Press release

Partner Communications Reports Third 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 September 30, 2019.

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

“In the third quarter, Partner reported increases in revenues, in cellular subscribers, in Partner TV subscribers and in the number of households that we reached with our fiber optic infrastructure, “Partner Fiber”.

In the cellular segment, our strategy of enhancing the value to customers and focusing on customer service led to a net increase of 35 thousand subscribers this quarter, alongside a further decrease in the churn rate to 7.7%, the lowest rate in 8 years.

As of Today, Partner TV’s subscriber base has reached more than 183 thousand, the majority of whom are in offerings which also include Internet. Partner TV is the fastest growing TV service in Israel, and is suited to the current era as a super aggregator of international content services open to the Israeli viewer, in addition to our multi-channel offering. Our groundbreaking collaborations with the world’s largest content providers have started to be imitated by our competitors, and we are proud of the significant gap that we have opened compared to them.

Partner is leading today the fiber optic deployment field in Israel, with an independent infrastructure that is being rapidly deployed and has already reached over 540 thousand households, approximately 28% of Internet-connected households in Israel.

Partner’s vast fiber optic deployment, from the north of the country to Eilat in the south, supports the acceleration of the migration of wholesale internet subscribers to our independent infrastructure, as well as the recruitment of new customers and the expansion of Partner’s operations within the business sector across the country.

Partner’s financial strength and the positive trends in the cellular segment enable the Company to continue to implement our business plans for the fixed line segment, with the aim of improving profitability and customer loyalty while maintaining a stable level of debt.”

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

“The third quarter of 2019 ended with stability in service revenues, while continuing to report growth in the fixed-line segment in terms of subscribers and revenues, relative stability in OPEX over time and a positive net profit.

In the cellular segment, where the intensity of competition continues to remain high, a clear trend of decreasing erosion in service revenues can be seen for several quarters, as a result of our strategy according to which we operate. The churn rate totaled 7.7% in the quarter, continuing the declining trend from previous quarters. In addition, our subscriber base increased by 35 thousand subscribers and ARPU for the quarter totaled NIS 59, maintaining relative stability. We see in these results a reflection of our continued efforts to increase value to our customers through value added offerings and to strive for continued improvement in our customer service, which leads to a decline in price erosion and churn rates. We believe that the steps that we are taking improve our competitiveness in a very challenging business environment.

Adjusted EBITDA this quarter totaled NIS 225 million, demonstrating that the Company continues to manage its OPEX responsibly, alongside revenue growth in the fixed line segment mainly reflecting the impact of the Company’s growth engines.

In addition, Adjusted FCF (before interest) was positive and totaled NIS 13 million in the third quarter. Cash flow from operations totaled NIS 230 million. Capex totaled NIS 174 million and reflected the Company’s strategy to continue to be a technology leader while continuing to invest in its growth engines with a focus on deploying its fiber optic infrastructure and increasing penetration in the TV market. These investments are possible as a result of Partner’s financial stability and strong balance sheet. Accordingly, we report continued growth in the TV subscriber base which totals 183 thousand as of today, and in the rate of fiber optic deployment which remains high and reaches over 540 thousand households as of today.”

Q3 2019 compared with Q2 2019

NIS Million

Q2’19

Q3’19

Comments

Service Revenues

642

658

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

Equipment Revenues

139

167

The increase reflected a higher volume of equipment sales

Total Revenues

781

825

 

Gross profit from equipment sales

35

33

The stability in gross profit compared with the increase in equipment revenues mainly reflected a decrease in the average profit per sale and change in product mix

OPEX

472

474

 

Adjusted EBITDA

214

225

The increase resulted mainly from an increase in service revenues

Profit for the Period

3

7

 

Capital Expenditures (additions)

142

150

 

Adjusted free cash flow (before interest payments)

31

13

The decrease resulted from the increase in CAPEX payments

Net Debt

965

956

 

 

Q2’19

Q3’19

Comments

Cellular Post-Paid Subscribers (end of period, thousands)

2,337

2,366

Increase of 29 thousand subscribers

Cellular Pre-Paid Subscribers

(end of period, thousands)

279

285

Increase of 6 thousand subscribers

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

58

59

 

Quarterly Cellular Churn Rate (%)

7.9%

7.7%

Decrease in Post-Paid churn rate

Key Financial Results Q3 2019 compared with Q3 2018

NIS MILLION (except EPS)

Q318

Q319

% Change

Revenues

822

825

0%

Cost of revenues

657

687

+5%

Gross profit

165

138

-16%

Operating profit

48

26

-46%

Profit for the period

26

7

-73%

Earnings per share (basic, NIS)

0.16

0.04

 

Adjusted free cash flow (before interest)

70

13

-81%

Key Operating Indicators

 

Q318

Q319

Change

Adjusted EBITDA (NIS million)

201

225

+12%

Adjusted EBITDA margin (as a % of total revenues)

24%

27%

+3

Cellular Subscribers (end of period, thousands)

2,630

2,651

+21

Quarterly Cellular Churn Rate (%)

8.0%

7.7%

-0.3

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

60

59

-1

Partner Consolidated Results

 

Cellular Segment

Fixed-Line Segment

Elimination

Consolidated

NIS Million

Q318

Q319

Change

%

Q318

Q319

Change

%

Q318

Q319

Q318

Q319

Change

%

Total Revenues

619

608

-2%

245

258

+5%

(42)

(41)

822

825

0%

Service Revenues

476

466

-2%

220

233

+6%

(42)

(41)

654

658

+1%

Equipment Revenues

143

142

-1%

25

25

0%

168

167

-1%

Operating Profit

32

24

-25%

16

2

-88%

48

26

-46%

Adjusted EBITDA

145

170

+17%

56

55

-2%

201

225

+12%

Financial Review

In Q3 2019, total revenues were NIS 825 million (US$ 237 million), an increase of NIS 3 million from NIS 822 million in Q3 2018.

Service revenues in Q3 2019 totaled NIS 658 million (US$ 189 million), an increase of 1% from NIS 654 million in Q3 2018.

Service revenues for the cellular segment in Q3 2019 totaled NIS 466 million (US$ 134 million), a decrease of 2% from NIS 476 million in Q3 2018. The decrease 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.

Service revenues for the fixed-line segment in Q3 2019 totaled NIS 233 million (US$ 67 million), an increase of 6% from NIS 220 million in Q3 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 Q3 2019 totaled NIS 167 million (US$ 48 million), a decrease of 1% from NIS 168 million in Q3 2018.

Gross profit from equipment sales in Q3 2019 was NIS 33 million (US$ 9 million), compared with NIS 44 million in Q3 2018, a decrease of 25%, mainly reflecting a change in the product mix which led to a decrease in the average profit per sale.

Total operating expenses (‘OPEX’) totaled NIS 474 million (US$ 136 million) in Q3 2019, a decrease of 6% or NIS 30 million from Q3 2018. The decrease mainly reflected the impact of the implementation of IFRS 16 which totaled NIS 39 million, as well as decreases in other expenses, which were partially offset by an increase in expenses relating to the growth in TV and internet services. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q3 2019 increased by 2% compared with Q3 2018.

Operating profit for Q3 2019 was 26 million (US$ 7 million), a decrease of 46% compared with NIS 48 million in Q3 2018. The decrease resulted from the increase in depreciation and amortization expenses mainly as a result of the adoption of IFRS 16, partially offset by the increase in Adjusted EBITDA. See Adjusted EBITDA analysis for each segment below.

Adjusted EBITDA in Q3 2019 totaled NIS 225 million (US$ 65 million), an increase of 12% from NIS 201 million in Q3 2018. The impact of the adoption of IFRS 16 on Adjusted EBITDA in Q3 2019 was an increase of NIS 39 million. As a percentage of total revenues, Adjusted EBITDA in Q3 2019 was 27% compared with 24% in Q3 2018.

Adjusted EBITDA for the cellular segment was NIS 170 million (US$ 49 million) in Q3 2019, an increase of 17% from NIS 145 million in Q3 2018, mainly reflecting the impact of the adoption of IFRS 16 which increased cellular segment Adjusted EBITDA by NIS 35 million, partially offset by a decrease in gross profit from cellular equipment sales of NIS 9 million. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q3 2019 was 28% compared with 23% in Q3 2018.

Adjusted EBITDA for the fixed-line segment was NIS 55 million (US$ 16 million) in Q3 2019, a decrease of 2% from NIS 56 million in Q3 2018, reflecting the increase in OPEX, partially offset by the increase in fixed-line service revenues. The impact of the adoption of IFRS 16 in Q3 2019 on Adjusted EBITDA for the fixed-line segment was an increase of NIS 4 million. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q3 2019 was 21%, compared with 23% in Q3 2018.

Finance costs, net in Q3 2019 were NIS 18 million (US$ 5 million), an increase of 80% compared with NIS 10 million in Q3 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 Q3 2019 were NIS 1 million (US$ 0.3 million), compared with NIS 12 million in Q3 2018.

Profit in Q3 2019 was NIS 7 million (US$ 2 million), a decrease of 73% compared with a profit of NIS 26 million in Q3 2018. The impact of the adoption of IFRS 16 in Q3 2019 on profit was a decrease of NIS 2 million.

Based on the weighted average number of shares outstanding during Q3 2019, basic earnings per share or ADS, was NIS 0.04 (US$ 0.01), compared with basic earnings per share of NIS 0.16 in Q3 2018.

Cellular Segment Operational Review

At the end of Q3 2019, the Company’s cellular subscriber base (including mobile data, 012 Mobile subscribers and M2M subscriptions) was approximately 2.65 million, including approximately 2.37 million Post-Paid subscribers or 89% of the base, and approximately 285 thousand Pre-Paid subscribers, or 11% of the subscriber base.

During the third quarter of 2019, the cellular subscriber base increased by approximately 35 thousand. The Pre-Paid subscriber base increased by approximately 6 thousand, and the Post-Paid subscriber base increased by approximately 29 thousand.

The quarterly churn rate for cellular subscribers in Q3 2019 was 7.7%, compared with 8.0% in Q3 2018.

Total cellular market share (based on the number of subscribers) at the end of Q3 2019 was estimated to be approximately 25%, unchanged from Q3 2018.

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q3 2019 was NIS 59 (US$ 17), a decrease of 2% from NIS 60 in Q3 2018 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 Q3 2019, Adjusted Free Cash Flow (including lease payments) totaled NIS 13 million (US$ 4 million), a decrease of 81% from NIS 70 million in Q3 2018.

Cash generated from operating activities increased by 22% from NIS 188 million in Q3 2018 to NIS 230 million (US$ 66 million) in Q3 2019, 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 42 million (US$ 12 million) in Q3 2019.

Cash capital expenditures (‘CAPEX payments’), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 174 million (US$ 50 million) in Q3 2019, an increase of 49% from NIS 117 million in Q3 2018, mainly reflecting the impact of the change in the accounting treatment of PHI from the beginning of 2019, as well as the increased investments in the fiber optics infrastructure.

The level of Net Debt at the end of Q3 2019 amounted to NIS 956 million (US$ 275 million), compared with NIS 898 million at the end of Q3 2018, an increase of NIS 58 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.

The controlling stake of the Phoenix Group (One of the Company’s approved Israeli shareholders) has been sold to foreign entities. On November 12, 2019, the Israeli Ministry of Communications issued a temporary order (ending on November 1, 2020) amending the Company’s cellular license and reducing the percentage that the approved Israeli shareholders are required to hold by the amount of shares now held by the foreign entities (from 5% down to 3.82% of the means of control in the Company). This temporary order will allow the Ministry and the Company one year in which to resolve the issue of holdings of approved Israeli shareholders in the Company.

Transition to IPv6 internet protocol

On the July 3, 2019, the Ministry of Communications published its decision regarding the transition to the IPv6 protocol, which is the most recent version of internet protocol. The Ministry decided, among others, that telecom operators (such as the Company) will adapt their network and its components to fully support the IPv6 protocol. ISPs and domestic fixed-line operators will be required to complete this transition within 48 months of the decision while cellular operators will be required to complete it within 24 months.

The subscribers will be transitioned gradually to the IPv6 protocol according to milestones so that 100% of subscribers are transitioned to the IPv6 protocol at the end of the time periods mentioned above.

Operators will be obliged to replace terminal equipment which their subscribers have rented or leased from them and which does not support the IPv6 protocol. Operators will not be obliged to transition subscribers which own terminal equipment that does not support the IPv6 protocol, provided that such subscribers have refused to replace their terminal equipment and have signed a written waiver on this issue.

Inter-Ministerial recommendations on Bezeq’s FTTH/B Universal Service obligations

On November 5, 2019, an Inter-Ministerial team published a hearing regarding the universal service obligations applicable to Bezeq with regards to Fiber Optic infrastructure (FTTH/B) deployment. The recommendations of the Inter-Ministerial team include the following:

  • Bezeq will be allowed to decide for itself in which areas it will roll out its fiber-optic network. Within such areas, Bezeq will be required to connect 100% of households to its fiber-optic network within a timeframe set out in its license;
  • In the areas where Bezeq decides not to lay a fiber-optic network, another operator will be chosen (by a reverse tender process) to deploy a fiber-optic network to all households in the area. Such operator will receive an incentive for such deployment from a universal service fund and will enjoy exclusivity in deploying a fiber optic network in this area (but will be obliged to provide other operators with a wholesale Bit Stream Access (BSA) service provided over their fiber optic network;
  • The universal service fund incentive plan will be financed by a tax on all telecommunications operators (including Bezeq and Partner) at an annual rate of 0.5% of all income;
  • In the areas where Bezeq decides not to lay a fiber-optic network, it and its subsidiaries will not be allowed to deploy a fiber-optic network.

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, November 26, 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: +972.3.918.0685

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 November 26, 2019 until December 10, 2019, at the following numbers:

International: +972.3.925.5925

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. Specific statements have been made regarding the Company’s ability to continue to implement its business plans for the fixed line segment with the aim of improving the Company’s profitability and customer loyalty while maintaining a stable level of debt and the Company’s strategy to continue to be a leading company in terms of technology while continuing to invest in its growth engines with a focus on deploying a fiber optic infrastructure and increasing penetration in the TV market. 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 improve profitability and customer loyalty while maintaining a stable level of debt by implementing its business plans for the fixed line segment as well as enable it to continue to invest in its growth engines with a focus on deploying a fiber optic infrastructure and increasing penetration in the TV market and whether the Company’s technological capabilities in fiber optics will enable it to continue to lead in telecommunication technology. 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 September 30, 2019: US $1.00 equals NIS 3.482. 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,

 

September 30,

 

September 30,

 

 

2018

 

2019*

 

2019*

 

 

(Audited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

416

 

511

 

147

Short-term deposits

 

 

 

156

 

45

Trade receivables

 

656

 

595

 

171

Other receivables and prepaid expenses

 

33

 

38

 

11

Deferred expenses – right of use

 

51

 

25

 

7

Inventories

 

98

 

100

 

29

 

 

1,254

 

1,425

 

410

 

 

 

 

 

 

 

NON CURRENT ASSETS

 

 

 

 

 

 

Trade receivables

 

260

 

250

 

72

Prepaid expenses and other

 

4

 

3

 

1

Deferred expenses – right of use

 

185

 

98

 

28

Lease – right of use

 

 

 

600

 

172

Property and equipment

 

1,211

 

1,434

 

412

Intangible and other assets

 

617

 

547

 

157

Goodwill

 

407

 

407

 

117

Deferred income tax asset

 

38

 

43

 

12

 

 

2,722

 

3,382

 

971

 

 

 

 

 

 

 

TOTAL ASSETS

 

3,976

 

4,807

 

1,381

* 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,

 

September 30,

 

September 30,

 

 

2018

 

2019**

 

2019**

 

 

(Audited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

CURRENT LIABILITIES

 

 

 

 

 

 

Current maturities of notes payable and borrowings

 

162

 

320

 

92

Trade payables

 

711

 

680

 

195

Payables in respect of employees

 

96

 

90

 

26

Other payables (mainly institutions)

 

10

 

32

 

9

Income tax payable

 

35

 

29

 

8

Lease liabilities

 

 

 

138

 

40

Deferred revenues from HOT mobile

 

31

 

31

 

9

Other deferred revenues

 

41

 

47

 

14

Provisions

 

64

 

50

 

14

 

 

1,150

 

1,417

 

407

NON CURRENT LIABILITIES

 

 

 

 

 

 

Notes payable

 

1,013

 

1,115

 

320

Borrowings from banks and others

 

191

 

151

 

43

Financial liability at fair value

 

 

 

37

 

11

Liability for employee rights upon retirement, net

 

40

 

42

 

12

Dismantling and restoring sites obligation

 

13

 

 

 

 

Lease liabilities

 

 

 

513

 

147

Deferred revenues from HOT mobile

 

133

 

109

 

31

Other non-current liabilities

 

30

 

16

 

6

 

 

1,420

 

1,983

 

570

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

2,570

 

3,400

 

977

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Share capital – ordinary shares of NIS 0.01

 

par value: authorized – December 31, 2018

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

issued and outstanding –

 

2

 

2

 

1

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

 

 

 

 

 

 

September 30, 2019 – ***162,915,186 shares

 

 

 

 

 

 

Capital surplus

 

1,102

 

1,077

 

309

Accumulated retained earnings

 

563

 

567

 

163

Treasury shares, at cost

   

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

September 30, 2019 – ****8,275,837 shares

 

(261)

 

(239)

 

(69)

Non-controlling interests

 

*

 

 

 

 

TOTAL EQUITY

 

1,406

 

1,407

 

404

TOTAL LIABILITIES AND EQUITY

 

3,976

 

4,807

 

1,381

* 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 1,226,364 as of December 31, 2018 and September 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

 

 

9 months ended

September 30,

 

3 months ended

September 30,

 

9 months

ended

September

30,

 

3 months

ended


September

30,

 

 

2018

 

2019**

 

2018

 

2019**

 

2019**

 

2019**

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions (except per share data)

Revenues, net

 

2,445

 

2,400

 

822

 

825

 

689

 

237

Cost of revenues

 

2,006

 

2,014

 

657

 

687

 

578

 

197

Gross profit

 

439

 

386

 

165

 

138

 

111

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

221

 

228

 

78

 

78

 

65

 

23

General and administrative

 

expenses

 

137

 

124

 

46

 

42

 

36

 

12

Other income, net

 

21

 

23

 

7

 

8

 

7

 

2

Operating profit

 

102

 

57

 

48

 

26

 

17

 

7

Finance income

 

4

 

4

 

1

 

1

 

1

 

*

Finance expenses

 

45

 

52

 

11

 

19

 

15

 

5

Finance costs, net

 

41

 

48

 

10

 

18

 

14

 

5

Profit before income tax

 

61

 

9

 

38

 

8

 

3

 

2

Income tax expenses (income)

 

24

 

(3)

 

12

 

1

 

(1)

 

*

Profit for the period

 

37

 

12

 

26

 

7

 

4

 

2

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

37

 

12

 

26

 

7

 

4

 

2

Non-controlling interests

 

*

 

*

 

*

 

 

 

*

 

 

Profit for the period

 

37

 

12

 

26

 

7

 

4

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

0.22

 

0.07

 

0.16

 

0.04

 

0.021

 

0.012

Diluted

 

0.22

 

0.07

 

0.16

 

0.04

 

0.021

 

0.012

Weighted average number of shares outstanding (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

167,137

 

162,802

 

164,785

 

162,864

 

162,802

 

162,864

Diluted

 

168,047

 

163,497

 

165,611

 

163,505

 

163,497

 

163,505

* 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

(note 2a)

 

 

9 months ended

September 30,

 

3 months ended

September 30,

 

9 months

ended

September

30,

 

3 months

ended


September

30,

 

 

2018

 

2019**

 

2018

 

2019**

 

2019**

 

2019**

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

 

Profit for the period

 

37

 

12

 

26

 

7

 

4

 

2

Other comprehensive income

for the period, net of income taxes

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

37

 

12

 

26

 

7

 

4

 

2

Total comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

37

 

12

 

26

 

7

 

4

 

2

Non-controlling interests

 

*

 

*

 

*

 

 

 

*

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

37

 

12

 

26

 

7

 

4

 

2

* 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

 

9 months ended September 30, 2019**

 

 

9 months ended September 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 

1,348

 

576

 

 

 

1,924

 

 

1,384

 

515

 

 

 

1,899

Inter-segment revenue – Services

12

 

111

 

(123)

 

 

 

 

12

 

117

 

(129)

 

 

Segment revenue – Equipment

399

 

77

 

 

 

476

 

 

478

 

68

 

 

 

546

Total revenues

1,759

 

764

 

(123)

 

2,400

 

 

1,874

 

700

 

(129)

 

2,445

Segment cost of revenues – Services

1,044

 

601

 

 

 

1,645

 

 

1,072

 

512

 

 

 

1,584

Inter-segment cost of revenues – Services

111

 

12

 

(123)

 

 

 

 

116

 

13

 

(129)

 

 

Segment cost of revenues – Equipment

321

 

48

 

 

 

369

 

 

377

 

45

 

 

 

422

Cost of revenues

1,476

 

661

 

(123)

 

2,014

 

 

1,565

 

570

 

(129)

 

2,006

Gross profit

283

 

103

 

 

 

386

 

 

309

 

130

 

 

 

439

Operating expenses (3)

253

 

99

 

 

 

352

 

 

261

 

97

 

 

 

358

Other income, net

17

 

6

 

 

 

23

 

 

18

 

3

 

 

 

21

Operating profit 

47

 

10

 

 

 

57

 

 

66

 

36

 

 

 

102

Adjustments to presentation of segment

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

–Depreciation and amortization

418

 

149

 

 

 

 

 

 

328

 

109

 

 

 

 

–Other (1)

14

 

(2)

 

 

 

 

 

 

11

 

 

 

 

 

 

Segment Adjusted EBITDA (2)

479

 

157

 

 

 

 

 

 

405

 

145

 

 

 

 

Reconciliation of segment subtotal Adjusted EBITDA to profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segments subtotal Adjusted EBITDA (2) 

 

 

 

 

 

 

636

 

 

 

 

 

 

 

 

550

– Depreciation and amortization

 

 

 

 

 

 

(567)

 

 

 

 

 

 

 

 

(437)

– Finance costs, net

 

 

 

 

 

 

(48)

 

 

 

 

 

 

 

 

(41)

– Income tax income (expenses)

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

(24)

– Other (1)

 

 

 

 

 

 

(12)

 

 

 

 

 

 

 

 

(11)

Profit for the period 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

37

* Representing an amount of less than 1 million.

** See section ‘IFRS 16’ above regarding the adoption of IFRS 16 – Leases. For the 9 months ended September 30, 2019 the impact of the adoption of IFRS 16 was an increase of NIS 117 million in the Adjusted EBITDA, an increase of NIS 105 million in the cellular segment Adjusted EBITDA and an increase of NIS 12 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 September 30, 2019*

 

 

3 months ended September 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 

462

 

196

 

 

 

658

 

 

473

 

181

 

 

 

654

Inter-segment revenue – Services

4

 

37

 

(41)

 

 

 

 

3

 

39

 

(42)

 

 

Segment revenue – Equipment

142

 

25

 

 

 

167

 

 

143

 

25

 

 

 

168

Total revenues

608

 

258

 

(41)

 

825

 

 

619

 

245

 

(42)

 

822

Segment cost of revenues – Services

350

 

203

 

 

 

553

 

 

355

 

178

 

 

 

533

Inter-segment cost of revenues – Services

37

 

4

 

(41)

 

 

 

 

38

 

4

 

(42)

 

 

Segment cost of revenues – Equipment

119

 

15

 

 

 

134

 

 

111

 

13

 

 

 

124

Cost of revenues

506

 

222

 

(41)

 

687

 

 

504

 

195

 

(42)

 

657

Gross profit

102

 

36

 

 

 

138

 

 

115

 

50

 

 

 

165

Operating expenses (3)

84

 

36

 

 

 

120

 

 

88

 

36

 

 

 

124

Other income, net

6

 

2

 

 

 

8

 

 

5

 

2

 

 

 

7

Operating profit

24

 

2

 

 

 

26

 

 

32

 

16

 

 

 

48

Adjustments to presentation of segment Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

–Depreciation and amortization 

140

 

55

 

 

 

 

 

 

109

 

40

 

 

 

 

–Other (1)

6

 

(2)

 

 

 

 

 

 

4

 

 

 

 

 

 

Segment Adjusted EBITDA (2)

170

 

55

 

 

 

 

 

 

145

 

56

 

 

 

 

Reconciliation of segment subtotal Adjusted EBITDA to profit for the period 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segments subtotal Adjusted EBITDA (2)

 

 

 

 

 

 

225

 

 

 

 

 

 

 

 

201

– Depreciation and amortization

 

 

 

 

 

 

(195)

 

 

 

 

 

 

 

 

(149)

– Finance costs, net

 

 

 

 

 

 

(18)

 

 

 

 

 

 

 

 

(10)

– Income tax expenses

 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

(12)

– Other (1)

 

 

 

 

 

 

(4)

 

 

 

 

 

 

 

 

(4)

Profit for the period 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

26

(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.

* 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

 

 

New Israeli Shekels

 

Convenience

translation

into

U.S. Dollars

(note 2a)

 

 

9 months ended September 30,

 

 

2018

 

2019**

 

2019**

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

       

Cash generated from operations (Appendix)

 

504

 

660

 

190

Income tax paid

 

*

 

(1)

 

*

Net cash provided by operating activities

 

504

 

659

 

190

       

 CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Acquisition of property and equipment

 

(241)

 

(378)

 

(109)

Acquisition of intangible and other assets

 

(118)

 

(124)

 

(36)

Acquisition of a business, net of cash acquired

 

 

 

(3)

 

(1)

Investment in short-term deposits, net

 

(141)

 

(156)

 

(45)

Interest received

 

1

 

1

 

*

Consideration received from sales of property and equipment

 

3

 

2

 

1

Payment for acquisition of subsidiary, net of cash acquired

 

(3)

 

 

 

 

Net cash used in investing activities

 

(499)

 

(658)

 

(190)

       

 CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Lease payments (principal and interest)

 

 

 

(124)

 

(36)

Acquisition of treasury shares

 

(82)

 

 

 

 

Interest paid

 

(54)

 

(21)

 

(6)

Proceeds from issuance of notes payable, net of issuance costs

 

 

 

256

 

75

Proceeds from issuance of option warrants exercisable for notes

payables

 

 

 

37

 

11

Repayment of non-current borrowings

 

(375)

 

(39)

 

(11)

Repayment of current borrowings

 

 

 

(13)

 

(4)

Transactions with non-controlling interests

 

 

 

(2)

 

(1)

Net cash provided by (used in) financing activities

 

(511)

 

94

 

28

       

 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(506)

 

95

 

28

       

 CASH AND CASH EQUIVALENTS AT BEGINNING

OF PERIOD

 

867

 

416

 

119

       

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

361

 

511

 

147

* 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

(note 2a)

 

 

9 months ended September 30,

 

 

2018

 

2019**

 

2019**

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

 

 

 

 

 

 

 

Cash generated from operations:

 

 

 

 

 

 

Profit for the period

 

37

 

12

 

4

Adjustments for:

 

 

 

 

 

 

Depreciation and amortization

 

406

 

546

 

157

Amortization of deferred expenses – Right of use

 

31

 

21

 

6

Employee share based compensation expenses

 

11

 

13

 

4

Liability for employee rights upon retirement, net

 

1

 

2

 

1

Finance costs, net

 

(1)

 

19

 

5

Interest paid

 

54

 

21

 

6

Interest received

 

2

 

(1)

 

*

Deferred income taxes

 

17

 

2

 

1

Income tax paid

 

 

 

1

 

*

Changes in operating assets and liabilities:

 

 

 

(2)

 

(1)

Decrease (increase) in accounts receivable:

 

 

 

 

 

 

Trade

 

110

 

71

 

21

Other

 

(2)

 

(2)

 

(1)

Increase (decrease) in accounts payable and accruals:

 

 

 

 

 

 

Trade

 

(46)

 

28

 

8

Other payables

 

(29)

 

8

 

2

Provisions

 

(6)

 

(14)

 

(4)

Deferred revenues from HOT mobile

 

(23)

 

(24)

 

(7)

Other deferred revenues

 

(1)

 

6

 

2

Increase in deferred expenses – Right of use

 

(77)

 

(39)

 

(11)

Current income tax liability

 

7

 

(6)

 

(2)

Decrease (increase) in inventories

 

13

 

(2)

 

(1)

Cash generated from operations

 

504

 

660

 

190

* Representing an amount of less than 1 million.

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

At September 30, 2019 and 2018, trade and other payables include NIS 133 million ($38 million) and NIS 130 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

 

 

 9 months ended

September 30,

 

 3 months ended

September 30,

 

9 months

ended

September

30,

 

3 months

ended

September

30,

 

 

2018

 

2019*

 

2018

 

2019*

 

2019*

 

2019*

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

Net cash provided by operating activities

 

504

 

659

 

188

 

230

 

190

 

66

Net cash used in investing activities

 

(499)

 

(658)

 

(118)

 

(90)

 

(190)

 

(26)

Investment in short-term deposits, net

 

141

 

156

 

 

 

(85)

 

45

 

(24)

Lease payments

 

 

 

(124)

 

 

 

(42)

 

(36)

 

(12)

Adjusted Free Cash Flow

 

146

 

33

 

70

 

13

 

9

 

4

Interest paid

 

(54)

 

(21)

 

(8)

 

(1)

 

(6)

 

(1)

Adjusted Free Cash Flow After Interest

 

92

 

12

 

62

 

12

 

3

 

3

Total Operating Expenses (OPEX)

 

 

New Israeli Shekels

 

Convenience translation into

U.S. Dollars

 

 

 9 months ended

September 30,

 

 3 months ended

September 30,

 

9 months

ended

September

30,

 

3 months

ended

September

30,

 

 

2018

 

2019*

 

2018

 

2019*

 

2019*

 

2019*

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

In millions

Cost of revenues – Services

 

1,584

 

1,645

 

533

 

553

 

472

 

159

Selling and marketing expenses

 

221

 

228

 

78

 

78

 

65

 

23

General and administrative expenses

 

137

 

124

 

46

 

42

 

36

 

12

Depreciation and amortization

 

(437)

 

(567)

 

(149)

 

(195)

 

(163)

 

(56)

Other (1)

 

(11)

 

(12)

 

(4)

 

(4)

 

(3)

 

(1)

OPEX

 

1,494

 

1,418

 

504

 

474

 

407

 

137

(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

Q3′ 17

Q4′ 17

Q1′ 18

Q2′ 18

Q3′ 18

Q4′ 18

Q1′ 19

Q2′ 19

Q3′ 19

2017

2018

Cellular Segment Service Revenues

514

478

466

454

476

447

441

453

466

1,978

1,843

Cellular Segment Equipment Revenues

138

182

178

157

143

165

142

115

142

610

643

Fixed-Line Segment Service Revenues

194

197

202

210

220

220

224

230

233

777

852

Fixed-Line Segment Equipment Revenues

22

22

23

20

25

24

28

24

25

76

92

Reconciliation for consolidation

(42)

(45)

(43)

(44)

(42)

(42)

(41)

(41)

(41)

(173)

(171)

Total Revenues

826

834

826

797

822

814

794

781

825

3,268

3,259

Gross Profit from Equipment Sales

43

40

43

37

44

42

39

35

33

 

142

166

Operating Profit*

92

0

32

22

48

14

9

22

26

315

116

Cellular Segment Adjusted EBITDA*

189

124

134

126

145

119

150

159

170

 

710

524

Fixed-Line Segment Adjusted EBITDA*

50

34

43

46

56

53

47

55

55

207

198

Total Adjusted EBITDA*

239

158

177

172

201

172

197

214

225

917

722

Adjusted EBITDA Margin (%)*

29%

19%

21%

22%

24%

21%

25%

27%

27%

28%

22%

OPEX*

477

519

498

492

504

502

472

472

474

 

1,946

1,996

Income with respect to settlement agreement

 

 

 

 

 

 

 

 

 

 

 

 

with Orange

 

 

 

 

 

 

 

 

 

 

108

 

Finance costs, net*

15

88

18

13

10

12

14

16

18

180

53

Profit (Loss)*

54

(50)

9

2

26

19

2

3

7

114

56

Capital Expenditures (cash)

105

113

138

104

117

143

185

143

174

376

502

Capital Expenditures (additions)

107

174

113

98

111

177

157

142

150

 

417

499

Adjusted Free Cash Flow

202

63

21

55

70

(22)

(11)

31

13

599

124

Adjusted Free Cash Flow (after interest)

192

(17)

(14)

44

62

(37)

(15)

15

12

434

55

Net Debt

887

906

919

893

898

950

977

965

956

906

950

Cellular Subscriber Base (Thousands)**

2,677

2,662

2,649

2,623

2,630

2,646

2,620

2,616

2,651

2,662

2,646

Post-Paid Subscriber Base (Thousands)**

2,306

2,308

2,318

2,323

2,333

2,361

2,340

2,337

2,366

 

2,308

2,361

Pre-Paid Subscriber Base (Thousands)

371

354

331

300

297

285

280

279

285

 

354

285

Cellular ARPU (NIS)

64

59

58

57

60

57

56

58

59

62

58

Cellular Churn Rate (%)**

9.3%

9.9%

8.9%

10.1%

8.0%

8.5%

8.5%

7.9%

7.7%

38%

35%

Number of Employees (FTE)***

2,696

2,797

2,778

2,808

2,821

2,782

2,897

2,895

2,923

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 subsidiary (50%).

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

Disclosure for notes holders as of September 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 30.09.2019

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

1

325

1.491%

 

(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

5

803

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

263.5

263.5

3

271

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. 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. The total future 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 253 million. Following an additional partial exercise of option warrants from the first series in November 2019, the Company intends to issue additional Series G Notes in a principal amount of NIS 86.5 million at the end of November 2019.

(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 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 September 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 September 30, 2019 (cont.)

Notes Rating Details*

Series

Rating

Company

Rating as of

30.09.2019

and

26.11.2019

(1)

Rating

assigned upon

issuance of the

Series

Recent date of rating

as of 30.09.2019 and

26.11.2019

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

Date

Rating

D

S&P Maalot

ilA+

ilAA-

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+

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+

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 September 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

32,382

Second year

268,035

26,172

Third year

294,385

21,213

Fourth year

185,157

16,346

Fifth year and on

369,607

29,803

Total

1,385,219

125,916

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

4,500

Second year

52,132

3,229

Third year

52,132

1,959

Fourth year

30,073

825

Fifth year and on

17,079

213

Total

203,548

10,726

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

36,882

Second year

320,167

29,401

Third year

346,517

23,172

Fourth year

215,230

17,171

Fifth year and on

386,686

30,016

Total

1,588,767

136,642

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 37 million.

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 Q3 2019 was an increase of NIS 39 million.

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