The most surprising thing about Matav Cable Systems Media's (Nasdaq:MATV) first quarter report yesterday was the firm's report of a NIS 4.2 million share in profit from associated companies, compared with a loss of NIS 19.4 million in the previous quarter.
The turnover was mainly the result of an NIS 3.3 million profit from its holding in Partner Communications (Nasdaq:PTNR), compared with a loss of NIS 15.0 million in the previous quarter.
This rosy picture seems to be distorted. Partner did not report a transition from loss to profit in the first quarter of the year - in fact according to its financial results released April 29 this year, Partner lost NIS 23 million. Matav, which at the time of the publication of Partner's financial results held a 15% share in the company, was supposed to register a loss of NIS 3.45 million as a result of its holding.
Matav did not however make a mistake in its report. The company's chief financial officer Shalom Bronstein explained that the reports Matav makes to the public are compiled according to the Israeli accounting system. At the beginning of 2001, Partner began to publish its reports according to the American accounting system, but to compile Matav's report the company rewrote its results according to the Israeli system, giving Partner a profit of NIS 22 million in the first quarter 2001.
The main difference between the two accounting systems lies in the way the company deducts the cost of recruiting subscribers on long-term contracts. Under the Israeli accounting system expenses are depreciated over the period of the contract (usually three years), whereas under the American system the cost of recruiting a subscriber is depreciated immediately on actual purchase of a subscription.
The Israeli system improves operating profit at times when large numbers of subscribers are recruited and in Partner's case this translates into improved results in the short term.
Overall Matav ended the first quarter 2002 with a loss of NIS 35.8 million, down from NIS 76.5 million in the final quarter 2001 thanks to better result from Partner and financing expenses falling from NIS 19.3 million to NIS 5 million. Financing expenses fell as a result of inflationary depreciation of the company's shekel commitments to the banks. The company owes a total of NIS 550 million to the banks; Matav CEO Amit Levin said yesterday that in the next few days that company hoped to sign a long-term financing agreement with the banks, a move that would sort out its liquidity problems.
In general, Matav's first quarter results pointed to a positive trend with revenues, which had been on the decline, moving upward to NIS 113.6 million - a 1.9% increase on the previous quarter - despite a fall in the number of subscribers. The number of digital subscribers increased to 131,000 compared to 120,000 in the previous quarter. Revenue per subscriber increased to NIS 157 per month, compared with NIS 152 per month in the previous quarter.