Partner Communications Reports Fourth Quarter and Annual 2019 Results1

QUARTERLY ADJUSTED EBITDA1,2 TOTALED NIS 217 MILLION

NET DEBT2 TOTALED NIS 957 MILLION

QUARTERLY CELLULAR CHURN RATE CONTINUED TO DECREASE AND TOTALED 7.2%

PARTNER TV SUBSCRIBER BASE REACHED 199 THOUSAND AS OF TODAY AND INCREASED BY 66 THOUSAND IN 2019

PARTNER’S FIBER-OPTIC INFRASTRUCTURE REACHES 600 THOUSAND HOUSEHOLDS ACROSS ISRAEL AS OF TODAY

2019 Annual Highlights (compared with 2018)

  • Total Revenues: NIS 3,234 million (US$ 936 million), a decrease of 1%
  • Service Revenues: NIS 2,560 million (US$ 741 million), an increase of 1%
  • Equipment Revenues: NIS 674 million (US$ 195 million), a decrease of 8%
  • Total Operating Expenses (OPEX) 1,2: NIS 1,885 million (US$ 545 million), a decrease of 6%
  • Adjusted EBITDA1,2: NIS 853 million (US$ 247 million), an increase of 18%
  • Adjusted EBITDA Margin1,2: 26% of total revenues compared with 22%
  • Profit for the Year: NIS 19 million (US$ 6 million) a decrease of 66%
  • Net Debt: NIS 957 million (US$ 277 million), an increase of NIS 7 million
  • Adjusted Free Cash Flow (before interest)2: NIS 49 million (US$ 14 million), a decrease of NIS 75 million
  • Cellular ARPU: NIS 57 (US$ 16), a decrease of NIS 1
  • Cellular Subscriber Base: approximately 2.66 million at year-end, an increase of 11 thousand subscribers
  • TV Subscriber Base: approximately 188 thousand subscribers at year-end, an increase of 66 thousand subscribers

Fourth quarter 2019 highlights (compared with fourth quarter 2018)

  • Total Revenues: NIS 834 million (US$ 241 million), an increase of 2%
  • Service Revenues: NIS 636 million (US$ 184 million), an increase of 2%
  • Equipment Revenues: NIS 198 million (US$ 57 million), an increase of 5%
  • Total Operating Expenses (OPEX) 1,2: NIS 467 million (US$ 135 million), a decrease of 7%
  • Adjusted EBITDA1,2: NIS 217 million (US$ 63 million), an increase of 26%
  • Adjusted EBITDA Margin1,2: 26% of total revenues compared with 21%
  • Profit for the Period: NIS 7 million (US$ 2 million), a decrease of 63%
  • Net Debt: NIS 957 million (US$ 277 million), an increase of NIS 7 million from Q4 2018, and an increase of NIS 1 million in the quarter
  • Adjusted Free Cash Flow (before interest)2: NIS 16 million (US$ 5 million), an increase of NIS 38 million
  • Cellular ARPU: NIS 55 (US$ 16), a decrease of NIS 2
  • Cellular Subscriber Base: approximately 2.66 million at quarter-end, an increase of 11 thousand subscribers since Q4 2018, and an increase of 6 thousand in the quarter
  • TV Subscriber Base: approximately 188 thousand subscribers at quarter-end, an increase of 66 thousand subscribers since Q4 2018, and an increase of 12 thousand in the quarter

ROSH HA’AYIN, Israel–(BUSINESS WIRE)–Partner Communications Company Ltd. (“Partner” or the “Company”) (NASDAQ and TASE: PTNR), a leading Israeli communications provider, announced today its results for the quarter and year ended December 31, 2019.

Commenting on the results for the fourth quarter and full year 2019, Mr. Isaac Benbenisti, CEO of Partner noted:

We ended 2019 with growth in fixed line segment revenues, an independent fiber optic infrastructure that already reaches approximately 600 thousand households, and 199 thousand subscribers connected to Partner TV, once again the fastest growing TV service in Israel in 2019.

In the cellular segment we concluded 2019 with an increase of 11 thousand subscribers, while we successfully implemented our subscriber value strategy, which resulted in an increase in subscriber loyalty and the lowest churn rate since 2011, totaling 7.2% in the fourth quarter and 31% for the entire year.

2020 started with an extraordinary global health crisis of unprecedented scope and impact on the global and domestic market. Partner is facing this exceptional situation in a position of strength relative to its peers, in light of our net debt which totals NIS 957 million and our level of cash, which is significantly higher than our interest and principal payments for the coming two years.

We have also made the necessary operational adjustments to support the continuation of business operations during this period, and we have taken steps to adjust the Company’s cost structure to the new reality. We are experiencing a significant increase in the use of our services: domestic cellular services, internet and TV, and we continue to provide millions of our customers with the infrastructure which is so critical for all of us – stable, reliable and fast communication. We are also looking ahead, and taking steps to prepare for when this crisis is behind us.”

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

“During 2019, Partner continued to strengthen its position as a comprehensive telecommunications group which was reflected, among other elements, in the significant continued growth in the Company’s growth engines which include TV services and fiber optic infrastructure, and the stabilizing trend in the cellular market.

Although profit for the quarter decreased by 63% compared to the same quarter in the preceding year, the fourth quarter results reflected the continued positive trend with service revenues growth, growth in the fixed-line segment Adjusted EBITDA, the continued improvement in the cellular segment operating results and positive free cash flow.

In the cellular segment, we continued to reduce erosion in cellular service revenues alongside a decline in churn rate which totaled 7.2% in Q4 2019 and 31% in 2019 compared to 8.5% in Q4 2018 and 35% in 2018. In addition, we recorded growth in the subscriber base both in the fourth quarter and the year as well as relatively low erosion in ARPU which totaled NIS 55 in the fourth quarter and NIS 57 in 2019 compared to NIS 57 in Q4 2018 and NIS 58 in 2018.

These results reflected the progress we are making in executing the Company’s strategy to increase value for the customer, to focus on continued improvement in service and expand our product offering, despite the continued competition during 2019.

Adjusted EBITDA in 2019 totaled NIS 853 million or NIS 696 million excluding the impact of IFRS 16, compared to NIS 722 million in 2018. This outcome reflects the Company’s strict control over its OPEX while it expands into new areas of activity.

Adjusted EBITDA increased in the fourth quarter and totaled NIS 217 million compared to NIS 172 million in Q4 2018. The effect of IFRS 16 totaled NIS 40 million in the quarter and therefore, excluding the effect of IFRS 16, Adjusted EBITDA increased by 3% compared to Q4 2018. The improvement in the fourth quarter resulted mainly from the increase in Adjusted EBITDA in the fixed-line segment alongside stability in the cellular segment.

The Company’s balance sheet reflected net debt of less than NIS 1 billion and a low net debt to Adjusted EBITDA ratio of 1.1 at the end of 2019. In the beginning of January 2020, the Company successfully completed an equity raise of NIS 276 million, net, with the purpose of supporting the Company’s growth engines and of preserving our competitive advantage and thus being prepared for new growth opportunities.

Adjusted Free Cash Flow (before interest) in 2019 totaled NIS 49 million. We continue to invest in fiber optic deployment and even accelerated deployment in 2019. This investment was possible due to our financial strength and strong balance sheet and it positions us at the technological forefront in Israel, as reflected in the continued growth in our TV subscriber base which stands at 199 thousand subscribers as of today, and in the sustained high deployment rates of our fiber optic infrastructure which reaches today 600 thousand households across Israel.

Regarding the coronavirus crisis, from the beginning of March 2020 the crisis began to have a harmful effect on our business, revenues and results from operations. In particular, the significant fall in the volume of international travel by our customers has begun to cause a decrease in revenues from roaming services, and the closure of shopping malls has begun to affect the volume of sales of equipment and service revenues.

To date, the impact has been limited, since the crisis only began at the beginning of March 2020. In addition, the impact has been mitigated by a number of actions we have taken, including cutting costs and sending a large quantity of employees on unpaid leave. However, should these trends continue, the reduction in roaming revenues and in sales of equipment and services, together with an increase in bad debts that is likely to be caused by the high level of unemployment in Israel due to the coronavirus crisis, may have a material harmful effect on our results of operations and financial position for 2020.”

Q4 2019 compared with Q3 2019

NIS Million

Q3’19

Q4’19

Comments

Service Revenues

658

636

The decrease results from the decline in cellular service revenues as a result of
seasonality
partly offset by an increase in fixed-line segment service revenues

Equipment Revenues

167

198

The increase reflected a higher volume of equipment sales

Total Revenues

825

834

 

Gross profit from equipment sales

33

37

 

OPEX

474

467

 

Adjusted EBITDA

225

217

The decrease resulted mainly from a decrease in cellular service revenues partly offset by an increase in
gross profit from cellular equipment sales and an increase in Adjusted EBITDA from fixed line segment

Profit for the Period

7

7

 

Capital Expenditures (additions)

150

129

 

Adjusted free cash flow (before interest payments)

13

16

 

Net Debt

956

957

 

 

Q3’19

Q4’19

Comments

Cellular Subscribers (end of period, thousands)

2,651

2,657

Increase of 6 thousand Pre-Paid subscribers

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

59

55

The decrease was mainly as a result of seasonality

Quarterly Cellular Churn Rate (%)

7.7%

7.2%

Decrease in Post-Paid and Pre-Paid churn rates

TV Subscribers (end of period, thousands)

176

188

 

Key Financial Results

NIS MILLION (except EPS)

20153

2016

2017*

2018*

2019*

Revenues

4,111

3,544

3,268

3,259

3,234

Cost of revenues

3,472

2,924

2,627

2,700

2,707

Gross profit

639

620

641

559

527

S,G&A and credit losses

640

689

465

471

468

Income with respect to settlement

agreement with Orange

61

217

108

 

 

Other income

47

45

31

28

28

Operating profit

107

193

315

116

87

Finance costs, net

143

105

180

53

68

Income tax expenses

4

36

21

7

0

Profit (Loss) for the year

(40)

52

114

56

19

Earnings (Loss) per share (basic, NIS)

(0.26)

0.33

0.70

0.34

0.12

NIS MILLION (except EPS)

Q4’18

Q1’19*

Q2’19*

Q3’19*

Q4’19*

Revenues

814

794

781

825

834

Cost of revenues

694

677

650

687

693

Gross profit

120

117

131

138

141

S,G&A and credit losses

113

114

118

120

116

Other income

7

6

9

8

5

Operating profit

14

9

22

26

30

Finance costs, net

12

14

16

18

20

Income tax expenses (income)

(17)

(7)

3

1

3

Profit for the period

19

2

3

7

7

Earnings per share (basic, NIS)

0.12

0.01

0.02

0.04

0.05

NIS MILLION (except EPS)

Q418

Q419*

% Change

Revenues

814

834

+2%

Cost of revenues

694

693

0%

Gross profit

120

141

+18%

Operating profit

14

30

+114%

Profit for the period

19

7

-63%

Earnings per share (basic, NIS)

0.12

0.05

 

Adjusted Free Cash Flow (before interest)

(22)

16

 

* The Company adopted IFRS 15 from the beginning of 2017 and IFRS 16 from the beginning of 2019. For more information see the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.

Key Operating Indicators

 

20153

2016

2017*

2018*

2019*

Adjusted EBITDA (NIS million)

876

834

917

722

853

Adjusted EBITDA (as a % of total revenues)

21%

24%

28%

22%

26%

Adjusted Free Cash Flow (NIS million)

566

758

599

124

49

Cellular Subscribers (end of period, thousands)

2,718

2,686

2,662

2,646

2,657

Estimated Cellular Market Share (%)

27%

26%

25%

25%

25%

Annual Cellular Churn Rate (%)

46%

40%

38%

35%

31%

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

69

65

62

58

57

TV subscribers (end of period, thousands)

 

 

43

122

188

 

Q418

Q419*

Change

Adjusted EBITDA (NIS million)

172

217

+26%

Adjusted EBITDA margin (as a % of total revenues)

21%

26%

+5

Cellular Subscribers (end of period, thousands)

2,646

2,657

+11

Quarterly Cellular Churn Rate (%)

8.5%

7.2%

-1.3

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

57

55

-2

* The Company adopted IFRS 15 from the beginning of 2017 and IFRS 16 from the beginning of 2019. For more information see the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.

Partner Consolidated Results

 

Cellular Segment

Fixed-Line Segment

Elimination

Consolidated

NIS Million

2018

2019*

Change %

2018

2019*

Change %

2018

2019

2018

2019*

Change %

Total Revenues

2,486

2,369

-5%

944

1,028

+9%

(171)

(163)

3,259

3,234

-1%

Service Revenues

1,843

1,798

-2%

852

925

+9%

(171)

(163)

2,524

2,560

+1%

Equipment Revenues

643

571

-11%

92

103

+12%

735

674

-8%

Operating Profit

68

77

+13%

48

10

-79%

116

87

-25%

Adjusted EBITDA

524

635

+21%

198

218

+10%

722

853

+18%

 

Cellular Segment

Fixed-Line Segment

Elimination

Consolidated

NIS Million

Q418

Q419*

Change %

Q418

Q419*

Change %

Q418

Q419

Q418

Q419*

Change %

Total Revenues

612

610

0%

244

264

+8%

(42)

(40)

814

834

+2%

Service Revenues

447

438

-2%

220

238

+8%

(42)

(40)

625

636

+2%

Equipment Revenues

165

172

+4%

24

26

+8%

189

198

+5%

Operating Profit

2

30

+1400%

12

0

 

14

30

+114%

Adjusted EBITDA

119

156

+31%

53

61

+15%

172

217

+26%

* The Company adopted IFRS 16 from the beginning of 2019. For more information see the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.

Financial Review

In 2019, total revenues were NIS 3,234 million (US$ 936 million), a decrease of 1% from NIS 3,259 million in 2018.

Annual service revenues in 2019 totaled NIS 2,560 million (US$ 741 million), an increase of 1% from NIS 2,524 million in 2018.

Service revenues for the cellular segment in 2019 totaled NIS 1,798 million (US$ 520 million), a decrease of 2% from NIS 1,843 million in 2018. The decrease was mainly a result of the continued downward pressures on the prices of Post-Paid and Pre-Paid cellular services as a result of the continued competition in the cellular market.

Service revenues for the fixed-line segment in 2019 totaled NIS 925 million (US$ 268 million), an increase of 9% from NIS 852 million in 2018. This increase mainly reflected an increase in revenues from TV services and from internet services, partially offset by a decrease in revenues from international calling services (including the market for wholesale international traffic) which were adversely affected both by the increased penetration of internet-based solutions and increased competition from other service providers.

In Q4 2019, total revenues were NIS 834 million (US$ 241 million), an increase of 2% from NIS 814 million in Q4 2018.

Service revenues in Q4 2019 totaled NIS 636 million (US$ 184 million), an increase of 2% from NIS 625 million in Q4 2018.

Service revenues for the cellular segment in Q4 2019 totaled NIS 438 million (US$ 127 million), a decrease of 2% from NIS 447 million in Q4 2018. The decrease was mainly the result of the continued price erosion of cellular services due to the continued competitive market conditions.

Service revenues for the fixed-line segment in Q4 2019 totaled NIS 238 million (US$ 69 million), an increase of 8% from NIS 220 million in Q4 2018. The increase mainly reflected higher revenues from TV and internet services, which were partially offset principally by the decline in revenues from international calling services.

Equipment revenues in 2019 totaled NIS 674 million (US$ 195 million), a decrease of 8% from NIS 735 million in 2018, principally reflecting lower sales volumes of both cellular devices and other non-core equipment.

Gross profit from equipment sales in 2019 was NIS 144 million (US$ 42 million), compared with NIS 166 million in 2018, a decrease of 13%. This decrease mainly reflected the lower sales volumes, as well a decrease in profit margins for equipment sales due to a change in the product mix.

Equipment revenues in Q4 2019 totaled NIS 198 million (US$ 57 million), an increase of 5% from NIS 189 million in Q4 2018, largely reflecting an increase in sales volumes.

Gross profit from equipment sales in Q4 2019 was NIS 37 million (US$ 11 million), compared with NIS 42 million in Q4 2018, a decrease of 12%, 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 1,885 million (US$ 545 million) in 2019, a decrease of 6% or NIS 111 million from 2018. This decrease mainly reflected the impact of the implementation of IFRS 16 in 2019, which reduced total operating expenses by NIS 157 million, and decreases in other expenses including in credit losses and in international calling services expenses. These decreases were partly offset by an increase in expenses related to TV services and internet services. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in 2019 increased by 2% compared with 2018, mainly as a result of expenses related to TV services and internet services partly offset by decreases in other expenses as described above.

Total operating expenses (‘OPEX’) totaled NIS 467 million (US$ 135 million) in Q4 2019, a decrease of 7% or NIS 35 million from Q4 2018. The decrease mainly reflected the impact of the implementation of IFRS 16 which totaled NIS 40 million. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q4 2019 decreased by 2% compared with Q4 2018 mainly as a result of a decrease in depreciation expenses of NIS 15 million resulting from a change in the estimated useful life of the Company’s cellular license. This change is expected to reduce depreciation and amortization expenses in the years 2020 and 2021 by an annual amount of approximately NIS 60 million.

Operating profit for 2019 totaled NIS 87 million (US$ 25 million), a decrease of 25% compared with NIS 116 million in 2018. The impact of the adoption of IFRS 16 on operating profit in 2019 was an increase of NIS 11 million. The decrease in operating profit mainly reflected the increase in operating expenses including depreciation and amortization expenses and the decrease in gross profit from equipment sales, which more than offset the increase in service revenues. See Adjusted EBITDA analysis for each segment below.

Adjusted EBITDA in 2019 totaled NIS 853 million (US$ 247 million), an increase of 18% from NIS 722 million in 2018. The impact of the adoption of IFRS 16 on Adjusted EBITDA in 2019 was an increase of NIS 157 million. As a percentage of total revenues, Adjusted EBITDA in 2019 was 26% compared with 22% in 2018.

Adjusted EBITDA for the cellular segment was NIS 635 million (US$ 184 million) in 2019, an increase of 21% from NIS 524 million in 2018, reflecting the impact of the adoption of IFRS 16 on OPEX in an amount of NIS 141 million and a decrease in other OPEX, partially offset by a decrease in cellular service revenues and a decrease in gross profit from equipment sales in the cellular segment. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in 2019 was 27% compared with 21% in 2018.

Adjusted EBITDA for the fixed-line segment was NIS 218 million (US$ 63 million) in 2019, an increase of 10% from NIS 198 million in 2018. Adjusted EBITDA excluding the impact of IFRS 16 was NIS 202 million, an increase of 2% from 2018, which resulted from the growth in TV and internet services and the increase in gross profit from fixed-line equipment sales, which were partially offset by the negative impact from the decline in international calling services. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in 2019 was 21%, unchanged from 2018.

Operating profit for Q4 2019 was 30 million (US$ 9 million), an increase of 114% compared with NIS 14 million in Q4 2018. The increase mainly resulted from the adoption of IFRS 16 which decreased OPEX, as can be seen in Adjusted EBITDA, and increased depreciation and amortization expenses as a result of IFRS 16, which were partially offset by a decrease in depreciation of NIS 15 million resulting from a change in the estimated useful life of the Company’s cellular license. See Adjusted EBITDA analysis for each segment below.

Adjusted EBITDA in Q4 2019 totaled NIS 217 million (US$ 63 million), an increase of 26% or NIS 45 million from NIS 172 million in Q4 2018. The impact of the adoption of IFRS 16 on Adjusted EBITDA in Q4 2019 was an increase of NIS 40 million. As a percentage of total revenues, Adjusted EBITDA in Q4 2019 was 26% compared with 21% in Q4 2018.

Adjusted EBITDA for the cellular segment was NIS 156 million (US$ 45 million) in Q4 2019, an increase of 31% from NIS 119 million in Q4 2018, mainly reflecting the impact of the adoption of IFRS 16 which increased cellular segment Adjusted EBITDA by NIS 36 million, and a decrease in other cellular OPEX, partially offset by a decrease in cellular service revenues. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q4 2019 was 26% compared with 19% in Q4 2018.

Adjusted EBITDA for the fixed-line segment was NIS 61 million (US$ 18 million) in Q4 2019, an increase of 15% from NIS 53 million in Q4 2018, reflecting the increase in service revenues of NIS 18 million in the fixed-line segment, as well as the impact on Adjusted EBITDA of the adoption of IFRS 16 of an increase of NIS 4 million. This increase was partially offset by an increase in OPEX mainly related to TV and internet services. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q4 2019 was 23%, compared with 22% in Q4 2018.

Finance costs, net in 2019 were NIS 68 million (US$ 20 million), an increase of 28% compared with NIS 53 million in 2018. The increase largely reflected the impact of the adoption of IFRS 16, which resulted in an increase of NIS 20 million in finance expenses, partially offset by income from foreign exchange linkage. The negative impact on interest expenses of the increase in the average level of debt in 2019 compared with the average debt in 2018 was offset by the lower average debt interest rate.

Finance costs, net in Q4 2019 were NIS 20 million (US$ 6 million), an increase of 67% compared with NIS 12 million in Q4 2018. The increase largely reflected the impact of the adoption of IFRS 16, which resulted in an increase of NIS 5 million in finance expenses, as well as a revaluation of financial liability at fair value and an increase in interest expenses due to an increase in the debt level, which were partially offset by income from foreign exchange linkages in Q4 2019 compared with foreign exchange linkage expenses in Q4 2018.

The Company did not record income tax expenses for 2019, compared with income tax expenses of NIS 7 million in 2018. In 2018, the Company recorded a one-time income of NIS 16 million in income tax expenses, mainly due to an income tax audit of the Company’s subsidiary. In 2019, a one-time income of NIS 6 million was recorded in income tax expenses.

Income tax expenses for Q4 2019 were NIS 3 million (US$ 1 million), compared with income tax income of NIS 17 million in Q4 2018 in which a one-time income of NIS 16 million was recorded, mainly due to an income tax audit of the Company’s subsidiary.

Overall, the Company’s profit in 2019 totaled NIS 19 million (US$ 6 million), a decrease of 66% compared with profit of NIS 56 million in 2018. The impact of the adoption of IFRS 16 in 2019 on profit was a decrease of NIS 9 million.

Based on the weighted average number of shares outstanding during 2019, basic earnings per share or ADS, was NIS 0.12 (US$ 0.04) compared with NIS 0.34 in 2018.

Profit in Q4 2019 was NIS 7 million (US$ 2 million), a decrease of 63% compared with a profit of NIS 19 million in Q4 2018. The impact of the adoption of IFRS 16 on profit in Q4 2019 was a decrease of NIS 2 million. In addition, the impact on profit in Q4 2019 of the change in the estimated useful life of the cellular license was an increase of NIS 12 million.

Contacts

Tamir Amar
Chief Financial Officer
Tel: +972-54-781-4951

Liat Glazer Shaft
Head of Investor Relations and Corporate Projects
Tel: +972-54-781-5051
E-mail: investors@partner.co.il

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