Partner Communications Company Ltd. (PTNR) CEO Isaac Benbenisti on Q4 2018 Results - Earnings Call Transcript

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Partner Communications Company Ltd. (NASDAQ:PTNR) Q4 2018 Earnings Conference Call March 27, 2019 11:00 AM ET

Company Participants

Gideon Koch - IR

Isaac Benbenisti - CEO

Tamir Amar - CFO

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Fourth Quarter and Full Year 2018 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Gideon Koch. Mr. Koch, please begin.

Gideon Koch

Thank you to all our listeners for joining us on this conference call to discuss Partner Communications' annual and fourth quarter results for 2018. With me on the call today is Isaac Benbenisti, Partner's CEO; and Tamir Amar, our CFO. Isaac Benbenisti will start with a number of operational highlights of 2018, focusing in particularly on progress on our two strategic projects of Partner Fiber and Partner TV. He will then hand over to Tamir, who will provide an overview of the financial and operational results. And finally, we'll move on to the Q&As.

Before we begin, I would like to draw your attention to the fact that all statements in this conference call may be forward-looking statements within the meaning of Section 27A of the 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.

Regarding such forward-looking statements, you should be aware that Partner's actual results might vary materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in Partner's press release dated March the 27, 2019, as well as Partner's filings with the US Securities and Exchange Commission on Forms 20-F, F-1 and 6-K as well as the F-3 shelf-registration statement, all of which are readily available.

I would also draw your attention to the fact that Partner filed its annual report for 2018 on Form 20-F with the SEC earlier today. Please note that the information in this conference call related to projections or other forward-looking statements is subject to the previous Safe Harbor statement as of the date of this call. For your information, this call is being broadcast simultaneously over the Internet and can be accessed through our website.

I will now turn the call over to Partner's CEO, Isaac Benbenisti. Isaac?

Isaac Benbenisti

Yeah and good day everyone. First, I'd like to apologize for having a sore throat. I'll try to do my best. So welcome to our earning conference call. The 2018 annual results expressed Partner’s strength in the Israeli telco market. In spite of the competitive conditions we faced, Partner succeeded in ending the fourth quarter with a profit of ILS19 million and an annual profits of ILS56 million.

Partner TV is the fastest growing TV service in Israel with a subscriber base of 140,000 subscribers as of today. In 2018 alone, we added 79,000 subscribers. Partner TV’s advanced interface is best adapted to new viewing habits and has set a new standard in the multi-channel television market in Israel. Partner’s fiber optic infrastructure, Partner Fiber is also growing in the fastest rate in this in the market. In recent months, we have expanded the fiber optic network across dozens of cities and we have already reached, as of today, over 350,000 households, nearly 20% of all Internet households in Israel and we did it in 15 months of working and I think this is outstanding.

In addition, and in light of the challenges facing a company's operating in the telecom sector, we reached this month a new collective agreement in cooperation with employees’ representative and the Histadrut labor union. The new agreement takes care of the welfare of our employees and directly links employee compensation to the success of the company.

I will now like to turn the call over to Tamir Amar for a more detailed review of our financial results. Tamir, please.

Tamir Amar

Thank you, Isaac. Good day, everyone and welcome to our earning conference call. During 2018, Partner further consolidated its status as a total service communication provider with impressive growth in the company's new revenue engines of the TV services and fiber optics infrastructure. We invested significant resources in smart and extensive deployment of our fiber optic network, while maintaining relatively low levels of debt leverage.

We intend to realize to the full the advantage we have over our competitors in network coverage and in our value propositions that combined TV and Internet services. In order to increase profitability in the fixed line segment, in support of our efforts to establish Partner as a leading communication for such a company, the new revenue engines are developing rapidly and serve to strengthen the company’s resilience in light of the under strength competition in the Israeli cellular market; competition, which was further intensified with the entrance of an additional six cellular operators and which led to even stronger price erosion than during the preceding year.

The company intends to deploy a fiber optic network with an extensive and significant coverage of potential households in Israel within three to four years from today, with an expected payback period for the project overall of seven years. CapEx payments relating to the fiber optic networks are expected to remain stable at the level similar to that in 2018. Profit for the year 2018 was ILS56 million, a decrease of 51% compared with 2017.

Adjusted EBITDA in 2018 totaled ILS722 million, a decrease of 21% from 2017. Adjusted EBITDA for the cellular segment decreased by 26%, mainly reflecting the impact of the decreases in service revenues and in income with respect to the settlement agreement with Orange, which ceased being recognized from the end of the second half of 2017. These decreases were partially offset mainly by the reduction in OpEx.

Adjusted Free Cash Flow, before interest, totaled ILS124 million in 2018, after the company’s significant investments to support its new revenue engines related to the fiber optics networks and TV services. CapEx payments, including investing in new revenue engines, totaled ILS502 million in 2018, an increase of 34% from 2017. The Company also made additional payments for deferred expenses, Rights of Use, totaling ILS107 million in 2018, compared with ILS113 million in 2017.

The Company’s balance sheet demonstrate its financial strength, with net debt remaining below ILS1 billion and a net debt to EBITDA ratio of 1.3 at year-end 2018. Our relatively low level of debt leverage, together with our ability to access additional fund sources through existing future debt issuance commitments, leaves us in a good position to be able to continue to invest in new growth opportunities, as necessary.

And now, I would be happy to open the call for question. Moderator, please begin the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] There are no questions at this time. Before I ask Mr. Benbenisti to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the US, please call 1-888-326-9310. In Israel, please call 03-925-5927 and internationally, please call 972-3925-5927. The recording is also available on the company's website at www.partner.co.il. Mr. Benbenisti, would you like to make your concluding statement?

Isaac Benbenisti

Yes. First of all, I would like to thank everybody who's joining this call. Just to summarize, I think that the financial results we exposed today really represents the doing of the company in our core business in a highly competitive market, and growing engines arena, like the TV and the fiber optic that were very successful. I think we present a good management by maintaining the core business and investing massively in the future of the company. So thank you everybody and looking forward for the next conference call.

Operator

Thank you. This concludes the Partner Communications’ fourth quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.

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