Cellcom Israel Announces Third Quarter 2013 Results

Cellcom Israel presents an increase in EBITDA compared with the previous quarter despite the high level of competition in the cellular market
Cellcom Israel declares a dividend of NIS 0.85 per share (totals approx. NIS 85 million)

PR Newswire

NETANYA, Israel, Nov. 12, 2013 /PRNewswire/ --

THIRD QUARTER 2013 HIGHLIGHTS (compared to third quarter of 2012):

  • Free cash flow[1] decreased 6.0% to NIS 389 million ($110 million)
  • Total Revenues decreased 15.5% to NIS 1,224 million ($346 million)
  • Service revenues decreased 11.8% to NIS 1,013 million ($286 million)
  • EBITDA[1] decreased 19.3% to NIS 347 million ($98 million)
  • EBITDA margin 28.3%, down from 29.7%
  • Operating income decreased 27.6% to NIS 173 million ($49 million)
  • Net income decreased 58.1% to NIS 52 million ($15 million)
  • Cellular subscriber base totaled approx. 3.156 million subscribers (at the end of September 2013)

Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel" or the "Company" or the "Group"), announced today its financial results for the third quarter of 2013. Revenues for the third quarter of 2013 totaled NIS 1,224 million ($346 million); EBITDA for the third quarter of 2013 totaled NIS 347 million ($98 million), or 28.3% of total revenues for the quarter; and net income for the third quarter of 2013 totaled NIS 52 million ($15 million). Basic earnings per share for the third quarter of 2013 totaled NIS 0.53 ($0.15).

Commenting on the third quarter's results, Nir Sztern, the Company's Chief Executive Officer, said: "Even in this quarter of intensified competition, the Company continues to present improvement in its operational results compared with the previous quarter. EBITDA, operating profit and free cash flow increased compared with the previous quarter and service revenues were maintained at a similar level as in the previous quarter. This is the second consecutive quarter of increase in EBITDA after four quarters of decrease. The improved results are the result of our continued efficiency measures and a seasonal increase in revenues from roaming services, which were partially offset by the ongoing price erosion."

[1]Please see "Use of Non-IFRS financial measures" section in this press release.  

Regarding market competition, Nir Sztern noted: "Cellcom Israel continues to follow its strategy since the merger with Netvision and bases itself as a communications group. In the last quarter we launched a significant marketing campaign offering the group's cellular customers free home landline telephony for one year. This is a significant milestone for the future competition in the landline market, which constitutes one of the Company's growth engines, and we believe in the regulator's willingness to encourage real competition in this market.

During the last year and a half we acted vigorously to strengthen the Company's equity structure and repaid approximately NIS 1.3 billion to our debentures holders. As of the end of the third quarter we had cash balances of over NIS 1.3 billion."

Shlomi Fruhling, Chief Financial Officer, commented: "Despite the improvement in operational results in the third quarter this year compared with the previous quarter, net income decreased as a result of an increase in financing expenses and in tax expenses. The increase in financing expenses resulted mainly from an increase in CPI (Consumer Price Index) linkage expenses, related to the Company's debentures, due to a higher inflation, and the increase in tax expenses resulted from a one-time deferred tax expense of approximately NIS 7 million recorded in the third quarter this year following the enactment of a law, increasing the corporate tax rate to 26.5% commencing 2014.

In the third quarter of 2013 we generated free cash flow of NIS 389 million, a 12.8% increase compared with the previous quarter. The increase in free cash flow is mainly due to the ongoing efficiency measures implemented during the past year and savings in capital expenditure.

The Company's board of directors decided to distribute a cash dividend in the aggregate amount of approximately NIS 85 million out of the Company's existing retained earnings, after five consecutive quarters in which it did not distribute dividends in order to strengthen its balance sheet. During that period, the Company reduced its debt level by over NIS 1.1 billion. This decision does not indicate on dividend distribution in future quarters, and any such decision shall be examined according to the future market conditions and the Company's needs."


 

MAIN CONSOLIDATED FINANCIAL RESULTS:











Q3/2013

Q3/2012

%

Change

Q3/2013

Q3/2012


NIS millions

US$ millions
 (convenience translation)

Total revenues

1,224

1,448

(15.5%)

346.1

409.4

Operating Income

173

239

(27.6%)

48.9

67.6

Net Income

52

124

(58.1%)

14.7

35.1

Free cash flow

389

414

(6.0%)

110.0

117.0

EBITDA 

347

430

(19.3%)

98.1

121.6

EBITDA, as percent of total revenues

28.3%

29.7%

(4.7%)









 

MAIN FINANCIAL DATA BY COMPANIES:









Cellcom Israel

without

Netvision

Netvision (*)

Consolidation adjustments

(**)

Consolidated results

Q3/2013

NIS millions

Total revenues

994

257

(27)

1,224

Service revenues

789

251

(27)

1,013

Equipment revenues

205

6

-

211

Operating Income

159

33

(19)

173

EBITDA 

286

61

-

347

EBITDA, as percent of total revenues

28.8%

23.7%


28.3%






(*) Netvision Ltd. and its subsidiaries.

(**)Include inter-company revenues between Cellcom Israel and Netvision, and amortization expenses attributable to the merger.

 

MAIN PERFORMANCE INDICATORS (data refers to cellular subscribers only):






Q3/2013

Q3/2012

Change

 (%)

Cellular subscribers at the end of period (in thousands)

3,156

3,338

(5.5%)

Churn Rate for cellular subscribers (in %)

8.9%

8.6%

3.5%

Monthly cellular ARPU (in NIS)

79.6

86.7

(8.2%)

Average Monthly cellular MOU (in minutes)

461

399

15.5%

 

FINANCIAL REVIEW

Revenues for the third quarter of 2013 decreased 15.5% totaling NIS 1,224 million ($346 million), compared to NIS 1,448 million ($409 million) in the third quarter last year. The decrease in revenues is attributed mainly to an 11.8% decrease in service revenues, which totaled NIS 1,013 million ($286 million) in the third quarter of 2013 as compared to NIS 1,148 million ($325 million) in the third quarter of 2012. The decrease in revenues also resulted from a 29.7% decrease in equipment revenues, which totaled NIS 211 million ($60 million) in the third quarter of 2013 as compared to NIS 300 million ($85 million) in the third quarter of 2012. Netvision's contribution to revenues for the third quarter of 2013 totaled NIS 230 million ($65 million) (excluding inter-company revenues) compared to NIS 261 million ($74 million) in the third quarter of 2012.

The decrease in service revenues for the third quarter of 2013 resulted mainly from a decrease in cellular services revenues, due to the ongoing erosion in the price of these services as a result of the intensified competition in the cellular market. The decrease in service revenues also resulted from a decrease in revenues from international calls services, internet services (ISP) and roaming services, which was partially offset by an increase in revenues from hosting operators on the Company's communications networks. Netvision's contribution to service revenues for the third quarter of 2013 totaled NIS 224 million ($63 million) (excluding inter-company revenues) compared to NIS 246 million ($70 million) in the third quarter of 2012. The decrease in Netvision's contribution to service revenues resulted mainly from a decrease in revenues from internet services (ISP) and international calls services in the third quarter of 2013 compared with the third quarter last year.

The decrease in equipment revenues for the third quarter of 2013 resulted from an approximately 30% decrease in the number of cellular handsets sold during the third quarter of 2013 compared with the third quarter of 2012. Netvision's contribution to equipment revenues for the third quarter of 2013 totaled NIS 6 million ($2 million), compared to NIS 15 million ($4 million) in the third quarter of 2012.

Cost of revenues for the third quarter of 2013 totaled NIS 745 million ($211 million), compared to NIS 853 million ($241 million) in the third quarter of 2012, a 12.7% decrease. This decrease resulted mainly from a decrease in costs associated with the sale of cellular handsets, primarily as a result of a decrease in the number of cellular handsets sold during the third quarter of 2013 as compared with the third quarter of 2012. The decrease in cost of revenues also resulted from a decrease in the cost of content and in payroll expenses mainly as a result of efficiency measures.

Gross profit for the third quarter of 2013 decreased 19.5% to NIS 479 million ($135 million), compared to NIS 595 million ($168 million) in the third quarter of 2012. Gross profit margin for the third quarter of 2013 amounted to 39.1%, down from 41.1% in the third quarter of 2012.

Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the third quarter of 2013 decreased 14.6% to NIS 304 million ($86 million), compared to NIS 356 million ($101 million) in the third quarter of 2012. This decrease is primarily the result of the efficiency measures implemented by the Company, which led to a decrease in payroll expenses and other expenses. The decrease in SG&A expenses also resulted from a decrease in depreciation and amortization expenses and sales commissions.

Operating income for the third quarter of 2013 decreased 27.6% to NIS 173 million ($49 million) from NIS 239 million ($68 million) in the third quarter of 2012.

EBITDA for the third quarter of 2013 decreased 19.3% totaling NIS 347 million ($98 million) compared to NIS 430 million ($122 million) in the third quarter of 2012. Netvision's contribution to the EBITDA for the third quarter of 2013 totaled NIS 61 million ($17 million), compared to NIS 75 million ($21 million) in the third quarter of 2012. EBITDA for the third quarter of 2013, as a percent of third quarter revenues, totaled 28.3%, down from 29.7% in the third quarter of 2012.

Financing expenses, net for the third quarter of 2013 increased 43.8% and totaled NIS 92 million ($26 million), compared to NIS 64 million ($18 million) in the third quarter of 2012. The increase resulted mainly from a decrease in gains on hedging transactions and an increase in Israeli Consumer Price Index (CPI) linkage expenses, associated with the Company's debentures, due to increased inflation. The increase in financing expenses, net, also resulted from a decrease in gains on the Company's investment in tradable debentures and a decrease in interest income on deposits mainly due to a decrease in the interest rate in the market during the third quarter of 2013 as compared with the third quarter of last year. These effects were partially offset by a decrease in interest expenses, associated with the Company's debentures, due to a decrease in debt level during the past year.

Net Income for the third quarter of 2013 totaled NIS 52 million ($15 million), compared to NIS 124 million ($35 million) in the third quarter of 2012, a 58.1% decrease. This decrease is primarily the result of the erosion in the price of cellular services during the past year and the significant decrease in equipment revenues, as well as the increase in financing expenses, net. The decrease in net income also resulted from a one-time deferred tax expense in the amount of approximately NIS 7 million ($2 million) following the enactment of a law in July 2013 increasing corporate tax rate to 26.5% commencing 2014.

Basic earnings per share for the third quarter of 2013 totaled NIS 0.53 ($0.15), compared to NIS 1.25 ($0.35) in the third quarter last year.

OPERATING REVIEW (data refers to cellular subscribers only)

Cellular subscriber base – at the end of the third quarter of 2013 the Company had approximately 3.156 million cellular subscribers. During the third quarter of 2013 the Company's cellular subscriber base increased by approximately 5,000 net cellular subscribers, all of them post-paid subscribers.

Cellular Churn Rate for the third quarter 2013 totaled to 8.9%, compared to 8.6% in the third quarter of 2012. The cellular churn rate continues to be affected by the intensified competition in the cellular market, especially following the entry of the new operators to the cellular market during the second quarter of 2012.

Average monthly cellular Minutes of Use per subscriber ("MOU") for the third quarter 2013 totaled 461 minutes, compared to 399 minutes in the third quarter of 2012, an increase of 15.5%. The increase in MOU primarily resulted from subscribers' transition to marketing plans, which include unlimited air time minutes.

The monthly cellular Average Revenue per User ("ARPU") for the third quarter 2013 totaled NIS 79.6 ($22.5), compared to NIS 86.7 ($24.5) in the third quarter of 2012, a decrease of 8.2%. The decrease in ARPU resulted, among others, from the erosion in the price of cellular services during the past year, resulting from the intensified competition in the cellular market.

FINANCING AND INVESTMENT REVIEW

Cash Flow

Free cash flow for the third quarter of 2013, decreased 6.0% to NIS 389 million ($110 million), compared to NIS 414 million ($117 million) in the third quarter of 2012. The decrease in free cash flow mainly resulted from a decrease in proceeds from customers due to the decrease in revenues in the third quarter of 2013 compared with the third quarter of 2012, resulting from the intensified competition in the cellular market. This decrease was partially offset by a decrease in payments to vendors, among others, as a result of streamlining of various expenses, and a decrease in payments for acquisition of fixed assets.

Total Equity

Total Equity as of September 30, 2013 amounted to NIS 690 million ($195 million), primarily consisting of accumulated undistributed retained earnings of the Company.

Investment in Fixed Assets and Intangible Assets

During the third quarter of 2013, the Company invested NIS 68 million ($19 million) in fixed assets and intangible assets (including, among others, rights of use of communication lines and investments in information systems and software), compared to NIS 99 million ($28 million) in the third quarter of 2012.

Dividend

On November 12, 2013, the Company's board of directors declared a cash dividend in the amount of NIS 0.85 per share, and in the aggregate amount of approximately NIS 85 million (the equivalent of approximately $0.24 per share and approximately $24 million in the aggregate, based on the representative rate of exchange on November 8, 2013; The actual US$ 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 10, 2013), subject to withholding tax described below, out of the Company's existing retained earnings. 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 November 27, 2013. The payment date will be December 12, 2013. According to the Israeli tax law, the Company will deduct at source 25% of the dividend amount payable to each shareholder, as aforesaid, subject to applicable exemptions. The dividend per share that the Company will pay does not indicate on future dividend distributions or their level, 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, 2012 on Form 20-F, under "Item 8 - Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy".

In making the decision of dividend distribution, the Company's board of directors considered and determined the following: (1) the distribution complies with the Profit Test given that the Company's existing retained earnings, as such term is defined in the applicable Israeli law, as of September 30, 2013 (NIS 701 million) exceeds the amount of dividend declared (and after the reduction of the dividend declared will total approximately NIS 616 million); (2) the distribution complies with the Solvency Test after considering the Company's financial condition, including the Company's free cash flow, the Company's financial debt balance, the Company's net debt, including the Company's investment portfolio, the Company's forecasted cash flows for the years 2013-2015 and the Company's ability to raise additional debt; (3) the distribution complies with the license limitation, the Company's financial covenants and additional undertakings related to dividend distribution; (4) the distribution of the dividend shall not materially adversely affect the Company's financial condition, including the Company's capital structure, leverage level, liquidity, the fulfillment of the Company's undertakings and the Company's ability to continue the Company's operation as conducted prior to the distribution of the dividend declared, including the Company's ability to fulfill its investments plans.

In making the aforementioned determinations, which involve forecasts, the board assumed (a) the Company will continue to be leveraged at a rate complying with the Company's covenants and undertakings; and (b) market and regulation conditions will not change drastically.

Debentures

For information regarding the Company's summary of financial liabilities and details regarding the Company's outstanding debentures as of September 30, 2013, see "Disclosure for Debenture Holders" section in this press release.

OTHER DEVELOPMENTS DURING THE THIRD QUARTER OF 2013 AND SUBSEQUENT TO THE END OF THE REPORTING PERIOD

Regulation

National Roaming Agreement – Following the Anti Trust Commissionaire's issuance of an exemption from the requirement to receive an approval to restrictive arrangements in September 2013, the Company will be the exclusive provider of national roaming services to Golan Telecom Ltd. for the duration of the agreement.

Network Sharing Agreement  – In November 2013, Partner Communications Ltd. announced it has entered a network sharing agreement with Hot Mobile Ltd. for a term of 15 years, according to which the two companies will create a 50%-50% joint venture, which would operate and develop a cellular network that will be shared by both companies. As an intermediate phase until no later than December 31, 2016, Partner granted Hot Mobile, when possible, rights of use of its cellular network in order to supplement Hot Mobile's network coverage. According to the announcement, the scope and terms of the agreement are subject to approvals by the Israeli authorities, including the Antitrust Authority.

For additional details regarding the national roaming agreement and network sharing agreement see the Company's most recent annual report on Form 20-F for the year ended December 31, 2012, under "Item 3. Key Information – D. Risk Factors – Risks related to our business –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 –– Additional UMTS Operators".

International Communications Services – In October 2013 the Ministry of Communications published a hearing regarding a change to the International Communications Services Regulation. The hearing proposes, among others, that such services shall be provided by the landline operators and cellular operators themselves and not through a separate company, as required today. The approval of such proposed change may also cause the annulment of structural limitations currently imposed on the Bezeq and Hot groups in relation to the International Communications services, even before the creation of a landline wholesale market. In addition, it is proposed that such services may be provided by the holders of a special license for the provision of International Communications services which will neither be obligated to provide service to anyone so requesting nor to all the countries in the world, and to annul the restrictions on the cooperation between cellular operators and international communications services operators in relation to prepaid calling cards.

For additional details see the Company's most recent annual report on form 20-F for the year ended on December 31, 2012, filed on March 4, 2013 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 operation. In recent years, regulation in Israel has materially adversely affected our results", " - We face intense competition in all aspects of our business", "- Risks related to our wholly owned subsidiary Netvision – changes in the regulatory environment could adversely affect Netvision's business", under "Item 4. Information on the Company – B. Business Overview - Competition", "– Government Regulations – Long Distance Services" and under "NETVISION – Telephony Business – Competition".

Broadband Infrastructure Services - In August 2013, I.B.C. Israel Broadband Company (2013) Ltd., a company owned by the Israeli Electric Company, or IEC, and an international group led by Via Europa, received licenses for the provision of broadband infrastructure services on the IEC's optic fibers infrastructure to other licenses holders as well as directly to large business customers.

For additional details see the Company's most recent annual report on form 20-F for the year ended on December 31, 2012, filed on March 4, 2013 under "Item 4. Information on the Company – B. Business Overview - The Telecommunications Industry in Israel - Wireline Services - Broadband and Internet services", under "Cellular Service and Products – Landline Services" and under –"- Competition".

Organization of Employees

In September 2013, following the previously reported notices received from the Histadrut, an Israeli labor union, claiming the required minimum number of employees for the recognition of a representing labor union joined the Histadrut, the Company, after verifying the joining of the minimum required by law, has recognized the Histadrut as the Company's and Netvision's employees representing labor union and has commenced negotiations regarding a collective employment agreement with the employees' representatives.

Compensation Policy

In September 2013, the Company's Extraordinary General Meeting of Shareholders, or the Meeting, approved the Company's Compensation Policy.

For more information, please see the Company's Proxy Statement relating to the Meeting, which was filed on Form 6-K on August 5, 2013 and the Company's immediate report filed on Form 6-K on September 3, 2013.

CONFERENCE CALL DETAILS

The Company will be hosting a conference call regarding its results for the third quarter on Tuesday, November 12, 2013 at 10:00 am EST, 07:00 am PST, 15:00 GMT, 17:00 Israel time. On the call, management will review and discuss the results, and will be available to answer questions. To participate, please either access the live webcast on the Company's website, or call one of the following teleconferencing numbers below. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Number: 1 888 407 2553         UK Dial-in Number: 0 800 917 5108

Israel Dial-in Number: 03 918 0644      International Dial-in Number:  +972 3 918 0644

at: 10:00 am Eastern Time; 07:00 am Pacific Time; 15:00 UK Time; 17:00 Israel Time

To access the live webcast of the conference call, please access the investor relations section of Cellcom Israel's website: 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 3.156 million subscribers (as at September 30, 2013) with a broad range of value added services including cellular and landline telephony, roaming services for tourists in Israel and for its subscribers abroad and additional services in the areas of music, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure. The Company operates an HSPA 3.5 Generation network enabling advanced high speed broadband multimedia services, in addition to GSM/GPRS/EDGE networks. Cellcom Israel offers Israel's broadest and largest customer service infrastructure including telephone customer service centers, retail stores, and service and sale centers, distributed nationwide. Through its broad customer service network Cellcom Israel offers technical support, account information, direct to the door parcel delivery services, internet and fax services, dedicated centers for hearing impaired, etc. Cellcom Israel further provides through its wholly owned subsidiaries internet connectivity services and international calling services, as well as landline telephone communication services in Israel, in addition to data communication services. Cellcom Israel's shares are traded both on the New York Stock Exchange (CEL) and the Tel Aviv Stock Exchange (CEL). For additional information please visit the Company's website 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 the Company, may include projections of the Company's future financial results, its anticipated growth strategies and anticipated trends in its business. These statements are only predictions based on the Company's current expectations and projections about future events. There are important factors that could cause the Company's actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause such differences include, but are not limited to: changes to the terms of the Company's license, new legislation or decisions by the regulator affecting the Company's operations, new competition and changes in the competitive environment, the outcome of legal proceedings to which the Company is a party, particularly class action lawsuits, the Company's ability to maintain or obtain permits to construct and operate cell sites, and other risks and uncertainties detailed from time to time in the Company's filings with the U.S. Securities and Exchange Commission, including under the caption "Risk Factors" in its Annual Report for the year ended December 31, 2012. 

Although the Company believes the expectations reflected in the forward-looking statements contained herein are reasonable, it cannot guarantee future results, level of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The Company assumes no duty to update any of these forward-looking statements after the date hereof to conform its prior statements to actual results or revised expectations, except as otherwise required by law.

The Company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). Unless noted specifically otherwise, the dollar denominated figures were converted to US$ using a convenience translation based on the New Israeli Shekel (NIS)/US$ exchange rate of NIS 3.537 = US$ 1 as published by the Bank of Israel for September 30, 2013.

Use of non-IFRS financial measures

EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net; income tax; depreciation and amortization and share based payments. This is an accepted measure in the communications industry. The Company presents this measure as an additional performance measure as the Company believes that it enables us to compare operating performance between periods and companies, net of any potential differences which may result from differences in capital structure, taxes, age of fixed assets and related depreciation expenses. EBITDA should not be considered in isolation, or as a substitute for operating income, any other performance measures, or cash flow data, which were prepared in accordance with Generally Accepted Accounting Principles as measures of profitability or liquidity. EBITDA does not take into account debt service requirements, or other commitments, including capital expenditures, and therefore, does not necessarily indicate the amounts that may be available for the Company's use. In addition, EBITDA may not be comparable to similarly titled measures reported by other companies, due to differences in the way these measures are calculated. See the reconciliation between the net income and the EBITDA presented at the end of this Press Release.

Free cash flow is a non-IFRS measure and is defined as the net cash provided by operating activities minus the net cash used in investing activities excluding short-term investment in tradable debentures and deposits and proceeds from sales of such debentures (including interest received in relation to such debentures) and deposits. See the reconciliation note in this Press Release.

Company Contact

Shlomi Fruhling

Chief Financial Officer

investors@cellcom.co.il

Tel: +972 52 998 9755

IR Contacts

Porat Saar

CCG Investor Relations Israel & US

cellcom@ccgisrael.com   

Tel: +1 646 233 2161


Financial Tables Follow


 


Cellcom Israel Ltd.

 (An Israeli Corporation)


Condensed Consolidated Interim Statements of Financial Position








Convenience









translation









into US dollar





September 30,


September 30,


September 30,


December 31,



2012


2013


2013


2012



NIS millions


US$ millions


NIS millions










Assets









Cash and cash equivalents


1,139


827


234


1,414

Current investments, including derivatives


493


511


145


493

Trade receivables


1,912


1,790


506


1,856

Other receivables


87


76


21


67

Inventory


125


89


25


112










Total current assets


3,756


3,293


931


3,942










Trade and other receivables


1,291


904


256


1,219

Property, plant and equipment, net


2,084


1,907


539


2,077

Intangible assets, net


1,552


1,418


401


1,515

Deferred tax assets


60


25


7


34










Total non- current assets


4,987


4,254


1,203


4,845










Total assets


8,743


7,547


2,134


8,787










Liabilities









Current maturities of debentures and long term loans and short term credit 


1,142


1,101


311


1,129

Trade payables and accrued expenses


859


608


172


827

Current tax liabilities


114


69


20


87

Provisions


169


181


51


175

Other payables, including derivatives


424


361


102


492










Total current liabilities


2,708


2,320


656


2,710










Long-term loans from banks


10


5


2


10

Debentures


5,399


4,337


1,226


5,368

Provisions


21


21


6


21

Other long-term liabilities


35


12


3


21

Liability for employee rights upon retirement, net


13


16


5


12

Deferred tax liabilities


157


146


41


145










Total non- current liabilities


5,635


4,537


1,283


5,577










Total liabilities


8,343


6,857


1,939


8,287










Equity attributable to owners of the Company









Share capital


1


1


-


1

Cash flow hedge reserve


3


(15)


(4)


(12)

Retained earnings


395


701


198


509










Non-controlling interests


1


3


1


2










Total equity


400


690


195


500










Total liabilities and equity


8,743


7,547


2,134


8,787










 


Cellcom Israel Ltd.

(An Israeli Corporation)


Condensed Consolidated Interim Statements of Income








Convenience






Convenience









translation 






translation 









into US dollar






into US dollar





For the nine
  months ended
  September 30,


For the nine
months ended
  September 30,


For the three
months ended
  September 30,


For the three

 months ended
  September 30,


For the
 year ended
December 31,



2012


2013


2013


2012


2013


2013


2012



NIS millions


US$millions


NIS millions


US$millions


NIS millions
















Revenues


4,531


3,718


1,051


1,448


1,224


346


5,938

Cost of revenues


(2,590)


(2,278)


(644)


(853)


(745)


(211)


(3,463)
















Gross profit


1,941


1,440


407


595


479


135


2,475
















Selling and marketing expenses


(671)


(522)


(148)


(215)


(166)


(47)


(865)

General and administrative expenses


(474)


(438)


(124)


(141)


(138)


(39)


(629)

Other income (expenses), net


-


1


-


-


(2)


-


4
















Operating profit


796


481


135


239


173


49


985
















Financing income


149


118


33


66


36


10


181

Financing expenses


(366)


(334)


(94)


(130)


(128)


(36)


(440)

Financing expenses, net


(217)


(216)


(61)


(64)


(92)


(26)


(259)
















Profit before taxes on income


579


265


75


175


81


23


726
















Taxes on income


(161)


(79)


(22)


(51)


(29)


(8)


(195)

Profit for the period


418


186


53


124


52


15


531

Attributable to:















Owners of the Company


418


185


53


124


52


15


530

Non-controlling interests


-


1


-


-


-


-


1

Profit for the period


418


186


53


124


52


15


531
















Earnings per share















Basic earnings per share (in NIS)


4.20


1.87


0.53


1.25


0.53


0.15


5.34
















Diluted earnings per share (in NIS)


4.20


1.85


0.52


1.25


0.52


0.15


5.33
















 


Cellcom Israel Ltd.

(An Israeli Corporation)
















Condensed Consolidated Interim Statements of Cash Flows








Convenience






Convenience









translation






translation









into US dollar






into US dollar





For the nine
 months ended
September 30,


For the nine
months ended
  September 30,


For the three
 months ended
September 30,


For the three
months ended
  September 30,


For the
 year ended
December 31,









2012


2013


2013


2012


2013


2013


2012



NIS millions


US$ millions


NIS millions


US$millions


NIS millions
















Cash flows from operating activities















Profit for the period


418


186


53


124


52


15


531

Adjustments for: 















Depreciation and amortization


579


513


145


190


171


48


765

Share based payment


4


7


2


1


1


-


7

Loss (gain) on sale of property, plant and equipment


-


2


1


(1)


1


-


2

Gain on sale of shares in an associate


-


-


-


-


-


-


(6)

Income tax expense


161


79


22


51


29


8


195

Financing expenses, net


217


216


61


64


92


26


259

Other expenses (income)


-


(3)


(1)


(1)


-


-


2
















Changes in operating assets and liabilities:















Change in inventory


41


22


6


3


11


3


52

Change in trade receivables (including     long-term amounts)


64


434


123


98


160


45


183

Change in other receivables (including     long-term amounts)


(42)


(29)


(8)


-


19


6


6

Changes in trade payables, accrued         expenses and provisions


(30)


(141)


(40)


59


(38)


(11)


(89)

Change in other liabilities (including        long-term amounts)


(13)


(15)


(4)


(29)


(8)


(2)


(92)

Proceeds from (payments for)                 derivative hedging contracts, net


17


(10)


(3)


9


(4)


(1)


20

Income tax paid


(165)


(87)


(25)


(48)


(26)


(7)


(209)

Income tax received


15


6


2


-


-


-


15

Net cash from operating activities


1,266


1,180


334


520


460


130


1,641











-





Cash flows from investing activities















Acquisition of property, plant, and        equipment


(376)


(228)


(64)


(92)


(57)


(16)


(457)

Acquisition of intangible assets


(82)


(64)


(18)


(30)


(16)


(4)


(97)

Change in current investments, net


(204)


(16)


(5)


468


(6)


(2)


(212)

Proceeds from (payments for) other       derivative contracts, net


11


(7)


(2)


8


(2)


(1)


9

Proceeds from sale of property, plant     and equipment


3


12


3


2


2


1


7

Interest received 


24


24


7


16


5


1


35

Loan to equity accounted investee


-


-


-


1


-


-


-

Proceeds from sale of shares in a             consolidated company 


7


-


-


-


-


-


7

Dividend received


-


1


-


-


-


-


-

Net cash from (used in) investing       activities


(617)


(278)


(79)


373


(74)


(21)


(708)
















 


Cellcom Israel Ltd.

(An Israeli Corporation)















Condensed Consolidated Interim Statements of Cash Flows (cont'd)




















Convenience






Convenience








translation






translation








into US dollar






into US dollar




For the nine
 months ended
September 30,


For the nine
months ended
  September 30,


For the three
 months ended
September 30,


For the three
months ended
  September 30,


For the
 year ended
December 31,


2012


2013


2013


2012


2013


2013


2012


NIS millions


US$ millions


NIS millions


US$millions


NIS millions















Cash flows from financing activities














Payments for derivative contracts, net

(11)


(5)


(1)


(5)


(1)


-


(12)

Repayment of long term loans from            banks

(9)


(6)


(2)


(5)


(6)


(2)


(16)

Repayment of debentures

(661)


(1,124)


(318)


(182)


(563)


(159)


(660)

Proceeds from issuance of debentures,        net of issuance costs

992


-


-


-


-


-


992

Dividend paid

(391)


-


-


(130)


-


-


(391)

Interest paid

(350)


(354)


(100)


(168)


(174)


(49)


(352)















Net cash used in financing           activities

(430)


(1,489)


(421)


(490)


(744)


(210)


(439)















Changes in cash and cash equivalents

219


(587)


(166)


403


(358)


(101)


494















Cash and cash equivalents as at the       beginning of the period

920


1,414


400


736


1,185


335


920















Cash and cash equivalents as at the end of the period

1,139


827


234


1,139


827


234


1,414















 

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

September 30,

Year ended

December 31,


2012

NIS millions

 

2013

NIS millions

 

Convenience

translation

into US dollar

2013

US$ millions

 

2012

NIS millions

 

Profit for the period

124

52

15

531

Taxes on income

51

29

8

195

Financing income

(66)

(36)

(10)

(181)

Financing expenses

130

128

36

440

Other expenses (income)

-

2

-

(4)

Depreciation and amortization

190

171

49

765

Share based payments

1

1

-

7

EBITDA

430

347

98

1,753

 

Free cash flow



The following table shows the calculation of free cash flow:





Three-month period ended

September 30,

Year ended

December 31,


2012

NIS millions

 

2013

NIS millions

 

Convenience

translation

into US dollar

2013

US$ millions

 

2012

NIS millions

 

Cash flows from operating activities

520

460

130

1,641

Cash flows from investing activities

373

(74)

(21)

(708)

Short-term Investment in (sale of) tradable debentures and deposits (*)

(479)

3

1

197

Free cash flow

414

389

110

1,130






 (*) Net of interest received in relation to tradable debentures.



 

Cellcom Israel Ltd.

 (An Israeli Corporation)

Key financial and operating indicators (unaudited)


















NIS millions unless otherwise stated

Q1-2012

Q2-2012

Q3-2012

Q4-2012

Q1-2013

Q2-2013

Q3-2013

FY-2011

FY-2012











Cellcom service revenues

945

942

902

828

758

790

789

4,420

3,617

Netvision service revenues

258

258

276

260

254

246

251

365

1,052











Cellcom equipment revenues

382

297

285

310

256

213

205

1,712

1,274

Netvision equipment revenues

17

19

15

31

17

13

6

35

82











Consolidation adjustments

(17)

(18)

(30)

(22)

(27)

(26)

(27)

(26)

(87)

Total revenues

1,585

1,498

1,448

1,407

1,258

1,236

1,224

6,506

5,938











Cellcom EBITDA

410

399

355

306

251

271

286

2,084

1,470

Netvision EBITDA

65

75

75

68

63

68

61

83

283

Total EBITDA

475

474

430

374

314

339

347

2,167

1,753











Operating profit

275

282

239

189

139

169

173

1,422

985

Financing expenses, net

36

117

64

42

46

78

92

293

259

Profit for the period

173

121

124

113

67

67

52

825

531











Free cash flow

144

284

414

288

168

345

389

937

1,130











Cellular subscribers at the end of period (in 000's)

3,362

3,333

3,338

* 3,199

3,166

3,151

3,156

3,349

3,199

Monthly cellular ARPU (in NIS)

90.5

90.3

86.7

82.4

75.9

79.7

79.6

106

87.5

Average monthly cellular MOU (in minutes)

365

375

399

428

432

468

461

346

390

Churn rate for cellular subscribers (%)

6.3%

8.1%

8.6%

8.7%

9.4%

9.0%

8.9%

25.1%

31.5%











* After removal of approximately 138,000 data applications subscribers (M2M) from the Company's cellular subscriber base.

 

Cellcom Israel Ltd.


Disclosure for debenture holders as of September 30, 2013


Aggregation of the information regarding the debenture series issued by the company (1), in million NIS

Series

Original Issuance Date

Principal on the Date of Issuance

As of 30.09.2013

As of 12.11.2013

 

Interest Rate(fixed)

Principal Repayment Dates (3)

Interest Repayment Dates

Linkage

Trustee

Contact Details

Principal

Balance on Trade

Linked Principal Balance

Interest Accumulated in Books

Debenture Balance   Value in Books(2)

Market Value

Principal Balance on Trade

Linked Principal Balance

From

To

B(4) **

22/12/05

02/01/06*

05/01/06*

10/01/06*

31/05/06*

925.102

740.081

893.320

34.764

928.084

994.966

740.081

893.320

5.30%

05.01.13

05.01.17

January 5

Linked to CPI

Hermetic Trust (1975) Ltd.

Meirav Ofer Oren. 113

Hayarkon St., Tel Aviv. Tel:

 03-5274867.

D **

07/10/07

03/02/08*

06/04/09*

30/03/11*

18/08/11*

2,423.075

1,938.460

2,282.927

29.540

2,312.467

2,525.813

1,938.460

2,282.927

5.19%

01.07.13

01.07.17

July 1

Linked to CPI

Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Aviv. Tel: 03-5274867.

E **

06/04/09

30/03/11*

18/08/11*

1,798.962

1,199.308

1,199.308

55.037

1,254.345

1,333.750

1,199.308

1,199.308

6.25%

05.01.12

05.01.17

January 5

Not linked

Hermetic Trust (1975) Ltd. Meirav Ofer Oren. 113 Hayarkon St., Tel Aviv. Tel: 03-5274867.

F(4)(5) (6) **

 

20/03/12

714.802

714.802

739.680

8.110

747.790

848.899

714.802

739.680

4.60%

05.01.17

05.01.20

January 5

and July 5

Linked to CPI

Strauss Lazar Trust Company (1992) Ltd

Ori Lazar

17 Yizhak Sadeh St., Tel Aviv. Tel: 03- 6237777

G(4)(5)(6)

20/03/12

285.198

285.198

285.198

4.751

289.949

330.003

285.198

285.198

6.99%

05.01.17

05.01.19

January 5

and July 5

Not linked

Strauss Lazar Trust Company (1992) Ltd

Ori Lazar

17 Yizhak Sadeh St., Tel Aviv. Tel: 03- 6237777

Total


6,147.139

4,877.849

5,400.433

132.202

5,532.635

6,033.432

4,877.849

5,400.433







 

Comments:

(1) In the reported period, the company fulfilled all terms of the debentures. The company also fulfilled all terms of the Indentures. Debentures F and G financial covenants  - as of September 30, 2013  the net leverage (net debt to EBITDA ratio- see definition in the Company's annual report for the year ended December 31, 2012 on Form 20-F, under "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Debt Service – Shelf prospectus") was 2.99. In the reported period, no cause for early repayment occurred. (2) Including interest accumulated in the books and excluding net balance of premium on debentures and deferred issuance expenses. (3) Annual payments, excluding series F and G debentures in which the payments are semi annual. (4) Regarding Debenture series B, F and G- the company undertook not to create any pledge on its assets, as long as debentures are not fully repaid, subject to certain exclusions. (5) Regarding Debenture series F and G - the company has the right for early redemption under certain terms (see the Company's annual report for the year ended December 31, 2012 on Form 20-F, under "Item 5. Operating and Financial Review and Prospects– B. Liquidity and Capital Resources – Debt Service – Shelf prospectus"). (6) Regarding Debenture series F and G - in June 2013, following a second decrease of the Company's debenture rating since their issuance, the annual interest rate has been increased by 0.25% to 4.60% and 6.99%, respectively, beginning July 5, 2013.

(*) On these dates additional debentures of the series were issued, the information in the table refers to the full series.

(**) Series B, D, E and F are material, which represent 5% or more of the total liabilities of the Company, as presented in the financial statements.

 

Cellcom Israel Ltd.


Disclosure for debenture holders as of September 30, 2013 (cont.)


Debentures Rating Details*





 

Series

 

Rating Company

 

Rating as of
30.09.2013(1)

 

Rating as of

12.11.2013

 

Rating assigned

upon issuance
of the Series

 

Recent date of rating

as of 12.11.2013

Additional ratings between original issuance and the

recent date of rating as of 12.11.2013 (2)


Rating

B

S&P Maalot

A+

A+

AA-

06/2013

5/2006, 9/2007, 1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, 3/2012, 5/2012, 11/2012, 6/2013

AA-, AA, AA-, A+

(2)

D

S&P Maalot

A+

A+

AA-

06/2013

1/2008, 10/2008, 3/2009, 9/2010, 8/2011, 1/2012, 3/2012, 5/2012, 11/2012, 6/2013

AA-, AA, AA-, A+ (2)

E

S&P Maalot

A+

A+

AA

06/2013

9/2010, 8/2011, 1/2012, 3/2012, 5/2012, 11/2012, 6/2013

AA, AA-, A+ (2)

F

S&P Maalot

A+

A+

AA

06/2013

5/2012, 11/2012, 6/2013

AA, AA-, A+ (2)

G

S&P Maalot

A+

A+

AA

06/2013

5/2012, 11/2012, 6/2013

AA, AA-, A+ (2)

 

(1)     In June 2013, S&P Maalot updated the Company's rating from an "ilAA-/negative" to an "ilA+/stable".

(2)     In September 2007, S&P Maalot issued a notice that the AA- rating for debentures issued by the Company was in the process of recheck with positive implications (Credit Watch Positive). In October 2008, S&P Maalot issued a notice that the AA- rating for debentures issued by the Company is in the process of recheck with stable implications (Credit Watch Stable). This process was withdrawn upon assignment of AA rating in March 2009. In August 2011, S&P Maalot issued a notice that the AA rating for debentures issued by the Company is in the process of recheck with negative implications (Credit Watch Negative). In May 2012, S&P Maalot updated the Company's rating from an "ilAA/negative" to an "ilAA-/negative". In November 2012, S&P Maalot affirmed the Company's rating of "ilAA-/negative". In June 2013, S&P Maalot updated the Company's rating from an "ilAA-/negative" to an "ilA+/stable". For details regarding the rating of the debentures see the S&P Maalot report dated June 20, 2013.

* A securities rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to suspension, revision or withdrawal at any time, and each rating should be evaluated independently of any other rating.

 

Cellcom Israel Ltd.

Summary of Financial Undertakings (according to repayment dates) as of September 30, 2013

a. Debentures issued to the public by the Company and held by the public, excluding such debentures held by the Company's parent company, by a controlling shareholder, by companies controlled by them, or by companies controlled by the Company, based on the Company's "solo" financial data (in thousand NIS).





Principal payments

Gross interest

payments

(without

deduction of tax)

ILS linked

 to CPI

ILS not

linked to CPI

Euro

 

Dollar

Other

First year

757,299

292,693

-

-

-

284,134

Second year

757,299

292,693

-

-

-

226,301

Third year

757,299

292,693

-

-

-

168,469

Fourth year

829,020

349,382

-

-

-

107,006

Fifth year and on

645,485

226,757

-

-

-

58,407

Total

3,746,402

1,454,216

-

-

-

844,317








b. Private debentures and other non-bank credit, excluding such debentures held by the Company's parent company, by a controlling shareholder, by companies controlled by them, or by companies controlled by the Company, based on the Company's "solo" financial data (in thousand NIS) – None

c. Credit from banks in Israel based on the Company's "solo" financial data (in thousand NIS) - None

d. Credit from banks abroad based on the Company's "solo" financial data (in thousand NIS) - None

e. Total of sections a - d above, total credit from banks, non-bank credit and debentures based on the Company's "solo" financial data (in thousand NIS).

 


Principal payments

Gross interest

 payments

(without

deduction of tax)

ILS linked

to CPI

ILS not

linked to CPI

Euro

 

Dollar

Other

First year

757,299

292,693

-

-

-

284,134

Second year

757,299

292,693

-

-

-

226,301

Third year

757,299

292,693

-

-

-

168,469

Fourth year

829,020

349,382

-

-

-

107,006

Fifth year and on

645,485

226,757

-

-

-

58,407

Total

3,746,402

1,454,216

-

-

-

844,317








f. Out of the balance sheet Credit exposure based on the Company's "solo" financial data - None

g. Out of the balance sheet Credit exposure of all the Company's consolidated companies, excluding companies that are reporting corporations and excluding the Company's data presented in section f above (in thousand NIS) - None

h. Total balances of the credit from banks, non-bank credit and debentures of all the consolidated companies, excluding companies that are reporting corporations and excluding Company's data presented in sections a - d above (in thousand NIS).

 

Cellcom Israel Ltd.

Summary of Financial Undertakings (according to repayment dates) as of September 30, 2013 (cont.)


Principal payments

Gross interest

payments

(without

deduction of tax)

ILS

linked to CPI

ILS not

linked to CPI

Euro

 

Dollar

Other

First year

-

7,380

-

-

-

725

Second year

-

5,000

-

-

-

300

Third year

-

-

-

-

-

-

Fourth year

-

-

-

-

-

-

Fifth year and on

-

-

-

-

-

-

Total

-

12,380

-

-

-

1,025








i. Total balances of credit granted to the Company by the parent company or a controlling shareholder and balances of debentures offered by the Company held by the parent company or the controlling shareholder (in thousand NIS).

 


Principal payments

Gross interest

payments

(without

deduction of tax)

ILS

linked to CPI

ILS not

linked to CPI

Euro

 

Dollar

Other

First year

-

12

-

-

-

3

Second year

-

12

-

-

-

2

Third year

-

12

-

-

-

1

Fourth year

-

12

-

-

-

1

Fifth year and on

-

-

-

-

-

-

Total

-

46

-

-

-

7








j. Total balances of credit granted to the Company by companies held by the parent company or the controlling shareholder, which are not controlled by the Company, and balances of debentures offered by the Company held by companies held by the parent company or the controlling shareholder, which are not controlled by the Company (in thousand NIS).

 


Principal payments

Gross interest

payments

 (without

 deduction of tax)

ILS

linked to

CPI

ILS not

linked to CPI

Euro

 

Dollar

Other

First year

36,763

7,123

-

-

-

10,611

Second year

36,763

7,123

-

-

-

8,247

Third year

36,763

7,123

-

-

-

5,884

Fourth year

39,010

7,473

-

-

-

3,456

Fifth year and on

20,227

1,402

-

-

-

1,481

Total

169,526

30,243

-

-

-

29,679








k. Total balances of credit granted to the Company by consolidated companies and balances of debentures offered by the Company held by the consolidated companies (in thousand NIS) - None

 

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