Cellcom Israel's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Cellcom Israel Ltd. (CEL)

Q2 2012 Earnings Call

August 14, 2012, 11:00 am ET

Executives

Porat Saar - CCG Investor Relations, Israel & US

Nir Sztern - CEO

Yaacov Heen - CFO

Analysts

David Kaplan - Barclays Capital

Simon Marks - Citibank

Dan Harvard - Deutsche Bank

Louis DiPalma - William Blair

Presentation

Operator

Ladies and gentlemen, thank you standing by. Welcome to the Cellcom Israel Ltd. second quarter 2012 results conference call. All participants are present in listen-only mode. Following management’s formal presentation instructions will be given for the question-and answer-session. (Operator Instructions) As a reminder, this conference is being recorded, August 14, 2012.

I would now like to hand over the call to Ms. Porat Saar of CCG Investor Relations. Ms. Saar, would you like to begin?

Porat Saar

Thanks Rachel. I would like to welcome all of you to the conference call and thank Cellcom Israel’s management for hosting this call today. With us here are Mr. Nir Sztern, CEO and Mr. Yaacov Heen, CFO. Mr. Sztern will open by providing a summary of the main highlights of the second quarter 2012 results followed by Mr. Heen who will review Cellcom Israel’s financial performance in further detail.

Before I turn the call over to Mr. Sztern, I would like to remind the listeners that in this call management’s prepared remarks 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 1968.

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 under Risk Factors in the company’s Annual Report for the year ended December 31, 2011 20-F filed on March 7, 2012 with the SEC.

In addition, any projections as to the company’s future performance represent management’s estimates as of today, August 14, 2012. Cellcom Israel assumes no obligation to update these projections in the future as market conditions change. You should have by now received a copy of the company’s press release. If you've not yet received so please call CCG Investor Relations at 1-646-233-2161.

I would now like to hand the call over to Mr. Nir Sztern. Nir?

Nir Sztern

Thank you, Porat. Good day everyone and welcome to our second quarter 2012 earnings conference call. In our second quarter results, we see the successful continued implementation of the company’s strategic plan which includes the Netvision merger, our drive for operational excellence and our transition to Communications Group.

We succeeded in maintaining Netvision’s level of profitability which wrote an EBITDA of NIS 140 million in the first half of this year. Despite the increased competition in the ISP market. We also see the continued impact of our aggressive efficiency measures on our result which has so far led to an annual savings run rate of NIS 300 million.

These successful measures include adjusting our existing headcount, reducing overhead expenses and streamlining our processes. Despite the fact that we did see an increase in our churn rates, we also observed with most of our customers chose to remain loyal to the company as a result of our quality customer service and new marketing plans.

And this past quarter we introduced Cellcom Total, which combines an unlimited package of three cellular subscribers plus internet and landline services. This plan has been greatly successful and leverages many of our service offerings demonstrating our growth potential as a Communications Group.

In addition, we will be further growing our customer base with approximately 60,000 subscribers of the Israeli Defense Forces and we expect the benefit from additional revenues from hosting services we provide to Golan Telecom and Home Cellular.

In the second quarter, we have not yet felt the full effect of the increased competition and so we plan to implement additional efficiency measures with a goal of achieving additional significant savings. We're also encouraged by the success of Cellcom Total and we will continue to pursue growth from bundled fixed-line wireless packages.

I believe that the opportunity embedded in the landline wholesale market coupled with our exploration in the opportunities in several credit card and IPTV will further strengthen us as we work to become a leading Communications Group.

With that, I would like to turn the call over to our CFO, Mr. Yaacov Heen for a review of our financials. Yaacov?

Yaacov Heen

Thank you, Nir and good day to all of you. As you noted, the efficiency measures as implemented continue to have a positive impact on our results, demonstrating our ongoing efforts in adjusting our expense structure to our current revenue level.

As we anticipated last quarter, we saw a significant decrease in our net income compared with the previous quarter resulting from an increase in our financing expenses mainly due to a rise in our index CPI. In the coming quarters, we expect additional erosion to the company’s revenues due to the accumulated impact of customers transferring to the new marketing plans we have been offering.

Now turning to our consolidated results. Revenues for the second quarter of 2012 totaled NIS 1.5 billion, decreasing by 5.7% from second quarter of last year. Netvision’s contribution to revenues totaled NIS 259 million. Without Netvision’s contribution revenues would have declined by 22%. Within these service revenues increased by 4.5% totaling NIS 1.18 billion.

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