Service revenues in Q2 2013 totaled NIS 950 million (US$ 263 million), decreasing by 22% from NIS 1,213 million in Q2 2012.
Service revenues for the cellular segment in Q2 2013 were NIS 726 million (US$ 201 million), decreasing by 23% from NIS 949 million in Q2 2012. The decrease was mainly a result of the price erosion of cellular services including voice and data services, following the increased competition due to the entry of new competitors (new operators and MVNOs). The decrease also reflected the lower Post-Paid cellular subscriber base which decreased by approximately 6% on an average basis compared to the second quarter of 2012, as well as lower roaming revenues, as a result of price erosion in these services.
Service revenues for the fixed line segment reached NIS 277 million (US$ 77 million) in Q2 2013, a decrease of 8% compared with NIS 300 million in Q2 2012. The decrease mainly reflected price erosion in fixed line services including voice and internet services, as well as a decrease of approximately 6% in the average number of Internet service subscribers over the period.
Equipment revenues in Q2 2013 totaled NIS 180 million (US$ 50 million), a decrease of 16% compared with NIS 215 million in Q2 2012. The decrease was due to a reduction in the number of cellular devices sold and a reduction in the profit margin for cellular devices.Operating expenses (including cost of service revenues, selling, marketing and administrative expenses and excluding depreciation and amortization) totaled NIS 700 million (US$ 193 million) in Q2 2013, a decrease of 18% or NIS 153 million from Q2 2012, largely reflecting the efficiency measures undertaken, and in particular the reduction in the workforce by over one third during the last twelve months. Operating profit for Q2 2013 was NIS 102 million (US$ 28 million), a decrease of 58% compared with operating profit in Q2 2012 of NIS 245 million. Adjusted EBITDA in Q2 2013 totaled NIS 280 million (US$ 77 million), a decrease of 34% from NIS 423 million in Q2 2012. Adjusted EBITDA for the cellular segment was NIS 198 million (US$ 55 million) in Q2 2013, decreasing by 46% from NIS 367 million in Q2 2012, reflecting the impact of the decrease in service revenues and in gross profit from equipment sales, partially offset by the reduction of operating expenses, as described above. Adjusted EBITDA for the fixed line segment in Q2 2013 was NIS 82 million (US$ 23 million), an increase of 46% from NIS 56 million in Q2 2012, reflecting the reduction of operating expenses partially offset by the decrease in service revenues. Financial expenses, net in Q2 2013 were NIS 71 million (US$ 20 million), a decrease of 3%, compared with NIS 73 million in Q2 2012. The decrease was mainly due to the lower level of average debt in Q2 2013 compared with Q2 2012 (see Funding and Investing Review below). Net profit in Q2 2013 was NIS 20 million (US$ 6 million), a decrease of 83% compared with net profit in Q2 2012 of NIS 120 million. Based on the weighted average number of shares outstanding during Q2 2013, basic earnings per share or ADS, was NIS 0.13 (US$ 0.04), a decrease of 83% compared to NIS 0.77 in Q2 2012. The effective tax rate for Q2 2013 was 35%, compared with 30% in Q2 2012. The increase in the effective tax rate was mainly due to the higher percentage of unrecognized expenses than in the same quarter last year due to the decline in profit before tax. Funding and Investing Review In Q2 2013 , cash flow generated from operating activities before interest payments, net of cash flow used for investing activities (" Free Cash Flow"), totaled NIS 287 million (US$ 79 million), a decrease of 8% from NIS 313 million for Q2 2012. Cash generated from operations decreased by 0.5% to NIS 415 million (US$ 115 million) in Q2 2013 from NIS 417 million in Q2 2012. This was mainly explained by the decrease in net profit, partially offset by changes in operating working capital. In Q2 2013, operating working capital decreased by NIS 95 million as a result of lower equipment sales and a higher proportion of equipment sales by credit card, while, operating working capital in Q2 2012 decreased by NIS 79 million. The level of cash capital expenditures in fixed assets (Capex) including intangible assets but excluding capitalized subscriber acquisition and retention costs, net, was NIS 122 million (US$ 34 million) in Q2 2013, an increase of 8% from NIS 113 million in Q2 2012. The level of net debt 6 at the end of Q2 2013 was NIS 3,446 million (US$ 952 million), compared with NIS 4,209 million at the end of Q2 2012, a decrease of NIS 763 million. 6 Total long term indebtedness including current maturities less cash and cash equivalents. Cellular Segment Financial Review 7
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