ADJUSTED EBITDA2 TOTALED NIS 200 MILLION
NET DEBT2 TOTALED NIS 658 MILLION AT QUARTER END
PARTNER TV SUBSCRIBER BASE REACHES 220 THOUSAND AS OF TODAY
PARTNER’S FIBER OPTIC INFRASTRUCTURE REACHES OVER 657 THOUSAND HOUSEHOLDS ACROSS ISRAEL AS OF TODAY
Second quarter 2020 highlights (compared with second quarter 2019)
- Total Revenues: NIS 774 million (US$ 223 million), a decrease of 1%
- Service Revenues: NIS 616 million (US$ 178 million), a decrease of 4%
- Equipment Revenues: NIS 158 million (US$ 46 million), an increase of 14%
- Total Operating Expenses (OPEX)2: NIS 456 million (US$ 132 million), a decrease of 3%
- Adjusted EBITDA²: NIS 200 million (US$ 58 million), a decrease of 7%
- Adjusted EBITDA Margin2: 26% of total revenues compared with 27%
- Profit for the Period: NIS 7 million (US$ 2 million), an increase of 133%
- Net Debt: NIS 658 million (US$ 190 million), a decrease of NIS 307 million
- Adjusted Free Cash Flow (before interest)2: NIS 44 million (US$ 13 million), an increase of NIS 13 million
- Cellular ARPU: NIS 51 (US$ 15), a decrease of 12%
- Cellular Subscriber Base: approximately 2.71 million at quarter-end, an increase of 4%
- TV Subscriber Base: 215 thousand subscribers at quarter-end, an increase of 55 thousand subscribers since Q2 2019, and an increase of 15 thousand in the quarter
ROSH HA’AYIN, Israel–(BUSINESS WIRE)–Partner Communications Company Ltd. (“Partner” or the “Company”) (NASDAQ and TASE: PTNR), a leading Israeli communications provider, announced today its results for the quarter ended June 30, 2020.
Commenting on the results for the second quarter 2020, Mr. Isaac Benbenisti, CEO of Partner noted:
“The rapid adjustments we have made at Partner to adapt to the coronavirus period are reflected in the results that we publish today.
Partner finished the quarter with a net profit of NIS 7 million, despite the harmful impacts from the restrictions on international travel and the reduced activity in shopping malls. The strengthening of the fixed-line segment and our status as a communications group contributed to our ability to remain stable during this period.
In addition, Partner’s financial strength led to an improvement in the outlook of our A+ rating from negative to stable. This change, when the impact of the coronavirus crisis is at its peak, demonstrates our ability to continue to operate in times of uncertainty.
In the business sector, we are focusing our efforts on ensuring our customers’ business continuity, as they have expanded the transition to working from home, by implementing the information security systems and cloud services which Partner offers. These changes in business practices, and the need for advanced communication services and infrastructure, support the continued growth in Partner’s business sector activities.
In the cellular segment, our subscriber base increased by 32 thousand and the churn rate remained stable at 7.5%. Last month we unveiled Partner 5G – the cellular network which Partner is building with the ability to reach data transfer speeds of 1 Gb/s.
Last week the Company recorded a strategic accomplishment in the frequency auction tender with the acquisition of 4G & 5G frequencies that will enable Partner to offer its retail and business subscribers advanced 5G services.
Partner’s independent fiber infrastructure, ‘Partner Fiber’, reaches today over 657 thousand households across Israel – from Eilat in the south to Naharia in the north, as well as dozens of other cities through the country.
This month we are marking the three-year anniversary of Partner TV, whose subscriber base has grown more than any other TV service in Israel since its launch, and, as of today, reaches over 220 thousand subscribers.”
Mr. Tamir Amar, Partner’s Chief Financial Officer, commented on the results:
“The results for the second quarter of 2020 reflect, on the one hand, the negative impact of the global coronavirus crisis on the Company’s revenues and, on the other hand, the Company’s agility in quickly adjusting to the changes made, the impact of which largely offset the harmful effects of the crisis.
In the second quarter, we saw the effect of the near-complete cessation of international travel which caused a significant decrease in revenues from roaming services, and the effect of the closure of shopping malls which negatively impacted equipment sales. Nevertheless, the overall impact of the coronavirus crisis on our results in the second quarter 2020 was not significant, owing, among other factors, to the fact that the Company mitigated the impact by cutting costs by temporarily reducing our headcount through putting a significant number of employees on unpaid leave, and by using alternative sales channels to support equipment sales. In addition, we recorded improvements in our fixed-line business performance as a result of the heightened need for fast and stable communications services both in the residential and business sectors.
Despite the restrictions in our operations during part of the quarter, in the cellular segment our subscriber base increased by 32 thousand subscribers, including 24 thousand Post-Paid subscribers, in conjunction with stability in the churn rate, which remained unchanged at 7.5%, reflecting a decline in the churn of Post-Paid subscribers and an increase in the churn of Pre-Paid subscribers. ARPU this quarter totaled NIS 51 compared with NIS 53 in the previous quarter, which reflected the negative impact on roaming revenues of the coronavirus crisis which significantly reduced international travel. In addition, the Company’s TV subscriber base increased by 15 thousand subscribers, the majority of whom are also internet subscribers of the Company.
Adjusted EBITDA this quarter totaled NIS 200 million, compared with NIS 215 million in the previous quarter. The decline in Adjusted EBITDA resulted from the refund during the previous quarter of approximately NIS 20 million of surplus payments to Bezeq for access to the wholesale internet infrastructure during the years 2017 to 2019, in accordance with the Ministry of Communications’ decision regarding the update of the wholesale market tariffs. Excluding this refund, the Company recorded an increase in Adjusted EBITDA, despite the full quarter impact of the coronavirus crisis compared to only a partial impact in the first quarter, reflecting, among other factors, the Company’s cost cutting measures and improvement in performance in a number of the Company’s activities.
Adjusted Free Cash Flow (before interest) totaled NIS 44 million in the second quarter. CAPEX totaled NIS 119 million, with investments continuing to reflect the Company’s continued efforts to expand the deployment of its fiber optic network and to further penetrate the TV market. These investments continue to be possible as a result of Partner’s financial stability and strong balance sheet, and have continued through the challenging period of the coronavirus crisis, as we see an increase in the amount of subscribers who are joining our fiber optic infrastructure service, reflecting, among other things, an understanding of the necessity of this product during this period.
The level of net debt at the end of the second quarter stood at NIS 658 million, compared with NIS 965 million at the end of the second quarter 2019, a decrease of NIS 307 million. The decrease mainly reflected the Company’s successful equity raise of NIS 276 million, net, in January 2020.
In light of the near-complete cessation of international travel which has caused a significant decrease in revenues from roaming services to date, the Company estimates that continuation in the international travel cessation will result in a material negative impact on the Company’s results of operations for the second half of 2020. We estimate that we will be able to partially mitigate the aforementioned material effects through proactive measures the Company has taken, and continues to take, to cut costs and also by improvements in other business parameters, including positive improvements resulting from an increase in demand for the Company’s services following the crisis.”
Q2 2020 compared with Q1 2020
|
NIS Million |
Q1’20 |
Q2’20 |
Comments |
|
Service Revenues |
629 |
616 |
The decrease resulted from a decline in cellular service revenues as a result of the coronavirus crisis |
|
Equipment Revenues |
178 |
158 |
The decrease mainly reflected lower sale volumes due to the closure of sale points during April and part of May as a result of the coronavirus crisis |
|
Total Revenues |
807 |
774 |
|
|
Gross profit from equipment sales |
37 |
30 |
|
|
OPEX |
460 |
456 |
The decrease mainly reflects the savings in OPEX due to cost cutting measures taken to mitigate the coronavirus crisis offset by the refund in the first quarter from Bezeq of approx. NIS 20 million of surplus payments made in 2017-2019 for access to wholesale internet infrastructure due to MoC decision |
|
Adjusted EBITDA |
215 |
200 |
|
|
Profit for the Period |
10 |
7 |
|
|
Capital Expenditures (additions) |
129 |
121 |
|
|
Adjusted Free Cash Flow (before interest payments) |
10 |
44 |
The increase resulted mainly from a decline in cash flow used in capital expenditures |
|
Net Debt |
673 |
658 |
|
|
|
Q1’20 |
Q2’20 |
Comments |
|
Cellular Subscribers (end of period, thousands) |
2,676 |
2,708 |
Increase of approx. 24 thousand Post-Paid subscribers and 8 thousand Pre-Paid subscribers |
|
Monthly Average Revenue per Cellular User (ARPU) (NIS) |
53 |
51 |
The decrease resulted from the decline in roaming revenues as a result of the coronavirus crisis |
|
Quarterly Cellular Churn Rate (%) |
7.5% |
7.5% |
The stability reflected a decline in Post-Paid subscriber churn and an increase in Pre-Paid subscriber churn |
|
TV Subscribers (end of period, thousands) |
200 |
215 |
|
Key Financial Results
|
NIS MILLION (except EPS) |
Q2‘19 |
Q2‘20 |
% Change |
|
Revenues |
781 |
774 |
-1% |
|
Cost of revenues |
650 |
653 |
0% |
|
Gross profit |
131 |
121 |
-8% |
|
Operating profit |
22 |
20 |
-9% |
|
Profit for the period |
3 |
7 |
+133% |
|
Earnings per share (basic, NIS) |
0.02 |
0.04 |
|
|
Adjusted Free Cash Flow (before interest) |
31 |
44 |
+42% |
Key Operating Indicators
|
|
Q2‘19 |
Q2‘20 |
Change |
|
Adjusted EBITDA (NIS million) |
214 |
200 |
-7% |
|
Adjusted EBITDA margin (as a % of total revenues) |
27% |
26% |
-1 |
|
Cellular Subscribers (end of period, thousands) |
2,616 |
2,708 |
+92 |
|
Quarterly Cellular Churn Rate (%) |
7.9% |
7.5% |
-0.4 |
|
Monthly Average Revenue per Cellular User (ARPU) (NIS) |
58 |
51 |
-7 |
Partner Consolidated Results
|
|
Cellular Segment |
Fixed-Line Segment |
Elimination |
Consolidated |
|||||||
|
NIS Million |
Q2‘19 |
Q2‘20 |
Change % |
Q2‘19 |
Q2‘20 |
Change % |
Q2‘19 |
Q2‘20 |
Q2‘19 |
Q2‘20 |
Change % |
|
Total Revenues |
568 |
539 |
-5% |
254 |
272 |
+7% |
(41) |
(37) |
781 |
774 |
-1% |
|
Service Revenues |
453 |
409 |
-10% |
230 |
244 |
+6% |
(41) |
(37) |
642 |
616 |
-4% |
|
Equipment Revenues |
115 |
130 |
+13% |
24 |
28 |
+17% |
– |
– |
139 |
158 |
+14% |
|
Operating Profit |
14 |
13 |
-7% |
8 |
7 |
-13% |
– |
– |
22 |
20 |
-9% |
|
Adjusted EBITDA |
159 |
129 |
-19% |
55 |
71 |
+29% |
– |
– |
214 |
200 |
-7% |
Financial Review
In Q2 2020, total revenues were NIS 774 million (US$ 223 million), a decrease of 1% from NIS 781 million in Q2 2019.
Service revenues in Q2 2020 totaled NIS 616 million (US$ 178 million), a decrease of 4% from NIS 642 million in Q2 2019.
Service revenues for the cellular segment in Q2 2020 totaled NIS 409 million (US$ 118 million), a decrease of 10% from NIS 453 million in Q2 2019. The decrease was mainly the result of the negative impact of the coronavirus crisis on roaming service revenues and the continued price erosion of cellular services due to the continued competitive market conditions, which were partially offset by an increase in interconnect revenues.
Service revenues for the fixed-line segment in Q2 2020 totaled NIS 244 million (US$ 70 million), an increase of 6% from NIS 230 million in Q2 2019. The increase mainly reflected higher revenues from internet and TV services, which were partially offset by a decline in revenues from international calling services.
Equipment revenues in Q2 2020 totaled NIS 158 million (US$ 46 million), an increase of 14% from NIS 139 million in Q2 2019, mainly reflecting increased sales of cellular equipment to wholesale customers, as well as an increase in sales volumes in the fixed-line segment, despite the adverse impact of the coronavirus crisis on retail customer sales.
Gross profit from equipment sales in Q2 2020 was NIS 30 million (US$ 9 million), compared with NIS 35 million in Q2 2019, a decrease of 14%, largely reflecting lower profit margins as a result of the change in the product mix.
Total operating expenses (‘OPEX’) totaled NIS 456 million (US$ 132 million) in Q2 2020, a decrease of 3% or NIS 16 million from Q2 2019. The decrease mainly reflected a decrease in payroll and related expenses mainly due to employees placed on unpaid leave during April and part of May. In addition, it reflected a decrease in international calling services expenses, a partial refund of rent expenses, and savings in other overhead costs due to the coronavirus crisis and various cost cutting measures implemented by the Company. These decreases were partially offset by an increase in interconnect expenses and in expenses related to internet and television services. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q2 2020 decreased by 5% compared with Q2 2019.
Operating profit for Q2 2020 was 20 million (US$ 6 million), a decrease of 9% compared with NIS 22 million in Q2 2019. The decrease mainly resulted from the decrease in Adjusted EBITDA (see Adjusted EBITDA analysis by segment below), partially offset by a decrease in depreciation and amortization expenses.
Adjusted EBITDA in Q2 2020 totaled NIS 200 million (US$ 58 million), a decrease of 7% from NIS 214 million in Q2 2019. As a percentage of total revenues, Adjusted EBITDA in Q2 2020 was 26% compared with 27% in Q2 2019.
Adjusted EBITDA for the cellular segment was NIS 129 million (US$ 37 million) in Q2 2020, a decrease of 19% from NIS 159 million in Q2 2019, largely reflecting the decrease in cellular service revenues and cellular equipment gross profit mainly as a result of the coronavirus crisis. This decrease was partially offset by a decrease in cellular operating expenses including payroll and related expenses, rent and overheads and other cost cutting measures, partially offset by an increase in interconnect expenses. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q2 2020 was 24% compared with 28% in Q2 2019.
Adjusted EBITDA for the fixed-line segment was NIS 71 million (US$ 20 million) in Q2 2020, an increase of 29% from NIS 55 million in Q2 2019, mainly reflecting the increase in fixed-line segment service revenues and the cost cutting measures implemented by the Company in order to mitigate the impact of the crisis. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q2 2020 was 26%, compared with 22% in Q2 2019.
Finance costs, net in Q2 2020 were NIS 13 million (US$ 4 million), a decrease of 19% compared with NIS 16 million in Q2 2019.
In Q2 2020, no income tax expenses were recorded, compared with NIS 3 million from Q2 2019.
Profit in Q2 2020 was NIS 7 million (US$ 2 million), an increase of 133% compared with a profit of NIS 3 million in Q2 2019.
Based on the weighted average number of shares outstanding during Q2 2020, basic earnings per share or ADS, was NIS 0.04 (US$ 0.01), compared with basic earnings per share of NIS 0.02 in Q2 2019.
Cellular Segment Operational Review
At the end of Q2 2020, the Company’s cellular subscriber base (including mobile data, 012 Mobile subscribers and M2M subscriptions included on an adjusted basis) was approximately 2.71 million, including approximately 2.40 million Post-Paid subscribers or 89% of the base, and approximately 304 thousand Pre-Paid subscribers, or 11% of the subscriber base.
During the second quarter of 2020, the cellular subscriber base increased net by approximately 32 thousand. The Post-Paid subscriber base increased by approximately 24 thousand, and the Pre-Paid subscriber base increased by approximately 8 thousand.
Total cellular market share (based on the number of subscribers) at the end of Q2 2020 was estimated to be approximately 25%, unchanged from the end of Q2 2019.
The quarterly churn rate for cellular subscribers in Q2 2020 was 7.5%, compared with 7.9% in Q2 2019 and 7.5% in Q1 2020.
The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q2 2020 was NIS 51 (US$ 15), a decrease of 12% from NIS 58 in Q2 2019. The decrease resulted from the impact of the coronavirus crisis on roaming service revenues and the continued price erosion of cellular services due to the continued competitive market conditions, which were partially offset by an increase in interconnect revenues.
Funding and Investing Review
In Q2 2020, Adjusted Free Cash Flow (including lease payments) totaled NIS 44 million (US$ 13 million), an increase of 42% compared to NIS 31 million in Q2 2019.
Cash generated from operating activities totaled NIS 193 million (US$ 56 million) in Q2 2020, a decrease of 11% from NIS 216 million in Q2 2019, mainly reflecting the decrease in Adjusted EBITDA and a decrease in operating assets and liabilities.
Lease payments (principal and interest), recorded in cash flows from financing activities under IFRS 16, totaled NIS 33 million (US$ 10 million) in Q2 2020, a decrease of NIS 10 million from NIS 43 million in Q2 2019.
Cash capital expenditures (‘CAPEX payments’), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 119 million (US$ 34 million) in Q2 2020, a decrease of 17% from NIS 143 million in Q2 2019.
The level of Net Debt at the end of Q2 2020 amounted to NIS 658 million (US$ 190 million), compared with NIS 965 million at the end of Q2 2019, a decrease of NIS 307 million. The decrease mainly reflected the Company’s share issuance in January 2020 for which the total net consideration received was approximately NIS 276 million.
Regulatory Developments
Holdings of approved Israeli shareholders in the Company – The provisions of the Company’s cellular license require, among others, that the “founding shareholders or their approved substitutes”, as defined in the cellular license, hold at least 26% of the means of control in the Company, including 5% which must be held by Israeli shareholders (Israeli citizens and residents), who were approved as such by the Minister of Communications (“Israeli Shareholders”).
Further to the description in our 2019 Annual Report, on July 7, 2020, the MOC published an amendment to our cellular license which provides that the license terms applicable to Israeli Shareholders may be replaced by an order issued by virtue of section 13 of the Communications Law (Telecommunications and Broadcasting), 1982.
Upgrade of Bezeq’s infrastructure to VDSL35b Technology – On July 12, 2020, Bezeq reported that the MOC has allowed it make use of VDSL35b Technology, According to Bezeq’s report, this technology will allow it to substantially improve internet connection speeds and will allow it to market connections of up to 200 Mbps. Bezeq’s report states that the rollout of this new technology is expected to be limited to approximately 230,000 subscribers. According to the MOC’s approval, the relevant retail offering may be launched four months after the update to the existing interface with wholesale providers is published by Bezeq.
Inter-departmental recommendations on the structural separation provisions applicable to the Bezeq and Hot groups – Further to the description in our 2019 Annual Report, on June 30, 2020, the MOC published the report of the inter-departmental team (“the Team”) tasked with examining the structural separation provisions applicable to the Bezeq and Hot groups. After weighing the alternatives, and considering the ramifications of canceling the current provisions – the Team recommended not to cancel the current structural separation provisions at this time. The Team’s MOC members are of the opinion that the current provisions applicable to Bezeq have been effective thus far and cancelling them would severely harm competition and the welfare of consumers.
Joint use of fiber optic infrastructure in existing residential buildings – Further to the description in our 2019 Annual Report, on July 7, 2020, the MOC published its decision on the joint use and deployment of fiber optic infrastructure in existing residential buildings. The decision stipulates that the first operator to deploy fiber optic cables in an existing residential building will be required to offer other operators to jointly use those cables in return for them taking part in the costs involved plus a reasonable premium. The first operator to deploy in such buildings will also be required to deploy the infrastructure in such a way as to enable at least one more operator (in addition to the operator/operators who have agreed to joint use of the infrastructure) to jointly use such infrastructure.
Conference Call Details
Partner will hold a conference call on Tuesday, August 18, 2020 at 10.00AM Eastern Time / 5.00PM Israel Time.
To join the call, please dial the following numbers (at least 10 minutes before the scheduled time):
International: +972.3.918.0650
North America toll-free: +1.888.407.2553
A live webcast of the call will also be available on Partner’s Investors Relations website at: www.partner.co.il/en/Investors-Relations/lobby/
If you are unavailable to join live, the replay of the call will be available from August 18, 2020 until September 1, 2020, at the following numbers:
International: +972.3.925.5900
North America toll-free: +1.888.782.4291
In addition, the archived webcast of the call will be available on Partner’s Investor Relations website at the above address for approximately three months.
Forward-Looking Statements
This press release includes forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Words such as “estimate”, “believe”, “anticipate”, “expect”, “intend”, “seek”, “will”, “plan”, “could”, “may”, “project”, “goal”, “target” and similar expressions often identify forward-looking statements but are not the only way we identify these statements. In particular, this press release communicates our expectation that the continued cessation of international travel will result in a material negative impact on the Company’s results of operations for the second half of 2020, but that we will be able to mitigate and partially reduce the effects. In addition, all statements other than statements of historical fact included in this press release regarding our future performance are forward-looking statements. We have based these forward-looking statements on our current knowledge and our present beliefs and expectations regarding possible future events. These forward-looking statements are subject to risks, uncertainties and assumptions, including in particular the severity and duration of the impact on our business of the current health crisis, and on the effectiveness of the proactive measures the Company has taken to cut costs and on the continuation of the improvements we have experienced in other business parameters, including increases in demand for the Company’s services following the crisis. We have also assumed that we will continue to be able to take proactive cost-cutting measures.
Contacts
Tamir Amar
Chief Financial Officer
Tel: +972-54-781-4951
Liat Glazer Shaft
Head of Investor Relations and Corporate Projects
Tel: +972-54-781-5051
E-mail: investors@partner.co.il