891 243 819 3,150
Selling and
marketing
expenses 193 53 185 716
General and
administrative
expenses 163 44 166 660
Other expenses,
net 1 - - 6
Operating
income 534 146 468 1,768
Financing
income 23 6 29 151
Financing
expenses (111) (30) (151) (370)
Financing
income
(expenses), net (88) (24) (122) (219)
Income before
income tax 446 122 346 1,549
Income tax 114 31 57 367
Net income 332 91 289 1,182
Earnings per
share
Basic earnings
per share in
NIS 3.36 0.92 2.94 12.01
Diluted
earnings per
share in NIS 3.34 0.91 2.91 11.90
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows
Nine-month period ended
September 30,
Convenience
translation
into US
dollar
2010 2010 2009
NIS US$ NIS
millions millions millions
(Unaudited) (Unaudited) (Unaudited)
Cash flows from
operating
activities
Net income for
the period 972 265 911
Adjustments for:
Depreciation and
Amortization 544 148 566
Share based
payments 1 - 1
Loss (gain) on
sale of assets 2 - 5
Income tax
expense 333 91 277
Financial
(income)
expenses, net 185 51 161
Changes in
operating assets
and liabilities:
Changes in
inventories (3) (1) (57)
Changes in trade
receivables
(including long-
term amounts) 76 21 (85)
Changes in other
receivables
(including long-
term amounts) (30) (8) (45)
Changes in trade
payables,
accrued expenses
and provisions (23) (6) 182
Changes in other
liabilities
(including
long-term
amounts) (21) (6) (4)
Proceeds
(Payments) for
derivative
hedging
contracts, net (13) (4) 22
Income tax paid (233) (63) (290)
Net cash from
operating
activities 1,790 488 1,644
Condensed Consolidated Statements of Cash Flows (Cont'd)
Three-month period ended Year ended
September 30, December
31,
Convenience
translation
into US
dollar
2010 2010 2009 2009
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Cash flows from
operating
activities
Net income for
the period 332 91 289 1,182
Adjustments for:
Depreciation and
Amortization 181 49 187 755
Share based
payments 1 - 1 1
Loss (gain) on
sale of assets 1 - 1 6
Income tax
expense 114 31 57 367
Financial
(income)
expenses, net 88 24 122 219
Changes in
operating assets
and liabilities:
Changes in
inventories 2 1 (29) (105)
Changes in trade
receivables
(including long-
term amounts) 13 3 (34) (69)
Changes in other
receivables
(including long-
term amounts) (17) (4) 43 2
Changes in trade
payables,
accrued expenses
and provisions 13 3 58 152
Changes in other
liabilities
(including
long-term
amounts) (8) (2) 5 (4)
Proceeds
(Payments) for
derivative
hedging
contracts, net (1) - 5 21
Income tax paid (62) (17) (101) (447)
Net cash from
operating
activities 657 179 604 2,080
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows (cont'd)
Nine-month period ended
September 30,
Convenience
translation
into US
dollar
2010 2010 2009
NIS US$ NIS
millions millions millions
(Unaudited) (Unaudited) (Unaudited)
Cash flows from
investing
activities
Acquisition of
property, plant,
and equipment (318) (87) (285)
Acquisition of
intangible
assets (140) (38) (137)
Acquisition of
operation, net
of cash
acquired* (108) (29) -
Change in
current
investments, net (145) (40) (124)
Proceeds
(payments) for
other derivative
contracts, net** (9) (2) 19
Proceeds from
sales of
property, plant
and equipment 1 - 2
Interest
received 7 2 4
Net cash used in
investing
activities (712) (194) (521)
Cash flows from
financing
activities
Proceeds from
derivative
contracts, net 12 3 9
Proceeds
(Payments) for
short term
borrowings (8) (2) -
Repayment of
debentures (343) (94) (332)
Proceeds from
issuance of
debentures, net
of issuance
costs - - 989
Dividend paid (640) (174) (898)
Interest paid (225) (61) (190)
Net cash used in
financing
activities (1,204) (328) (422)
Changes in cash
and cash
equivalents (126) (34) 701
Balance of cash
and cash
equivalents at
beginning of the
period 903 246 275
Balance of cash
and cash
equivalents at
end of the
period 777 212 976
Condensed Consolidated Statements of Cash Flows (cont'd)
Three-month period ended Year ended
September 30, December
31,
Convenience
translation
into US
dollar
2010 2010 2009 2009
NIS US$ NIS NIS
millions millions millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Cash flows from
investing
activities
Acquisition of
property, plant,
and equipment (106) (29) (89) (404)
Acquisition of
intangible
assets (40) (11) (48) (173)
Acquisition of
operation, net
of cash
acquired* - - - -
Change in
current
investments, net (7) (2) (124) (212)
Proceeds
(payments) for
other derivative
contracts, net** (1) - (15) 8
Proceeds from
sales of
property, plant
and equipment - - 2 2
Interest
received 3 1 - 5
Net cash used in
investing
activities (151) (41) (274) (774)
Cash flows from
financing
activities
Proceeds from
derivative
contracts, net (5) (1) 5 33
Proceeds
(Payments) for
short term
borrowings - - - 8
Repayment of
debentures (172) (47) (168) (332)
Proceeds from
issuance of
debentures, net
of issuance
costs - - - 989
Dividend paid (29) (8) (302) (1,186)
Interest paid (108) (30) (112) (190)
Net cash used in
financing
activities (314) (86) (577) (678)
Changes in cash
and cash
equivalents 192 52 (247) 628
Balance of cash
and cash
equivalents at
beginning of the
period 585 160 1,223 275
Balance of cash
and cash
equivalents at
end of the
period 777 212 976 903
Cellcom Israel Ltd.
(An Israeli Corporation)
Reconciliation for Non-GAAP Measures
EBITDA
The following is a reconciliation of net income to EBITDA:
Three-month period ended Year ended
September 30, December 31,
Convenience
translation
into US
dollar
2010 2010 2009 * 2009
NIS millions US$ millions NIS millions NIS millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Net income. 332 91 289 1,182
Income taxes 114 31 57 367
Financing income (23) (6) (29) (151)
Financing expenses 111 30 151 370
Other expenses 1 - - 6
Depreciation and
amortization 181 49 187 755
EBITDA. 716 195 655 2,529
* Without elimination of a one-time provision in the amount of NIS 15 million.
Free Cash Flow
The following table shows the calculation of free cash flow:
Three-month period ended Year ended
September 30, December 31,
Convenience
translation
into US
dollar
2010 2010 2009 * 2009
NIS millions US$ millions NIS millions NIS millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Cash flows from operating
activities 657 179 604 2,080
Cash flows from investing
activities (151) (41) (274) (774)
short-term Investment in
tradable debentures 7 2 124 212
Free Cash Flow 513 140 454 1,518
---------------------------------
[1] Please see "Use of Non-GAAP financial measures" section at the end of this press release.
[2] EBITDA for the third quarter 2009 included a one-time provision in the amount of NIS 15 million. After elimination of this one-time provision, EBITDA for the third quarter 2010 increased 6.9% and EBITDA margin for the third quarter 2009 totaled 40%. For details please see "Cost of revenues" section in this press release.
[3] Net income for the third quarter 2009 included a one-time provision in the amount of NIS 11 million (after tax) and a one-time tax income in the amount of NIS 41 million. After elimination of these one-time effects, net income increased 28.2%. For details please see "Cost of revenues" and "Income tax" sections in this press release.
[4] See "Other developments during the third quarter of 2010 and subsequent to the end of the reporting period", under "Regulation - Tariff Supervision", below, for additional details.
[5] Net income for the third quarter 2009 included a one-time provision in the amount of NIS 11 million (after tax) and a one-time tax income in the amount of NIS 41 million. After elimination of these one-time effects, net income increased 28.2%. For details please see "Cost of revenues" and "Income tax" sections in this press release.
[6] EBITDA for the third quarter 2009 included a one-time provision in the amount of NIS 15 million. After elimination of this one-time provision, EBITDA increased 6.9% and EBITDA margin for the third quarter 2009 totaled 40%. For details please see "Cost of revenues" section in this press release.
[7] To date, the MOC granted 7 MVNO licenses.
Company Contact
Yaacov Heen
Chief Financial Officer
[email protected]
Tel: +972-52-998-9755
IR Contacts
Porat Saar & Kristin Knies
CCG Investor Relations Israel & US
[email protected]
Tel: +1-646-233-2161
SOURCE Cellcom Israel Ltd.
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