Cellcom Israel Announces Second Quarter 2010 Results
NETANYA, Israel, August 26, 2010 /PRNewswire-FirstCall/ --
- Cellcom Israel Presents an Increase in Revenues, Operating Income,
EBITDA, EBITDA Margin and Net Income
- EBITDA[1] up by 7.1%; EBITDA Margin 40.3%
- Net Income up by 17.7%
- Cellcom Israel Declares a Second Quarter Dividend of NIS 3.13 per
Share (Totals Approx. NIS 310 Million)
Second Quarter 2010 Highlights (compared to the second quarter 2009):
- Total Revenues from services increased 5.5% to NIS 1,498 million
($387 million)
- Revenues from content and value added services (including SMS)
increased 28.7%, reaching 18% of services revenues
- Total Revenues (including revenues from end-user equipment)
increased 5.2% to NIS 1,691 million ($436 million)
- EBITDA increased 7.1% to NIS 682 million ($176 million);
EBITDA margin 40.3%, up from 39.6%
- Operating income increased 12.4% to NIS 499 million ($129 million)
- Net income increased 17.7% to NIS 326 million ($84 million)
- Subscriber base increased approx. 28,000 during the second
quarter 2010, all post-paid subscribers; reaching approx. 3.341
million at the end of June 2010
- 3G subscribers reached approx. 1.076 million at the end of
June 2010, net addition of approx. 39,000 in the second quarter 2010
- The Company Declared second quarter dividend of NIS 3.13 per share
Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel", the "Company"), announced today its financial results for the second quarter of 2010. Revenues for the second quarter 2010 totaled NIS 1,691 million ($436 million); EBITDA for the second quarter 2010 totaled NIS 682 million ($176 million), or 40.3% of total revenues; and net income for the second quarter 2010 totaled NIS 326 million ($84 million). Basic earnings per share for the second quarter 2010 totaled NIS 3.30 ($0.85).
Commenting on the results, Amos Shapira, Chief Executive Officer said, "In the second quarter of 2010, Cellcom Israel continued to present strong performance with solid growth in revenues, EBITDA, EBITDA margin, operating income, net income and subscriber base.
Furthermore, airtime minutes grew 5.6%, year over year, in the second quarter compared with a 3.4% growth in the second quarter of 2009. Service revenues grew 5.5%, year over year, this quarter compared with a 0.7% growth in the second quarter of 2009. In the second quarter 2010, we continued to expand our 3G subscriber base, reaching 1.076 million at the end of June 2010, representing 32.2% of our total subscriber base.
These positive results are a testament to our strategy of focusing on
cellular communications while being committed to delivering quality customer
service. Despite continued competition and many challenges in our industry,
we have maintained our position as market leader. We will continue to work
according to our strategy so that we can maximize our performance. So far, we
have succeeded in generating growth and entering into areas, such as landline
services to the business segment, which led to higher revenues and increased
profitability. Indeed, we are happy to announce that we have won the
Accountant General's tender for landline services. This, along with the
Israeli Defense Force tender won a year ago, reflect the momentum in our
landline services, regarding our technological capability, level of service
and customer satisfaction. We will also continue to leverage our core
business through new synergetic growth opportunities, while prudently
managing expenses. Furthermore, we are preparing ourselves to enter the
financial services market, on which we have recently reported. It is only the
beginning of this initiative, but with our leading partners, Citi Group and
Isracard Group, we believe that together we will take advantage of the
additional untapped opportunities of the cellular device. Finally, the
completion of the acqusition of Dynamica's assets and operation and its
successful integration, indicates that it was a right move, which has already
contributed to Cellcom Israel's results.
We are awaiting the results of the Ministry of Communications' (MoC) hearing regarding the decrease of the interconnect tariff to cellular operators[2], for which we filed our formal objection. Depending on the outcome, we may continue our case against these proposed changes. Concurrently, we are continuing to develop measures to mitigate, as much as possible, the expected adverse impact of these proposed changes."
Yaacov Heen, Chief Financial Officer, commented: "This has been a very
strong quarter for Cellcom Israel. We have presented year over year growth in
all key areas, including a 5.2% increase in total revenues, a 28.7% increase
in content and value added services revenues, a 12.4% increase in operating
income, and a 7.1% increase in EBITDA with an EBITDA margin of 40.3%. Net
income for the second quarter increased 17.7% compared to the second quarter
of 2009. The consolidation of Dynamica, our new subsidiary, contributed NIS 8
million to our service revenues and NIS 3 million to our EBITDA. Particularly
encouraging was the growth in ARPU we presented in the second quarter this
year, which was attributed to increased subscribership of post-paid customers
relative to pre-paid, as well as to our acquisition of Dynamica. In the
second quarter 2010, we also continued to present a strong free cash flow[3],
totaling NIS 323 million (excluding the acquisition of the assets and
operation of Dynamica, our free cash flow reached NIS 431 million). This
strong cash flow enables us to distribute a dividend of approximately NIS 310
million, representing approximately 95% of net income for the second quarter,
to our shareholders."
Main Financial and Performance Indicators:
Q2/2010 Q2/2009 % Change Q2/2010 Q2/2009
million NIS million US$
(convenience
translation)
Total Services revenues 1,498 1,420 5.5% 386.6 366.5
(including revenues from
content and value added
services)
Revenues from content and
value added services 269 209 28.7% 69.4 53.9
Handset and accessories
revenues 193 188 2.7% 49.8 48.5
Total revenues 1,691 1,608 5.2% 436.4 415.0
Operating Income 499 444 12.4% 128.8 114.6
Net Income 326 277 17.7% 84.1 71.5
Free cash flow[4] 323 400 (19.3%) 83.4 103.2
EBITDA 682 637 7.1% 176.0 164.4
EBITDA, as percent of
Revenues 40.3% 39.6% 1.8%
Subscribers end of period 3,341 3,228 3.5%
(in thousands)
Monthly ARPU 146.6 143.7 2.0% 37.8 37.1
Average Monthly MOU 338 330 2.4%
Financial Review
Revenues for the second quarter of 2010 totaled NIS 1,691 million ($436
million), a 5.2% increase compared to NIS 1,608 million ($415 million) in the
second quarter last year. The increase in revenues resulted mainly from a
5.5% increase in revenues from services, reaching NIS 1,498 million ($387
million) in the second quarter of 2010, up from NIS 1,420 million ($366
million) in the second quarter last year. The higher service revenues
resulted mainly from an increase of approximately 29% in content and value
added services (including SMS) revenues in the second quarter 2010, compared
to the second quarter last year. Revenues from content and value added
services reached NIS 269 million ($69 million), or 18% of service revenues.
Furthermore, the increase in landline services revenues during the quarter
also contributed to the higher service revenues.
Cost of revenues for the second quarter of 2010 totaled NIS 838 million ($216 million), a 2.3% increase from NIS 819 million ($211 million) in the second quarter last year. This increase primarily resulted from 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. These increases were partially offset by a decrease in handsets repair costs due to implemented efficiency measures, as well as a decrease in royalties to the Ministry of Communications resulting from a decline in the royalties' rate.
Gross profit for the second quarter of 2010 increased 8.1% reaching NIS 853 million ($220 million), compared to NIS 789 million ($204 million) in the second quarter of 2009. Gross profit margin for the second quarter 2010 increased to 50.4% from 49.1% in the second quarter last year.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the second quarter of 2010 totaled NIS 353 million ($91 million), compared to NIS 343 million ($89 million) in the second 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.
Operating income for the second quarter 2010 increased 12.4%, reaching NIS 499 million ($129 million), compared to NIS 444 million ($115 million) in the second quarter last year.
EBITDA for the second quarter 2010 increased 7.1%, reaching NIS 682 million ($176 million), compared to NIS 637 million ($164 million) in the second quarter of 2009. EBITDA as a percent of total revenues, reached 40.3% compared to 39.6% in the second quarter last year.
Financing expenses, net for the second quarter 2010 totaled NIS 61
million ($16 million), compared to NIS 67 million ($17 million) in the second
quarter last year, a 9% decrease. The decrease resulted from three main
elements: (1) a gain from currency hedging transactions due to a depreciation
of 4.4% of the NIS against the US dollar in the second quarter of 2010,
compared to a loss from currency hedging transactions in the second quarter
last year due to an appreciation of 6.4% of the NIS against the US dollar in
the second quarter last year; (2) lower Israeli Consumer Price Index, or CPI,
linkage expenses, associated with the Company's debentures, in the second
quarter 2010 compared to the second quarter 2009, resulting mainly from a
lower inflation of 1.3% in the second quarter this year, compared to 1.9% in
the second quarter last year; and (3) a gain on the Company's current
investment in tradable debentures. These three impacts were partially offset
by a decreased income from the CPI hedging transactions in the second quarter
2010 compared to the second quarter last year, due to the lower inflation in
the second quarter of 2010 compared to the second quarter last year, as well
as from lower income from foreign currency differences relating to trade
payables balances in the second quarter 2010, compared to the second quarter
last year, following the changes in the NIS/US dollar exchange rate.
Net Income for the second quarter 2010 increased 17.7% and totaled NIS 326 million ($84 million), compared to NIS 277 million ($71 million) in the second quarter last year. Basic earnings per share for the second quarter 2010 totaled NIS 3.30 ($0.85), compared to NIS 2.82 ($0.73) in the second quarter 2009.
Operating Review
New Subscribers - at the end of June 2010 the Company had approximately 3.341 million subscribers. During the second quarter of 2010 the Company added approximately 28,000 net new subscribers, all of them post-paid subscribers.
In the second quarter of 2010, the Company added approximately 39,000 net 3G subscribers to its 3G subscriber base, reaching approximately 1.076 million 3G subscribers at the end of June 2010, representing 32.2% of the Company's total subscriber base, an increase from the 27.2% 3G subscribers represented of total subscribers at the end of June 2009.
The Churn Rate in the second quarter 2010 was 4.9%, compared to 4.6% in the second 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 second quarter 2010 totaled 338 minutes, compared to 330 minutes in the second quarter 2009, an increase of 2.4%.
The monthly Average Revenue per User (ARPU) for the second quarter 2010
totaled NIS 146.6 ($37.8), compared to NIS 143.7 ($37.1) in the second
quarter last year, an increase of 2%. This increase resulted mainly from the
improvement of our subscriber base, reflected by increased subscribership of
post-paid subscribers relative to pre-paid subscribers, as well as from the
consolidation of Dynamica's revenues.
Financing and Investment Review
Cash Flow
Free cash flow for the second quarter of 2010 totaled NIS 323 million
($83 million), compared to NIS 400 million ($103 million) generated in the
second quarter of 2009. The decrease in free cash flow resulted from payment
of NIS 108 million ($28 million) for the acquisition of the assets and
operation of Dynamica, one of our major dealers. Excluding this payment, our
free cash flow totaled NIS 431 million ($111 million), a 7.8% increase.
Shareholders' Equity
Shareholders' Equity as of June 30, 2010 amounted to NIS 411 million ($106 million), primarily consisting of accumulated undistributed retained earnings.
Investment in Fixed Assets and Intangible Assets
During the second quarter 2010, the Company invested NIS 255 million ($66
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 170 million ($44 million)
in the second quarter 2009. The investment in the second quarter of 2010
includes the payment of NIS 108 million ($28 million) pursuant to the
acquisition of assets and operation of Dynamica.
Dividend
On August 26, 2010, the Company's board of directors declared a cash
dividend in the amount of NIS 3.13 per share, and in the aggregate amount of
approximately NIS 310 million (the equivalent of approximately $0.82 per
share and approximately $81 million in the aggregate, based on the
representative rate of exchange on August 24, 2010; The actual US$ 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 October 5, 2010), subject
to withholding tax described below. The dividend will be payable to all of
the Company's shareholders of record at the end of the trading day in the
NYSE on September 20, 2010. The payment date will be October 7, 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 second 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 second quarter of 2010 and subsequent to the end of the reporting period
Regulation
Tariff Supervision
Following the previously reported Israeli Ministry of Communications'
announcement that it is considering reducing interconnect tariffs payable to
cellular operators, in June 2010, the Company filed its formal objection to
the proposed reduction. As previously reported, the Company cannot assess at
this stage the ultimate outcome of the hearing. If the changes as currently
proposed are adopted, they are expected to have a material adverse effect on
the Company's results. Such adverse effects include both the direct effect of
the proposed reduction (the estimated scope of which was previously reported
by the Company) and anticipated loss of outgoing cellular calls (which may
occur due to an arbitrage gap created under the proposed tariff in favor of
landline alternatives, including through the usage of landline based
"callback" services), as well as other effects of the proposed reduction in
interconnect tariffs, such as facilitating the entry of MVNOs and new
operators to the market. The Company intends to take measures to mitigate as
much as possible the expected adverse effects of such proposed changes but
can provide no assurance that these will be successful.
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" as well as under "Item 4. Information on the Company - B. Business Overview - Competition" and "Government Regulations -Tariff Supervision" and 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 - Regulation - Tariff Supervision".
For additional regulatory changes expected to have additional material adverse effect on the Company's results, see "Other Regulatory developments" below.
Forward Looking Statement -The information above 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). These forward-looking statements, relating to the reduction of
interconnect tariffs and its impact on the Company's results of operations,
are subject to uncertainties and assumptions about the outcome of the
aforesaid hearing, the actual effects of the reduction (including customer
reaction and substitution of other products) and the Company's ability to
mitigate the expected lost revenues. Any change to the tariff proposed, the
actual effect of the reduction, as well as the Company's ability to mitigate
the expected lost revenues, could lead to materially different outcome than
that set forth above.
Other regulatory developments
In July 2010, the Israeli Government approved the Israeli Economic Policy for the years 2011- 2012, which includes various proposed changes to the regulatory conditions under which the Company operates. These proposed changes include:
(1) Compulsory national roaming services Existing operators (other than
Mirs Communications Ltd., or Mirs, an existing niche operator) would be
required to provide new operators and Mirs (together: New Operator), with
national roaming services, or the Service, for a period of 7 - 10 years
(subject to certain conditions). If the New Operator and the hosting operator
have not reached an agreement, as to the terms of the Service (including the
consideration), for any reason, until the Service is to commence (after
certain criteria is met) the Service will be provided for the then prevailing
interconnect tariff and subsequently (but no later than February 1, 2012)
shall be determined by the Minister of Communications with the consent of the
Minster of Treasury and applied retroactively. Implementation of this change
and/or mandatory unfavorable terms and consideration for the Service (such as
equal or based on the interconnect tariff), may result in material adverse
effect on our results of operations and reduction in the Company's market
share.
(2) Increased royalties Royalties payable to the MOC in relation to revenues generated from telecommunication services provided under a general license for the provision of cellular services will be increased for a period of 3 years, from 1% in 2010, to 2% in 2011 and 2.5% in 2012 and 2013. This change will not apply to MVNOs.
Additional proposed changes includes: (3) Prohibition on any limitation (including by differential pricing) on the usage of any services and applications on a cellular internet, the capabilities of a cellular handset and the possibility to use a cellular handset in any similar cellular network; (4) Reduction of early termination fees in pricing plans which include a commitment to a predefined period, to a certain amount to be calculated out of the subscriber's average monthly bill and prohibition on demanding full payment of the handset's remaining installments pursuant to early termination; all of which, if adopted, are expected to limit the Company's freedom to conduct its business and may have an adverse effect of the Company's results of operation.
Proposed changes (1),(3) and (4) above require additional legislative
process by the Israeli Parliament, as they entail amendments to the current
Communication Law or other legislation; Proposed change (2) above requires an
amendment of the applicable regulations by the Minister of Communications and
the Minister of Treasury and the approval of the Israeli Parliament's
economic committee. Other proposed changes, such as to provide VOBoC licenses
by January 1, 2011, including to MVNOs and require cellular operators to
offer data only services, are subject to further examination.
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", "Government Regulations -Tariff Supervision" and "Royalties".
Forward Looking Statement - The information above 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). These forward-looking statements, relating to the implementation of
the Government resolutions and their influence on the Company's results of
operations, are subject to uncertainties and assumptions regarding the
adoption of such resolutions by the Israeli parliament, relevant committee or
the relevant ministries and the final form of such changes will be adopted,
if adopted.
MVNO Following the previously reported enactment of the regulations in
January 2010 necessary for the provision of MVNO license, several companies
have applied for an MVNO license and, to date, the Ministry of Communications
has granted MVNO licenses to three Israeli companies: Telecom 365 Ltd.
(wholly owned by a leading Israeli retail chain), Free Telecom Ltd. (also in
possession of a VoBoC trail license) and Ituran Cellular Communications Ltd.
(from Ituran group, the leading company in Israel for tracking and protection
services for vehicles). Mandatory unfavorable terms and consideration for the
hosting MVNOs on the Company's network (such as equal to or based on the
interconnect tariff), may result in additional material adverse effect on 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 "Government Regulations - Mobile Virtual Network Operator".
Cell sites - National Zoning Plan 36 - Following the previously reported
revision process of the National Zoning Plan 36, or the Plan, in June 2010,
the National Council for Planning and Building decided to approve the
proposed changes to the Plan and to submit it for the approval of the Israeli
Government.
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 -National Zoning Plan 36".
Services and Products - Entry To Financial Services Market
In July 2010, the Company announced its entry to the financial services market including through an innovative "mobile wallet". The first step includes a cooperation agreement with Citibank group, or Citi, that will enable the remittance of funds out of Israel by customers of all cellular operators in Israel, through Citi's platform and worldwide distribution channels. Additional added value services will be provided to the Company's mobile wallet customers through a collaboration between the Company and Isracard group, a leading Israeli credit card company.
Mr. Amos Shapira, the Company's CEO, commented on the new remittance
service: "The mobile phone is the world's most common computerized retail
point of sale. It is this added value that Citi and the Company intend to
bring to the financial services market." Mr. Shapira further noted that the
Company's entry to the financial services market is consistent with the
Company's business strategy to create growth opportunities and provide added
value to its customers while leveraging the mobility advantage and the
Company's core business and competencies through new synergies. "Leveraging
Citi's international banking and financial capabilities, expertise and
infrastructure and the mobility advantage provided by the Company, together
with its familiarity with the Israeli consumer and close relationship with
its customers, the remittance services are expected to have a non significant
effect on the Company's expenses" added Mr. Shapira.
The mobile wallet is expected to be launched by the end of 2010.
The Company also intends to launch an internet based payment service and is reviewing the launch of additional financial services, such as bill payments and product purchasing through the mobile phone.
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). These forward-looking statements, relating to
the launch of financial services and the impact of the money remittance
services on the Company's expenses, are subject to uncertainties and
assumptions regarding market conditions, Citi's performance and the
regulatory environment. Any change in such factors, could lead to materially
different outcome than that set forth above.
Conference Call Details
The Company will be hosting a conference call on Thursday, August 26,
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: 1-888-668-9141 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 3.341 million subscribers
(as at June 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 http://www.cellcom.co.il
Forward-Looking Statements
The following information contains, or may be deemed to contain
forward-looking statements (as defined in the U.S. Private Securities
Litigation Reform Act of 1995 and the Israeli Securities Law, 1968). In some
cases, you can identify these statements by forward-looking words such as
"may," "might," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements, which are
subject to risks, uncertainties and assumptions about us, may include
projections of our future financial results, our anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. There are important factors that could cause our actual results,
level of activity, performance or achievements to differ materially from the
results, level of activity, performance or achievements expressed or implied
by the forward-looking statements. Factors that could cause such differences
include, but are not limited to: changes to the terms of our license, new
legislation or decisions by the regulator affecting our operations, the
outcome of legal proceedings to which we are a party, particularly class
action lawsuits, our ability to maintain or obtain permits to construct and
operate cell sites, and other risks and uncertainties detailed from time to
time in our filings with the U.S. Securities and Exchange Commission,
including under the caption "Risk Factors" in our Annual Report for the year
ended December 31, 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$\New Israeli Shekel (NIS) conversion rate of NIS 3.875 = US$ 1 as published by the Bank of Israel on June 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
June 30, June 30, June 30, December
31,
2010 2010 2009 2009
NIS millions US$ NIS millions NIS
millions millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Assets
Cash and cash equivalents 585 151 1,223 903
Current investments,
including derivatives 414 107 87 272
Trade receivables 1,588 410 1,537 1,579
Other receivables 59 15 114 63
Inventory 123 31 115 149
Total current assets 2,769 714 3,076 2,966
Trade and other
receivables 573 148 620 606
Property, plant and
equipment, net 2,048 529 2,089 2,096
Intangible assets, net 788 203 716 711
Total non- current assets 3,409 880 3,425 3,413
Total assets 6,178 1,594 6,501 6,379
Liabilities
Debentures current
maturities 343 88 333 350
Trade payables and
accrued expenses 694 179 759 806
Current tax liabilities 135 35 128 67
Provisions 97 25 57 84
Other current
liabilities, including
derivatives 372 96 381 405
Total current liabilities 1,641 423 1,658 1,712
Debentures 4,026 1,039 4,266 4,185
Provisions 18 5 17 16
Other long-term
liabilities 1 - - 1
Deferred taxes 81 21 148 91
Total non- current
liabilities 4,126 1,065 4,431 4,293
Total liabilities 5,767 1,488 6,089 6,005
Shareholders' equity
Share capital 1 - 1 1
Cash flow hedge reserve (9) (2) (11) (23)
Retained earnings 419 108 422 396
Total shareholders' equity 411 106 412 374
Total liabilities and
shareholders' equity 6,178 1,594 6,501 6,379
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Income
Six-month period ended
June 30,
Convenience
translation
into US
dollar
2010 2010 2009
NIS US$ NIS
millions millions millions
(Unaudited) (Unaudited) (Unaudited)
Revenues 3,271 844 3,169
Cost of
revenues 1,639 423 1,630
Gross profit 1,632 421 1,539
Selling and
marketing
expenses 361 93 335
General and
administrative
expenses 314 81 319
Other expenses,
net 1 - 4
Operating
income 956 247 881
Financing
income 47 12 112
Financing
expenses (144) (37) (151)
Financing
income
(expenses), net (97) (25) (39)
Income before
income tax 859 222 842
Income tax 219 57 220
Net income 640 165 622
Earnings per
share
Basic earnings
per share in
NIS 6.47 1.67 6.32
Diluted
earnings per
share in NIS 6.43 1.66 6.27
(continued)
Three-month period ended June 30, Year ended
December 31,
Convenience
translation
into US dollar
2010 2010 2009 2009
NIS millions US$ millions NIS millions NIS millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues 1,691 436 1,608 6,483
Cost of
revenues 838 216 819 3,333
Gross profit 853 220 789 3,150
Selling and
marketing
expenses 198 51 178 716
General and
administrative
expenses 155 40 165 660
Other
expenses, net 1 - 2 6
Operating
income 499 129 444 1,768
Financing
income 47 12 52 151
Financing
expenses (108) (28) (119) (370)
Financing
income
(expenses),
net (61) (16) (67) (219)
Income before 377
income tax 438 113 1,549
Income tax 112 29 100 367
Net income 326 84 277 1,182
Earnings per
share
Basic earnings
per share in
NIS 3.30 0.85 2.82 12.01
Diluted
earnings per
share in NIS 3.28 0.85 2.79 11.90
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows
Six - month period ended
June 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 640 165 622
Adjustments for:
Depreciation and
Amortization 363 94 379
Share based
payments - - -
Loss (gain) on
sale of assets 1 - 4
Income tax
expense 219 57 220
Financial
(income)
expenses, net 97 25 39
Changes in
operating assets
and liabilities:
Changes in
inventories (5) (1) (28)
Changes in trade
receivables
(including long-
term amounts) 63 16 (51)
Changes in other
receivables
(including long-
term amounts) (13) (3) (88)
Changes in trade
payables and
accrued expenses (36) (10) 124
Changes in other
liabilities
(including
long-term
amounts) (13) (3) (9)
Proceeds
(Payments) for
derivative
hedging
contracts, net (12) (3) 17
Income tax paid (171) (44) (189)
Net cash from
operating
activities 1,133 293 1,040
(continued)
Three- month period ended June 30, Year ended
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
Net income for
the period 326 84 277 1,182
Adjustments
for:
Depreciation
and
Amortization 182 47 191 755
Share based
payments - - - 1
Loss (gain) on
sale of assets 1 - 2 6
Income tax
expense 112 29 100 367
Financial
(income)
expenses, net 61 16 67 219
Changes in
operating
assets and
liabilities:
Changes in
inventories - - (3) (105)
Changes in
trade
receivables
(including
long- term
amounts) (13) (3) (12) (69)
Changes in
other
receivables
(including
long- term
amounts) 12 3 (63) 2
Changes in
trade payables
and accrued
expenses (2) (1) 58 152
Changes in
other
liabilities
(including
long-term
amounts) (19) (5) (18) (4)
Proceeds
(Payments) for
derivative
hedging
contracts, net (7) (2) 12 21
Income tax
paid (71) (18) (99) (447)
Net cash from
operating
activities 582 150 512 2,080
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows (cont'd)
Six - month period ended
June 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 (212) (55) (196)
Acquisition of
intangible
assets (100) (26) (89)
Acquisition of
operation, net
of cash
acquired* (108) (28) -
Change in
current
investments, net (138) (35) -
Proceeds
(payments) for
other derivative
contracts, net** (8) (2) 34
Proceeds from
sales of
property, plant
and equipment 1 - -
Interest
received 4 1 4
Net cash used in
investing
activities (561) (145) (247)
Cash flows from
financing
activities
Proceeds from
derivative
contracts, net 17 4 4
Proceeds
(Payments) for
short term
borrowings (8) (2) -
Repayment of
debentures (171) (44) (164)
Proceeds from
issuance of
debentures, net
of issuance
costs - - 989
Dividend paid (611) (158) (596)
Interest paid (117) (30) (78)
Net cash used in
financing
activities (890) (230) 155
Changes in cash
and cash
equivalents (318) (82) 948
Balance of cash
and cash
equivalents at
beginning of the
period 903 233 275
Balance of cash
and cash
equivalents at
end of the
period 585 151 1,223
(continued)
Three- month period ended June 30, Year ended
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 investing
activities
Acquisition of
property,
plant, and
equipment (107) (27) (84) (404)
Acquisition of
intangible
assets (42) (11) (42) (173)
Acquisition of
operation, net
of cash
acquired* (108) (28) - -
Change in
current
investments,
net - - - (212)
Proceeds
(payments) for
other
derivative
contracts,
net** (3) (1) 10 8
Proceeds from
sales of
property,
plant and
equipment - - - 2
Interest
received 1 - 4 5
Net cash used
in investing
activities (259) (67) (112) (774)
Cash flows
from financing
activities
Proceeds from
derivative
contracts, net 4 1 - 33
Proceeds
(Payments) for
short term
borrowings (5) (1) - 8
Repayment of
debentures - - - (332)
Proceeds from
issuance of
debentures,
net of
issuance costs - - 989 989
Dividend paid (355) (92) (326) (1,186)
Interest paid - - 8 (190)
Net cash used
in financing
activities (356) (92) 671 (678)
Changes in
cash and cash
equivalents (33) (9) 1,071 628
Balance of
cash and cash
equivalents at
beginning of
the period 618 160 152 275
Balance of
cash and cash
equivalents at
end of the
period 585 151 1,223 903
Cellcom Israel Ltd.
(An Israeli Corporation)
Reconciliation for Non-GAAP Measures
EBITDA
The following is a reconciliation of net income to EBITDA:
Year
ended
December
Three-month period ended June 30, 31,
Convenience
translation
into US
dollar
2010 2010 2009 2009 NIS
NIS millions US$ millions NIS millions NIS millions
(Unaudited) (Unaudited) (Unaudited) (Audited)
Net income...............326 84 277 1,182
Income taxes.............112 29 100 367
Financing income.........(47) (12) (52) (151)
Financing expenses.......108 28 119 370
Other expenses.............1 - 2 6
Depreciation and
amortization............ 182 47 191 755
EBITDA...................682 176 637 2,529
Free Cash Flow
The following table shows the calculation of free cash flow:
Year
Three-month period ended June 30, ended
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..................582 150 510
2,080
Cash flows from investing
activities.................(259) (67) (110) (774)
short-term Investment in
tradable debentures...........- - -
212
Free Cash Flow..............323 83 400
1,518
---------------------------------
[1] Please see "Use of Non-GAAP financial measures" section at the end of this press release.
[2] See "Other developments during the second quarter of 2010 and subsequent to the end of the reporting period", under "Regulation - Tariff Supervision", below, for additional details.
[3] Please see "Use of Non-GAAP financial measures" section at the end of this press release.
[4] Please see "Use of Non-GAAP financial measures" section at the end of this press release. Free cash flow for the second quarter 2010 includes the payment of NIS 108 million ($28 million) for the acquisition of the assets and operation of Dynamica, one of our major dealers, previously reported. Excluding such payment, our free cash flow totaled NIS 431 million ($111 million), a 7.8% increase.
Company Contact IR Contacts
Yaacov Heen Porat Saar & Kristin Knies
Chief Financial Officer CCG Investor Relations Israel & US
investors@cellcom.co.il cellcom@ccgisrael.com
Tel: +972-52-998-9755 Tel: +1-646-233-2161
SOURCE Cellcom Israel Ltd.
