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Partner Communications Reports First Quarter 2014 Results1

Partner Communications Company Ltd. (“Partner” or the “Company”) (NASDAQ and TASE: PTNR), a leading Israeli communications operator, announced today its results for the quarter ended March 31, 2014.

Commenting on the quarterly results, Mr. Haim Romano, Partner's CEO, noted: “The results of the first quarter of 2014 reflect the successful implementation of our strategic plan. Despite the intensified competition and price erosion which negatively affected our service revenues, we recorded this quarter an increase in adjusted EBITDA compared to the same quarter last year, for the first time since the fourth quarter of 2010. The improvement resulted from adapting our cost structure to our challenging business reality, as well as the activity of our Retail Division which contributed to the growth in equipment sales.

We continue to invest in the most advanced 4G network in Israel and other innovative technologies, investments which have totaled more than NIS 1 billion in the past two years. Partner is currently the only cellular operator in Israel that is ready to launch a 4G network. Subject to the Ministry of Communications' approval, the public in Israel will be able to enjoy the most advanced 4G technology using the 5 MHz frequency previously allocated to the Company. In addition, we expect to receive an additional allocation of frequencies from the Ministry of Communications that will enable us to offer the full service possible on 4G and 4G advanced networks.

We proved that it is possible to upgrade our customer service concurrently with implementing operational efficiency measures. Our activities to improve our quality of service were recognized in the recent customer complaints report published by the Ministry of Communications and in a report published by the Israeli Consumer Council, relating to 2013, which show that Partner had the fewest customer complaints and the fewest justified complaints in relation to its subscriber base and in comparison to other cellular companies. These reports, together with other surveys, conducted both internally and by independent third parties, attest to Partner's leadership position with respect to quality of service in the cellular market in Israel.

This quarter we added approximately 4,000 Post-Paid subscribers to our cellular subscriber base. It is the fourth consecutive quarter in which we have recorded an increase in our Post-Paid subscriber base.

This quarter, the Company was ranked in a BDI COFACE survey for the tenth consecutive year as the "best company to work for" in the cellular market, a survey that is based, among other things, on an employee survey. This survey reflects our employees' satisfaction and trust in the Company. In the past two years the Company has faced a complicated business reality which included efficiency measures and a reduction in workforce; however, despite all these we continued to nurture and invest in our unique corporate culture which places the employee in the center.

In the near future, the Ministry of Communications is also expected to announce its decision with respect to the fixed-line wholesale market, a decision which will likely have a material impact on our plans to expand our offering to our customers and to the general public, to include television.

We expect to receive during the next quarters the required regulatory approvals for our network sharing agreement with Hot Mobile, although the full impact of the agreement on our financial results will only begin in 2015.”

In conclusion, Mr. Romano commented: “Partner's financial strength, which enabled us to reduce our debt by an additional NIS 100 million since the beginning of 2014, and the loyalty of our customers and employees drive our ability to lead and succeed in a competitive market. We will continue to invest in our principal assets: our customers and employees, and to create value for our shareholders.”

Mr. Ziv Leitman, Partner's Chief Financial Officer commented on the quarterly results as compared to the previous quarter:

“During the first quarter of 2014, competition in the cellular market further intensified, which resulted in a sequential decline in revenues; however, at the same time, the Company continued to adjust its cost structure and implement operational efficiency measures which, among other things, led to a decrease of NIS 14 million in operating expenses (excluding cost of equipment sold and depreciation & amortization expenses) compared with the fourth quarter of 2013.

The cellular subscriber churn rate during the first quarter of 2014 increased to 11.6% from 10.7% in the previous quarter, as a result of the intensified competition mentioned above. This is the second consecutive quarter of an increase in the churn rate following three quarters of declines.

ARPU in the first quarter of 2014 totaled NIS 77, decreasing by NIS 4 compared with the previous quarter. The decline in ARPU resulted primarily from continued price erosion of cellular services, a result of the intensified competition, as well as fewer work days during the quarter and seasonal effects.

Revenues from equipment sales in the first quarter of the year grew by 11% compared with the previous quarter, primarily resulting from an increase in sales of tablets and the commercial efforts of the recently established Retail Division. Gross profit from equipment sales in the first quarter of 2014 increased by NIS 26 million, primarily due to sourcing activities and the commercial policies of the Retail Division.

Adjusted EBITDA decreased by NIS 8 million in the first quarter of 2014 compared with the previous quarter, largely a result of the decline in cellular service revenues, partially offset by the increase in gross profit from equipment sales and the decline in operating expenses.

Finance costs, net, in this quarter decreased from the previous quarter by NIS 14 million, mainly due to a decline in CPI linkage expenses and the one-time bank loans repayment fee of NIS 8 million which was recorded in the previous quarter, partially offset by lower gains from foreign exchange movements.

Profit in the first quarter of 2014 increased to NIS 52 million compared with NIS 46 million in the previous quarter, mainly due to the decline in finance costs, net, partially offset by the decline in Adjusted EBITDA.

Free cash flow (after interest payments) in the first quarter totaled NIS 139 million, compared with NIS 209 million in the fourth quarter of 2013. The decrease in free cash flow mainly reflected changes in operating working capital which decreased by NIS 43 million this quarter compared with a decrease of NIS 105 million in the previous quarter.

As of March 31, 2014, net debt amounted to approximately NIS 2.8 billion. In April 2014, the Company made an early repayment of bank loans totaling NIS 100 million (whose original repayment schedule was as follows: NIS 25 million in 2014, 2015, 2016, and 2017) at a one-time prepayment cost of NIS 6 million which will be recorded in the second quarter of 2014. Since January 2013, the Company has made early repayments of loans in the total amount of NIS 717 million.”

Key Financial Results6 (unaudited)

NIS MILLION (except EPS)   Q1'14   Q1'13   % Change
Revenues   1,103   1,144   -4%
Cost of revenues 849 901 -6%
Gross profit 254 243 +5%
Operating profit 99 95 +4%
Profit for the period 52 31 +68%
Earnings per share (basic, NIS)

0.33

0.20

+65%
Free cash flow (before interest)   145   203   -29%

Key Operating Indicators:

    Q1'14   Q1'13   Change
Adjusted EBITDA (NIS million)   274   268   +2%
Adjusted EBITDA as a percentage of total revenues 25% 23% +2
Cellular Subscribers (end of period, thousands) 2,936 2,932 +4
Quarterly Cellular Churn Rate (%) 11.6% 10.4% +1.2
Monthly Average Revenue per Cellular User
(ARPU) (NIS)
  77   82   -6%

Partner Consolidated Results (unaudited)

    Cellular Segment     Fixed Line Segment     Elimination     Consolidated
NIS Million     Q1’14   Q1’13   Change %     Q1’14   Q1’13   Change %     Q1’14   Q1’13     Q1’14   Q1’13   Change %
Total Revenues

900

  900   0% 254   290   -12% (51)   (46) 1,103   1,144   -4%
Service Revenues

680

724 -6% 247

283

-13% (51) (46) 876 961 -9%
Equipment Revenues

220

176 +25% 7 7 0% - - 227 183 +24%
Operating Profit

63

52 +21% 36 43 -16% - - 99 95 +4%
Adjusted EBITDA    

199

  186   +7%     75   82   -9%     -   -     274   268   +2%

Financial Review (Consolidated)

In Q1 2014, total revenues were NIS 1,103 million (US$ 316 million), a decrease of 4% from NIS 1,144 million in Q1 2013.

Service revenues in Q1 2014 totaled NIS 876 million (US$ 251 million), a decrease of 9% from NIS 961 million in Q1 2013.

Service revenues for the cellular segment in Q1 2014 were NIS 680 million (US$ 195 million), a decrease of 6% from NIS 724 million in Q1 2013. The decrease was mainly the result of the continued price erosion of Post-Paid and Pre-Paid cellular services due to the intensified competitive environment.

Service revenues for the fixed line segment totaled NIS 247 million (US$ 71 million) in Q1 2014, a decrease of 13% compared with NIS 283 million in Q1 2013. The decrease mainly reflected price erosion in fixed line services including local calls, long distance calls and internet services.

Equipment revenues in Q1 2014 totaled NIS 227 million (US$ 65 million), an increase of 24% compared with NIS 183 million in Q1 2013. The growth was attributable to both an increase in the average unit price and in the number of unit sales.

Gross profit from equipment sales in Q1 2014 was NIS 45 million (US$ 13 million), compared with NIS 4 million in Q1 2013. The increase resulted primarily from improved profit margins, as well as the sale in Q1 2013 of subsidized handsets to large corporate customers that did not meet the capitalization criteria.

Operating expenses (‘OPEX’, including cost of service revenues, selling, marketing and administrative expenses and excluding depreciation and amortization) totaled NIS 661 million (US$ 190 million) in Q1 2014, a decrease of 8% or NIS 59 million from Q1 2013. The decrease largely reflected the efficiency measures undertaken as well as lower interconnect expenses due in part to the reduction in the fixed line termination (interconnect) charge by approximately 60% in December 2013. Including depreciation and amortization expenses, OPEX in Q1 2014 decreased by 6% compared with Q1 2013.

Adjusted EBITDA in Q1 2014 totaled NIS 274 million (US$ 79 million), an increase of 2% from NIS 268 million in Q1 2013.

Adjusted EBITDA for the cellular segment was NIS 199 million (US$ 57 million) in Q1 2014, increasing by 7% from NIS 186 million in Q1 2013, reflecting the impact of lower operating expenses and higher gross profit from equipment sales, partially offset by the decrease in service revenues. As a percentage of total cellular revenues, Adjusted EBITDA for the cellular segment in Q1 2014 was 22%, slightly higher than 21% in Q1 2013.

Adjusted EBITDA for the fixed line segment decreased by 9% from NIS 82 million in Q1 2013 to NIS 75 million (US$ 22 million) in Q1 2014, reflecting the decline in service revenues partially offset by lower operating costs. As a percentage of total fixed line revenues, Adjusted EBITDA for the fixed line segment in Q1 2014 was 30%, compared with 28% in Q1 2013.

Operating profit for Q1 2014 was NIS 99 million (US$ 28 million), an increase of 4% compared with operating profit in Q1 2013 of NIS 95 million.

Finance costs, net in Q1 2014 were NIS 24 million (US$ 7 million), a decrease of 51%, compared with NIS 49 million in Q1 2013. The decrease was mainly a result of lower CPI (consumer price index) linked interest expenses due to the lower CPI level, as well as lower interest expenses resulting from the lower level of average debt (see Funding and Investing Review below).

Profit in Q1 2014 was NIS 52 million (US$ 15 million), an increase of 68% compared with profit in Q1 2013 of NIS 31 million. The increase in profit resulted from improved Adjusted EBITDA and lower finance costs, net.

Based on the weighted average number of shares outstanding during Q1 2014, basic earnings per share or ADS, was NIS 0.33 (US$ 0.10), an increase of 65% compared to NIS 0.20 in Q1 2013.

The effective tax rate for Q1 2014 was 31%, compared with 33% in Q1 2013. The decrease in the effective tax rate was mainly due to the lower percentage of unrecognized expenses than in the comparable quarter last year, due to the increase in profit before tax.

Cellular Segment Operational Review

At the end of the first quarter 2014, the Company's cellular subscriber base (including mobile data and 012 Mobile subscribers) was approximately 2.94 million including approximately 2.14 million Post-Paid subscribers or 73% of the base, and approximately 799 thousand Pre-Paid subscribers, or 27% of the subscriber base.

During the first quarter of 2014, the cellular subscriber base declined by approximately 20,000 subscribers. In contrast to the Pre-Paid subscriber base which decreased by approximately 24,000, largely reflecting seasonal trends, the Post-Paid subscriber base increased by approximately 4,000.

The quarterly churn rate for cellular subscribers in Q1 2014 increased to 11.6%, compared with 10.4% in Q1 2013 and 10.7% in Q4 2013, with the increase reflecting the intensified competition in the cellular market.

Total cellular market share (based on the number of subscribers) at the end of Q1 2014 was estimated to be approximately 29%, unchanged from year-end 2013.

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q1 2014 was NIS 77 (US$ 22), a decrease of 6% from NIS 82 in Q1 2013 and a decrease of 5% from NIS 81 in Q4 2013. The decrease in ARPU compared to the parallel quarter mainly reflected the continued price erosion due to the intensified competition in the market, as described above. The sequential decrease in ARPU also resulted from the continued price erosion, as well as from fewer work days during the quarter and seasonal effects.

Funding and Investing Review

In Q1 2014, cash flow generated from operating activities before interest payments, net of cash flow used for investing activities ("Free Cash Flow"), totaled NIS 145 million (US$ 42 million), a decrease of 29% from NIS 203 million in Q1 2013.

Cash generated from operations decreased by 23% to NIS 259 million (US$ 74 million) in Q1 2014 from NIS 336 million in Q1 2013. This was mainly explained by changes in operating working capital movements, partially offset by the increase in profit. The decrease in operating working capital in Q1 2014 was NIS 43 million compared with a decrease of NIS 120 million in Q1 2013.

The level of cash capital expenditures in fixed assets (Capex) including intangible assets but excluding capitalized subscriber acquisition and retention costs, net, was NIS 113 million (US$ 32 million) in Q1 2014, a decrease of 13% from NIS 130 million in Q1 2013.

The level of net debt at the end of Q1 2014 amounted to NIS 2,849 million (US$ 817 million), compared with NIS 3,622 million at the end of Q1 2013, a decrease of NIS 773 million.

Regulatory Developments

1. Ministry of Communications Hearings

a) Schejter Committee

The Minister of Communications appointed Prof. Amit Schejter to head a committee tasked with drafting recommendations regarding the regulation of audio visual content transmitted over the internet and the introduction of new service providers. Partner filed its written position with the committee on April 24, 2014. The committee's recommendations are expected to be submitted to the Minister by August 2014. If the committee will recommend and the Minister of Communications will adopt its recommendation, according to which the regulatory regime that currently applies to the traditional broadcasters will be applied also to new competitors, such as the Company, then we may not be able to enter this market and to successfully launch our TV services.

b) Network Neutrality

On February 10, 2014, the Communications Law was amended so that its "Network Neutrality" rules are now broadened to apply to all operators in the telecommunications field and not only cellular operators and those engaged in the import, distribution, sale or maintenance of terminal equipment.

For further information, see the Company's 2013 Annual Report - "Item 3D. Key Information - Risk Factors - 3D.1 RISKS RELATING TO THE REGULATION OF OUR INDUSTRY - 3D.1c - Other regulatory developments may have a negative impact on the Company’s business and results of operation" and "Item 4 - Information on the Company - 4B. Business Overview - 4B.13 Regulation - 4B.13d Regulatory Developments - 4B.13d - viii - Network Neutrality".

2. Ministry of Communications Decisions

Following a hearing held by the Ministry of Communications, effective March 31, 2014, the mobile radio telephone (MRT) licenses of all cellular operators in Israel were amended so that as a default, access to cellular internet services outside Israel shall be blocked, unless the subscriber has requested access to such services, has purchased a roaming services package or has extended his existing package.

For further information, see the Company's 2013 Annual Report - "Item 4 - Information on the Company - 4B. Business Overview - 4B.13 - Regulation - 4B.13d Regulatory Developments - 4B.13d - i - New Roaming Regulation".

Conference Call Details

Partner will hold a conference call on Wednesday, May 14, 2014 at 10.00 a.m. Eastern Time / 5.00 p.m. Israel Time.

Please call the following numbers (at least 10 minutes before the scheduled time) in order to participate:

International: +972.3.918.0609

North America toll-free: + 1.888.668.9141

A live webcast of the call will also be available on Partner's website at: www.orange.co.il/en/Investors-Relations/lobby/

If you are unavailable to join live, the replay numbers are:

International: +972.3.925.5904

North America: +1.888.782.4291

The replay of the call will be available from May 14, 2014 until May 21, 2014. The archived webcast will be available on the website.

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 "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. In particular, this press release contains forward-looking statements regarding the anticipated offering by the Company of 4G services, and expected changes in the regulatory environment. In addition, all statements other than statements of historical fact included in this press release regarding our future performance, plans to increase revenues or margins or preserve or expand market share in existing or new markets, plans to reduce expenses, and any statements regarding other future events or our future prospects, 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 about recent and future regulatory actions (specifically, whether the regulatory changes will occur and what their impact on Partner will be), as well as consumer habits and preferences in cellular telephone usage, trends in the Israeli telecommunications industry in general, and the impact of global economic conditions. 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 current 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 financial results presented in this press release are unaudited financial results.

The results were prepared in accordance with IFRS, other than Adjusted EBITDA and free cash flow, which are 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 March 31, 2014: US $1.00 equals NIS 3.487. The translations were made purely for the convenience of the reader.

Use of Non-GAAP Financial Measures:

‘Adjusted EBITDA’ represents earnings before interest (finance costs, net), taxes, depreciation, amortization (including amortization of intangible assets, deferred expenses-right of use, and share based compensation expenses) and impairment charges, as a measure of operating profit. Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures provided by other companies. Adjusted EBITDA may not be indicative of the Company’s historic operating results nor is it meant to be predictive of potential future results. Adjusted EBITDA is presented solely to enhance the understanding of our operating results. We use the term “Adjusted EBITDA” to highlight the fact that amortization includes amortization of deferred expenses – right of use and employee share-based compensation expenses, but Adjusted EBITDA is fully comparable to EBITDA information which has been previously provided by Partner for prior periods. Reconciliation between our net cash flow from operating activities and Adjusted EBITDA on a consolidated basis is presented in the attached summary financial results.

About Partner Communications

Partner Communications Company Ltd. ("Partner") is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony and internet services) under the orange™ brand and the 012 Smile brand. 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: www.orange.co.il/en/Investors-Relations/lobby/

1 The financial results presented in this press release are unaudited.

2 Operating expenses include cost of service revenues, and selling, marketing & administrative expenses, and exclude depreciation and amortization and impairment charges.

3 For definition of Adjusted EBITDA measure, see “Use of Non-GAAP Financial Measures” on page 11 below.

4 Total long term indebtedness including current maturities less cash and cash equivalents.

5 Cash flows from operating activities before interest payments, net of cash flows used for investment activities.

6 See also definitions on page 1.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

   



New Israeli Shekels

 


Convenience
translation into
U.S. Dollars

March 31,   December 31, March 31,
2014 2013 2014
(Unaudited) (Audited) (Unaudited)
In millions
CURRENT ASSETS
Cash and cash equivalents 620 481 178
Trade receivables 1,000 1,051 287
Other receivables and prepaid expenses 50 45 14
Deferred expenses – right of use 28 28 8
Inventories 96 93 28
Income tax receivable 4 3 1
Derivative financial instruments 1 2 *
1,799 1,703 516
 
NON CURRENT ASSETS
Trade Receivables 310 289 89
Deferred expenses – right of use 113 118 33
Property and equipment 1,730 1,791 496
Licenses and other intangible assets 1,141 1,167 327
Goodwill 407 407 117
Prepaid expenses 5 1
Deferred income tax asset 14 12 4
3,720 3,784 1,067
 
TOTAL ASSETS 5,519 5,487 1,583

* Representing an amount less than 1 million

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 



New Israeli Shekels

 


Convenience
translation into
U.S. Dollars

March 31,   December 31, March 31,
2014 2013 2014
(Unaudited) (Audited) (Unaudited)
In millions
CURRENT LIABILITIES
Current maturities of notes payable and bank borrowings 333 334 95
Trade payables 719 761 206
Payables in respect of employees 98 98 28
Other payables (mainly institutions) 65 45 19
Deferred revenues 38 37 11
Provisions 73 67 21
Income tax payable 38 31 11
Derivative financial instruments * 1 *
1,364 1,374 391
 
NON CURRENT LIABILITIES
Notes payable 2,032 2,038 583
Bank borrowings 1,104 1,109 317
Liability for employee rights upon retirement, net 43 45 12
Dismantling and restoring sites obligation 32 31 9
Other non-current liabilities 16 16 5
Deferred tax liability   *  
3,227 3,239 926
 
TOTAL LIABILITIES 4,591 4,613 1,317
 
EQUITY

Share capital - ordinary shares of NIS 0.01

par value: authorized - December 31, 2013

and March 31, 2014 - 235,000,000 shares;

issued and outstanding -

2 2 1
December 31, 2013 – **155,687,002 shares
March 31, 2014 – **155,687,002 shares
Capital surplus 1,100 1,100 315
Accumulated retained earnings 177 123 51
Treasury shares, at cost - December 31, 2013

and March 31, 2014 - 4,467,990 shares

(351) (351) (101)
TOTAL EQUITY 928 874 266
TOTAL LIABILITIES AND EQUITY 5,519 5,487 1,583

* Representing an amount less than 1 million

** Net of treasury shares

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

   


New Israeli Shekels

 


Convenience
translation into
U.S. Dollars

3 months ended March 31,

2014   2013 2014
(Unaudited) (Unaudited) (Unaudited)
In millions (except per share data)
Revenues, net 1,103 1,144 316
Cost of revenues 849 901 243
Gross profit 254 243 73
 
Selling and marketing expenses

117

118

34
General and administrative expenses

52

53

15
Other income, net

14

23 4
Operating profit 99 95 28
Finance income

12

3

3

Finance expenses 36

52

10

Finance costs, net 24 49 7
Profit before income tax 75 46 21
Income tax expenses 23 15 6
Profit for the period 52 31 15
 
Earnings per share
Basic 0.33 0.20 0.10
Diluted 0.33 0.20 0.10

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

     


New Israeli Shekels

 


Convenience
translation into
U.S. Dollars

3 months ended March 31,

2014   2013 2014
(Unaudited) (Unaudited) (Unaudited)
In millions

Profit for the period

52 31 15
Other comprehensive income for the

period, net of income taxes

- - -
 
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 52 31 15

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

SEGMENT INFORMATION

  New Israeli Shekels
Three months ended March 31, 2014
In millions (Unaudited)
Cellular segment   Fixed-line segment  
Elimination
 
Consolidated
Segment revenue – Services 673 203 876
Inter-segment revenue – Services 7 44 (51)
Segment revenue – Equipment 220 7   227
Total revenues 900 254 (51) 1,103
 
Segment cost of revenues - Services 496 171 667
Inter-segment cost of revenues- Services 43 8 (51)
Segment cost of revenues - Equipment 176 6   182
Cost of revenues 715 185 (51) 849
Gross profit 185 69 254
 
Operating expenses 136 33 169
Other income, net 14 * 14
Operating profit 63 36 99
Adjustments to presentation of Adjusted EBITDA
–Depreciation and amortization 135 39 174
–Other (1) 1 * 1
Adjusted EBITDA (2) 199 75 274

Reconciliation of Adjusted EBITDA to profit before income tax

- Depreciation and amortization (174)
- Finance costs, net (24)
- Other (1) (1)
Profit before income tax 75

* Representing an amount less than 1 million.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

SEGMENT INFORMATION

       
New Israeli Shekels
Three months ended March 31, 2013
In millions (Unaudited)
Cellular segment Fixed-line segment
Elimination

Consolidated
Segment revenue – Services 717 244 961
Inter-segment revenue – Services 7 39 (46)
Segment revenue – Equipment 176 7   183
Total revenues 900 290 (46) 1,144
 
Segment cost of revenues – Services 528 194 722
Inter-segment cost of revenues- Services 39 7 (46)
Segment cost of revenues - Equipment 172 7   179
Cost of revenues 739 208 (46) 901
Gross profit 161 82 243
 
Operating expenses 132 39 171
Other income, net 23   23
Operating profit 52 43 95
Adjustments to presentation of Adjusted EBITDA
–Depreciation and amortization 132 39 171
–Other (1) 2   2
Adjusted EBITDA (2) 186 82 268
Reconciliation of Adjusted EBITDA to profit before income tax
- Depreciation and amortization (171)
- Finance costs, net (49)
- Other (1) (2)
Profit before income tax 46

(1) Mainly employee share based compensation expenses.

(2) Adjusted EBITDA as reviewed by the CODM, represents Earnings Before Interest (finance costs, net), Taxes, Depreciation, Amortization (including amortization of intangible assets, deferred expenses-right of use, and share based compensation expenses) and impairment charges, as a measure of segment profit. Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures in 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 employee share based compensation expenses; it is fully comparable to EBITDA information which has been previously provided by Partner for prior periods.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 


New Israeli Shekels

 


Convenience
translation into
U.S. Dollars

3 months ended
March 31,
2014   2013 2014
(Unaudited) (Unaudited) (Unaudited)
In millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash generated from operations (Appendix) 278 322 80
Income tax received (paid) (19) 14 5
Net cash provided by operating activities 259 336 75

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment (83) (98) (24)
Acquisition of intangible assets (31) (35) (9)
Interest received 1 2 *
Proceeds from (payments for) derivative
financial instruments, net
(1) (2) *
Net cash used in investing activities (114) (133) (33)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of finance lease (1)
Interest paid (6) (11) (2)
Net cash used in financing activities (6) (12) (2)

INCREASE IN CASH AND CASH EQUIVALENTS

139 191 40

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

481 548 138

CASH AND CASH EQUIVALENTS AT END OF PERIOD

620 739 178

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

3 months ended
March 31,
2014   2013 2014
(Unaudited) (Unaudited) (Unaudited)
In millions
 
Cash generated from operations:
Profit for the period 52 31 15
Adjustments for:
Depreciation and amortization 165 164 47
Amortization of deferred expenses - Right of use 9 7 3
Employee share based compensation expenses 1 2 *
Liability for employee rights upon retirement, net (2) (2) (1)
Finance costs (income), net (12) 3 (3)
Gain (loss) from change in fair value of

derivative financial instruments

* (1) *
Interest paid 6 11 2
Interest received (1) (2) (*)
Deferred income taxes (2) 3 (1)
Income tax paid (received) 19 (14) 5
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable:
Trade 30 147 9
Other (10) (10) (3)
Increase (decrease) in accounts payable and accruals:
Trade (5) (10) (1)
Other payables 21 26 6
Provisions 6 3 2
Deferred revenue 1 (2) *
Increase in deferred expenses - Right of use (4) (4) (1)
Current income tax liability 7 25 2
Increase in inventories (3) (55) (1)
Cash generated from operations 278 322 80

*Representing an amount less than 1 million

At March 31, 2014 and 2013, trade and other payables include NIS 187 million ($54 million) and NIS 229 million, respectively, in respect of acquisition of intangible assets and property and equipment.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

RECONCILIATION BETWEEN OPERATING CASH FLOWS AND ADJUSTED EBITDA

  New Israeli shekels  

Convenience
translation into
U.S. Dollars*

3 months ended March 31,
2014   2013 2014
(Unaudited) (Unaudited) (Unaudited)
In millions
 
Net cash provided by operating activities

259

336

74

 
Liability for employee rights upon retirement

2

2

1

Accrued interest and exchange and linkage differences on long-term liabilities

8

(10)

3

Increase (decrease) in accounts receivable:
Trade

(30)

(147)

(9)

Other, including derivative financial instruments

13

16

4

Decrease (increase) in accounts payable and accruals:
Trade

5

10

1

Other

(28)

(29)

(8)

Income tax paid (received)

19

(14)

5
Increase in inventories 3

55

1
Financial expenses**

23

49

7

Adjusted EBITDA

274

268

79

* The convenience translation of the New Israeli Shekel (NIS) figures into US dollars was made at the exchange prevailing at March 31, 2014: US $1.00 equals 3.487 NIS.

** Financial expenses excluding any charge for the amortization of pre-launch financial costs

Key Financial and Operating Indicators (unaudited)7

NIS M unless otherwise stated   Q1' 12   Q2' 12   Q3' 12   Q4' 12   Q1' 13   Q2' 13   Q3' 13   Q4' 13   Q1' 14       2012   2013
Cellular Segment Service Revenues 963 949 892 788 724 726 738 719 680 3,592 2,907
Cellular Segment Equipment Revenues 323 207 157 209 176 171 160 196 220 896 703
Fixed Line Segment Service Revenues 320 300 296 294 283 277 267 258 247 1,210 1,085
Fixed Line Segment Equipment Revenues 7 8 8 13 7 9 7 9 7 36 32
Reconciliation for consolidation -42 -36 -38 -46 -46 -53 -54 -55 -51 -162 -208
Total Revenues 1,571 1,428 1,315 1,258 1,144 1,130 1,118 1,127 1,103 5,572 4,519
Gross Profit from Equipment Sales 42 33 16 22 4 9 10 19 45 113 42
Operating Profit 248 245 217 155 95 102 109 103 99 865 409
Cellular Segment Adjusted EBITDA 363 367 328 256 186 198 201 199 199 1,314 784
Fixed Line Segment Adjusted EBITDA 75 56 73 84 82 82 83 83 75 288 330
Total Adjusted EBITDA 438 423 401 340 268 280 284 282 274 1,602 1,114
Adjusted EBITDA Margin (%) 28% 30% 30% 27% 23% 25% 25% 25% 25% 29% 25%
OPEX 872 853 793 744 720 700 696 675 661 3,262 2,791
Finance costs, net 55 73 68 38 49 71 53 38 24 234 211
Profit (Loss) 146 120 110 102 31 20 38 46 52 478 135
Total Dividend Declared - 160 - - - - - - - 160 -

Capital Expenditures8

133 113 125 121 130 122 116 107 113 492 475
Free Cash Flow 223 313 375 323 203 287 273 278 145 1,234 1,041
Free Cash Flow After Interest 199 270 310 255 192 193 266 209 139 1,034 860
Net Debt 4,450 4,209 4,072 3,812 3,622 3,446 3,208 3,000 2,849 3,812 3,000
Cellular Subscriber Base (Thousands) 3,147 3,098 3,042 2,976 2,932 2,921 2,950 2,956 2,936 2,976 2,956
Post-Paid Subscriber Base (Thousands) 2,253 2,198 2,145 2,102 2,102 2,103 2,127 2,133 2,137 2,102 2,133
Pre-Paid Subscriber Base (Thousands) 894 900 897 874 830 818 823 823 799 874 823
Cellular ARPU (NIS) 101 101 97 87 82 83 84 81 77 97 83
Cellular Churn Rate (%) 8.0% 8.9% 10.4% 10.9% 10.4% 9.4% 8.8% 10.7% 11.6% 38% 39%
Number of Employees (FTE)   7,230   6,961   6,102   5,396   4,772   4,377   4,153   4,045   3,826       5,396   4,045

7 See first page for definitions. The annual results are audited.

8 Cash capital expenditures in fixed assets including intangible assets but excluding capitalized subscriber acquisition and retention cost, net.

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