Partner Communications Reports Fourth Quarter and Annual 2012 Results1

Partner Communications ReportsFourth Quarter and Annual 2012 Results1

Annual Free Cash Flow before Interest Payments2Totaled NIS 1,243 Million; Free Cash Flow in the Fourth Quarter Totaled NIS 323 Million

Annual Net Profit Totaled NIS 478 Million; Net Profit in the Fourth Quarter Totaled NIS 102 Million

2012 Annual Highlights (compared with 2011)

  • Total Revenues: NIS 5,572 million (US$ 1,493 million), a decrease of 20%
  • Service Revenues: NIS 4,640 million (US$ 1,243 million), a decrease of 11%
  • OPEX3: NIS 3,362 million (US $874 million), an improvement of 7%
  • Operating Expenses (OPEX)3including cost of equipment revenues: NIS 4,081 million (US$ 1,093 million), an improvement of 17%
  • EBITDA4: NIS 1,602 million (US$ 429 million), a decrease of 26%
  • EBITDA Margin: 29% of total revenues compared with 31%
  • Net Profit: NIS 478 million (US$ 128 million), an increase of 8%5
  • Cellular ARPU: NIS 97 (US$ 26), a decrease of 13%

Q4 2012 Highlights (compared with Q4 2011)

  • Total Revenues: NIS 1,258 million (US$ 337 million), a decrease of 21%
  • Service Revenues: NIS 1,036 million (US$ 278 million), a decrease of 19%
  • OPEX3: NIS 744 million (US $199 million), compared with NIS 889 million, an improvement of 16%
  • Operating Expenses (OPEX)3including cost of equipment revenues: NIS 944 million (US$ 253 million) compared with NIS 1,142 million, an improvement of 17%
  • EBITDA4: NIS 340 million (US$ 91 million), a decrease of 29%
  • EBITDA Margin: 27% of total revenues compared with 30%
  • Net Profit: NIS 102 million (US$ 27 million), compared with a loss of NIS 188 million5
  • Cellular ARPU: NIS 87 (US$ 23), a decrease of 18%
  • Cellular Subscriber Base: approximately 3 million at year-end

ROSH HA'AYIN, Israel--(BUSINESS WIRE)-- Partner Communications Company Ltd. ("Partner" or the "Company") (Nasdaq: PTNR)(TASE:PTNR) , a leading Israeli communications operator, announced today its results for the year and quarter ended December 31, 2012.

Commenting on the fourth quarter and annual results, Mr.Haim Romano,Partner's CEO, said:

"In 2012, the level of competition in the Israeli telecommunications market greatly intensified and as a result, the significant price erosion in the market impacted the Company's business results as reflected in our financial statements. These trends have continued into the first months of 2013. Nevertheless we have maintained robust free cash flow, whilst continuing to invest in and develop the cellular market's most technologically advanced infrastructure. We have also taken significant efficiency measures which mitigated the impact of these trends on the erosion of the company's profitability.

Despite a substantial decline in revenues, the Company reported strong cash flow before interest payments in 2012 of NIS 1,234 million. At the same time, the Company has significantly reduced net debt by NIS 827 million. Due to the efficiency measures taken by the Company during the past year, operating expenses in the fourth quarter of 2012 decreased by NIS 145 million compared with the fourth quarter of 2011, while we improved organizational processes and raised the quality of customer services.

The Company has invested approximately NIS 500 million, principally during 2012, in the Orange ultranet upgrade project. Partner's network is currently the fastest6 and most advanced network in Israel, and is the only network supporting HD voice quality and preparation for 4G technology. To ensure continued technological progress, network availability, internet capacity and other added services at competitive prices, the Company intends to participate in an expected tender for an allocation of new frequencies to be used for 4G.

The Company completed the integration with 012 Smile in most operational areas, enabling the Company to provide further value for our customers through bundled service packages that include cellular, fixed-line and ISP services."

Mr. Haim Romano noted: "The Company is operating under two main brands and adhered to its customer centric strategy, its dedication to excellent service and its commitment to offers tailored to customer needs. The Orangebrand provides customized solutions with maximum availability in all customer interfaces, physical and digital, and was ranked first among all major cellular operators in Israel in the "Market-test index for customer experience". The "012 mobile" cellular services are based mainly on self-service through a website at attractive prices.

The Company will continue to implement the "clear" policy, which is unique to the Company, and is based on simplicity, fairness and clarity in all the Company's interfaces, under which the same plans are offered to new and existing customers and which contributes to the creation of customer loyalty over time."

Mr. Haim Romano concluded: "the Company will continue to adhere to the customer centric strategy and with the consistent investment in the Company's assets: customers, employees and the Orange brand."

Mr. Ziv Leitman, Partner's Chief Financial Officer commented on the quarterly results:

"The financial results of the fourth quarter of 2012 compared to the previous quarter reflect the downward pressure on revenues resulting from increasingly intense competition in the telecommunications market, which was partially offset by the continued impact of efficiency measures implemented by the Company over the course of the past year.

During the fourth quarter of 2012, the Company continued to implement efficiency measures and to adjust its cost structure to adapt to the new level of revenues. In the fourth quarter, operating expenses (excluding cost of equipment revenues, depreciation and amortization) decreased by approximately NIS 50 million compared to the third quarter of 2012, mainly reflecting the impact of efficiency measures. The Company began to implement significant efficiency measures five quarters ago and operating expenses in the fourth quarter of 2012 was lower by NIS 145 million compared with the fourth quarter of 2011. The Company plans to continue in the coming quarters to implement additional operational efficiency measures in order to further reduce operating expenses.

As part of the efficiency measures, the Company has continued to adjust its workforce to the changing market conditions and in the fourth quarter of 2012, the number of positions (on a full time equivalent (FTE) basis) was reduced by approximately 700. In total, during 2012, the number of reported positions was reduced by 2,495 positions, or 32% of the Company's workforce, principally by lowering the level of new recruits. The number of employees on a FTE basis at the end of December 2012 was 5,396.

The churn rate increased in the fourth quarter of 2012 to 10.9% from 10.4% in the third quarter, reflecting an increase in the churn of Pre-Paid subscribers, which was partially offset by a decrease in the churn of Post-Paid subscribers.

ARPU totaled NIS 87 in the fourth quarter of 2012, compared with NIS 97 in the previous quarter. The decrease was partially explained by the seasonal decline, mainly in roaming revenues, and by the continued price erosion and transition of customers to unlimited packages.

Equipment revenues in the fourth quarter of 2012 increased to NIS 222 million compared with NIS 165 million in the previous quarter, mainly reflecting the impact of the launched of the iPhone 5 in December 2012.

As a result of the above effects, the EBITDA for the fourth quarter of 2012 amounted to NIS 340 million compared to NIS 401 million in the previous quarter.

The Company's investments in fixed assets totaled NIS 123 million in the fourth quarter of 2012 and total annual investments for 2012 were NIS 500 million, or 9% of annual revenues. At the same time, the Company continued to report strong free cash flow (after interest payments), which totaled NIS 255 million this quarter. Over 2012, the Company generated free cash flow after interest payments in the amount of NIS 1,034 million. The cash flow was positively affected by a decrease in working capital, following lower equipment sales over the course of the year and an increase in the proportion of equipment sales by credit card and cash. This trend is expected to have positively impact on the free cash flow in the coming quarters.

In light of its strong free cash flow, the Company made an early repayment of bank loans during the fourth quarter of 2012 in the amount of NIS 300 million. In 2013, therefore, only repayments of bonds are currently required, in an amount of approximately NIS 300 million. The level of net debt was NIS 3,812 million at year-end 2012 compared to NIS 4,639 million at the end of the previous year.

The competition and material price erosion that adversely affected our financial results for the fourth quarter of 2012 are continuing in the first quarter of 2013 and may continue further into the year, which could have a material adverse effect on our financial results in the first quarter of 2013 and going forward."

Key Financial Results  (unaudited)

NIS MILLION   2008   2009   2010   


Revenues   6,302   6,079   6,674   6,998   5,572
Cost of revenues






Gross profit2,4342,3092,5812,021,541
Impairment of goodwill---87-
Other income






Operating profit1,8261,7011,861,036865
Financial costs, net184176181294234
Income tax expenses






Net Profit






Earnings per share (basic, NIS)7.717.428.032.853.07
Free cash flow   1,401   1,021   1,502   1,082   1,234




   Q2'12   Q3'12   Q4'12
Cost of revenues






Gross profit310443428381289
Impairment of goodwill87----
Other income






Operating profit (loss)-55248245217155
Financial costs, net5555736838
Income tax expenses7847523915
Net profit (loss)






Earnings (Losses) per share (basic, NIS)(1.21)0.940.770.710.65
Free cash flow   292   223   313   375   323

Key Operating Indicators:

    2008   2009   2010   2011   2012
EBITDA (NIS millions)2,2982,3042,572,1781,602
EBITDA as a percentage of total revenues36%38%38%31%29%

Cellular Subscribers (end of period, thousands)

Estimated Cellular Market Share (%)32%32%32%32%29%
Annual Cellular Churn Rate (%)18%18%21%29%38%

Average Monthly Usage per Cellular Subscriber
(MOU) (minutes)


Average Monthly Revenue per Cellular Subscriber



No. Fixed Lines (end of period, thousands)**69292288
ISP Subscribers (end of period, thousands)   *   *   60   632   587

* Prior to 2010, the Company did not operate a fixed line service nor have ISP subscribers.

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Partner Consolidated Results (unaudited)

   Cellular Segment   Fixed Line Segment   Elimination   Consolidated
NIS Millions   2012   2011   Change %   2012   2011   Change %   2012   2011   2012   2011   Change %
Total Revenues4,488   5,996   -25%1,246   1,153   


(162)   (151)5,572   6,998   -20%
Service Revenues3,5924,248-15%1,211,127





Equipment Revenues8961,748-49%3626


Operating Profit7421,287-42%123





EBITDA   1,314