Partner Communications Company Ltd.
Q2 2017 Earnings Call Transcript

Published: 16 Aug 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications’ Second Quarter 2017 Results Conference Call. All participants are 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 Ms. Tami Levi. Ms. Levi, please begin.

[Tami Levi:]

Thank you. And thank you to all listeners for joining us on this conference call to discuss Partner Communications’ second quarter results for 2017. With me on the call today is Isaac Benbenisti, Partner’s CEO and Dudu Mizrahi, our CFO. Isaac Benbenisti will give an update of Partner’s recent operational highlights in the cellular and fixed line market. He will then hand over to Dudu, who will provide an overview of the quarterly financial and operational results and finally, we’ll move on to 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 August 16, 2017, 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 Web site. 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 earnings conference call. The past year and the half has been a very exciting and busy period at Partner with the rebranding of the Company, extensive internal steps such as unifying the operations of 012 Smile under the Partner brand; the deployment of this 4.5 generation network throughout the country; the launch of Partner TV and the acceleration of our fiber optic network deployment. All of those, while maintaining our investment in the service and technology. The second quarter results portray a net increase in our numbers; in the numbers of our cellular subscribers, continued efficiency measures implemented in the Company; and increasing the operating profit. We opened the second half of 2017 with the initial marketing of Partner TV services and [trader] services, which include Internet and fixed line telephony in addition to the TV. Over 20,000 consumers have requested to join Partner TV, reflecting the strong interest in the Israeli market to switch to more advanced TV service at a more attractive price. In the last two weeks, we have already begun installations in the homes of consumers we enroll through the early registration process. In addition, the localized launch of Netflix in Israel and our relationship with the world’s leading Internet television network will enable us to offer a unique value added offering to Partner TV customers. Last week, we announced the expansion of our fiber optic network, which enabled private customers already at this point in time Internet services at speed up to 1 gigabyte and we have already reached tens of thousands of households. In the coming months, we plan to significantly expand our deployment and to reach additional tens of thousands at platforms. This is in addition to growing numbers of business customers already enjoying the advantages of Partner fiber optic network, which is deployed in central business areas. The positive quarterly results, together with successful launch of Partner TV and the progress in fiber deployment, are the results of long-term plans that we started over two years ago, designed to provide our customers with added value across the variety of communication services we offer as a comprehensive teleco group. I will now turn the call over to Dudu Mizrahi for detailed overview of our financial results. Dudu, please.

[David Mizrahi:]

Thank you, Isaac. Good day, everyone and welcome to our earning conference call. The past months of quarter has been characterized by activity in a wide range of operational and financial areas and continued efficiency measures in the Company, all alongside the planning of the future investments by the Company. The main highlights for this quarter are the improvement in EBITDA, the store cash flow and the financial steps we took, which strengthen our balance sheet and will reduce financial expenses. This is the second quarter we have seen an improvement in adjusted EBITDA, both compared to the previous quarter and compared to the parallel quarter last year. Compared to the first quarter, the improvement was result of a growth in service revenue, the improvement in gross profit from equipment sales and the continued decline in OpEx. In addition, this quarter we saw decline in the churn rate to 9% from 9.8% in the first quarter of 2017. This is the lowest churn rate that the Company has reported since the third quarter of 2013. In the equipment sale operations, the steps that we have taken in the past few months resulted in an improvement in gross profit from equipment sales to ILS33 million with profitability of 21% compared to gross profit of ILS26 million and profitability of 60% in the first quarter of 2017. We continue to report strong adjusted free cash flow before interest payment, which totaled ILS208 million in the second quarter an increase of 30% compared to the second quarter of last year, and 65% decrease compared to the first quarter of 2017. With respect to financing, during the past quarter, we took a number of steps, including a capital raise of approximately ILS190 million, early repayment of loan from bank and financial institutions in a total amount of ILS700 million in June and ILS175 million in July, while at the same time, raising a new debt by issuing bonds in the month of approximately ILS255 million in July. At the end of the second quarter, net debt totaled less than ILS1.1 billion, a decline of almost ILS900 million in one year and the net debt to EBITDA ratio was 1.2. And now, I'll be happy to open the call for questions. Moderator, please begin the Q&A.

[Operator:]

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session [Operator Instructions]. The first question is from Tavy Rosner of Barclays. Please go ahead.

[Unidentified Analyst:]

This is Chris in for Tavy. Thank you for taking my question. Regarding the fiber network, you talked about covering additional tens of thousands of households in the coming months. Looking down the road, let's say two or three years, what percentage of the population do you think you'll be able to cover? And can you give us a sense of what it's going to cost?

[Isaac Benbenisti:]

We're not disclosing this kind of detail, but we can tell that we’re very serious in our fixed line business, and we plan to deploy extensively throughout the country. At this point, we cannot elaborate more than that and we are not giving information about cost currently.

[Unidentified Analyst:]

I understand you don't want to give a range. But is it fair to assume that you'll have to raise some more debt may be to complete the project?

[Isaac Benbenisti:]

Not for now.

[Operator:]

Next question is from Roni Biron of Excellence. Please go ahead.

[Roni Biron:]

Isaac and Dudu well done on the progress in the quarter. I have follow up questions on your balance sheet and capital allocation. Your net debt level is now just over ILS1 billion, and despite an expected hike in CapEx, it seems like it may come down further or at least stay around this level. I know you don't want to get into specifics in terms of numbers and et cetera. But could you maybe elaborate on your capital allocation in the coming years, specifically what would you regard as optimal leverage? And what could be some criteria for resuming a dividend policy?

[Isaac Benbenisti:]

We took some financial measures that allow us to ensure that we can execute all of our strategic plans. And of course, certainly, debt level is very low. I think we can be very comfortable at 2.5 times net debt to EBITDA. And of course, currently, we are much lower than that. And we are now thinking ahead what we are going to do about this. There is not a decision regarding a dividend currently. But it's not something that we are not thinking about. But currently there is no decision regarding that. At this stage, we took those steps in order to announce the flexibility we need. We are now -- we don’t have any -- nothing really now tops, so we continue and rolling out our plan. And regarding future, question regarding dividend, we will discuss when time is right.

[Operator:]

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Benbenisti to go ahead with his closing statements, 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 1877-456-0009, in Israel please call 03-925-5941, and internationally please call 972-3925-5941. The recording is also available on the Company’s Web site www.partner.co.il. Mr. Benbenisti, would you like to make your concluding statement?

[Isaac Benbenisti:]

Yes, I want to thank everyone joining this earnings conference call. And we’re looking to the future. Thank you very much.

[Operator:]

Thank you. This concludes the Partner Communications’ second quarter 2017 results conference call. Thank you for your participation. You may go ahead and disconnect.