Partner Communications Company Ltd.
Q2 2018 Earnings Call Transcript

Published: 15 Aug 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Second Quarter 2018 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn over the call to Mr. Gideon Koch. Mr. Koch, please go ahead.

[Gideon Koch:]

Thank you, and thank you to all our listeners for joining us today on this conference call to discuss Partner Communications' Second Quarter Results for 2018. With me on the call is Isaac Benbenisti, Partner's CEO; and Tamir Amar, our CFO. Isaac will present a number of operational highlights of the quarter and provide an update on our strategic projects. He will then hand over to Tamir who will provide an overview of the quarterly financial and operational results. And finally, we'll move over to the Q&A. Before we begin, I would like to draw your attention to the fact that all the 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 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 August 15, 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 S-3 shelf-registration statement, all of which are readily available. Please note the information on this conference call relating to projections or other forward-looking statements is subject to the previous safe harbor statement 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. This is the 12th consecutive quarter in which we report growth in our cellular Post-Paid subscriber base. In the second quarter, we continue to grow in the Post-Paid subscribers with a net adds of 9,000 subscribers totaling 25,000 net adds of Post-Paid subscribers since the beginning of the year. We continue to lead that the market with added value offering, unique services, wide network deployment and excellent customer service for the group's customers. A year ago, we started the commercial phase of two strategic activities

[Tamir Amar:]

Thank you, Isaac. Good day, everyone, and welcome to our conference call. The second quarter of 2018 was characterized by increased competition in the cellular market with the entry of a sixth operator to the market, as reflected in the increase in the level of subscriber porting between operators and overall price pressures in the cellular market, although these trends have slowed since the peak in May. Partner experienced an increase in the quarterly cellular churn rate, which increased from 8.8% in previous quarter to 10%. Nevertheless, even under current competitive market conditions, Partner reported an increase in the Post-Paid cellular subscriber base of 9,000 in the second quarter. In addition, our cellular ARPU, excluding a onetime provision for class action, totaled ILS 59, an increase of ILS 1 compared with the first quarter of the year. In the fixed-line segment, Partner continue to report growth with recruitment of TV subscribers. And this growth engine, together with the growth in the Internet services, resulted in a quarterly net growth in revenues of ILS 8 million compared to the first quarter of 2018. This is the fourth consecutive quarter in which we report revenue growth from fixed-line services. And compared to the second quarter of 2017, fixed-line services revenue increased by 9%. Free cash flow for the quarter totaled ILS 55 million, following investment in our fiber optic infrastructure and TV service investments, which we believe will constitute growth engines for the company in the coming years. The rapid growth rate in Partner TV household is already reflected in revenues growth. In addition, the accelerated fiber deployment, reflected by growth of over 25,000 households from the end of the second quarter, supports our TV offering and improve the economic return compared with the wholesale market services, which is implemented today, in addition to the technological advantage of this infrastructure compared to the alternatives. On the debt side, we ended the quarter with a net debt of less than ILS 0.9 billion. And the effect of the decline in our debt during the past year, as well as the decrease in our average interest rate, is reflected in the decrease in our finance expenses. Our strong balance sheet structure continues to offer us the ability to examine additional growth opportunities as well to differentiate us from our competitors. In addition, last week, we completed the first tranche under our share buyback plan with the repurchase of approximately 3.6 million of the company's shares in an amount of ILS 50 million at on average price of ILS 13.75 per share, which reflects a yield of approximately 2.2% to our shareholders. The company's Board of Directors approved yesterday the repurchase of a second tranche in accordance with the plan of up to an aggregate amount of ILS 50 million of the company's ordinary share. And now I will be happy to open the call for questions. Moderator, please begin with the Q&A.

[Operator:]

[Operator Instructions]. The first question is from Tavy Rosner of Barclays.

[Chris Reimer:]

This is Chris Reimer, on for Tavy. You mentioned that Partner already reaches more than 170,000 households with fiber. Can you give us any targets relating to future deployment, for example, 1 to 3 years out? And can you share any indication of customer uptake?

[Isaac Benbenisti:]

What we can say about it is, I think, this will help you to anticipate the future or to look what we can do in the future, is that we have to understand that the 170,000 households that we reached this year began in a very difficult competitive situation. As you can remember, we started to deploy the infrastructure on Bezeq deck. In the beginning it was very hard because Bezeq didn't allow us to enter the deck and there were a lot of objections from their side, regulatory objections and actually their employees stood in our way, literally speaking. In the -- as we progressed with the deployment, it changed. Now Bezeq doesn't put so many obstacles in the way because the regulatory obtain them of doing so and we got a few releases from the regulatory in the past month that will allow us to even deploy faster and in a cheaper way the deployment of the fiber optic. So the beginning was very tough, and then the last month we increased rapidly the deployment. So we look very optimistic for the coming year in our ability to deploy the fiber optic infrastructure of Partner.

[Chris Reimer:]

Okay. Also, just touching on CapEx, do you see current CapEx levels as realistic for the short term or should we look at it more as steadily increasing?

[Isaac Benbenisti:]

Tamir?

[Tamir Amar:]

Regarding CapEx, beside the fact that we are aggregating the total CapEx that we mentioned in the balance sheet, we are not giving any anticipation or expectation regarding the future CapEx, so I'm unable to answer this question.

[Operator:]

[Operator Instructions]. The next question is from Michael Klahr of Citibank.

[Michael Klahr:]

Well, I've got two questions. Firstly, you made a comment in your remarks that the competition, the intensity of competition that had resulted from the entrants, the new entrants into the mobile market had slowed down a little bit or had improved, I think, in recent months. I just wanted to hear what your thoughts were as to what was happening in the mobile market. My second question is -- refers to the various opportunities that you talked about. So obviously, you're deploying infrastructure in -- on fiber infrastructure, which is one opportunity for you. You're buying back shares, which is another deployment of capital. Your -- I think you mentioned in your comments and also in your release about potential entrance into fintech or into finance. So I was just wondering, if you look at all the various opportunities or opportunities to deploy capital available to you, where do you see the best opportunity is? Where is the best risk, reward and how should we think about that as you deploy capital going forward?

[Isaac Benbenisti:]

So in regard with the entering of way to the market, it started in the mid-of April, somewhere around the mid-of April, and immediately, we saw an impact with the rapid growth in the Israeli market. We used to have something like 45,000 subscribers moving between the companies weekly. It immediately went up to 72,000 weekly. And since then, it's coming back to the around 48,000 currently. So it created an impact, it made the market very nervous, but we see a slowdown in the -- as you can see in our results, we don't see a massive impact. And even we managed -- by managing our current database with the special offerings and things like Apple Music and so, value-added services and so, to increase the ARPU by ILS 1 this quarter. This is in relate with the excellently share week. Let me see the next question is regarding... You talked about the opportunities that we have in the market. This is a wide question, and we can't point one opportunity and say this is the best one with the best ROI and so. We believe that our strategy is the right one. To become a comprehensive telco company, I think we've proved it by the figures that we represent today in the TV market, in the fiber optic deployment. We are riding very fast towards the -- to complete our mission to become a comprehensive telco company. Having said that, we do understand that we have other opportunities. We have the big data opportunities. We have the IoT opportunity. And we're look in the world to analyze what other opportunities we have that maybe are not in direct content with the telco or the traditional telco solutions. One of our big asset is the database that we have. We serve 3.5 million customers monthly. We have relation with them, we know what they do, we have a big data that we can analyze. And by doing it, we can offer them maybe some other solutions that converge with our telco solution. One of it is the fintech. We analyze what's going on in the world and we know that the fintech is growing very fast and the mobile payment is growing very fast, and we can leverage from this trend. We have -- we intend to buy Lumica, but we were not successful, but it doesn't stop us from developing our Partner finance activities. Maybe we'll do it internally, organically, maybe we'll buy a company, we'll examine all the opportunities. And we're very happy that we have the ability to do it because our data -- our balance sheet allow us to raise loans and to deploy more investments in arenas that we can see proven ROI.

[Tamir Amar:]

Regarding the buyback that you just mentioned, this action, in which was approved for the total plan for the ILS 200 million in the previous Board of Directors, and which split into two tranches, in which the first tranche was already implemented, and yesterday, we the Board of Directors approved the second tranche of ILS 50 million. It's part of the Board of Director and management to express their faith in the company and its shares. It's kind of a message to the market that we are supporting the company, and we are -- believe in the company and very important for the Board of Directors to express this such a belief, and the buyback is part of it.

[Michael Klahr:]

Okay. That's very helpful. And if I just may, a follow-up to a previous question about the 170,000 homes passed, can you give -- or when will you be able to give some indication of what the take-up of how many homes are actually connected to your fiber?

[Isaac Benbenisti:]

You mean how many households are connected to our...

[Michael Klahr:]

Yes. How many connections -- yes, how many connections you have, yes.

[Isaac Benbenisti:]

This is, of course, something that we work very hard because we'd like to get the earliest ROI that we can have, and we are very successful, but we do not expose this number due to competitive arena that we are in. You know that we are negotiating with Cellcom about their cooperation, and so when we'll find that it's suitable for us to expose this number, we'll share it with you, but we are very pleased of the numbers that we currently have.

[Michael Klahr:]

Okay. That's helpful. And just one last question on the fiber, what's the -- you mentioned in your release and also in your comments a big pickup in the number of households that you're passing. What is the barrier to -- or what are the obstacles, what are the bottlenecks to continue that growth rate? Is it capital? Is it manpower? Is it just a company decision? Is it you're waiting for more takeup on the homes you've already passed? How should we think about that as you move forward with that fiber deployment?

[Isaac Benbenisti:]

It's totally our decision. We have the abilities. I think that we have the best tool in the market to deploy fiberoptics, and we proved it better than any other companies in Israel currently, in the Israeli market. It depends on our will to continue, and of course, in our ability to put the money and to make this investment, but it's totally our condition. The last regulatory decision enabled us to do it in a better way, faster and cheaper.

[Operator:]

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 972-3-925-5945. The recording is also available on the company's website, www.partner.co.il. Mr. Benbenisti, would you like to make your concluding statement?

[Isaac Benbenisti:]

Yes. Thank you for joining. And to finalize, I would like to say that Partner's transformation into a comprehensive communication group, which we announced in 2016, is visible today with over 2.7 million cellular subscribers; our fast growth in the Partner TV subscribers, which includes already 100,000 households and our 170,000 households reached with Partner fiber, both being growth engines for future growth. Thank you for joining us today.

[Operator:]

Thank you. This concludes the Partner Communications Second Quarter 2018 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.