Press release

Partner Communications Reports Second Quarter 2019 Results1

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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, 2019.

Commenting on the results for the second quarter of 2019, Mr. Isaac Benbenisti, CEO of Partner noted:

“While our competitors in the telecommunications market are facing instability and impairments, Partner presents business leadership and financial strength.

Partner is more prepared than its competitors to cope with the complex challenges in the Israeli telecommunications market that suffers from ongoing market failures.

Partner continues to demonstrate positive trends in key KPI’s, a strong balance sheet and operational excellence while other competitors experience balance sheet write-downs and instability.

Partner today has an advantage in the range of services that we offer to over 3 million customers:

Cellular – Despite the ongoing competition, our ARPU has increased and churn rate has decreased, and is at the lowest level since 2011. This is attributed to our choice to provide our customers with value added services as part of our “MORE” Partner plans.

TV – For over two years Partner TV is the fastest growing TV service in Israel. At the end of the second quarter we report a net growth of 77 thousand subscribers compared with the corresponding quarter in 2018, and as of today, Partner TV has over 170 thousand subscribers. Unlike all of our competitors, Partner is the only company that does not need to replace its subscribers’ set top boxes to be prepared for the new viewing habits: 100% of Partner TV set top boxes broadcast with 4K quality, support Catch Up and allow access to world leading content applications.

Fiber Optics – two years after the launch of Partner Fiber our fiber optic infrastructure reaches over 480 thousand households in Israel. We connect customers in dozens of cities nationwide to the fastest data internet speed in Israel of up to 1,000 mbps. In addition, we are working to switch wholesale internet customers to the independent infrastructure in order to reduce dependency on monopolies and increase the Company’s profit.

The combination of all these services solidifies our status as a leading communications group and the positive figures in this report reflect Partner’s leadership in a range of services within the highly competitive Israeli telecommunications market.”

Mr. Tamir Amar, Partner’s Chief Financial Officer, commented on the results:

“Partner completed a positive quarter which was characterized by stability and even slight growth in cellular service revenues, alongside continued growth in the fixed line segment compared with Q2 2018 and Q1 2019, mainly reflecting the growth in our TV and Internet operations. The decline trend in our cellular churn rate continued, as churn rate decreased to the lowest level since the third quarter of 2011, totaling less than 8%. We continue to strive to maintain our customer base while creating value for our customers and limiting price erosion, through our strategic focus on profit rather than market share. Despite the decline in revenues from equipment we experienced only a slight decrease in gross profit from equipment sales.

The Adjusted EBITDA increased this quarter and totaled NIS 214 million compared with NIS 197 million in the previous quarter and NIS 172 million in the second quarter 2018. As we announced last quarter, the Company has adopted the IFRS 16 accounting standard, effective as of January 2019. The effect of the new standard totaled NIS 38 million in this quarter; thus even after eliminating the effect of IFRS 16 on Adjusted EBITDA, there was an increase compared with both periods. The increase was mainly a result of the increase in fixed line segment Adjusted EBITDA alongside stability in cellular segment Adjusted EBITDA.

Cash Flow from operating activities totaled NIS 216 million and Adjusted Free Cash Flow (before interest) totaled NIS 31 million this quarter. As part of our investment plan, CAPEX totaled NIS 143 million this quarter. The Company continues its investments in growth engines, through both the continued rapid deployment of our fiber optic infrastructure as well as our increased penetration rate in the TV market. These developments have all been pursued according to our strategic plans while maintaining financial strength and a strong balance sheet. As a result of the rapid deployment pace of the fiber optic project, we are expected to increase investment in the project in 2019 compared with 2018 but overall CAPEX is expected to remain unchanged from our original plans for 2019. In addition, in the coming years investments in the fiber optic project are expected to return to 2018 levels. Our investments place the Company at the technological forefront in Israel and have enabled us to reach over 480 thousand households with our fiber infrastructure and to connect customers to Partner’s TV and Fiber services.”

Q2 2019 compared with Q1 2019

NIS Million

Q1’19

Q2’19

Comments

Service Revenues

624

642

The increase resulted from increases both in cellular service revenues mainly as a result of seasonality and in fixed-line segment service revenues

Equipment Revenues

170

139

The decrease reflected a lower volume of equipment sales and a change in product mix

Total Revenues

794

781

 

Gross profit from equipment sales

39

35

 

OPEX

472

472

 

Adjusted EBITDA

197

214

The increase mainly resulted from increase in service revenues

Profit for the Period

2

3

Profit remained stable despite the increase in Adjusted EBITDA results from income tax expenses in the second quarter compared with income tax income in the first quarter

Capital Expenditures (additions)

157

142

 

Adjusted free cash flow (before interest payments)

(11)

31

The increase mainly resulted from the decrease in CAPEX payments

Net Debt

977

965

 

 

Q1’19

Q2’19

Comments

Cellular Post-Paid Subscribers

(end of period, thousands)

2,340

2,337

Decrease of 3 thousand subscribers

Cellular Pre-Paid Subscribers

(end of period, thousands)

280

279

Decrease of 1 thousand subscribers

Monthly Average Revenue per

Cellular User (ARPU) (NIS)

56

58

 

Quarterly Cellular Churn Rate (%)

8.5%

7.9%

Decrease in both Post-Paid and Pre-Paid churn rate

Key Financial Results Q2 2019 compared with Q2 2018

NIS MILLION (except EPS)

Q218

Q219

% Change

Revenues

797

781

-2%

Cost of revenues

661

650

-2%

Gross profit

136

131

-4%

Operating profit

22

22

0%

Profit for the period

2

3

+50%

Earnings per share (basic, NIS)

0.01

0.02

 

Adjusted free cash flow (before interest)

55

31

-44%

Key Operating Indicators

 

Q218

Q219

Change

Adjusted EBITDA (NIS million)

172

214

+24%

Adjusted EBITDA margin (as a % of total revenues)

22%

27%

+5

Cellular Subscribers (end of period, thousands)

2,623

2,616

-7

Quarterly Cellular Churn Rate (%)

10.1%

7.9%

-2.2

Monthly Average Revenue per Cellular User (ARPU) (NIS)

57

58

+1

Partner Consolidated Results

 

Cellular Segment

Fixed-Line Segment

Elimination

Consolidated

NIS Million

Q218

Q219

Change

%

Q218

Q219

Change

%

Q218

Q219

Q218

Q219

Change

%

Total Revenues

611

568

-7%

230

254

+10%

(44)

(41)

797

781

-2%

Service Revenues

454

453

0%

210

230

+10%

(44)

(41)

620

642

+4%

Equipment Revenues

157

115

-27%

20

24

+20%

177

139

-21%

Operating Profit

12

14

+17%

10

8

-20%

22

22

0%

Adjusted EBITDA

126

159

+26%

46

55

+20%

172

214

+24%

Financial Review

In Q2 2019, total revenues were NIS 781 million (US$ 219 million), a decrease of 2% from NIS 797 million in Q2 2018.

Service revenues in Q2 2019 totaled NIS 642 million (US$ 180 million), an increase of 4% from NIS 620 million in Q2 2018.

Service revenues for the cellular segment in Q2 2019 totaled NIS 453 million (US$ 127 million), approximately unchanged from NIS 454 million in Q2 2018. The stability was mainly the result of the continued price erosion of cellular services (both Post-Paid and Pre-Paid) due to the continued competitive market conditions being offset by a one-time provision which was recorded in Q2 2018 with respect to a class action.

Service revenues for the fixed-line segment in Q2 2019 totaled NIS 230 million (US$ 64 million), an increase of 10% from NIS 210 million in Q2 2018. The increase mainly reflected higher revenues from TV services and internet services, which were partially offset principally by the decline in revenues from international calling services.

Equipment revenues in Q2 2019 totaled NIS 139 million (US$ 39 million), a decrease of 21% from NIS 177 million in Q2 2018, mainly reflecting a lower volume of equipment sales partially offset by a change in product mix.

Gross profit from equipment sales in Q2 2019 was NIS 35 million (US$ 10 million), compared with NIS 37 million in Q2 2018, a decrease of 5%, mainly reflecting the decline in sales volumes, partially offset by higher profit margins from sales due to a change in the product mix.

Total operating expenses (‘OPEX’) totaled NIS 472 million (US$ 132 million) in Q2 2019, a decrease of 4% or NIS 20 million from Q2 2018. The decrease mainly reflected the impact of the implementation of IFRS 16 which totaled NIS 38 million, as well as decreases in credit losses and in marketing expenses. These decreases were partially offset by an increase in expenses relating to the growth in TV and internet services as well as the one-time cancellation in Q2 2018 of a provision for a class action in an amount of NIS 8 million. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q2 2019 increased by 3% compared with Q2 2018, the increase largely reflecting the increase in depreciation and amortization expenses related to IFRS 16.

Operating profit for Q2 2019 was NIS 22 million (US$ 6 million), unchanged compared with Q2 2018. Excluding the impact of the adoption of IFRS 16, operating profit in Q2 2019 would have been NIS 20 million. See Adjusted EBITDA analysis for each segment below.

Adjusted EBITDA in Q2 2019 totaled NIS 214 million (US$ 60 million), an increase of 24% from NIS 172 million in Q2 2018. The impact of the adoption of IFRS 16 on Adjusted EBITDA in Q2 2019 was an increase of NIS 38 million and, therefore, excluding the impact of IFRS 16, Adjusted EBITDA would have been NIS 176 million, an increase of NIS 4 million from Q2 2018. As a percentage of total revenues, Adjusted EBITDA in Q2 2019 was 27% compared with 22% in Q2 2018.

Adjusted EBITDA for the cellular segment was NIS 159 million (US$ 45 million) in Q2 2019, an increase of 26% from NIS 126 million in Q2 2018, mainly reflecting the impact of the adoption of IFRS 16 which increased cellular segment Adjusted EBITDA by NIS 35 million, as well as a decrease in other cellular operating expenses, and was partially offset by a decrease in gross profit from cellular equipment sales. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q2 2019 was 28% compared with 21% in Q2 2018.

Adjusted EBITDA for the fixed-line segment was NIS 55 million (US$ 15 million) in Q2 2019, an increase of 20% from NIS 46 million in Q2 2018, reflecting increases in fixed-line service revenues and in gross profit from equipment sales, partially offset by an increase in OPEX among other reasons as a result of the one-time cancellation in Q2 2018 of a provision for a class action in an amount of NIS 8 million. The impact of the adoption of IFRS 16 in Q2 2019 on the Adjusted EBITDA for the fixed-line segment was an increase of NIS 3 million. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q2 2019 was 22%, compared with 20% in Q2 2018.

Finance costs, net in Q2 2019 were NIS 16 million (US$ 4 million), an increase of 23% compared with NIS 13 million in Q2 2018. The increase largely reflected the impact of the adoption of IFRS 16, which resulted in an increase of NIS 5 million in finance costs.

Income tax expenses for Q2 2019 were NIS 3 million (US$ 1 million), a decrease of 57% compared with NIS 7 million in Q2 2018.

Profit in Q2 2019 was NIS 3 million (US$ 1 million), an increase of 50% compared with a profit of NIS 2 million in Q2 2018. The impact of the adoption of IFRS 16 in Q2 2019 on profit was a decrease of NIS 2 million.

Based on the weighted average number of shares outstanding during Q2 2019, basic earnings per share or ADS, was NIS 0.02 (US$ 0.006), compared with basic earnings per share of NIS 0.01 in Q2 2018.

Cellular Segment Operational Review

At the end of Q2 2019, the Company’s cellular subscriber base (including mobile data, 012 Mobile subscribers and M2M subscriptions) was approximately 2.62 million, including approximately 2.34 million Post-Paid subscribers or 89% of the base, and approximately 279 thousand Pre-Paid subscribers, or 11% of the subscriber base.

During the second quarter of 2019, the cellular subscriber base decreased by approximately four thousand. The Pre-Paid subscriber base decreased by approximately one thousand, and the Post-Paid subscriber base decreased by approximately three thousand.

The quarterly churn rate for cellular subscribers in Q2 2019 was 7.9%, compared with 10.1% in Q2 2018 – the lowest level since Q3 2011.

Total cellular market share (based on the number of subscribers) at the end of Q2 2019 was estimated to be approximately 25%, unchanged from Q2 2018.

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q2 2019 was NIS 58 (US$ 16), an increase of 2% from NIS 57 in Q2 2018. Excluding a one-time provision recorded in Q2 2018, ARPU would have decreased by NIS 1 as a result of the continued price erosion in key cellular services due to the competition in the cellular market.

Funding and Investing Review

In Q2 2019, Adjusted Free Cash Flow (including lease payments) totaled NIS 31 million (US$ 9 million), a decrease of 44% from NIS 55 million in Q2 2018.

Cash generated from operating activities increased by 36% from NIS 159 million in Q2 2018 to NIS 216 million (US$ 61 million) in Q2 2019, mainly as a result of the adoption of IFRS 16 in 2019, under which lease payments are recorded in cash flows from financing activities instead of in cash flows from operating activities.

Lease payments, recorded in cash flows from financing activities under IFRS 16, totaled NIS 43 million (US$ 12 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 143 million (US$ 40 million) in Q2 2019, an increase of 38% from NIS 104 million in Q2 2018, mainly reflecting the increased investments in the fiber optics infrastructure.

The level of Net Debt at the end of Q2 2019 amounted to NIS 965 million (US$ 271 million), compared with NIS 893 million at the end of Q2 2018, an increase of NIS 72 million.

Regulatory Developments

Further to the description in the Company’s annual report for 2018 regarding Policy principles for the deployment of fiber-optic infrastructure in Israel (“Call for Public Comments Document“), on July 24, 2019, the Ministry of Communications published two hearings (1) a hearing with respect to setting a maximum tariff for ultra-broadband access managed over the Bezeq fiber optic network and (2) a hearing with respect to changing the “reverse bundle” marketing format by Bezeq. On August 4, 2019, the Ministry published an additional hearing regarding the determination of a uniform tariff for fiber-optic based internet access services.

Based on the content of these hearings (the “Hearings“), the Hearings form part of the overall fiber optic strategy which the Ministry of Communications is formulating these days. The main provisions proposed in the hearings are as follows:

  1. A recommendation regarding the maximum tariff that Bezeq will be allowed to charge for ultra-broadband access managed over its fiber optic network – as proposed in the hearing, for a line with a speed of up to 400 Mbps the proposed maximum tariff will be NIS 71 per month (excluding VAT) and for a line with a speed of up to 1,000 Mbps the suggested maximum tariff will be NIS 85 per month (excluding VAT). The proposed rates include installation and fault repairs. As stated in the hearing documents, the maximum tariff stated is temporary and the Ministry intends to complete a process for setting fixed tariffs for these services in accordance with the principles set out in this regard in the Call for Public Comments Document.
  2. A recommendation regarding change in Bezeq’s “reverse bundle” marketing format – as proposed in the hearing, the Ministry is considering changing the format that was presented in the hearing regarding the reverse bundle in March 2019, and determining that Bezeq will not be obligated to market in its “reverse bundle” service providers which have accumulated 100,000 or more wholesale Bit Stream Access (“BSA“) customers, or more, on the Bezeq network and have access to 100,000 households, or more, with their independent fiber optic infrastructure using Bezeq’s physical infrastructure. All existing “reverse bundle” subscribers on the date this format becomes effective, will continue with the same package and with the same service provider (even those who are not obliged to be marketed as stated above). It is proposed that this format will become effective after the launch of Bezeq’s fiber project and with at least two months’ prior notice to the service providers, and given the reasonable possibility of purchasing BSA service over the fiber network.
  3. A recommendation regarding setting a uniform tariff for fiber-optic internet services – as proposed at the hearing, the infrastructure owners (Bezeq and Hot Telecom) and the service providers will be required to set a uniform price (throughout the country) for each fiber-based service (FTTP), whether it is a service provided on the network belonging to said licensee or whether it is provided through another licensee’s network. Such discrimination in fiber service prices would be prohibited, whether by providing different tariffs or by providing value.

    The Company is studying the Hearing documents and examining its position regarding the provisions proposed therein.

Conference Call Details

Partner will hold a conference call on Tuesday, August 27, 2019 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: +972.3.918.0610

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 27, 2019 until September 10, 2019, at the following numbers:

International: +972.3.925.5928

North America toll-free: +1.877.456.0009

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. Specific statements have been made regarding the steps to be taken by the Company in order to switch wholesale internet customers to Partner’s independent infrastructure in order to reduce dependency on monopolies and increase the Company’s profit, the continued investment in growth engines and the expected increased investment in the fiber optic project in 2019 compared with 2018, while the expected investments in the coming years is expected to remain similar to 2018. 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, whether market conditions will support the Company’s goal to reduce dependency on monopolies and increase the Company’s profit by switching customers to the Company’s independent fiber optic infrastructure; whether the Company’s financial resources and market conditions will enable it to continue to invest in its growth engines according to its plans; whether the Company’s technological capabilities in fiber optics will enable it to continue to lead in telecommunication technology; and whether such leadership might be challenged by capabilities developed by competitors or by changes occurring in the regulatory environment. Future results may differ materially from those anticipated herein. For further information regarding risks, uncertainties and assumptions about Partner, trends in the Israeli telecommunications industry in general, the impact of current global economic conditions and possible regulatory and legal developments, and other risks we face, see “Item 3. Key Information – 3D. Risk Factors”, “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects”, “Item 8. Financial Information – 8A. Consolidated Financial Statements and Other Financial Information – 8A.1 Legal and Administrative Proceedings” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Reports on Form 20-F filed with the SEC, as well as its immediate reports on Form 6-K furnished to the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The quarterly financial results presented in this press release are unaudited financial results.

The results were prepared in accordance with IFRS, other than the non-GAAP financial measures presented in the section, “Use of Non-GAAP Financial Measures”.

The financial information is presented in NIS millions (unless otherwise stated) and the figures presented are rounded accordingly.

The convenience translations of the New Israeli Shekel (NIS) figures into US Dollars were made at the rate of exchange prevailing at June 30, 2019: US $1.00 equals NIS 3.566. The translations were made purely for the convenience of the reader.

Use of Non-GAAP Financial Measures

The following non-GAAP measures are used in this report. These measures are not financial measures under IFRS and may not be comparable to other similarly titled measures for other companies. Further, the measures may not be indicative of the Company’s historic operating results nor are meant to be predictive of potential future results.

Non-GAAP Measure

Calculation

Most Comparable IFRS Financial Measure

Adjusted EBITDA

 

 

 

 

 

 

 

Adjusted EBITDA margin (%)

Adjusted EBITDA:

Profit (Loss)

add

Income tax expenses,

Finance costs, net,

Depreciation and amortization expenses (including amortization of intangible assets, deferred expenses-right of use and impairment charges), Other expenses (mainly amortization of share based compensation)

 

Adjusted EBITDA margin (%):

Adjusted EBITDA

divided by

Total revenues

Profit (Loss)

Adjusted Free Cash Flow

Adjusted Free Cash Flow:

Cash flows from operating activities

deduct

Cash flows from investing activities

add

Short-term investment in (proceeds from) deposits

deduct

Lease payments

Cash flows from operating activities

deduct

Cash flows from investing activities

Total Operating Expenses (OPEX)

Total Operating Expenses:

Cost of service revenues

add

Selling and marketing expenses

add

General and administrative expenses

deduct

Depreciation and amortization expenses,

Other expenses (mainly amortization of employee share based compensation)

Sum of:

Cost of service revenues,

Selling and marketing expenses,

General

and administrative expenses

Net Debt

Net Debt:

Current maturities of notes payable and borrowings

add

Notes payable

add

Borrowings from banks and others

add

Advances on account of notes payables

add

Financial liabilities at fair value

deduct

Cash and cash equivalents

deduct

Short-term deposits

Sum of:

Current maturities of notes payable and borrowings,

Notes payable,

Borrowings from banks and others,

Advances on account of notes payables,

Financial liabilities at fair value

 

About Partner Communications

Partner Communications Company Ltd. is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony, internet services and TV services). Partner’s ADSs are quoted on the NASDAQ Global Select Market™ and its shares are traded on the Tel Aviv Stock Exchange (NASDAQ and TASE: PTNR).

For more information about Partner, see: http://www.partner.co.il/en/Investors-Relations/lobby

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

New Israeli Shekels

 

 Convenience

translation

into U.S.

Dollars

 

 

December 31,

 

June 30,

 

June 30,

 

 

2018

 

2019*

 

2019*

 

 

(Audited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

416

 

427

 

120

Short-term deposits

 

 

 

241

 

68

Trade receivables

 

656

 

587

 

165

Other receivables and prepaid expenses

 

33

 

41

 

11

Deferred expenses – right of use

 

51

 

26

 

7

Inventories

 

98

 

100

 

28

 

 

1,254

 

1,422

 

399

 

 

 

 

 

 

 

NON CURRENT ASSETS

 

 

 

 

 

 

Trade receivables

 

260

 

251

 

70

Prepaid expenses and other

 

4

 

3

 

1

Deferred expenses – right of use

 

185

 

90

 

25

Lease – right of use

 

 

 

605

 

170

Property and equipment

 

1,211

 

1,414

 

397

Intangible and other assets

 

617

 

567

 

158

Goodwill

 

407

 

407

 

114

Deferred income tax asset

 

38

 

44

 

12

 

 

2,722

 

3,381

 

947

 

 

 

 

 

 

 

TOTAL ASSETS

 

3,976

 

4,803

 

1,346

* See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 New Israeli Shekels

 

 Convenience

translation into

U.S. Dollars

 

 

December 31,

 

June 30,

 

June 30,

 

 

2018

 

2019**

 

2019**

 

 

(Audited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

CURRENT LIABILITIES

 

 

 

 

 

 

Current maturities of notes payable and borrowings

 

162

 

320

 

90

Trade payables

 

711

 

677

 

190

Payables in respect of employees

 

96

 

98

 

27

Other payables (mainly institutions)

 

10

 

8

 

2

Income tax payable

 

35

 

29

 

8

Lease liabilities

 

 

 

136

 

38

Deferred revenues from HOT mobile

 

31

 

31

 

9

Other deferred revenues

 

41

 

45

 

13

Provisions

 

64

 

55

 

15

 

 

1,150

 

1,399

 

392

NON CURRENT LIABILITIES

 

 

 

 

 

 

Notes payable

 

1,013

 

1,076

 

302

Borrowings from banks and others

 

191

 

164

 

46

Advances on account of notes payables

 

 

 

34

 

10

Financial liability at fair value

 

 

 

39

 

11

Liability for employee rights upon retirement, net

 

40

 

42

 

11

Dismantling and restoring sites obligation

 

13

 

 

 

 

Lease liabilities

 

 

 

520

 

146

Deferred revenues from HOT mobile

 

133

 

117

 

33

Other non-current liabilities

 

30

 

17

 

4

 

 

1,420

 

2,009

 

563

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

2,570

 

3,408

 

955

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Share capital – ordinary shares of NIS 0.01

 

par value: authorized – December 31, 2018

and June 30, 2019 – 235,000,000 shares;

issued and outstanding –

2

 

2

 

1

December 31, 2018 –***162,628,397 shares

 

 

 

 

 

June 30, 2019 – ***162,835,904 shares

 

 

 

 

 

Capital surplus

 

1,102

 

1,083

 

304

Accumulated retained earnings

 

563

 

555

 

155

Treasury shares, at cost

 

December 31, 2018 – ****8,560,264 shares

June 30, 2019 – ****8,355,119 shares

(261)

 

(245)

 

(69)

Non-controlling interests

*

 

 

 

 

TOTAL EQUITY

 

1,406

 

1,395

 

391

TOTAL LIABILITIES AND EQUITY

 

3,976

 

4,803

 

1,346

* Representing an amount of less than 1 million.

** See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases.

*** Net of treasury shares.

**** Including restricted shares in amount of 1,210,833 and 1,146,736 as of December 31, 2018 and June 30, 2019, respectively, held by a trustee under the Company’s Equity Incentive Plan, such shares may become outstanding upon completion of vesting conditions.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 New Israeli Shekels

 

Convenience translation into U.S.

Dollars

 

 

6 months ended

June 30
,

 

3 months ended

June 30
,

 

6 months ended

June 30
,

 

3 months ended

June 30,

 

 

2018

 

2019**

 

2018

 

2019**

 

2019**

 

2019**

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions (except per share data)

Revenues, net

 

1,623

 

1,575

 

797

 

781

 

442

 

219

Cost of revenues

 

1,349

 

1,327

 

661

 

650

 

372

 

182

Gross profit

 

274

 

248

 

136

 

131

 

70

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

143

 

150

 

75

 

75

 

42

 

21

General and administrative expenses

 

91

 

82

 

46

 

43

 

23

 

12

Other income, net

 

14

 

15

 

7

 

9

 

4

 

2

Operating profit

 

54

 

31

 

22

 

22

 

9

 

6

Finance income

 

3

 

3

 

1

 

1

 

1

 

*

Finance expenses

 

34

 

33

 

14

 

17

 

10

 

4

Finance costs, net

 

31

 

30

 

13

 

16

 

9

 

4

Profit before income tax

 

23

 

1

 

9

 

6

 

*

 

2

Income tax expense (income)

 

12

 

(4)

 

7

 

3

 

(1)

 

1

Profit for the period

 

11

 

5

 

2

 

3

 

1

 

1

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

11

 

5

 

2

 

3

 

1

 

1

Non-controlling interests

 

 

 

*

 

 

 

*

 

*

 

*

Profit for the period

 

11

 

5

 

2

 

3

 

1

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

0.06

 

0.03

 

0.01

 

0.02

 

0.009

 

0.006

Diluted

 

0.06

 

0.03

 

0.01

 

0.02

 

0.009

 

0.005

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding (in thousands)

 

 

 

 

 

 

 

Basic

 

168,319

 

162,771

 

168,291

 

162,812

 

162,771

 

162,812

Diluted

 

169,207

 

163,364

 

169,098

 

163,376

 

163,364

 

163,376

 

 

 

 

 

 

 

 

 

 

 

 

 

* Representing an amount of less than 1 million.

** See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

 

 

 New Israeli Shekels

 

Convenience translation

into

U.S. Dollars

 

 

6 months ended

June 30
,

 

3 months ended

June 30
,

 

6 months ended

June 30
,

 

3 months ended

June 30
,

 

 

2018

 

2019**

 

2018

 

2019**

 

2019**

 

2019**

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

 

Profit for the period

 

11

 

5

 

2

 

3

 

1

 

1

Other comprehensive income

for the period, net of income taxes

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

11

 

5

 

2

 

3

 

1

 

1

Total comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

11

 

5

 

2

 

3

 

1

 

1

Non-controlling interests

 

 

 

*

 

 

 

*

 

*

 

*

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

11

 

5

 

2

 

3

 

1

 

1

* Representing an amount of less than 1 million.

** See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 

New Israeli Shekels

 

New Israeli Shekels

 

6 months ended June 30, 2019**

 

6 months ended June 30, 2018

 

In millions (Unaudited)

 

In millions (Unaudited)

 

Cellular

segment

 

Fixed line

segment

 

Elimination

 

Consolidated

 

Cellular

segment

 

Fixed line

segment

 

Elimination

 

Consolidated

Segment revenue – Services

886

 

380

 

 

 

1,266

 

911

 

334

 

 

 

1,245

Inter-segment revenue – Services

8

 

74

 

(82)

 

 

 

9

 

78

 

(87)

 

 

Segment revenue – Equipment

257

 

52

 

 

 

309

 

335

 

43

 

 

 

378

Total revenues

1,151

 

506

 

(82)

 

1,575

 

1,255

 

455

 

(87)

 

1,623

Segment cost of revenues – Services

694

 

398

 

 

 

1,092

 

717

 

334

 

 

 

1,051

Inter-segment cost of revenues – Services

74

 

8

 

(82)

 

 

 

78

 

9

 

(87)

 

 

Segment cost of revenues – Equipment

202

 

33

 

 

 

235

 

266

 

32

 

 

 

298

Cost of revenues

970

 

439

 

(82)

 

1,327

 

1,061

 

375

 

(87)

 

1,349

Gross profit

181

 

67

 

 

 

248

 

194

 

80

 

 

 

274

Operating expenses (3)

169

 

63

 

 

 

232

 

173

 

61

 

 

 

234

Other income, net

11

 

4

 

 

 

15

 

13

 

1

 

 

 

14

Operating profit

23

 

8

 

 

 

31

 

34

 

20

 

 

 

54

Adjustments to presentation of segment Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

–Depreciation and amortization

278

 

94

 

 

 

 

 

219

 

69

 

 

 

 

–Other (1)

8

 

 

 

 

 

 

 

7

 

 

 

 

 

 

Segment Adjusted EBITDA (2)

309

 

102

 

 

 

 

 

260

 

89

 

 

 

 

Reconciliation of segment subtotal Adjusted EBITDA to profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segments subtotal Adjusted EBITDA (2)

 

 

 

 

 

 

411

 

 

 

 

 

 

 

349

– Depreciation and amortization

 

 

 

 

 

 

(372)

 

 

 

 

 

 

 

(288)

– Finance costs, net

 

 

 

 

 

 

(30)

 

 

 

 

 

 

 

(31)

– Income tax expenses (income)

 

 

 

 

 

 

4

 

 

 

 

 

 

 

(12)

– Other (1)

 

 

 

 

 

 

(8)

 

 

 

 

 

 

 

(7)

Profit for the period

 

 

 

 

 

 

5

 

 

 

 

 

 

 

11

* Representing an amount of less than 1 million.

** See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases. For the 6 months ended June 30, 2019 the impact of the adoption of IFRS 16 was an increase of NIS 77 million in the Adjusted EBITDA, an increase of NIS 69 million in the cellular segment Adjusted EBITDA and an increase of NIS 8 million in the fixed-line segment Adjusted EBITDA.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 

New Israeli Shekels

 

New Israeli Shekels

 

3 months ended June 30, 2019**

 

3 months ended June 30, 2018

 

In millions (Unaudited)

 

In millions (Unaudited)

 

Cellular

segment

 

Fixed line

segment

 

Elimination

 

Consolidated

 

Cellular

segment

 

Fixed line

segment

 

Elimination

 

Consolidated

Segment revenue – Services

449

 

193

 

 

 

642

 

450

 

170

 

 

 

620

Inter-segment revenue – Services

4

 

37

 

(41)

 

 

 

4

 

40

 

(44)

 

 

Segment revenue – Equipment

115

 

24

 

 

 

139

 

157

 

20

 

 

 

177

Total revenues

568

 

254

 

(41)

 

781

 

611

 

230

 

(44)

 

797

Segment cost of revenues – Services

347

 

199

 

 

 

546

 

352

 

169

 

 

 

521

Inter-segment cost of revenues – Services

37

 

4

 

(41)

 

 

 

40

 

4

 

(44)

 

 

Segment cost of revenues – Equipment

89

 

15

 

 

 

104

 

126

 

14

 

 

 

140

Cost of revenues

473

 

218

 

(41)

 

650

 

518

 

187

 

(44)

 

661

Gross profit

95

 

36

 

 

 

131

 

93

 

43

 

 

 

136

Operating expenses (3)

87

 

31

 

 

 

118

 

87

 

34

 

 

 

121

Other income, net

6

 

3

 

 

 

9

 

6

 

1

 

 

 

7

Operating profit

14

 

8

 

 

 

22

 

12

 

10

 

 

 

22

Adjustments to presentation of segment Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

–Depreciation and amortization

141

 

47

 

 

 

 

 

110

 

36

 

 

 

 

–Other (1)

4

 

 

 

 

 

 

 

4

 

 

 

 

 

 

Segment Adjusted EBITDA (2)

159

 

55

 

 

 

 

 

126

 

46

 

 

 

 

Reconciliation of segment subtotal Adjusted EBITDA to profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segments subtotal Adjusted EBITDA (2)

 

 

 

 

 

 

214

 

 

 

 

 

 

 

172

– Depreciation and amortization

 

 

 

 

 

 

(188)

 

 

 

 

 

 

 

(146)

– Finance costs, net

 

 

 

 

 

 

(16)

 

 

 

 

 

 

 

(13)

– Income tax expenses

 

 

 

 

 

 

(3)

 

 

 

 

 

 

 

(7)

– Other (1)

 

 

 

 

 

 

(4)

 

 

 

 

 

 

 

(4)

Profit for the period

 

 

 

 

 

 

3

 

 

 

 

 

 

 

2

(1) Mainly amortization of employee share based compensation.

(2) Adjusted EBITDA as reviewed by the CODM represents Earnings Before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use and impairment charges) and Other expenses (mainly amortization of share based compensation). Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Group’s historic operating results nor is it meant to be predictive of potential future results. The usage of the term “Adjusted EBITDA” is to highlight the fact that the Amortization includes amortization of deferred expenses – right of use and amortization of employee share based compensation and impairment charges.

(3) Operating expenses include selling and marketing expenses, general and administrative expenses.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

New Israeli Shekels

 

Convenience

translation

into

U.S. Dollars

 

6 months ended June 30,

 

2018

 

2019**

 

2019**

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

In millions

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Cash generated from operations (Appendix)

317

 

430

 

121

Income tax paid

(1)

 

(1)

 

*

Net cash provided by operating activities

316

 

429

 

121

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of property and equipment

(167)

 

(247)

 

(69)

Acquisition of intangible and other assets

(75)

 

(81)

 

(23)

Investment in short-term deposits, net

(141)

 

(241)

 

(67)

Interest received

*

 

*

 

*

Consideration received from sales of property and equipment

2

 

1

 

*

Net cash used in investing activities

(381)

 

(568)

 

(159)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Lease payments (principal and interest)

 

 

(82)

 

(23)

Acquisition of treasury shares

(15)

 

 

 

 

Interest paid

(46)

 

(20)

 

(6)

Proceeds from issuance of notes payable, net of issuance costs

 

 

222

 

62

Proceeds from issuance of option warrants exercisable for notes

payables

 

 

37

 

10

Advances on account of notes payables issuance

 

 

34

 

10

Repayment of non-current borrowings

(375)

 

(26)

 

(7)

Repayment of current borrowings

 

 

(13)

 

(4)

Transactions with non-controlling interests

 

 

(2)

 

(1)

Net cash provided by (used in) financing activities

(436)

 

150

 

41

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(501)

 

11

 

3

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

867

 

416

 

117

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

366

 

427

 

120

 

 

 

 

 

 

* Representing an amount of less than 1 million.

** See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Appendix – Cash generated from operations and supplemental information

 

New Israeli Shekels

 

 Convenience

translation

into

U.S. Dollars

 

6 months ended June 30,

 

2018

 

2019**

 

2019**

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

In millions

 

 

 

 

 

 

Cash generated from operations:

 

 

 

 

 

Profit for the period

11

 

5

 

1

Adjustments for:

 

 

 

 

 

Depreciation and amortization

267

 

358

 

101

Amortization of deferred expenses – Right of use

21

 

14

 

4

Employee share based compensation expenses

8

 

8

 

2

Liability for employee rights upon retirement, net

1

 

1

 

*

Finance costs, net

(1)

 

11

 

3

Interest paid

46

 

20

 

6

Interest received

*

 

*

 

*

Deferred income taxes

6

 

1

 

*

Income tax paid

1

 

1

 

*

Changes in operating assets and liabilities:

 

 

 

 

 

Decrease (increase) in accounts receivable:

 

 

 

 

 

Trade

77

 

78

 

22

Other

 

 

(5)

 

(1)

Increase (decrease) in accounts payable and accruals:

 

 

 

 

 

Trade

(61)

 

(4)

 

(1)

Other payables

(14)

 

(4)

 

(1)

Provisions

(4)

 

(9)

 

(2)

Deferred revenues from HOT mobile

(16)

 

(16)

 

(4)

Other deferred revenues

(1)

 

4

 

1

Increase in deferred expenses – Right of use

(47)

 

(25)

 

(7)

Current income tax liability

4

 

(6)

 

(2)

Decrease (increase) in inventories

19

 

(2)

 

(1)

Cash generated from operations

317

 

430

 

121

 

 

 

 

 

 

* Representing an amount of less than 1 million.

** See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases.

At June 30, 2019 and 2018, trade and other payables include NIS 145 million ($41 million) and NIS 136 million, respectively, in respect of acquisition of intangible assets and property and equipment; payments in respect thereof are presented in cash flows from investing activities.

These balances are recognized in the cash flow statements upon payment.

Reconciliation of Non-GAAP Measures:

 

Adjusted Free Cash Flow

 

 

New Israeli Shekels

 

Convenience

translation into

U.S. Dollars

 

 

 6 months ended

June 30,

 

 3 months ended

June 30,

 

6 months ended

June 30,

3 months ended

June 30,

 

2018

 

2019*

 

2018

 

2019*

 

2019*

2019*

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

(Unaudited)

 

In millions

Net cash provided by operating activities

316

 

429

 

159

 

216

 

121

61

Net cash used in investing activities

(381)

 

(568)

 

(95)

 

(80)

 

(159)

(22)

Investment in short-term deposits, net

141

 

241

 

(9)

 

(62)

 

67

(18)

Lease payments

 

 

(82)

 

 

 

(43)

 

(23)

(12)

Adjusted Free Cash Flow

76

 

20

 

55

 

31

 

6

9

Interest paid

(46)

 

(20)

 

(11)

 

(16)

 

(6)

(5)

Adjusted Free Cash Flow After Interest

(30)

 

0

 

44

 

15

 

0

4

Total Operating Expenses (OPEX)

 

New Israeli Shekels

 

Convenience

translation into

U.S. Dollars

 

 

 6 months ended

June 30,

 

 3 months ended

June 30,

 

6 months ended

June 30,

3 months ended

June 30,

 

2018

 

2019*

 

2018

 

2019*

 

2019*

2019*

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

(Unaudited)

 

In millions

Cost of revenues – Services

1,051

 

1,092

 

521

 

546

 

306

153

Selling and marketing expenses

143

 

150

 

75

 

75

 

42

21

General and administrative expenses

91

 

82

 

46

 

43

 

23

12

Depreciation and amortization

(288)

 

(372)

 

(146)

 

(188)

 

(105)

(53)

Other (1)

(7)

 

(8)

 

(4)

 

(4)

 

(2)

(1)

OPEX

990

 

944

 

492

 

472

 

264

132

 

 

 

 

 

 

 

 

 

 

 

  1. Mainly amortization of employee share based compensation.

* See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases.

Key Financial and Operating Indicators (unaudited) ****

NIS M unless otherwise stated

Q2′ 17

Q3′ 17

Q4′ 17

Q1′ 18

Q2′ 18

Q3′ 18

Q4′ 18

Q1′ 19

Q2′ 19

2017

2018

Cellular Segment Service Revenues

497

514

478

466

454

476

447

441

453

1,978

1,843

Cellular Segment Equipment Revenues

145

138

182

178

157

143

165

142

115

610

643

Fixed-Line Segment Service Revenues

192

194

197

202

210

220

220

224

230

777

852

Fixed-Line Segment Equipment Revenues

14

22

22

23

20

25

24

28

24

76

92

Reconciliation for consolidation

(43)

(42)

(45)

(43)

(44)

(42)

(42)

(41)

(41)

(173)

(171)

Total Revenues

805

826

834

826

797

822

814

794

781

3,268

3,259

Gross Profit from Equipment Sales

33

43

40

43

37

44

42

39

35

 

142

166

Operating Profit*

118

92

0

32

22

48

14

9

22

315

116

Cellular Segment Adjusted EBITDA*

210

189

124

134

126

145

119

150

159

 

710

524

Fixed-Line Segment Adjusted EBITDA*

59

50

34

43

46

56

53

47

55

207

198

Total Adjusted EBITDA*

269

239

158

177

172

201

172

197

214

917

722

Adjusted EBITDA Margin (%)*

33%

29%

19%

21%

22%

24%

21%

25%

27%

28%

22%

OPEX*

472

477

519

498

492

504

502

472

472

 

1,946

1,996

Income with respect to settlement agreement

 

 

 

 

 

 

 

 

 

 

 

 

with Orange

54

 

 

 

 

 

 

 

 

 

108

 

Finance costs, net*

54

15

88

18

13

10

12

14

16

180

53

Profit (Loss)*

46

54

(50)

9

2

26

19

2

3

114

56

Capital Expenditures (cash)

76

105

113

138

104

117

143

185

143

376

502

Capital Expenditures (additions)

78

107

174

113

98

111

177

157

142

 

417

499

Adjusted Free Cash Flow

208

202

63

21

55

70

(22)

(11)

31

599

124

Adjusted Free Cash Flow (after interest)

150

192

(17)

(14)

44

62

(37)

(15)

15

434

55

Net Debt

1,081

887

906

919

893

898

950

977

965

906

950

Cellular Subscriber Base (Thousands)**

2,662

2,677

2,662

2,649

2,623

2,630

2,646

2,620

2,616

2,662

2,646

Post-Paid Subscriber Base (Thousands)**

2,273

2,306

2,308

2,318

2,323

2,333

2,361

2,340

2,337

 

2,308

2,361

Pre-Paid Subscriber Base (Thousands)

389

371

354

331

300

297

285

280

279

 

354

285

Cellular ARPU (NIS)

62

64

59

58

57

60

57

56

58

62

58

Cellular Churn Rate (%)**

9.0%

9.3%

9.9%

8.9%

10.1%

8.0%

8.5%

8.5%

7.9%

38%

35%

Number of Employees (FTE)***

2,582

2,696

2,797

2,778

2,808

2,821

2,782

2,897

2,895

2,797

2,782

* Figures from 2019 include impact of adoption of IFRS 16. See also section ‘IFRS 16’ above.

** As from Q4 2018, M2M subscriptions are included in the post-paid subscriber base on a standardized basis. This change had the effect of increasing the Post-Paid subscriber base at December 31, 2018, by approximately 34 thousand subscribers. See also ‘Cellular Segment Operational Review’ section.

*** Number of employees (FTE) from 2019 includes the number of FTE of PHI on a basis proportional to Partner’s share in the company (50%).

****See footnote 2 regarding use of non-GAAP measures.

Disclosure for notes holders as of June 30, 2019

Information regarding the notes series issued by the Company, in million NIS

Series

Original issuance date

Principal on the date of issuance

As of 30.06.2019

Interest rate

Principal repayment dates

Interest repayment dates

Linkage

Trustee contact details

Principal book value

Linked principal book value

Interest accumulated in books

Market value

From

To

 

 

 

D

25.04.10

04.05.11*

400

146

328

328

**

328

1.477%

 

(MAKAM+1.2%)

30.12.17

30.12.21

30.03, 30.06, 30.09, 30.12

Variable interest MAKAM (4)

Hermetic Trust (1975) Ltd. Merav Offer. 113 Hayarkon St., Tel Aviv. Tel: 03-5544553.

F

(1) (3)

20.07.17

12.12.17*

04.12.18*

255

389

150

794

794

**

806

2.16%

25.06.20

25.06.24

25.06, 25.12

Not Linked

Hermetic Trust (1975) Ltd.

Merav Offer. 113 Hayarkon St., Tel Aviv. Tel: 03-5544553.

G

(2) (3)

06.01.19

01.07.19*

225

38.5

225

225

**

231

4%

25.06.22

25.06.27

25.06

Not Linked

Hermetic Trust (1975) Ltd.

Merav Offer. 113 Hayarkon St., Tel Aviv. Tel: 03-5544553.

  1. In December 2018, the Company issued an additional Series F Notes in a principal amount of NIS 150 million. In December 2017 and January 2018, the Company entered into agreements with Israeli institutional investors to issue in December 2019, in the framework of a private placement, additional Series F notes, in an aggregate principal amount of NIS 227 million. S&P Maalot has rated the additional deferred issuances with an ‘ilA+’ rating. For additional details see the Company’s press releases dated September 13 and 17, 2017, December 27, 2017 and January 9, 2018.
  2. In January 2019, the Company issued Series G Notes in a principal amount of NIS 225 million.

    In April 2019, the Company issued in a private placement 2 series of untradeable option warrants that are exercisable for the Company’s Series G debentures. The exercise period of the first series is between July 1, 2019 and May 31, 2020 and of the second series is between July 1, 2020 and May 31, 2021. The Series G debentures that will be allotted upon the exercise of an option warrant will be identical in all their rights to the Company’s Series G debentures immediately upon their allotment, and will be entitled to any payment of interest or other benefit, the effective date of which is due after the allotment date. The debentures that will be allotted as a result of the exercise of option warrants will be registered on the TASE. The total amount received by the Company on the allotment date of the option warrants is NIS 37 million. The total consideration expected to the Company in respect of the allotment of the option warrants and in respect of their full exercise (and assuming that there will be no change to the exercise price) is approximately NIS 323.7 million. For additional details see the Company’s press release dated April 17, 2019. In July 2019, following partial exercise of option warrants from the first series, the Company issued Series G Notes in a principal amount of NIS 38.5 million.
  3. Regarding Series F and G Notes, the Company is required to comply with a financial covenant that the ratio of Net Debt to Adjusted EBITDA shall not exceed 5. Compliance will be examined and reported on a quarterly basis. For the definitions of Net Debt and Adjusted EBITDA see ‘Use of non-GAAP measures’ section above. For the purpose of the covenant, Adjusted EBITDA is calculated as the sum total for the last 12 month period, excluding adjustable one-time items. As of June 30, 2019, the ratio of Net Debt to Adjusted EBITDA was 1.2. Additional stipulations regarding Series F and G Notes mainly include: shareholders’ equity shall not decrease below NIS 400 million and NIS 600 million, respectively; the Company shall not create floating liens subject to certain terms; the Company has the right for early redemption under certain conditions; the Company shall pay additional annual interest of 0.5% in the case of a two-notch downgrade in the Notes rating and an additional annual interest of 0.25% for each further single-notch downgrade, up to a maximum additional interest of 1%; the Company shall pay additional annual interest of 0.25% during a period in which there is a breach of the financial covenant. In any case, the total maximum additional interest for Series F and G, shall not exceed 1.25% or 1%, respectively. For more information see the Company’s Annual Report on Form 20-F for the year ended December 31, 2018.

    In the reporting period, the Company was in compliance with all financial covenants and obligations and no cause for early repayment occurred.
  4. ‘MAKAM’ is a variable interest based on the yield of 12 month government bonds issued by the government of Israel. The interest rate is updated on a quarterly basis.

* On these dates additional Notes of the series were issued. The information in the table refers to the full series. ** Representing an amount of less than NIS 1 million.

Disclosure for Notes holders as of June 30, 2019 (cont.)

Notes Rating Details*

Series

Rating

Company

Rating as of

30.06.2019

and

28.08.2019 (1)

Rating

assigned upon

issuance of the

Series

Recent date of rating

as of 30.06.2019 and

28.08.2019

Additional ratings between the original issuance date and the recent date of rating (2)

Date

Rating

D

S&P Maalot

ilA+

ilAA-

04/2019 and 08/2019

07/2010, 09/2010,10/2010, 09/2012,

12/2012, 06/2013,07/2014, 07/2015,

07/2016, 07/2017,08/2018, 11/2018,

12/2018, 01/2019,04/2019, 08/2019

ilAA-, ilAA-,ilAA-, ilAA-,

ilAA-, ilAA-,ilAA-, ilA+,

ilA+, ilA+,ilA+, ilA+,

ilA+, ilA+,ilA+, ilA+

F

S&P Maalot

ilA+

ilA+

04/2019 and 08/2019

07/2017, 09/2017, 12/2017, 01/2018,

08/2018, 11/2018, 12/2018, 01/2019

04/2019, 08/2019

ilA+, ilA+, ilA+, ilA+,

ilA+, ilA+, ilA+, ilA+,

ilA+, ilA+

G (3)

S&P Maalot

ilA+

ilA+

04/2019 and 08/2019

12/2018, 01/2019, 04/2019, 08/2019

ilA+, ilA+, ilA+, ilA+

(1) In August 2019, S&P Maalot has reaffirmed the Company’s ilA+ credit rating and updated the Company’s rating outlook to “Negative”.

(2) For details regarding the rating of the notes see the S&P Maalot report dated August 5, 2019.

(3) In January 2019, the Company issued Series G Notes in a principal amount of NIS 225 million. In July 2019, the Company issued additional Series G Notes in a principal amount of NIS 38.5 million.

* 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

Summary of Financial Undertakings (according to repayment dates) as of June 30, 2019

a. Notes issued to the public by the Company and held by the public, excluding such notes 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

268,035

30,250

Second year

268,035

25,165

Third year

290,535

20,106

Fourth year

181,307

14,960

Fifth year and on

338,807

25,950

Total

1,346,719

116,431

b. Private notes and other non-bank credit, excluding such notes 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 – None.

c. Credit from banks in Israel 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

52,132

4,823

Second year

52,132

3,542

Third year

52,132

2,282

Fourth year

37,426

1,055

Fifth year and on

22,759

357

Total

216,581

12,059

Summary of Financial Undertakings (according to repayment dates) as of June 30, 2019 (cont.)

d. Credit from banks abroad based on the Company’s “Solo” financial data – None.

e. Total of sections a – d above, total credit from banks, non-bank credit and notes 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

320,167

35,073

Second year

320,167

28,707

Third year

342,667

22,388

Fourth year

218,733

16,015

Fifth year and on

361,566

26,307

Total

1,563,300

128,490

f. Off-balance sheet Credit exposure based on the Company’s “Solo” financial data (in thousand NIS) – 50,000 (Guarantees on behalf of a joint arrangement, without expiration date).

g. Off-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 – None.

h. Total balances of the credit from banks, non-bank credit and notes of all the consolidated companies, excluding companies that are reporting corporations and excluding Company’s data presented in sections a – d above – None.

i. Total balances of credit granted to the Company by the parent company or a controlling shareholder and balances of notes offered by the Company held by the parent company or the controlling shareholder – None.

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 notes offered by the Company held by companies held by the parent company or the controlling shareholder, which are not controlled by the Company – None.

k. Total balances of credit granted to the Company by consolidated companies and balances of notes offered by the Company held by the consolidated companies – None.

In addition to the total credit above, Company’s financial debt includes financial liability at fair value in respect of option warrants issued in May 2019 in a total amount of NIS 39 million and advances on account of notes payables in a total amount of NIS 34 million which were issued on July 1, 2019

1 The quarterly financial results are unaudited. The Company has applied the standard IFRS 16 – Leases, from January 1, 2019. The effects of the application of the standard on the quarterly financial results are provided in this press release, and in particular in the section “IFRS 16”. The impact of the adoption of IFRS 16 on Adjusted EBITDA in Q2 2019 was an increase of NIS 38 million.

2 For the definition of this and other Non-GAAP financial measures, see “Use of Non-GAAP Financial Measures” in this press release.