Partner Communications Company Ltd (PTNR) 2005 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to your conference today. This is the Q2 2005 financial and operational results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. Replay information will be given out at the conclusion. Your hosting speaker, Mr. Dan Eldar; please go ahead sir.

Thank you very much Kevin. Good morning to our listeners in North America, and good afternoon to those in Europe, the Middle East, and in Asia. Thank you for joining us for this conference call to discuss Partner Communications’ second-quarter results. With me on the call today are David Avner, Deputy CEO of Partner; and Alan Gelman, our CFO. On behalf of Amikam Cohen, our CEO, I would like to apologize. He was held up in a meeting and will not be able to join us this time.

At this time if you do not have a copy of today’s press release please contact Yael Margoninsky here in Israel at +972-54-481-4159, or in New York Ms. Margot Olcay at 1-646-284-9418, and a copy of the release will either e-mailed or faxed to you immediately.

Before we begin I would like to draw your attention to the fact that oral statements in this conference call may be forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. In connection with 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 July 27, 2005; as well as Partner’s prior filing with U.S. Securities and Exchange Commission on Form 20-F, S-1 and 6-K, as well as in 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 may be relied upon 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.investors.partner.co.il. At this time I would like to turn over the call to David Avner. David?

Thank you Dan and good day to all the participants in the meeting. We are very pleased with our results for the second quarter of 2005. Partner continues to present impressive financial and operational results which are driven by the excellent quality of our network, our award-winning customer service, our unique brand and our [ovation] for advanced voice content and data services.

Our strategy has always focused on creation of value for our shareholders. The recent completion of share [stock] buy back from our Israeli shareholders has only been resulted in a significant growth in our EPS. Today we have announced for the first time that our Board of Directors, they commenced to the Company’s shareholders to distribute a cash dividend in the amount NIS 0.57 per share, totaling approximately 86.4 million shekels.

We continue to build the assets which will help us to continue leading the market. We continue to grow our customer base, adding approximately 37,000 net subscribers, and growing our third-generation sub base to more than 35,000.

In the first half of 2005 we have accelerated the roll-out of our third-generation network and we now provide coverage to more than 90% of the population in Israel. A [brief] group update and group usage [indiscernible] improving with the introduction of new third-generation handset to our portfolio. We are still at the early stage of third-generation service introduction and therefore we not able to provide you with definitive usage information. But we are encouraged by the results we have seen so far.

We have invested a huge effort recently in order to cope with the challenge of the reduction in the interconnect rates; it doesn’t allow us for much [indiscernible]. This is the first full quarter in which we operated with the lower interconnect rate, and we are pleased to report that in spite of the reduction in top-line revenue, our profitability and EBITDA level was not adversely affected.

Partner is today in the strongest position than ever before to capitalize on future growth opportunities and to continue to grow our revenues and profitability alike.

In recent weeks, we led by Amikam Cohen and other fellow operators in Israel, have devoted a lot of time and effort on bringing changes regarding the permit process for erecting our [indiscernible]. We have been successful so far in educating the public about the radiation emission standards to which we fully adhere. We also succeeded to prevent these changes. The most important change averted at this point is the requirement to submit an undertaking to compensate the planning committee issuing building permits against claims for depreciation in the value of nearby properties as a result of issuing a permit to build up the [inaudible].

A committee of general directors of government in [Israel] has been appointed to study the issue. We hope that a professional and scientific process will yet further awareness and prevent the introduction of potentially these potentially very harmful changes. With that said, I would now like to hand the conference over to Alan Gelman. Alan?

Thank you David and good afternoon, evening or morning to everybody. We’re very pleased with our second quarter financial and operational results. The results for the first half of the year are in line with our 2005 annual guidance we gave in our press release on February 7, 2005. And by restructuring our tariffs and customer offerings and by reducing costs, we have successfully mitigated the effects of the reduction in the interconnect tariffs and maintained EBITDA at the level of the previous year.

We believe that our performance is sustainable in the second half of 2005. EBITDA increased in Q2 2005 by 4.8% to 420.8 million shekels from 401.7 million shekels in the second quarter of 2004 and by 5% compared with 406.6 million shekels in the first quarter of 2005. As a percentage of revenue, EBITDA increased to 33.6% of revenue in Q2 2005, up from 32% in Q2 2004 and from 31.8% in the first quarter of 2005.

Net income in the second quarter of 2005 was 115.8 million shekels, representing a decrease of 13.2% from 133.4 million shekels in the second quarter of 2004; and 7% lower than 124.5 million shekels in the first quarter of 2005.

During the second quarter of 2005 our debt structure has been significantly improved. First we have completed an offering of approximately 2 billion shekels of unsecured Series A notes which were issued at their par value and registered in Israel. The net proceeds which were received in April were approximately 2 billion shekels. Second, we also in April entered into a new bank credit facility which is less expensive and more flexible than our old one. And finally on April 20th we completed the repurchase of approximately 33.3 million of our shares from our founding Israeli shareholders. The total consideration for the shares was approximately 1.07 billion shekels and was funded by the new debt issuance together with internally-generated funds.

As David mentioned, the share repurchase has contributed to significant growth in earnings per share in the second quarter of 2005, despite lower net income when compared with the first quarter of 2005.

On August 15th we also intend to use the balance of the funds available from the note offering to call the old 13% 175 million senior subordinated notes. The dividend announced today is a reflection of our strong balance sheet, financial position, and consistently robust results of operations.

Thank you Alan. You are now invited to ask your questions. Operator, speak.

[Operator Instructions] We have a question from Joseph Wolf with UBS. Please go ahead.

Hi, two quick questions. The first question is, and I may have missed this I had to jump off for a second, on the dividend which came a little bit ahead of our expectations, is this a one-time dividend or is this quarterly or do you have a formal policy in place that we should be thinking about now that you’ve announced the first dividend? And then trying to get just an update on – I know that there’s a new Nokia 3G handset out there, whether you think that there’s going to be a new acceleration in that business with the new handsets or we should continue to take it slowly on that front?

Okay, first question is first, on the dividends Joseph. The fact that we paid a dividend is a dividend policy. We indicated that given the fact that we were restructuring our financial position and that we felt that we could support higher levels of leverage and we have good visibility as far as profitability and cash flows concerned, that dividends were in the [offering]. And the fact that we’re paying a dividend is a dividend policy, we’re not indicated right now what our continuing dividend policy will be at or pay-out ratio, but this is the dividend that we feel is representative of the success we’ve had in our operating results and sharing that success with our shareholders.

With respect to the 3G handsets, we’ve always said that our 3G rollout was kind of limited because we only had one handset. We now have started to market handsets in addition to the Nokia handset and we expect the 3G rollout to pick up speed.

Great, thank you.

Our next question is from Yoav Burgan with Poalim Sahar. Please go ahead.

Hi. I was wondering Alan if you could elaborate a bit on your expected significant uptake in the 3G subscription. I understand the main driver is the cost of the handsets.

I don’t there’s really anything to update right now. We have additional handsets in the marketplace. We’re very optimistic that the additional handsets will drive subscriber growth faster than we’ve seen in the past. The handset prices still haven’t come down to levels where we think there will be a mass, what I call, migration from second-generation to third-generation but there is no question about it; the more handsets we have in the market and the better variety will see a pick up in migration from second-generation to third-generation subscribers. And we look forward to that.

And could you also elaborate a bit on the cost containment measures that you’ve implemented-

Well we don’t like to elaborate on what we’re doing. We like to keep that amongst ourselves; but there is no question about it that whatever cost adjustments which we’re making in our system to make our cost structure more in line with our revenue structure, especially since we were hit with a 28% reduction in interconnect fees. That is going to continue. We’ve made it very, very clear that we view it as one of the major elements in keeping EBITDA at the same level as we’ve had in 2004.

Okay, great. That’s all for me, thank you very much.

Our next question is from Daniel [Gunitov]; Goldman Sachs, go ahead.

Hi, good afternoon. I have a couple of questions. The first is related to your investment in the network. And I was wondering if you could give us a little bit of guidance on whether the level of investment that we’ve seen in this quarter should be seen as a stabilized level already or if you see a decrease going forward? The second question is regarding the dividend. I understand that this is a policy in the sense that you’re going to be paying a dividend. On the other hand, the dividend of this magnitude does not solve the problem of the inefficiency of your balance sheet. And I was wondering how you were planning on tackling that?

First of all I would say I don’t think we have a problem with efficiency in the balance sheet, but let me pick the first question first as far as CapEx is concerned. We accelerated the build out of our third-generation network because we felt that in order to really drive third-generation growth and give our customers the quality that they are used to, we needed to have a full-blown coverage in Israel. And we succeeded in rolling out 92% of the population coverage in the first half of 2005. And therefore the actually CapEx is skewed and it’s not linear throughout the year. There is more CapEx in the first half of the year than there will be in the second half of the year and therefore you can expect CapEx in the second half of the year to be lower and not at the same levels which we had in the first half of the year.

With respect to your second question with the dividends; the fact that we’re paying dividends is a policy. We made it very, very clear that that will be part of how we’re dealing with our shareholders in the future. When we restructured our debt we felt that we were getting down to debt levels that were making inefficient use of our capital and we made it very, very clear to the public that part of our policy will be to maintain higher leverage and to share our profits with our shareholders. This is a first-time dividend. We have not made a decision as far as the payout ratio in the future. But the fact that we are paying dividends is an indication of our intent to share the profitability with our shareholders.

Thank you. And once again [Operator Instructions] and at this time we have no further questions in queue.

Thank you very much. This concludes this conference call of Partner Communications. I would like to thank you for your participation. Access to this call and to other valuable information on Partner is available though our Internet site at www.investors.partner.co.il. Thank you and good morning in North America, good evening in Europe, the Middle East and Asia.

Ladies and gentlemen this conference will available for replay and that’s starting at 9:30 pm Israel time until August 3rd, Midnight. You may dial the ATT executive playback service by dialing in the U.S. you may dial 1-800-475-6701 with the access code 789333. International callers may dial area code 320-365-3844 with the access code 789333. And that does conclude your conference. Thank you for your participation. You may now disconnect. Have a good day.