Partner Communications Reports 2006 Annual Results
Partner Communications Company Ltd. ("Partner")
(Nasdaq:PTNR)(LSE:PCCD)(TASE:PTNR), a leading Israeli mobile
communications operator, today announced its results for the year and
quarter ended December 31st, 2006.
Partner reported revenues in 2006 of NIS 5,606.7 million (US$
1,327.0 million), EBITDA of NIS 1,850.1 million (US$ 437.9 million),
equivalent to 33.0% of total revenue, and net income of
NIS 682.3 million (US$ 161.5 million) or NIS 4.41 per diluted ADS or
share (US$ 1.04 per ADS or share).
For the fourth quarter of 2006, Partner reported revenues of NIS
1,445.1 million (US$ 342.0 million), EBITDA of NIS 461.7 million (US$
109.3 million), and net income of NIS 163.0 million (US$ 38.6
million).
Partner also reported that its 3G subscriber base stood at
approximately 276,000, equal to 10.3% of the total subscriber base, at
year-end 2006.
Pursuant to the dividend policy adopted by the board for 2006, the
board resolved to authorize the distribution of a cash dividend in the
amount of NIS 1.28 per share (totaling approximately NIS 200 million)
to shareholders of record on February 20, 2007. The dividend will be
paid on March 6, 2007. The total dividend amount for 2006 will be
approximately NIS 410 million.
Key Financial Results:
-0-
*T
NIS '000 2002 2003
-----------------------------------------------------------
Revenues 4,054,563 4,467,719
Cost of revenues 3,069,458 3,136,456
----------------------------
Gross profit 985,105 1,331,263
SG&A 451,673 476,395
----------------------------
Operating profit 533,432 854,868
Other expenses 4,054 3,530
Financial expenses 445,180 321,710
----------------------------
Income before taxes 84,198 529,628
Tax expenses (tax benefit) - (633,022)
Cumulative effect of a change
in accounting principles - -
----------------------------
Net income for the period 84,198 1,162,650
============================
Cash flow from operating
activities net of investing
activities (133,777) 654,723
-----------------------------------------------------------
NIS '000 2004 2005 2006
----------------------------------------------------------------------
Revenues 5,140,737 5,122,939 5,606,711
Cost of revenues 3,615,014 3,766,352 3,897,267
---------------------------------------
Gross profit 1,525,723 1,356,587 1,709,444
SG&A 506,377 453,681 491,052
---------------------------------------
Operating profit 1,019,346 902,906 1,218,392
Other expenses - - -
Financial expenses 260,545 345,448 166,442
---------------------------------------
Income before taxes 758,801 557,458 1,051,950
Tax expenses (tax benefit) 287,248 202,898 370,675
Cumulative effect of a change
in accounting principles - - 1,012
---------------------------------------
Net income for the period 471,553 354,560 682,287
=======================================
Cash flow from operating
activities net of investing
activities 599,186 459,632 774,783
----------------------------------------------------------------------
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NIS '000 Q4 2005 Q1 2006
-----------------------------------------------------------
Revenues 1,259,274 1,326,644
Cost of revenues 930,225 952,177
----------------------------
Gross profit 329,049 374,467
SG&A 125,836 100,932
----------------------------
Operating profit 203,213 273,535
Financial Expenses 62,986 38,629
----------------------------
Income before taxes 140,227 234,906
Tax expenses 56,938 75,501
Cumulative effect of a change
in accounting principles 1,012
----------------------------
Net income for period 83,289 160,417
============================
Cash flow from operating
activities net of investing
activities 198,967 68,405
-----------------------------------------------------------
NIS '000 Q2 2006 Q3 2006 Q4 2006
----------------------------------------------------------------------
Revenues 1,372,945 1,461,989 1,445,133
Cost of revenues 941,914 1,004,637 998,539
---------------------------------------
Gross profit 431,031 457,352 446,594
SG&A 119,542 137,841 132,737
---------------------------------------
Operating profit 311,489 319,511 313,857
Financial Expenses 61,176 44,710 21,927
---------------------------------------
Income before taxes 250,313 274,801 291,930
Tax expenses 76,076 90,148 128,950
Cumulative effect of a change
in accounting principles
---------------------------------------
Net income for period 174,237 184,653 162,980
=======================================
Cash flow from operating
activities net of investing
activities 230,460 312,339 163,579
----------------------------------------------------------------------
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Key Operating Indicators:
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2002 2003
---------------------------------------------------------------
EBITDA (NIS millions) 1,052 1,380
EBITDA as a percentage of total
revenues 26.0% 30.9%
Subscribers (thousands) 1,837 2,103
Estimated Market Share (%) 29% 31%
Annual Churn Rate (%) 10.9% 13.6%
Average Monthly Usage per Subscriber
(minutes) 280 277
Average Monthly Revenue per Subscriber
(NIS) 183 171
---------------------------------------------------------------
2004 2005 2006
----------------------------------------------------------------------
EBITDA (NIS millions) 1,576 1,569 1,850
EBITDA as a percentage of total
revenues 30.7% 30.6% 33.0%
Subscribers (thousands) 2,340 2,529 2,668
Estimated Market Share (%) 32% 32% 32%
Annual Churn Rate (%) 12.0% 13.6% 15.6%
Average Monthly Usage per Subscriber
(minutes) 286 294 311
Average Monthly Revenue per Subscriber
(NIS) 170 156 158
----------------------------------------------------------------------
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Commenting on the 2006 annual results, Partner's CEO, David Avner,
said: "2006 was yet another excellent year for Partner. I want to
thank my predecessor, the previous CEO and the founder of Partner,
Amikam Cohen, for his superb leadership and his support and assistance
during 2006."
"In 2006 we continued to grow our 3G subscriber base, which now
accounts for more than 10% of our subscribers. We provide them with a
wide and continuously expanding range of 3G services and great
handsets. Our subscribers can also benefit from our introduction in
most populated areas around the country of HSDPA capabilities,
enabling a unique high-speed wireless Internet access experience."
"The assets built by the Company in recent years, making it a
leading cellular company in Israel, continued to strengthen. Once
again orange(TM) was named the leading telecommunications brand in
Israel for the fourth consecutive year. Globes, Israel's business
daily, named Partner, for the second year running, the mobile operator
with the best customer service. We expect that our core strengths as
providers of superb network quality, excellent customer service, the
strongest telecom brand and the most advanced data and content
services, will enable us to continue to grow our subscriber base and
drive value for our shareholders. These assets will also be
instrumental while we broaden the portfolio of services we offer our
customers. With the transmission and fixed line telephony licenses now
awarded to us, we are well on our way to offering customers a wide
range of superb telecom services."
Financial Review
Partner's revenues in 2006 totaled NIS 5,606.7million (US$ 1,327.0
million), increasing by 9.4% from NIS 5,122.9 million in 2005.
Quarterly revenues were NIS 1,445.1 million (US$ 342.0 million) in Q4
2006, up 14.8% from NIS 1,259.3 million in Q4 2005, but down by 1.2%
compared with NIS 1,462.0 million in Q3 2006.
Annual revenues from services totaled NIS 5,027.3 million (US$
1,189.9 million) in 2006, representing an increase of 8.8% from 2005
service revenues of NIS 4,619.9 million. Q4 2006 revenues from
services increased by 13.2% to NIS 1,282.2 million (US$ 303.5
million), from NIS 1,132.9 million in Q4 2005, but decreased by 2.6%
from NIS 1,316.4 million in Q3 2006, reflecting seasonal patterns in
service revenues.
Total network minutes increased in 2006 by 13.2% compared with
2005. The effect of this increase was partially offset by a 5.5%
dilution in the average tariff per minute including incoming calls.
The increase in total network minutes was driven primarily by an
expanding subscriber base, which grew by approximately 5.5% in 2006.
The dilution in the average tariff per minute compared with 2005
reflects primarily the impact of the mandated reduction in
interconnection tariffs which went into effect in March 2006, as part
of the Ministry of Communications' program of mandated gradual
reductions from 2005 to 2008. This also reflects greater competition
in the market, and the increase in the weight of business subscribers
in our total customer base. Business subscribers tend to generate more
minutes of use than post-paid private and prepaid subscribers, but
with a lower average per minute tariff.
2006 equipment revenues were NIS 579.4 million (US$ 137.1
million), an increase of 15.2% from NIS 503.0 million in 2005.
Quarterly equipment revenues in Q4 2006 increased by 28.9% to NIS
162.9 million (US$ 38.6 million) from NIS 126.4 million in Q4 2005,
and increased by 11.9% compared with NIS 145.6 million in Q3 2006. The
annual increase compared with 2005 was caused by increases in both the
average revenue per sale reflecting the higher proportion of 3G sales
to new and upgrading subscribers, as well as in the number of sales to
new and upgrading subscribers. Compared with Q4 2005 the increase was
primarily a result of the increase in the total number of sales,
whilst the increase compared with Q3 2006 was due to increases in both
the average revenue per sale, as well as in the total number of sales.
Data and content revenues, including SMS messages, totaled NIS
526.7 million (US$ 124.7 million) for 2006 as a whole, accounting for
9.4% of total revenues or 10.5% of service revenues, up from NIS 404.2
million, 7.9% of total revenues, or 8.7% of service revenues, in 2005,
despite the mandated 49% reduction in SMS interconnection tariffs
which went into effect in March 2006. Content and data revenues in Q4
2006 accounted for 10.1% of total revenues or 11.4% of service
revenues, up from 8.8% of total revenues and 9.7% of service revenues
in Q4 2005. Both the annual and quarterly increases compared with 2005
were driven by data and content non-SMS service revenues, which
increased by 36.1% on an annual basis and by 32.6% compared with Q4
2005. Revenues from SMS services in 2006 increased by 21.7% compared
with 2005, despite the reduction in SMS interconnect tariffs from
March 2006, as mandated by the Ministry of Communications. SMS
messages accounted for approximately 38% of data and content revenues
in 2006, compared with approximately 42% in 2005.
2006 cost of revenues related to services totaled NIS 3,085.5
million (US$ 730.3 million), increasing by 2.1% from NIS 3,022.5
million in 2005. The increase was primarily driven by the higher
variable airtime costs resulting from the growth in airtime usage,
offset by lower depreciation, lower royalties, and efficiency measures
taken by the company. Compared with Q4 2005, the cost of revenues
related to services increased by 2.3% from NIS 756.8 million to NIS
774.1 million (US$ 183.2 million) in Q4 2006, the increase again being
due primarily to higher variable airtime costs resulting from the
growth in airtime usage. Compared with Q3 2006, the cost of revenues
related to services decreased by 2.5% from NIS 794.2 million.
The cost of revenues related to equipment in 2006 was NIS 811.8
million (US$ 192.1 million), representing an increase of 9.1% from NIS
743.9 million in 2005. The increase was driven primarily by the
selling of more advanced and higher cost 3G handsets and an
approximate 7% growth in sales transactions to new and upgrading
subscribers. The cost of revenues related to equipment in Q4 2006
totaled NIS 224.4 million (US$ 53.1 million), an increase of 29.4%
from NIS 173.4 million in Q4 2005, principally reflecting an increase
in the total number of transactions, and the higher proportion of 3G
sales to new and upgrading subscribers, and an increase of 6.7% from
NIS 210.4 million in Q3 2006, driven mainly by an increase in the
total number of sales.
2006 gross profit from services was NIS 1,941.8 million (US$ 459.6
million), an increase of 21.6% from NIS 1,597.5 million in 2005.
Quarterly gross profit on services for Q4 2006 increased by 35.1% from
NIS 376.1 million in Q4 2005 to NIS 508.1 million (US$ 120.3 million)
in Q4 2006, but decreased by 2.7% from NIS 522.2 million in Q3 2006.
Gross loss on equipment in 2006 was NIS 232.4 million (US$ 55.0
million), a decrease of 3.5% from NIS 240.9 million in 2005. Compared
with Q4 2005, the gross loss on equipment in Q4 2006 increased by
30.7% from NIS 47.0 million to NIS 61.5 million (US$ 14.6 million),
reflecting the increase in the total number of sales. Compared with Q3
2006, the gross loss on equipment decreased by 5.2% from NIS 64.9
million.
Overall, 2006 gross profit was NIS 1,709.4 million
(US$ 404.6 million), the equivalent of 30.4% of revenues, up by 26.0%
from NIS 1,356.6 million, or 26.5% of revenues, in 2005. Gross profit
for Q4 2006 was NIS 446.6 million (US$ 105.7 million), 30.9% of
revenues, an increase of 35.7% from NIS 329.0 million, or 26.1% of
revenues, in Q4 2005.
Selling and marketing expenses increased in 2006 by 12.7% to NIS
307.6 million (US$ 72.8 million), from NIS 272.9 million in 2005,
principally related to an increase in the sales force, which
contributed to growth in sales transactions, as well as increases in
distribution and advertising costs. Q4 2006 selling and marketing
expenses were NIS 90.6 million (US$ 21.5 million), an increase of
16.2% from NIS 78.0 million in Q4 2005, and an increase of 7.7% from
NIS 84.1 million in Q3 2006. Compared with Q4 2005, the increase was
principally related to an increase in the sales force. Compared with
Q3 2006, the increase was mainly due to end of year promotional
campaigns.
General and administrative expenses in 2006 were NIS 183.5 million
(US$ 43.4 million), up by 1.5% from NIS 180.8 million in 2005, the
increase primarily due to fees related to ensuring Sarbanes-Oxley Act
compliance. For Q4 2006, general and administrative expenses decreased
by 12.0% from NIS 47.8 million in Q4 2005 to NIS 42.1 million (US$
10.0 million).
Overall, 2006 operating profit was NIS 1,218.4 million (US$ 288.4
million), an increase of 34.9% from NIS 902.9 million in 2005. In
revenue percentage terms, operating profit increased from 17.6% of
total revenues in 2005 to 21.7% in 2006. Operating profit in Q4 2006
was NIS 313.9 million (US$ 74.3 million), or 21.7% of total revenues,
an increase from Q4 2005 of 54.4% from NIS 203.2 million, or 16.1% of
revenues.
In 2006 the Company recorded annual EBITDA of NIS 1,850.1 million
(US$ 437.9 million), the equivalent of 33.0% of revenues, up by 17.9%
from NIS 1,568.6 million, or 30.6% of revenues in 2005. Quarterly
EBITDA in Q4 2006 was NIS 461.6 million (US$ 109.2 million), an
increase of 26.6% from NIS 364.5 million in Q4 2005.
Financial expenses decreased by 51.8% in 2006, from NIS 345.4
million in 2005 to NIS 166.4 million (US$ 39.4 million) in 2006. The
decrease is primarily attributed to one-off charges in 2005 including
a NIS 63 million charge related to the redemption of the US$ 175
million 13% Senior Subordinated Notes in August 2005. The decrease
also reflects lower interest expenses resulting from the refinancing
of the Company's long term debt with lower cost CPI linked
shekel-denominated debt, as well as lower expenses resulting from the
lower average CPI level in 2006 of -0.1% compared with +2.4% in 2005.
Following the ruling of the Supreme Court, on November 20, 2006 on
the matter of Paz Gas Marketing Company Ltd. and others vs. the
assessing officer and others, which overturned the rules regarding the
recognition of financing expenses, the Company included in its
financial statements an additional provision for taxes in the amount
of NIS 35 million. This provision is an estimate of the additional tax
expense relating to the possibility that part of the financing
expenses accrued in the years 2005 and 2006 in respect of a financial
debt, which is attributable, inter alia, to the financing of a
repurchase of Company shares, will not be recognized as an expense for
tax purposes. The Company has reasons justifying the recognition of
these expenses for tax purposes, or part of them, however since at
this point the level of certainty required in order to recognize these
expenses does not exist, the aforementioned provision was recorded.
The Company is examining the possible effects of the ruling, if any,
on its policies in the future.
Net income in 2006 was NIS 682.3 million (US$ 161.5 million) or
earnings of NIS 4.44 (US$ 1.05) per basic ADS or share (NIS 4.41 per
diluted ADS or share), representing a 92.4% increase from NIS 354.6
million, or earnings of NIS 2.19 per basic ADS or share (NIS 2.17 per
diluted ADS or share), in 2005. Q4 2006 net income was NIS 163.0
million (US$ 38.6 million), up 95.7% from NIS 83.3 million in Q4 2005.
Funding and Investing Review
Cash flows generated from operating activities in 2006, net of
cash flows from investing activities, were NIS 774.8 million
(US$ 183.4 million), an increase of 68.6% from NIS 459.6 million in
2005. The increase was primarily due to an increase in cash flows from
operating activities, combined with a decrease in the level of
investment in fixed assets. Cash flows from operating activities
increased by 21.6% from NIS 1,006.3 million in 2005 to NIS 1,223.5
million (US$ 289.6 million) in 2006. Cash flows from investing
activities decreased by 17.9% to NIS 448.7 million (US$ 106.2 million)
in 2006, from NIS 546.7 million in 2005.
Q4 2006 cash flows generated from operating activities, net of
cash flows from investing activities, decreased by 17.8% from NIS
199.0 million in Q4 2005 to NIS 163.6 million (US$ 38.7 million),
primarily due to a 299.5% increase in the level of investment in fixed
assets.
Net investment in fixed assets in 2006 totaled NIS 487.9 million
(US$ 115.5 million), approximately equivalent to NIS 486.4 million in
2005. On July 3, 2006 the Company acquired MED I.C-1 (1999) Ltd. ("Med
1") transmission activity including 900 kilometers of transmission
fiber for approximately NIS 71 million (US$ 16.8 million) in cash. The
purchase of the Med-1 transmission network will lower the Company's
transmission expenses and offers the Company the ability to provide
its customers with additional services.
Operational Review
Approximately 139,000 net active subscribers joined the Company in
2006 compared with approximately 189,000 in 2005, with the business
sector accounting for approximately 71% of net new active subscribers
over the year. The Company's active subscriber base at the end of
December 2006 was approximately 2,668,000, including approximately
605,000 business subscribers or 23% of the base, approximately
1,282,000 postpaid private subscribers, or 48% of the base, and
approximately 781,000 prepaid subscribers, or 29% of the base. Of the
Company's subscriber base, approximately 276,000 were 3G subscribers.
We estimate our 2006 year-end market share to have been around 32%
The 2006 annual churn rate was 15.6%, up from 13.6% in 2005, the
increase primarily due churn in the prepaid sector.
2006 average monthly usage per subscriber (MOU) for 2006 was 311
minutes, an increase of 5.8% compared with 294 minutes in 2005.
Average monthly revenue per subscriber (ARPU) in 2006 was NIS 158 (US$
37.4), an increase of 1.3% compared with NIS 156 in 2005, despite the
reduction in interconnection charges mandated by the Ministry of
Communications in March 2006.
Commenting on the Company's results, Mr. Emanuel Avner, Partner's
Chief Financial Officer said: "We are very pleased with our results.
We once again achieved record profitability levels, we doubled our
EPS, enabling us to distribute a yearly dividend per share in an
amount of NIS 2.63, equivalent at the current market price to a
dividend yield of 5%."
Outlook and Guidance
Commenting on the Company's outlook, Mr. Emanuel Avner, Partner's
Chief Financial Officer said: "Looking forward to 2007, we expect to
continue to grow our subscriber base compared with 2006, despite the
highly penetrated market. We will continue to focus heavily on 3G
subscribers and expect to see a strong growth in our 3G base.
Despite the forthcoming decline in interconnect tariffs from March
2007, and the decline in revenues that will result from the recently
introduced regulation regarding short calls to voicemail, we expect
growth in total revenues in 2007.
The Company expects that number portability, which is expected to
be implemented during the year, will lead to higher retention costs,
and a rise in churn rates following implementation.
Barring any further adverse material regulatory decisions, we
expect an increase in annual EBITDA in 2007, though at a lower pace
than in 2006.
The Company is currently reviewing whether to increase its
dividend policy above a 60% net income payout ratio, and the review
will be completed during the first half of the year."
Conference Call Details
Partner Communications will hold a conference call to discuss the
company's 2006 full-year and fourth-quarter results on Wednesday,
January 31, 2007, at 17:00 Israel local time (10AM EST). This
conference call will be broadcast live over the Internet and can be
accessed by all interested parties through our investor relations web
site at http://www.investors.partner.co.il.
To listen to the broadcast, please go to the web site at least 15
minutes prior to the start of the call to register, download and
install any necessary audio software. For those unable to listen to
the live broadcast, an archive of the call will be available via the
Internet (at the same location as the live broadcast) shortly after
the call ends, and until midnight of February 07, 2007.
About Partner Communications
Partner Communications Company Ltd. (Partner) is a leading Israeli
mobile communications operator providing GSM / GPRS / UMTS / HSDPA
services and wire free applications under the orange(TM) brand. The
Company commenced full commercial operations in January 1999 and,
through its network, provides quality service and a range of features
to 2.668 million subscribers in Israel. The Company launched its 3G
service in 2004. Partner's ADSs are quoted on The NASDAQ Global Select
Market(TM) and on the Tel Aviv Stock Exchange under the symbol PTNR.
The shares are also traded on the London Stock Exchange under the
symbol PCCD.
Partner is a subsidiary of Hutchison Telecommunications
International Limited (Hutchison Telecom). Hutchison Telecom is a
leading listed telecommunications operator (SEHK: 2332; NYSE: HTX)
focusing on dynamic markets. It currently offers mobile and fixed-line
telecommunication services in Hong Kong, and operates or is rolling
out mobile telecommunication services in India, Israel, Macau,
Thailand, Sri Lanka, Ghana, Indonesia and Vietnam.
For more information about Partner, see
www.investors.partner.co.il
Note: 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. We have based these forward-looking
statements on our current expectations and projections about future
events. These forward-looking statements are subject to risks,
uncertainties and assumptions about Partner.
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. All statements other
than statements of historical fact included in this press release
regarding our future performance (including our outlook and guidance
for 2007), plans to increase revenues or margins or preserve or expand
market share in existing or new markets, reduce expenses and any
statements regarding other future events or our future prospects, are
forward-looking statements.
Because such statements involve risks and uncertainties, actual
results may differ materially from the results currently expected.
Factors that could cause such differences include, but are not limited
to:
-- the effects of the high degree of regulation in the
telecommunications market in which we operate;
-- regulatory developments relating to tariffs, including
interconnect tariffs;
-- the difficulties associated with obtaining all permits
required for building and operating of antenna sites;
-- the requirement to indemnify planning committees in respect of
claims made against them relating to the depreciation of
property values or to alleged health damages resulting from
antenna sites;
-- alleged health risks related to antenna sites and use of
telecommunication devices;
-- the effects of vigorous competition in the market in which we
operate and for more valuable customers, which may decrease
prices charged, increase churn and change our customer mix,
profitability and average revenue per user, and the response
of competitors to industry and regulatory developments;
-- uncertainties about the degree of growth in the number of
consumers in Israel using wireless personal communications
services and the growth in the Israeli population;
-- the risks associated with the implementation of a third
generation (3G) network and business strategy, including risks
relating to the operations of new systems and technologies,
potential unanticipated costs, uncertainties regarding the
adequacy of suppliers on whom we must rely to provide both
network and consumer equipment and consumer acceptance of the
products and services to be offered, and the risk that the use
of internet search engines by our 3G customers will be
restricted;
-- the risks associated with technological requirements,
technology substitution and changes and other technological
developments;
-- the impact of existing and new competitors in the market in
which we compete, including competitors that may offer less
expensive products and services, desirable or innovative
products, technological substitutes, or have extensive
resources or better financing;
-- regulatory developments related to the implementation of
number portability;
-- fluctuations in foreign exchange rates;
-- the possibility of the market in which we compete being
impacted by changes in political, economic or other factors,
such as monetary policy, legal and regulatory changes or other
external factors over which we have no control;
-- the availability and cost of capital and the consequences of
increased leverage; and
-- the results of litigation filed or that may be filed against
us, as well as the risks discussed in Risk Factors,
Information on the Company and Operating and Financial Review
and Prospects in form 20-F filed with the SEC on May 18, 2006.
In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report might not
occur.
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
preliminary un-audited financial results.
The results were prepared in accordance with U.S. GAAP.
The convenience translations of the Nominal New Israeli Shekel
(NIS) figures into US Dollars were made at the rate of exchange
prevailing at December 31st, 2006: US $1.00 equals NIS 4.225. The
translations were made purely for the convenience of the reader.
Earnings before interest, taxes, depreciation, amortization,
exceptional items and capitalization of intangible assets ('EBITDA')
is presented because it is a measure commonly used in the
telecommunications industry and is presented solely in order to
improve the understanding of the Company's operating results and to
provide further perspective on these results. EBITDA, however, should
not be considered as an alternative to operating income or net income
for the year as an indicator of the operating performance of the
Company. Similarly, EBITDA should not be considered as an alternative
to cash flows from operating activities as a measure of liquidity.
EBITDA is not a measure of financial performance under generally
accepted accounting principles and may not be comparable to other
similarly titled measures for other companies. EBITDA may not be
indicative of the historic operating results of the Company; nor is it
meant to be predictive of potential future results.
Reconciliation between our cash flows from operating activities
and EBIDTA is presented in the attached summary financial results.
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED BALANCE SHEETS
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December 31
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2005 2006 2006
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Convenience
translation
into
U.S.
dollars
New Israeli shekels
-------------------------------
(Audited) (U n a u d i t e d)
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In thousands
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents 4,008 77,547 18,354
Accounts receivable:
Trade 795,156 964,309 228,239
Other 97,128 65,533 15,511
Inventories 209,323 126,466 29,933
Deferred income taxes 65,361 40,495 9,584
-------------------------------
Total current assets 1,170,976 1,274,350 301,621
-------------------------------
INVESTMENTS AND LONG-TERM RECEIVABLES:
Accounts receivable - trade 189,013 274,608 64,996
Funds in respect of employee rights
upon retirement 75,443 80,881 19,143
-------------------------------
264,456 355,489 84,139
-------------------------------
FIXED ASSETS, net of accumulated
depreciation and amortization 1,768,895 1,747,459 413,600
-------------------------------
LICENSE, DEFERRED CHARGES AND OTHER
INTANGIBLE ASSETS, net of
accumulated amortization 1,321,167 1,247,084 295,168
-------------------------------
DEFERRED INCOME TAXES 86,505 76,139 18,021
-------------------------------
Total assets 4,611,999 4,700,521 1,112,549
===============================
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December 31
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2005 2006 2006
---------------------------------
Convenience
translation
into
U.S.
dollars
New Israeli shekels
---------------------------------
(Audited) (U n a u d i t e d)
---------------------------------
In thousands
---------------------------------
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Current maturities of long-term
liabilities 34,464 40,184 9,511
Accounts payable and accruals:
Trade 665,542 690,424 163,414
Other 231,480 281,403 66,604
Parent company's - group trade 10,513 15,830 3,747
Dividend payable 44,996 -- --
---------------------------------
Total current liabilities 986,995 1,027,841 243,276
---------------------------------
LONG-TERM LIABILITIES:
Bank loans, net of current
maturities 665,974 272,508 64,499
Notes payable 2,022,257 2,016,378 477,249
Liability for employee rights upon
retirement 102,238 113,380 26,836
Other liabilities 19,184 15,947 3,774
---------------------------------
Total long-term liabilities 2,809,653 2,418,213 572,358
---------------------------------
COMMITMENTS AND CONTINGENT
LIABILITIES
---------------------------------
Total liabilities 3,796,648 3,446,054 815,634
---------------------------------
SHAREHOLDERS' EQUITY:
Share capital - ordinary shares of
NIS 0.01 par value: authorized -
December 31, 2005 and 2006 -
235,000,000 shares; issued and
outstanding -
December 31, 2005 - 152,528,288
shares and
December 31, 2006 - 154,516,217
shares issued 1,525 1,545 366
Capital surplus 2,388,425 2,452,682 580,516
Accumulated deficit (1,574,599)(1,199,760) (283,967)
---------------------------------
Total shareholders' equity 815,351 1,254,467 296,915
---------------------------------
4,611,999 4,700,521 1,112,549
=================================
*T
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
-0-
*T
Year ended December 31
------------------------------------------------
2004 2005 2006 2006
------------------------------------------------
Convenience
translation
into
U.S. dollars
New Israeli shekels
------------------------------------------------
(Audited) (Unaudited)
------------------------------------------------
In thousands (except per share data)
------------------------------------------------
REVENUES - net:
Services 4,615,781 4,619,932 5,027,310 1,189,896
Equipment 524,956 503,007 579,401 137,136
------------------------------------------------
5,140,737 5,122,939 5,606,711 1,327,032
COST OF REVENUES:
Services 2,885,077 3,022,480 3,085,507 730,297
Equipment 729,937 743,872 811,760 192,133
------------------------------------------------
3,615,014 3,766,352 3,897,267 922,430
------------------------------------------------
GROSS PROFIT 1,525,723 1,356,587 1,709,444 404,602
SELLING AND MARKETING
EXPENSES 325,244 272,900 307,592 72,803
GENERAL AND
ADMINISTRATIVE
EXPENSES 181,133 180,781 183,460 43,422
------------------------------------------------
OPERATING PROFIT 1,019,346 902,906 1,218,392 288,377
FINANCIAL EXPENSES,
net 260,545 345,448 166,442 39,395
------------------------------------------------
INCOME BEFORE TAXES ON
INCOME 758,801 557,458 1,051,950 248,982
TAXES ON INCOME 287,248 202,898 370,675 87,734
------------------------------------------------
INCOME BEFORE
CUMULATIVE EFFECT OF
A CHANGE IN
ACCOUNTING PRINCIPLES 471,553 354,560 681,275 161,248
CUMULATIVE EFFECT, AT
BEGINNING OF YEAR, OF
A CHANGE IN
ACCOUNTING
PRINCIPLES, net of
tax 1,012 240
------------------------------------------------
NET INCOME FOR THE
YEAR 471,553 354,560 682,287 161,488
================================================
EARNINGS PER SHARE
("EPS"):
Basic:
Before cumulative
effect 2.57 2.19 4.43 1.05
Cumulative
effect -- -- 0.01 --
------------------------------------------------
2.57 2.19 4.44 1.05
================================================
Diluted:
Before cumulative
effect 2.56 2.17 4.40 1.04
Cumulative
effect -- -- 0.01 --
------------------------------------------------
2.56 2.17 4.41 1.04
================================================
WEIGHTED AVERAGE
NUMBER OF
SHARES OUTSTANDING:
Basic183,389,383 161,711,125 153,633,758 153,633,758
================================================
Diluted184,108,917 163,617,272 154,677,685 154,677,685
================================================
*T
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-0-
*T
Year ended December 31
-----------------------------------------
2004 2005 2006 2006
-----------------------------------------
Convenience
translation
into U.S.
dollars
New Israeli shekels
-----------------------------------------
(Audited) (Unaudited)
-----------------------------------------
In thousands
-----------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income for the year 471,553 354,560 682,287 161,488
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 558,222 683,503 622,434 147,322
Employee share-based
option compensation
expenses 10,720 10,353 20,957 4,960
Liability for employee
rights upon retirement 16,302 9,430 11,142 2,637
Deferred income taxes 283,807 198,079 35,231 8,339
Income tax benefit in
respect of exercise of
options granted to
employees 3,440 4,820
Accrued interest,
exchange and linkage
differences on (erosion
of) long-term
liabilities (10,258) 108,411 (4,646) (1,100)
Amount carried to
deferred charges (13,820)
Capital loss (gain) on
sale of fixed assets (391) 493 274 65
Cumulative effect, at
beginning of year, of a
change in accounting
principles (1,012) (240)
Changes in operating asset
and liability items:
Decrease (increase) in
accounts receivable:
Trade (225,860) (262,262) (254,748) (60,295)
Other (13,615) (26,970) 30,952 7,326
Increase (decrease) in
accounts payable and
accruals:
Trade 135,600 112,857 (58,568) (13,862)
Other 41,613 (75,884) 49,923 11,816
Parent company's -
group trade 10,513 5,317 1,258
Increase (decrease) in
asset retirement
obligations 464 (92) 1,069 253
Decrease (increase) in
inventories 1,205 (107,667) 82,857 19,611
-----------------------------------------
Net cash provided by
operating activities 1,272,802 1,006,324 1,223,469 289,578
-----------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets (609,795) (498,851) (344,206) (81,469)
Acquisition of optic fibers
activity (71,125) (16,834)
Proceeds from sale of fixed
assets 552 16 73 17
Purchase of additional
spectrum (53,969) (41,542) (27,690) (6,554)
Payment in respect of
transmission services
license (300) (71)
Funds in respect of
employee rights upon
retirement (10,404) (6,315) (5,438) (1,287)
-----------------------------------------
Net cash used in investing
activities (673,616) (546,692) (448,686) (106,198)
-----------------------------------------
*T
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-0-
*T
Year ended December 31
----------------------------------------
2004 2005 2006 2006
----------------------------------------
Convenience
translation
into U.S.
Dollars
New Israeli shekels
----------------------------------------
(Audited) (Unaudited)
----------------------------------------
In thousands
----------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of capital lease (1,893) (3,620) (857)
Repurchase of company's
shares (including purchase
cost of NIS 17,591,000) (1,091,841) -- --
Issuance of notes payable
under a prospectus, net of
issuance costs 1,929,223 -- --
Redemption of notes payable (793,100) -- --
Proceeds from exercise of
stock options granted to
employees 25,798 37,153 44,332 10,493
Windfall tax benefit in
respect of exercise of
options granted to
employees 643 152
Dividend paid (41,773)(352,444) (83,419)
Long-term bank loans
received 359,000
Repayment of long-term bank
loans (624,147) (857,004)(390,155) (92,344)
----------------------------------------
Net cash used in financing
activities (598,349) (460,235)(701,244) (165,975)
----------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 837 (603) 73,539 17,405
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,774 4,611 4,008 949
----------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR 4,611 4,008 77,547 18,354
========================================
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION -
cash paid during the year:
Interest 179,205 235,854 149,728 35,438
========================================
Advances to income tax
authorities 4,900 30,840 317,099 75,053
========================================
*T
Supplementary information on investing and financing activities
not involving cash flows
At December 31, 2004, 2005 and 2006, trade payables include NIS
103.8 million, NIS 90.3 million and NIS 201.8 million ($ 47.7
million), respectively, in respect of acquisition of fixed assets. In
addition, at December 31, 2004 and 2005 trade payables included NIS
13.8 million and NIS 27.7 million in respect of acquisition of
additional spectrum, respectively.
At December 31, 2005, dividend payable of approximately NIS 45
million was outstanding.
During 2005, the Company has undertaken a capital lease with
respect to fixed assets in the amount of NIS 15.8 million.
These balances are recognized in the cash flow statements upon
payment.
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
RECONCILIATION BETWEEN OPERATING CASH FLOWS AND EBITDA
-0-
*T
Convenience
translation
into U.S.
New Israeli shekels dollars
-------------------------------
-------------------------------
2005 2006 2006
-------------------------------
(U n a u d i t e d)
===============================
In thousands
-------------------------------
Net cash provided by operating
activities 1,006,324 1,223,469 289,578
Liability for employee rights upon
retirement (9,430) (11,142) (2,637)
Accrued interest and exchange and
linkage differences on long-term
liabilities (108,411) 4,646 1,100
Amount carried to differed charges 13,820
Increase in accounts receivable:
Trade 262,262 254,748 60,295
Other 26,970 304,492 72,069
Decrease (increase) in accounts payable
and accruals:
Trade (112,857) 58,568 13,862
Other 75,884 (49,923) (11,816)
Related parties (10,513) (5,317) (1,258)
Increase (Decrease) in inventories 107,667 (82,857) (19,611)
Decrease (Increase) in Assets
Retirement Obligation 92 (1,069) (253)
Financial Expenses 316,806 154,492 36,566
-------------------------------
EBITDA 1,568,616 1,850,107 437,895
-------------------------------
*T
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
-0-
*T
New Israeli shekels
--------------------------------------------------
3 month period ended
--------------------------------------------------
December September December
31, March 31, June 30, 30, 31,
2005 2006 2006 2006 2006
--------------------------------------------------
(Unaudited)
--------------------------------------------------
In thousands
--------------------------------------------------
Revenues - net 1,259,274 1,326,644 1,372,945 1,461,989 1,445,133
Cost of Revenues 930,225 952,177 941,914 1,004,637 998,539
--------------------------------------------------
Gross Profit 329,049 374,467 431,031 457,352 446,594
Selling and
Marketing Expenses 77,990 57,250 75,579 84,124 90,639
General and
Administrative
Expenses 47,846 43,682 43,963 53,717 42,098
--------------------------------------------------
Operating Profit 203,213 273,535 311,489 319,511 313,857
Financial Expenses -
net 62,986 38,629 61,176 44,710 21,927
--------------------------------------------------
Income Before Taxes
on Income 140,227 234,906 250,313 274,801 291,930
Taxes on Income 56,938 75,501 76,076 90,148 128,950
--------------------------------------------------
Income Before
Cumulative Effect
of a Change in
Accounting
Principles 83,289 159,405 174,237 184, 653 162,980
Cumulative Effect,
at the Beginning of
the Year, of a
Change in
Accounting
Principles 1,012
Net Income for the
Period 83,289 160,417 174,237 184,653 162,980
==================================================
*T
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
Summary Operating Data
-0-
*T
2005 2006
----------------------------------------------------------------------
Subscribers (in thousands) 2,529 2,668
----------------------------------------------------------------------
Estimated share of total Israeli mobile telephone
subscribers 32% 32%
----------------------------------------------------------------------
Churn rate in year 13.6% 15.6%
----------------------------------------------------------------------
Average monthly usage in year per subscriber (minutes) 294 311
----------------------------------------------------------------------
Average monthly revenue in year per subscriber, including
in-roaming revenue (NIS) 156 158
----------------------------------------------------------------------
*T
-0-
*T
Q4 Q4
2005 2006
----------------------------------------------------------------------
Subscribers (in thousands) 2,529 2,668
----------------------------------------------------------------------
Estimated share of total Israeli mobile telephone
subscribers 32% 32%
----------------------------------------------------------------------
Churn rate in quarter 3.1% 4.0%
----------------------------------------------------------------------
Average monthly usage in quarter per subscriber (minutes) 287 316
----------------------------------------------------------------------
Average monthly revenue in year per subscriber, including
in-roaming revenue (NIS) 148 159
----------------------------------------------------------------------
*T