Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Cellcom Israel Ltd (NYSE:CEL)
Q1 2020 Earnings Call
May 21, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Cellcom's First Quarter 2020 Results Conference Call. [Operator Instructions] Following management's formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions]

You should have all received by now the company's press release. If you have not received it, please contact Cellcom's Investor Relations team at GK Investor & Public Relations at 1 (646) 688-3559 or view it in the News section of the company's website, www.cellcom.co il.

I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?

Ehud Helft -- Investor Relations

Yes, thank you operator. I would like to welcome all of you to Cellcom Israel's first quarter 2020 results conference call. And I would also like to thank management for hosting this call today. With us here are Mr. Avi Gabbay, the CEO; and Mr. Shlomi Fruhling, the CFO. Mr. Gabbay will open by providing a summary of the quarter results and we'll then open the call for any questions you may have.

Before I turn over the call to Mr. Gabbay, I would like to remind our listeners that in this call, management's prepared remarks may 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 of 1968.

I'd note that 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 31st, 2019 filed under the Form 20-F, which was filed on March 23, 2020 with the SEC.

In addition, any projections as to the Company's future performance represent management's estimates as of today. Cellcom Israel assumes no obligation to update these projections in the future as market conditions change. We should hope by now you have received a copy of the company's release, if you have not received it please contact us at GK Investor and Public Relations.

I would now like to hand over the call to Mr. Avi Gabbay. Avi, please.

Avi Gabbay -- Chief Executive Officer

Thank you, Ehud. Good day to all of you and welcome. I would like to share a few points about the corona virus, the debt offering, and some strategic initiatives that we have.

About the corona virus as you all know, we are currently in unprecedented time and I wish everyone a speedy recovery. The corona pandemic has been affecting consumer behavior so that they could not leave their homes or fly overseas. The company response was swift and included the closing of all of our retail stores and putting employees on leave without pay. Thanks to the good relationship we have with workers, representative of the union, we did things quickly and compensated for the loss of revenue.

The company continued to function and service its customers by also working remotely. Now Israel is on its way out of the quarantine periods and we are back to work almost as usual. However, the corona virus situation continues to evolve and it is difficult to predict how to return to normal life will look like, and therefore how long it will continue to affect our operations and therefore the effect on our results. We expect the roaming revenues to continue to be impacted for the foreseeable future so long as significant international travels does not resume. Sales of equipment remain subject to our ability to resume normal operations at our stores.

About the debt offering, two weeks ago, we concluded the tender for a debt and option offering raising ILS200 million in Israel. S&P in Maalot reaffirmed an ILA negative rating on the new bonds. We appreciate the support from the Israeli capital markets. Our net debt now stands at ILS1.9 billion net. As you know, we have taken significant steps to reduce expenses and capex. We believe our business is now better structured to match the current market environment combined with our balance sheet. All these steps enable Cellcom to better weather the currency requirements. Our EBITDA to net debt excluding IFRS 16 FX ratios as of the end of the first quarter was less than 3 times.

I would like to spend a few moments talking about some strategic initiatives that we have. Last year we completed the investment deal in IBC. Cellcom remains very well positioned to benefit from the future growth of the fiber optic market in Israel. Since our purchase, we have been reducing our landline wholesale access fees by shifting our customers to the optical fiber network of IBC. IBC's goal is to continue -- is to connect 1 million households within the next five years. Today, IBC's infrastructure recently crossed 350,000 households in connected business blocks -- building blocks. The long-term growth potential, as well as our potential savings from payments for infrastructure over the coming years is very, very, very significant.

About Golan, the most significant event which will impact Cellcom is the potential acquisition of Golan. In the first quarter, we entered into the binding MOU for the purchase of Golan Telecom for ILS590 million and some additional payments. We believe the acquisition of Golan is significant win-win for both Golan and Cellcom Israel and we see significant shares in synergies and savings, which mean the combined entity cash flows and entity at all will be greater than the sum of its parts. The transaction is subject to certain conditions, including regulatory approvals, which we hope to complete in 2020.

To summarize, the first quarter was a difficult period for everybody. We continue to support and serve our customers throughout Israel with all their communication needs, whether it's telephone, internet or via television. That ends my summary, and I would like to hand over to Shlomi. Shlomi, please.

Shlomi Fruhling -- Chief Financial Officer

Thank you, Avi, and good day to all of you. I will provide you a summary of our results. The details can be found in the press release we issued earlier today.

Revenue for the first quarter of 2020 totaled ILS892 million, compared to ILS828 million reported in the first quarter of the last year. Out of those, the service revenues were ILS682 million, significantly ahead of the ILS678 million reported in the first quarter of last year. I would like to highlight that the fixed line segment services revenue grew 3% for the first quarter of last year to ILS327 million. This increase resulted mainly from the net increase in the revenues from internet and TV services.

Adjusted EBITDA for the first quarter of 2020 was ILS224 million or 27.4% of revenue, 9% increase compared with ILS224 million or 24.1% of revenue in the first quarter of last year. The EBITDA was positively impacted by ILS28 million following a retroactive update of the wholesale marketplace for better services like the Ministry of Communications, which was partly offset by the impact, due to the corona virus crisis.

Adjusted EBITDA for the fixed line segment was ILS133 million, compared with ILS78 million last year, an increase of 71%. And adjusted EBITDA on the cellular segment was ILS131 million, compared with ILS146 million last year. And I'd like to point out that our net financial expenses in the first quarter of 2020 amounted to ILS64 million, compared to ILS27 million last year.

The year-over-year increase in this expense was mainly due to the loss in our credible investment portfolio, which amounted to ILS27 million as a result of the sharp market decline during the quarter due to the corona virus.

During April due to raise in the security prices in the capital markets some of these losses has been revised. A net loss in the first quarter of 2020 total ILS43 million, compared to a net loss of ILS6 million in the first quarter of last year. Free cash flow in the first quarter of 2020 was ILS57 million, while ILS46 million in the first quarter of last year.

Our capital expenses from the first quarter of 2020 totaled ILS180 million versus ILS184 million in the first quarter of last year. As of the end of first quarter of 2020 our net debt stood at approximately ILS1.9 million. We have a total of approximately ILS1.2 billion in cash in our balance sheet, sorry, while our overall debt repayments of interest in capital that are due to until the end of 2021 amounted to ILS1 billion.

At the end of the first quarter of 2020, the company added approximately 2.747 million cellular subscribers. The churn rate of the cellular subscribers in the first quarter of 2020 was 8.8%, compared with 11% in the first quarter of 2018. That is mainly because of the first quarter of 2018 -- of 2020. The churn rate includes only the negative ate churn of M2M subscribers in August to eliminate changes that do not change the amount of lines held by the customers. Finally, the monthly cellular ARPU for the first quarter of 2020 was ILS48.1, similar to ILS47.2 in the first quarter of last year.

With that, I'd like to open to calls for questions. Operator?

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] There are no questions at this time. Mr. Gabbay, would you like to make your concluding statement?

Avi Gabbay -- Chief Executive Officer

Yes, of course. I would like to thank all of you for joining our conference call and your continued interest in our company. I look forward to hosting you again at our next call. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 13 minutes

Call participants:

Ehud Helft -- Investor Relations

Avi Gabbay -- Chief Executive Officer

Shlomi Fruhling -- Chief Financial Officer

More CEL analysis

All earnings call transcripts

AlphaStreet Logo