Partner Communications' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Partner Communications Company Ltd. ( PTNR)

Q4 2011 Earnings Call

March 22, 2012 12:00 pm ET

Executives

Gideon Koch - Manager, Revenues-Finance Department

Ziv Leitman - CFO

Haim Romano - CEO

Analysts

Simon Morris - Citibank

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Company fourth quarter and yearend 2011 results conference call. All participants are at present in listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded March 22nd, 2012. I would now like to turn over the call to Mr. Gideon Koch. Mr. Koch, please begin.

Gideon Koch

Thank you and thank you to all of our listeners for joining us on this conference call to discuss Partner Communications final and complete results for the fourth quarter from the year 2011. With me on the call today is Haim Romano Partners’ CEO; and Ziv Leitman, our CFO. We have chosen to hold this conference call today to discuss with you the impairments that was recorded in the results for the fourth quarter of 2011. So Ziv is going to open the discussion with a detailed explanation of the background for the impairments and the process. And then as usual we will move on to the Q&A together with Haim.

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 and Exchange Act of 1934, as amended; and the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Regarding such oral 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 22nd, 2012; as well as Partner’s prior filings with the US Securities and Exchange Commission on Forms 20-F which for 2011 was filed earlier today; F-1, 6-K, as well as the S-3 shelf registration statement, all of which are readily available. 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 at www.orange.co.il. I will now turn the call over to Partner’s CFO, Ziv Leitman. Ziv?

Ziv Leitman

Thank you Gideon. On February 22, 2012 we released the estimated results for 2011, while noting that these results were not final due to the fact that the company was in a process of evaluating the necessity of an impairment of intangible assets of the fixed line segment. Having completed all assessments, the company recognizes impairment charge in a total amount of NIS 322 million in the fourth quarter of 2011. Following the recognition of the impairment charge, the company reported a net loss of NIS 188 million for the fourth quarter of 2011, a net profit of NIS 443 million for the year 2011. The main difference compared with the estimated results we published in February 2012 is the impact of the resulting impairment charge related to the acquisition of 012 Smile.

Let me start by explaining the background to these assessments. In October 2010, the company entered into an agreement for the acquisition of 012 Smile for NIS 1.4 billion. The closing of the share purchase agreement was in March 2011 and its assets and liabilities were initially recognized at the fair value as of that date. This was part of the PPA process. Goodwill in the amount of NIS 494 million was also recognized. This amount was fascinated as the excess of the consideration transferred over the net fair value of the asset and liabilities acquired.

The goodwill was allocated to the fixed line segment. Accounting rule (inaudible) 36 require the company management to undertake goodwill impairment reviews at least once a year or more frequently if events or changes in circumstances indicate that the carrying amount may not be revocable. It is also necessary to review for impairment of any non-financial assets with finance [slides] whenever eventual changes in the circumstances indicate that the carrying amount may not be recoverable.

In the fourth quarter of 2011, changes in the fixed line market occurred and were considered by the management as regular events. We felt that the events were sufficiently significant to require the undertaking of an impairment test for the assets of the fixed line segment. Until December 2011, international connectivity of internet traffic from Israel was provided by the sole monopoly provider Med-1. Med (inaudible). During December 2011, Bezeq International Ltd completed the installation of an underwater cable between Israel and Italy and began commercial use soon after. In addition the company Tamares Telecom Limited was in the final stages of laying another underwater cable, which was then completed in January 2012. This U cable offers yet another communication channels between Israel and Western Europe.

The additional capacity from this cable significantly increased the level of competition in the market for international connectivity services. And as expected, this led to a sharp decline in prices for international connectivity services during the fourth quarter of 2011.

Furthermore, it was expected at the time with increased competition in retail ISD market would lead to a decrease in prices and market share indicating the need to perform an impairment test for certain assets of the fixed line segment.

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