Cellcom Israel Ltd. (CEL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Cellcom's First Quarter 2020 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Cellcom's Investor Relations team at GK Investor & Public Relations at 1 (646) 688-3559 or view it in the News section of the company's website, www.cellcom.co.il. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?

Yes. Thank you, operator. I would like to welcome all of you to Cellcom Israel's First Quarter 2020 Results Conference Call. I would also like to thank management for hosting this call today. With us here are Mr. Avi Gabbay, the CEO; and Mr. Shlomi Fruhling, CFO. Mr. Gabbay will open by providing a summary of the quarter results, and we will then open the call for any questions you may have. Before I turn over the call to Mr. Gabbay, I would like to remind our listeners in this call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995 and in the Israeli Securities Law of 1968. I note that actual results may differ from those discussed today and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including on the risk factors in the company's annual report for the year ended December 31, 2019, filed under the Form 20-F, which was filed on March 23, 2020, with the SEC. In addition, any projections as to the company's future performance represent management estimates as of today. Cellcom Israel assume no obligation to update these projections in the future as market conditions change. We should hope by now, you received a copy of the company's press release. If you have not received it, please contact us at GK Investor & Public Relations. I would now like to hand over the call to Mr. Avi Gabbay. Avi, please?

Thank you, Ehud. Good day to all of you, and welcome. I would like to share a few points about the coronavirus, the debt offering and some strategic initiatives that we have. About the coronavirus, as you all know, we are currently in unprecedented times, and I wish everyone a speedy recovery. The corona pandemic has been affecting consumer behavior so that they could not leave their homes or fly overseas. The company response was swift and included the closing of all of our retail stores and putting employees on leave without pay. Thanks to the good relationship we have with the working representatives union, we did things quickly and compensate for the loss of revenue. The company continued to function and service its customers by working remotely. Now Israel is in its way out of the quarantine period, and we are back to work almost [ efficient ]. However, the coronavirus situation continues to evolve, and it is difficult to predict how the return to normal life will be like, and therefore, how long it will continue to affect our operations and therefore, the effect on our results. We expect the roaming revenues to continue to be impacted by the -- foreseeable future so long as significant international travel does not receive. Sales of equipment remain subject to our ability to resume normal operations at our stores. About the debt offering. 2 weeks ago, we concluded the tender for a debt and option offering, raising ILS 200 million in Israel. S&P in Maalot reaffirmed an ILA negative rating on the new bonds. We appreciate the support from the Israeli capital markets. Our net debt now stands at ILS 1.9 billion net. As you know, we have taken significant steps to reduce expenses and CapEx. We believe our business is now better structured to match the current market environment, combined with our balance sheet. All these steps enables Cellcom to better weather the current environment. Our EBITDA to net debt, excluding IFRS 16, CapEx ratio as of the end of the first quarter was less than 3x. I would like to spend a few moments talking about some strategic initiatives that we have. Last year, we completed the investment deal in IBC. Cellcom remains very well positioned to benefit from the future growth of the fiber optic market in Israel. Since our purchase, we have been reducing our landline wholesale access fees by shifting our customers to the optical fiber network of IBC. IBC's goal is to continue to connect 1 million households within the next 5 years. Today, IBC's infrastructure recently crossed 350,000 households in connected business blocks -- building blocks. The long-term growth potential as well as our potential paving from payments for infrastructure over the coming years is very, very, very significant. About Golan. The most significant event which will impact Cellcom is the potential acquisition of Golan. In the first quarter, we entered into the binding MOU for the purchase of Golan Telecom for ILS 590 million and some additional payments. We believe the acquisition of Golan is a significant win-win for both Golan and Cellcom Israel. And we see significant shares in synergies and savings, which means the combined entity cash flows and entity at all will be greater than the sum of its parts. The transaction is subject to certain conditions, including regulatory approvals, which we hope to complete in 2020. To summarize, the first quarter was a difficult period for everybody. We continue to support and serve our customers throughout Israel with all their communication needs, whether it's telephone, Internet or via television. That ends my summary, and I would like to hand over to Shlomi. Shlomi, please?

Thank you, Avi, and good day to all of you. I will provide you a summary of our results, the details can be found in the press release we issued earlier today. Revenue for the first quarter of 2020 totaled ILS 822 million compared to ILS 828 million reported in the first quarter of the last year. Out of those, the service revenues were ILS 682 million, significantly ahead of the ILS 678 million reported in the first quarter of last year. I would like to highlight that the fixed-line segment services revenue grew 3% over the first quarter of the last year to ILS 327 million. This increase resulted mainly from the net increase in revenues from Internet and TV services. Adjusted EBITDA for the first quarter of 2020 was ILS 244 million or 27.4% of revenue, 9% increase compared with ILS 224 million or 24.1% of revenue in the first quarter of last year. The EBITDA was positively impacted by ILS 28 million following a retroactive update of the wholesale market rates for Bezeq's services by the Ministry of Communications, which was partly offset by the impact due to the coronavirus crisis. Adjusted EBITDA for the fixed line segment was ILS 133 million compared with ILS 78 million in the last year, an increase of 71%. And adjusted EBITDA from the cellular segment was ILS 131 million compared with ILS 146 million last year. I would like to point out that our net financial expenses in the first quarter of 2020 amounted to ILS 64 million compared to ILS 27 million last year. The year-over-year increase in this expense was mainly due to the loss in our credible investment portfolio, which amounted to ILS 27 million as a result of the sharp market decline during the quarter due to the coronavirus. During April, due to the raise in the security prices in the capital markets, some of these losses has been revised. Net loss in the first quarter of 2020 totaled ILS 43 million compared to a net loss of ILS 60 million in the first quarter of last year. Free cash flow in the first quarter of 2020 was 57 million versus ILS 46 million in the first quarter of last year. Our capital expenditures for the first quarter of 2020 totaled ILS 180 million versus ILS 184 million in the first quarter of last year. As of the end of first quarter of 2020, our net debt stood at approximately ILS 1.9 billion. We have a total of approximately ILS 1.2 billion in cash in our balance sheet, while our overall debt repayment of interest and capital that are due to -- until the end of 2021 amounted to ILS 1 billion. At the end of the first quarter of 2020, the company had approximately 2.747 million cellular subscriber. The churn rate of the cellular subscribers in the first quarter of 2020 was 8.8% compared with 11% in the first quarter of 2019. That is mainly because the first quarter of 2019 -- of 2020, the churn rate includes only the negative rate churn of M2M subscribers in order to eliminate changes that do not change the amount of lines helped by the customers. Finally, the monthly cellular ARPU for the first quarter of 2020 was ILS 48.1, [ similar ] to ILS 47.2 in the first quarter of last year. With that, I would like to open the call for questions. Operator?

[Operator Instructions] There are no questions at this time. Mr. Gabbay, would you like to make your concluding statement?

Yes. I would like to thank all of you for joining our conference call and your continued interest in our company. I look forward to talking to you again at our next call. Have a good day.

Thank you. This concludes the Cellcom Israel Ltd. First Quarter 2020 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.