Press release

Partner Communications Reports Second Quarter 2020 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, 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)

Q219

Q220

% 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

 

Q219

Q220

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

Q219

Q220

Change %

Q219

Q220

Change %

Q219

Q220

Q219

Q220

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. . In light of the current unreliability of predictions as to the ultimate severity and duration of the health crisis, future results may differ materially from those currently anticipated. 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 preparation of interim condensed consolidated financial statements in conformity with IFRS requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management based such estimates on historical experience, information available at the time, and assumptions believed to be reasonable under the circumstances and at such time, including the impact of extraordinary events such as the novel coronavirus (“COVID-19”). Actual results could differ from those estimates.

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, 2020: US $1.00 equals NIS 3.466. 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 (%)

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

divided by

Total revenues

Profit (Loss)

Adjusted Free Cash Flow

Net cash provided by operating activities

add

Net cash used in investing activities

deduct

Proceeds from (investment in) short-term deposits, net

deduct

Lease principal payments

deduct

Lease interest payments

Net cash provided by operating activities

add

Net cash used in investing activities

Total Operating Expenses (OPEX)

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

Current maturities of notes payable and borrowings

add

Notes payable

add

Borrowings from banks

add

Advances on account of notes payables

add

Financial liability 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, Advances on account of notes payables,

Financial liability at fair value

Less

Sum of:

Cash and cash equivalents,

Short-term deposits

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,

 

 

2019

 

2020

 

2020

 

 

(Audited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

299

 

409

 

118

Short-term deposits

 

552

 

607

 

175

Trade receivables

 

624

 

557

 

161

Other receivables and prepaid expenses

 

39

 

38

 

11

Deferred expenses – right of use

 

26

 

28

 

8

Inventories

 

124

 

132

 

38

 

 

1,664

 

1,771

 

511

 

 

 

 

 

 

 

NON CURRENT ASSETS

 

 

 

 

 

 

Trade receivables

 

250

 

230

 

66

Deferred expenses – right of use

 

102

 

113

 

33

Lease – right of use

 

582

 

559

 

161

Property and equipment

 

1,430

 

1,438

 

415

Intangible and other assets

 

538

 

508

 

147

Goodwill

 

407

 

407

 

117

Deferred income tax asset

 

41

 

35

 

10

Prepaid expenses and other assets

 

1

 

1

 

*

 

 

3,351

 

3,291

 

949

 

 

 

 

 

 

 

TOTAL ASSETS

 

5,015

 

5,062

 

1,460

* Representing an amount of less than 1 million

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,

 

 

2019

 

2020

 

2020

 

 

(Audited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

CURRENT LIABILITIES

 

 

 

 

 

 

Current maturities of notes payable and borrowings

 

367

 

367

 

106

Trade payables

 

716

 

664

 

192

Payables in respect of employees

 

103

 

89

 

26

Other payables (mainly institutions)

 

23

 

7

 

2

Income tax payable

 

30

 

31

 

9

Lease liabilities

 

131

 

123

 

35

Deferred revenues from HOT mobile

 

31

 

31

 

9

Other deferred revenues

 

45

 

57

 

16

Provisions

 

43

 

36

 

10

 

 

1,489

 

1,405

 

405

NON CURRENT LIABILITIES

 

 

 

 

 

 

Notes payable

 

1,275

 

1,169

 

337

Borrowings from banks

 

138

 

112

 

32

Advances on account of notes payables

 

 

 

11

 

3

Financial liability at fair value

 

28

 

15

 

5

Liability for employee rights upon retirement, net

 

43

 

41

 

12

Lease liabilities

 

486

 

469

 

135

Deferred revenues from HOT mobile

 

102

 

86

 

25

Provisions and other non-current liabilities

 

37

 

38

 

11

 

 

2,109

 

1,941

 

560

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

3,598

 

3,346

 

965

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Share capital – ordinary shares of NIS 0.01

par value: authorized – December 31, 2019

and June 30, 2020 – 235,000,000 shares;

issued and outstanding –

2

 

2

 

1

December 31, 2019 – ­*162,915,990 shares

 

 

 

 

 

June 30, 2020 – ­*182,653,572 shares

 

 

 

 

 

Capital surplus

 

1,077

 

1,321

 

381

Accumulated retained earnings

 

576

 

599

 

173

Treasury shares, at cost

December 31, 2019 – *­*8,275,837 shares

June 30, 2020 – *­*7,870,294 shares

 

(238)

 

(206)

 

(60)

TOTAL EQUITY

 

1,417

 

1,716

 

495

TOTAL LIABILITIES AND EQUITY

 

5,015

 

5,062

 

1,460

* Net of treasury shares.

** Including restricted shares in amount of 1,247,583 and 888,059 as of and December 31, 2019 and June 30, 2020, 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 period ended June 30,

 

3 months period ended June 30,

 

6 months period

ended

June 30,

 

3 months period

ended

June 30,

 

 

2019

 

2020

 

2019

 

2020

 

2020

 

2020

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions (except per share data)

Revenues, net

 

1,575

 

1,581

 

781

 

774

 

456

 

223

Cost of revenues

 

1,327

 

1,308

 

650

 

653

 

377

 

188

Gross profit

 

248

 

273

 

131

 

121

 

79

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

150

 

140

 

75

 

69

 

41

 

20

General and administrative expenses

 

82

 

90

 

43

 

39

 

26

 

11

Other income, net

 

15

 

13

 

9

 

7

 

4

 

2

Operating profit

 

31

 

56

 

22

 

20

 

16

 

6

Finance income

 

3

 

3

 

1

 

4

 

1

 

1

Finance expenses

 

33

 

35

 

17

 

17

 

10

 

5

Finance costs, net

 

30

 

32

 

16

 

13

 

9

 

4

Profit before income tax

 

1

 

24

 

6

 

7

 

7

 

2

Income tax expenses (income)

 

(4)

 

7

 

3

 

*

 

2

 

*

Profit for the period

 

5

 

17

 

3

 

7

 

5

 

2

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

5

 

17

 

3

 

7

 

5

 

2

Non-controlling interests

 

*

 

 

 

*

 

 

 

 

 

 

Profit for the period

 

5

 

17

 

3

 

7

 

5

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

0.03

 

0.09

 

0.02

 

0.04

 

0.03

 

0.01

Diluted

 

0.03

 

0.09

 

0.02

 

0.04

 

0.03

 

0.01

Weighted average number of shares outstanding (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

162,771

 

181,926

 

162,812

 

182,615

 

181,926

 

182,615

Diluted

 

163,364

 

182,522

 

163,376

 

183,161

 

182,522

 

183,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Representing an amount of less than 1 million.

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 period ended June 30,

 

3 months period ended June 30,

 

6 months period ended

June 30,

 

3 months period ended

June 30,

 

 

2019

 

2020

 

2019

 

2020

 

2020

 

2020

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

 

Profit for the period

 

5

 

17

 

3

 

7

 

5

 

2

Other comprehensive income (loss)

for the period, net of income tax

 

 

 

1

 

 

 

(1)

 

*

 

*

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

5

 

18

 

3

 

6

 

5

 

2

Total comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

5

 

18

 

3

 

6

 

5

 

2

Non-controlling interests

 

*

 

 

 

*

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

5

 

18

 

3

 

6

 

5

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

* Representing an amount of less than 1 million.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 

New Israeli Shekels

 

 

New Israeli Shekels

 

 

6 months period ended June 30, 2020

 

 

6 months period ended June 30, 2019

 

 

In millions (Unaudited)

 

 

In millions (Unaudited)

 

 

Cellular

segment

 

Fixed line segment

 

Elimination

 

Consolidated

 

 

Cellular

segment

 

Fixed line

segment

 

Elimination

 

Consolidated

 

Segment revenue – Services

824

 

421

 

 

 

1,245

 

 

886

 

380

 

 

 

1,266

 

Inter-segment revenue – Services

8

 

68

 

(76)

 

 

 

 

8

 

74

 

(82)

 

 

 

Segment revenue – Equipment

276

 

60

 

 

 

336

 

 

257

 

52

 

 

 

309

 

Total revenues

1,108

 

549

 

(76)

 

1,581

 

 

1,151

 

506

 

(82)

 

1,575

 

Segment cost of revenues – Services

640

 

399

 

 

 

1,039

 

 

694

 

398

 

 

 

1,092

 

Inter-segment cost of revenues – Services

68

 

8

 

(76)

 

 

 

 

74

 

8

 

(82)

 

 

 

Segment cost of revenues – Equipment

229

 

40

 

 

 

269

 

 

202

 

33

 

 

 

235

 

Cost of revenues

937

 

447

 

(76)

 

1,308

 

 

970

 

439

 

(82)

 

1,327

 

Gross profit

171

 

102

 

 

 

273

 

 

181

 

67

 

 

 

248

 

Operating expenses (3)

155

 

75

 

 

 

230

 

 

169

 

63

 

 

 

232

 

Other income, net

10

 

3

 

 

 

13

 

 

11

 

4

 

 

 

15

 

Operating profit

26

 

30

 

 

 

56

 

 

23

 

8

 

 

 

31

 

Adjustments to presentation of segment

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

–Depreciation and amortization

229

 

124

 

 

 

 

 

 

278

 

94

 

 

 

 

 

–Other (1)

6

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

Segment Adjusted EBITDA (2)

261

 

154

 

 

 

 

 

 

309

 

102

 

 

 

 

 

Reconciliation of segment subtotal Adjusted EBITDA to profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segments subtotal Adjusted EBITDA (2)

 

 

 

 

 

 

415

 

 

 

 

 

 

 

 

411

 

– Depreciation and amortization

 

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

(372)

 

– Finance costs, net

 

 

 

 

 

 

(32)

 

 

 

 

 

 

 

 

(30)

 

– Income tax income (expenses)

 

 

 

 

 

 

(7)

 

 

 

 

 

 

 

 

4

 

– Other (1)

 

 

 

 

 

 

(6)

 

 

 

 

 

 

 

 

(8)

 

Profit for the period

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

5

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 

New Israeli Shekels

 

 

New Israeli Shekels

 

 

3 months period ended June 30, 2020

 

 

3 months period ended June 30, 2019

 

 

In millions (Unaudited)

 

 

In millions (Unaudited)

 

 

Cellular

segment

 

Fixed line segment

 

Elimination

 

Consolidated

 

 

Cellular

segment

 

Fixed line

segment

 

Elimination

 

Consolidated

 

Segment revenue – Services

405

 

211

 

 

 

616

 

 

449

 

193

 

 

 

642

 

Inter-segment revenue – Services

4

 

33

 

(37)

 

 

 

 

4

 

37

 

(41)

 

 

 

Segment revenue – Equipment

130

 

28

 

 

 

158

 

 

115

 

24

 

 

 

139

 

Total revenues

539

 

272

 

(37)

 

774

 

 

568

 

254

 

(41)

 

781

 

Segment cost of revenues – Services

318

 

207

 

 

 

525

 

 

347

 

199

 

 

 

546

 

Inter-segment cost of revenues – Services

33

 

4

 

(37)

 

 

 

 

37

 

4

 

(41)

 

 

 

Segment cost of revenues – Equipment

110

 

18

 

 

 

128

 

 

89

 

15

 

 

 

104

 

Cost of revenues

461

 

229

 

(37)

 

653

 

 

473

 

218

 

(41)

 

650

 

Gross profit

78

 

43

 

 

 

121

 

 

95

 

36

 

 

 

131

 

Operating expenses (3)

70

 

38

 

 

 

108

 

 

87

 

31

 

 

 

118

 

Other income, net

5

 

2

 

 

 

7

 

 

6

 

3

 

 

 

9

 

Operating profit

13

 

7

 

 

 

20

 

 

14

 

8

 

 

 

22

 

Adjustments to presentation of segment

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

–Depreciation and amortization

114

 

64

 

 

 

 

 

 

141

 

47

 

 

 

 

 

–Other (1)

2

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

Segment Adjusted EBITDA (2)

129

 

71

 

 

 

 

 

 

159

 

55

 

 

 

 

 

Reconciliation of segment subtotal Adjusted EBITDA to profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segments subtotal Adjusted EBITDA (2)

 

 

 

 

 

 

200

 

 

 

 

 

 

 

 

214

 

– Depreciation and amortization

 

 

 

 

 

 

(178)

 

 

 

 

 

 

 

 

(188)

 

– Finance costs, net

 

 

 

 

 

 

(13)

 

 

 

 

 

 

 

 

(16)

 

– Income tax expenses

 

 

 

 

 

 

*

 

 

 

 

 

 

 

 

(3)

 

– Other (1)

 

 

 

 

 

 

(2)

 

 

 

 

 

 

 

 

(4)

 

Profit for the period

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

3

 

* Representing an amount of less than 1 million.

(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 and 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 period ended June 30,

 

2019

 

2020

 

2020

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

In millions

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Cash generated from operations (Appendix)

430

 

398

 

115

Income tax paid

(1)

 

(1)

 

*

Net cash provided by operating activities

429

 

397

 

115

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of property and equipment

(247)

 

(192)

 

(55)

Acquisition of intangible and other assets

(81)

 

(78)

 

(23)

Investment in short-term deposits, net

(241)

 

(55)

 

(16)

Interest received

*

 

3

 

1

Consideration received from sales of property and equipment

1

 

 

 

 

Net cash used in investing activities

(568)

 

(322)

 

(93)

 


CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Lease principal payments

(72)

 

(67)

 

(19)

Lease interest payments

(10)

 

(9)

 

(3)

Interest paid

(20)

 

(33)

 

(10)

Share issuance

 

 

276

 

80

Advances on account of notes payables issuance

34

 

11

 

3

Proceeds from issuance of notes payable, net of issuance costs

222

 

88

 

26

Proceeds from issuance of option warrants exercisable for notes

payables

37

 

 

 

 

Repayment of notes payable

 

 

(204)

 

(59)

Repayment of non-current borrowings

(26)

 

(26)

 

(8)

Repayment of current borrowings

(13)

 

 

 

 

Settlement of contingent consideration

 

 

(1)

 

*

Transactions with non-controlling interests

(2)

 

 

 

 

Net cash provided by financing activities

150

 

35

 

10

 


INCREASE IN CASH AND CASH EQUIVALENTS

11

 

110

 

32

 

CASH AND CASH EQUIVALENTS AT BEGINNING

OF PERIOD

416

 

299

 

86

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

427

 

409

 

118

 

 

 

 

 

 

* Representing an amount of less than 1 million.

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 period ended June 30,

 

2019

 

2020

 

2020

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

In millions

 

 

 

 

 

Cash generated from operations:

 

 

 

 

 

     Profit for the period

5

 

17

 

5

    Adjustments for:

 

 

 

 

 

          Depreciation and amortization

358

 

338

 

98

          Amortization of deferred expenses – Right of use

14

 

15

 

4

          Employee share based compensation expenses

8

 

5

 

1

          Liability for employee rights upon retirement, net

1

 

(1)

 

*

Finance costs, net

11

 

8

 

2

Interest paid

20

 

33

 

10

Interest received

*

 

(3)

 

(1)

          Deferred income taxes

1

 

6

 

2

Income tax paid

1

 

1

 

*

Changes in operating assets and liabilities:

 

 

 

 

 

          Decrease (increase) in accounts receivable:

 

 

 

 

 

               Trade

78

 

87

 

25

               Other

(5)

 

1

 

*

Increase (decrease) in accounts payable and accruals:

 

 

 

 

 

               Trade

(4)

 

(33)

 

(9)

               Other payables

(4)

 

(30)

 

(9)

      Provisions

(9)

 

(7)

 

(2)

                Deferred revenues from HOT mobile

(16)

 

(16)

 

(5)

                Other deferred revenues

4

 

12

 

4

  Increase in deferred expenses – Right of use

(25)

 

(28)

 

(8)

  Current income tax

(6)

 

1

 

*

           Decrease (increase) in inventories

(2)

 

(8)

 

(2)

Cash generated from operations

430

 

398

 

115

 

 

 

 

 

 

* Representing an amount of less than 1 million.

At June 30, 2020 and 2019, trade and other payables include NIS 123 million ($35 million) and NIS 145 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 period ended

June 30,

 

3 months period ended

June 30,

 

6 months period ended

June 30,

 

3 months period ended

June 30,

 

2019

 

2020

 

2019

 

2020

 

2020

 

2020

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

In millions

Net cash provided by operating activities

429

 

397

 

216

 

193

 

115

 

56

Net cash provided by (used in) investing

activities

(568)

 

(322)

 

(80)

 

70

 

(93)

 

20

Investment in short-term deposits, net

241

 

55

 

(62)

 

(186)

 

16

 

(54)

Lease principal payments

(72)

 

(67)

 

(38)

 

(29)

 

(19)

 

(8)

Lease interest payments

(10)

 

(9)

 

(5)

 

(4)

 

(3)

 

(1)

Adjusted Free Cash Flow

20

 

54

 

31

 

44

 

16

 

13

Interest paid

(20)

 

(33)

 

(16)

 

(31)

 

(10)

 

(9)

Adjusted Free Cash Flow After Interest

0

 

21

 

15

 

13

 

6

 

4

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses (OPEX)

 

 

New Israeli Shekels

 

 

Convenience translation into U.S. Dollars

 

6 months period ended

June 30,

 

3 months period ended

June 30,

 

6 months period ended

June 30,

 

3 months period ended

June 30,

 

2019

 

2020

 

2019

 

2020

 

2020

 

2020

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

In millions

Cost of revenues – Services

1,092

 

1,039

 

546

 

525

 

299

 

152

Selling and marketing expenses

150

 

140

 

75

 

69

 

41

 

20

General and administrative expenses

82

 

90

 

43

 

39

 

26

 

11

Depreciation and amortization

(372)

 

(353)

 

(188)

 

(178)

 

(102)

 

(51)

Other (1)

(8)

 

*

 

(4)

 

1

 

*

 

*

OPEX

944

 

916

 

472

 

456

 

264

 

132

 

 

 

 

 

 

 

 

 

 

 

 

* Representing an amount of less than 1 million.

(1) Mainly amortization of employee share based compensation.

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

NIS M unless otherwise stated

Q2′ 18

Q3′ 18

Q4′ 18

Q1′ 19

Q2′ 19

Q3′ 19

Q4′ 19

Q1′ 20

Q2′ 20

2018

2019

Cellular Segment Service Revenues

454

476

447

441

453

466

438

423

409

1,843

1,798

Cellular Segment Equipment Revenues

157

143

165

142

115

142

172

146

130

643

571

Fixed-Line Segment Service Revenues

210

220

220

224

230

233

238

245

244

852

925

Fixed-Line Segment Equipment Revenues

20

25

24

28

24

25

26

32

28

92

103

Reconciliation for consolidation

(44)

(42)

(42)

(41)

(41)

(41)

(40)

(39)

(37)

(171)

(163)

Total Revenues

797

822

814

794

781

825

834

807

774

3,259

3,234

Gross Profit from Equipment Sales

37

44

42

39

35

33

37

37

30

 

166

144

Operating Profit*

22

48

14

9

22

26

30

36

20

116

87

Cellular Segment Adjusted EBITDA*

126

145

119

150

159

170

156

132

129

 

524

635

Fixed-Line Segment Adjusted EBITDA*

46

56

53

47

55

55

61

83

71

198

218

Total Adjusted EBITDA*

172

201

172

197

214

225

217

215

200

722

853

Adjusted EBITDA Margin (%)*

22%

24%

21%

25%

27%

27%

26%

27%

26%

22%

26%

OPEX*

492

504

502

472

472

474

467

460

456

 

1,996

1,885

Finance costs, net*

13

10

12

14

16

18

20

19

13

53

68

Profit*

2

26

19

2

3

7

7

10

7

56

19

Capital Expenditures (cash)

104

117

143

185

143

174

127

151

119

502

629

Capital Expenditures (additions)

98

111

177

157

142

150

129

129

121

 

499

578

Adjusted Free Cash Flow

55

70

(22)

(11)

31

13

16

10

44

124

49

Adjusted Free Cash Flow (after interest)

44

62

(37)

(15)

15

12

0

8

13

55

12

Net Debt

893

898

950

977

965

956

957

673

658

950

957

Cellular Subscriber Base (Thousands)**

2,623

2,630

2,646

2,620

2,616

2,651

2,657

2,676

2,708

2,646

2,657

Post-Paid Subscriber Base (Thousands)**

2,323

2,333

2,361

2,340

2,337

2,366

2,366

2,380

2,404

 

2,361

2,366

Pre-Paid Subscriber Base (Thousands)

300

297

285

280

279

285

291

296

304

 

285

291

Cellular ARPU (NIS)

57

60

57

56

58

59

55

53

51

58

57

Cellular Churn Rate (%)**

10.1%

8.0%

8.5%

8.5%

7.9%

7.7%

7.2%

7.5%

7.5%

35%

31%

Number of Employees (FTE)***

2,808

2,821

2,782

2,897

2,895

2,923

2,834

1,867

2,745

2,782

2,834

* Figures from 2019 include impact of adoption of IFRS 16 – Leases (see also report 20-F).

** 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.

*** From 2019, the number of employees (FTE) also includes the number of FTE of PHI on a proportional basis of Partner’s share in the subsidiary (50%). Excluding employees on unpaid leave as of March 31, 2020.

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

Disclosure for notes holders as of June 30, 2020

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

Series

Original issuance date

Principal on the date of issuance

As of 30.06.2020

Annual interest rate

Principal repayment dates

Interest repayment dates

Interest 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

218

218

**

218

1.413%

 

(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

(2) (3)

20.07.17

12.12.17*

04.12.18*

01.12.19*

255

389

150

226.75

817

817

**

831

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

(1) (2)

06.01.19

01.07.19*

28.11.19*

27.02.20*

31.05.20*

01.07.20*

02.07.20*

225

38.5

86.5

15.1

84.8

12.2

300

450

450

**

480

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 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. For additional details see the Company’s press release dated April 17, 2019. Following exercise of option warrants from the first series, the Company issued Series G Notes in a total principal amount of NIS 225 million. Following exercise of option warrants from the second series in July 2020, the Company issued Series G Notes in a principal amount of NIS 12.2 million. As of today, the total future considerations expected to the Company in respect of the allotment of the option warrants from the second series (after the exercises of option warrants as described above) and in respect of their full exercise (and assuming that there will be no change to the exercise price) is approximately NIS 78 million. In July 2020, the Company issued in a private placement additional Series G Notes in a principal amount of NIS 300 million, under the same conditions of the original series.
  2. 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 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, 2020, the ratio of Net Debt to Adjusted EBITDA was 0.8. 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, 2019. In the reporting period, the Company was in compliance with all financial covenants and obligations and no cause for early repayment occurred.
  3. In July 2020, the Company executed a partial early redemption of Series F Notes in a total principal amount of NIS 305 million. The total amount paid was NIS 313 million.
  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, 2020 (cont.)

Notes Rating Details*

Series

Rating Company

Rating as of 30.06.2020 and 18.08.2020 (1)

Rating assigned upon issuance of the Series

Recent date of rating as of 30.06.2020 and 18.08.2020

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

Date

Rating

D

S&P Maalot

ilA+

ilAA-

08/2020

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,

02/2020, 05/2020, 06/2020, 07/2020

08/2020

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

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

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

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

ilA+, ilA+, ilA+, ilA+

ilA+

F

S&P Maalot

ilA+

ilA+

08/2020

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

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

04/2019, 08/2019, 02/2020, 05/2020,

06/2020, 07/2020, 08/2020

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

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

ilA+, ilA+, ilA+, ilA+

ilA+, ilA+, ilA+

G (3)

S&P Maalot

ilA+

ilA+

08/2020

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

02/2020, 05/2020, 06/2020, 07/2020

08/2020

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

ilA+, ilA+, ilA+, ilA+

ilA+

(1) In August 2020, S&P Maalot has reaffirmed the Company’s ilA+ credit rating and updated the Company’s rating outlook from “negative” to “stable”.

(2) For details regarding the rating of the notes see the S&P Maalot reports dated August 10, 2020.

(3) In January 2019, the Company issued Series G Notes in a principal amount of NIS 225 million. In July 2019, November 2019, February 2020 and May 31, 2020 the Company issued additional Series G Notes in a principal amount of NIS 38.5 million, NIS 86.5 million, NIS 15.1 million and NIS 84.8 million, respectively. In July, 2020, the Company issued additional Series G Notes in a total principal amount of NIS 312.2 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, 2020

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

313,385

37,648

Second year

358,377

31,897

Third year

249,149

25,017

Fourth year

249,149

18,847

Fifth year and on

314,947

30,595

Total

1,485,007

144,004

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

3,542

Second year

52,132

2,282

Third year

37,426

1,055

Fourth year

22,760

357

Fifth year and on

Total

164,450

7,236

Summary of Financial Undertakings (according to repayment dates) as of June 30, 2020 (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

365,517

41,190

Second year

410,509

34,179

Third year

286,575

26,072

Fourth year

271,909

19,204

Fifth year and on

314,947

30,595

Total

1,649,457

151,240

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:

  1. Financial liability at fair value in respect of option warrants issued in May 2019. At June 30, 2020, the financial liability totals to an amount of NIS 15 million.
  2. Advances on account of notes payables in a total amount of NIS 11 million which were issued on July 1, 2020.

In July 2020, the Company executed a partial early redemption of Series F Notes in a total principal amount of NIS 305 million.

1 The quarterly financial results are unaudited.

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