Partner Communications Company Ltd.
Q1 2018 Earnings Call Transcript

Published: 31 May 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications First Quarter 2018 Results Conference Call. All participants are at present in a listen-only mode. [Operator Instructions] Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Gideon Koch. Mr. Koch, please begin.

[Gideon Koch:]

Thank you. And thank you to our listeners for joining us on this conference call to discuss Partner Communications' first quarter results for 2018. With me on the call today is Isaac Benbenisti, Partner's CEO; and Tamir Amar, our CFO. Isaac Benbenisti will present a number of operational highlights of the quarter, and provide an update on our strategic progress. He will then hand over to Tamir, who will provide an overview of the quarterly financial and operational results. And finally, we'll move on to the Q&A. Before we begin, I would like to draw your attention to the fact that all statements in this conference call may be forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 as amended, Section 21E of the U.S. Securities and Exchange Act of 1934 as amended and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Regarding such forward-looking statements, you should be aware that Partner's actual results might vary materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in Partner's press release dated May 31, 2018, as well as Partner’s filings with the U.S. Securities and Exchange Commission on Forms 20-F, F-1 and 6-K, as well as the F-3 shelf registration statement, all of which are readily available. Please note that the information in this conference call related to projections or other forward-looking statements is subject to the previous Safe Harbor statements as of the date of this call. For your information, this call is being broadcast simultaneously over the internet and can be accessed through our website. If you have any further questions following the call, please feel free to contact our Head of Investor Relations and Corporate Projects, Liat Glazer Shaft on 972-54-781-5051. I will now turn the call over to Partner’s CEO, Isaac Benbenisti. Isaac?

[Isaac Benbenisti:]

Good day everyone and welcome to our earning conference call. Partner started 2018 with significant momentum. In the first quarter, the Post-Paid cellular subscriber base continued to grow and Partner’s TV subscriber base has reached over 77,000 households as of today. In addition, the deployment of the fiber optic infrastructure was accelerated significantly, and by the year end – and by the year end, we intend to be present in over half of the cities in Israel. In the cellular segment, in the first quarter, the Post-Paid subscriber base increased by 16,000. The consistent growth in Post-Paid subscribers for 11 consecutive quarters results from among other things, value offers which include unique benefits such as Wi-Fi calling, cooperation with Apple Music, and the fact that Partner's service continues to be a competitive advantage. A year ago, we revealed our strategic partnership with Netflix which includes a user experience and unique value offers for Partner TV customers. Last month, we reported an additional significant milestone with the announcement that Partner TV was chosen by Amazon Prime Video as its first partner in Israel. Partner TV's technological advantage is also highlighted through the upcoming FIFA World Cup games, since all of Partner set top boxes support 4K viewing as part of the basic service and with no need to change equipment. The fiber optic project, Partner Fiber, continues to expand, and in the first quarter of 2018 we doubled the deployment pace. Through the combined offers of Partner Fiber and Partner TV, more and more households in Israel are enjoying a more advanced technology and attractive prices compared to that were offered to them up until now. In addition, in our core activities and organic growth engines, Partner is in the process of examining non-organic growth opportunities including conducting an initial assessment of entry into the credit and debit card market, through either acquisitions or internal development. I will now like to turn the call over to Tamir Amar for a detailed review of our financial results. Tami, please?

[Tamir Amar:]

Thank you, Isaac. Good day, everyone, and welcome to our earnings conference call. The first quarter results of 2018 reflected the Company's strategies in the fixed-line segment and equipment sales. Our rapid growth in the number of TV subscribers and in the wholesale internet customers combined with our business model for these activities resulted in improved operational results in these activities compared to the fourth quarter of 2017. This improvement was reflected, among other things, in growth in service revenues and in EBITDA from the fixed-line segment compared to the fourth quarter. In addition, in equipment sales, the actions that we carried out last year continue to be reflected in our results, and in the first quarter of 2018, we reported equipment sales revenue of NIS 201 million and gross profit of NIS 43 million, compared with revenues of NIS 163 million and gross profit of NIS 26 million in the first quarter of 2017. In the cellular segment, we continue to see that the management of our Post-Paid subscriber base is also reflected in the first quarter of 2018, with growth in the Post-Paid subscriber base of 16,000 subscribers, lower price erosion from these subscribers compared to both the first and fourth quarters of 2017, and continued decline in the churn rate of these subscribers as well as in the overall cellular churn rate of the Company. The Company's cellular churn rate declined by 1 basis point, compared to the first quarter of 2017 to 8.8% in the quarter, continuing the trend of the declining cellular churn rate for Partner over the past three years. We put emphasis on increasing the value we provide our Post-Paid subscribers both through value-added cellular services and through additional services that the Company provides. The Company's CapEx in the quarter totaled NIS 138 million, with the growth mainly reflecting investments in the Company's growth engines, the fiber optic cable infrastructure and TV services. We are in advanced stages of negotiation with Cellcom regarding possible collaboration in the fiber optic infrastructure that both companies are deploying, in order to enable a faster deployment rate at a lower cost which will improve the economic returns from the project. This is in addition to the Ministry of Communications decision regarding the ability to use the last manhole before the building, which entails potentially significant cost savings in our fiber optic infrastructure deployment. The impact of the reduction in our debt level, the early repayments and the refinancing of debt that we undertook is also reflected in the quarter's results, with finance costs totaling NIS 18 million, including early loan repayment expenses of NIS 9 million. As of the end of the first quarter, our net debt totaled NIS 0.9 billion. Finally, the Company’s Board of Directors resolved to adopt a buyback plan of the Company’s ordinary shares, up to an aggregate amount of NIS 200 million. The Plan will be implemented in multiple tranches, the first tranche being in the amount of NIS 50 million. For further details regarding the Plan, please see the Company’s immediate report today. And now, I will be happy to open the call for questions. Moderator, please begin the question-and-answers.

[Operator:]

Thank you. Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] The first question is from Roni Biron of Excellence. Please go ahead.

[Roni Biron:]

Hi, everyone. I would like -- if possible, can you maybe give us some more color on what you see after the first quarter, as far as the cellular market, following the recent round of promotions? And also, in the -- any changes in momentum in the pay TV market, given the price cut at Yes, and also the six months expiry of the Netflix promotion, if that is affecting your momentum in any kind? That will be helpful. Thank you.

[Isaac Benbenisti:]

Okay. This is Isaac, the CEO. I will try to answer your question, though it requires me even though to anticipate what will be in the future, and I can only give some assumptions about it, but not the know-how. Before relating to Netflix, I will tell some things about the cellular market. The cellular market continues to be very competitive. Though, we see and I put aside the entering of Xfone to the market, the competitors are trying to push higher prices with higher gigas per ID to create value. As you can understand, the entering of Xfone to the market waited for a few weeks, some turbulences in the market but we can see now that everybody comes down. And we can see that Xfone’s recruitments getting lower and lower. I believe that the effect would be for short time and then the market will go back to its highly competitive situation as it was before. And as I said before, the companies are offering now higher ARPU, but with higher gigas and trying to offer value added services. Basically the market I believe will continue to be a competitive in the cellular market, but I don't see much change that -- or I don't see let's say long-term effect of the entering of Xfone to the market. As related to the question about Netflix, yes, we see that few of our customers or some of our customers are ending the six-month free use of the application but we don't see any effect or any significant effect of them. They’ve got used to it, they use it. We see massive use of Netflix in our service. And they stay and they're happy to pay for the service that creates high value for them.

[Roni Biron:]

And do you see any impact from the pricing changes with Yes? And I'm sure that HOT is also following with more aggressive promotions. Is that in any way affecting your momentum right now?

[Isaac Benbenisti:]

No. I think that it's obvious that they will lower the price and they will try to protect the database and customers. But, I believe due to the fact that they you know have the structure of the content, the massive content that they have, they won't be able to -- unless they will change and move to an open solution as we offer, the Android TV, but it will take them long time to change all the set-top-boxes at the homes that they have, and it will be very complex for them. I do believe that it will be a competitive environment. And I don't see a situation that they’ll give up easily on the customers, but we see that we continue to recruit customers in high volumes and we're the biggest growing service in Israel and we believe that we're the best service in Israel and the customers see it as well. We have lots of advantages, and one of them is the situation that now everybody is aware of that only Partner’s TV subscribers, the entire subscribers will enjoy the 4K service of the FIFA World Cup games, and it's a great advantage for the Company among others. So, summarizing, I see that we have competition in the TV market but I believe that we have few advantages including Amazon Prime Time that will shortly bring all the content localized and it's continuing the advantage that we have together with Netflix.

[Roni Biron:]

Thank you. And one more question on your fiber deployment. When should we expect to start seeing maybe the impact on the cost that you’re paying on the payments to Bezeq and the cost of -- the network cost, the ongoing network cost, what is your penetration like as far as paying customers not only home passed? Any color on this would be appreciated.

[Isaac Benbenisti:]

I do -- I can say now that we currently, even now, we see impact on the cost that we had to pay Bezeq because every customer that joined us in the optic fiber solution enjoying tremendous service and we don’t have to pay Bezeq for the gigs for it, they give free. And we have a massive deployment, as I said. Relating to the disclosing the secretes, we’ll continue to think how to expose it, because we don’t want to -- the reason that we want don’t want to expose it now, not to give the market the situation of the Company. But we do say is that we do it nationwide. We said it by the end of the year, we’ll be in half of the cities in Israel. And so, we don’t do it only on Tel Aviv or big cities, but all over Israel and we are very satisfied with the deployment of the project. Regarding further figures, we’ll sit down internally and decide later on what we expose or not.

[Roni Biron:]

And from your experience so far, when you are connecting a building, your share of paying subscriber is fairly similar to your share of wholesale subscribers in this specific building? Are you seeing some upside on top of it or I mean when you are already with a fiber to the building?

[Isaac Benbenisti:]

I can say from now that we see a bit higher penetration. But again, we’ll decide later what to expose or not. You can imagine that it’s a great service, it is an advantage. So, we enjoy a penetration, but we don’t say upto now what are the figures.

[Roni Biron:]

Very good. Thank you very much and good luck.

[Isaac Benbenisti:]

Thank you very much.

[Operator:]

The next question is from Tavy Rosner of Barclays. Please go ahead.

[Tavy Rosner:]

Hi, everyone. Just to follow up on Roni’s questions on the TV side. You guys talked about 65,000 customers at quarter end and 77,000 as of today. So, that’s an increase of 12,000 in two months. So, it seems that it’s a bit slower pace of customer gains compared to the past. Am I reading this right or it’s not the right way to look at it?

[Isaac Benbenisti:]

No, it’s -- basically, let’s say that it’s very -- we’re very satisfied with this space and it’s the higher in the market by far compared to others. If you compare to it the quarter before, you can take in account that we had Pesach and holidays. So, it’s not the same, seasonality basically.

[Tavy Rosner:]

Okay. That’s helpful. And then, I mean, I don’t remember if I read it on your press release or if it was just the newest piece, talking about Partner potentially acquiring a credit card company. I mean, what’s the plan here and is that the best use of your resources?

[Isaac Benbenisti:]

As we said that we’re in a very initial stage of examining this arena. Obviously, everybody talks about the mobile payment and about the ability of the cellular or a telco company with millions of subscribers to offer them not only telco services but rather than only telco offering them finance services and so. But, we’re in a so early stage that we cannot say anything more than we said now. We want to be very transparent and this is the reason why we put it in our PR.

[Tavy Rosner:]

Okay. Thank you.

[Isaac Benbenisti:]

Thank you.

[Operator:]

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Benbenisti to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the U.S., please call, 1-866-276-1485. In Israel, please call, 03-925-5945. And internationally, please call, 972-3925-5945. The recording is also available on the Company's website at www.partner.co.il. Mr. Benbenisti, would you like to make your concluding statement?

[Isaac Benbenisti:]

Yes. I'd like to thank everybody joining this call and very good evening.

[Operator:]

Thank you. This concludes the Partner Communications’ first quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.