Partner Communications Company Ltd (PTNR) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Partner Communications Company first quarter 2010 results conference call. All participants are at present in listen-only mode. (Operator instructions). Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded, May 25, 2010. I would now like to turn over the call to Mr. Oded Degany, Vice President of Investor Relations, Regulations and Corporate Development. Mr. Degany, please go ahead.

Thank you very much, Tessa. Good afternoon to those of you in Europe, the Middle East and Asia, and good morning to our listeners in North America. Thank you for joining us for the conference call to discuss Partner Communications' 2010 first quarter results.

With me on the call today are David Avner, our CEO, Eli Glickman, our Deputy CEO, and Emanuel Avner, our CFO. Our CEO, David Avner, is going to make several statements and then Emanuel Avner, our CFO, will give a summary of our financial and operational results. We shall then open the floor to Q&A.

At this time, if you don't have a copy of today's release, please contact our Investor Relations coordinator in Israel, Miss [Yelga Shawnee], at 972 54 481 5952 and a copy of the release will be either emailed or faxed to you immediately.

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 the US Private Securities Litigation Reform Act of 1995. Regarding such -- all 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 May 25, 2010, as well as Partner's prior filings with the US Securities and Exchange Commission on the forms 20-F, F-1 and 6-K, as well as the F-3 shelf registration statement, all of which are readily available.

Please note that information in this conference call related to projections or other forward-looking statements is subject to previous Safe Harbor Statements 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.

At this stage, I would like to hand the call over to our CEO, David Avner.

Thank you, Oded, and hello to our listeners.

The first quarter of 2010 was an excellent quarter for Partner and confirmed our industry leadership. Our financial and operational results reflect the positive momentum of the Company, as well as the early signs of efficiency measurements we adopted at the beginning of this year.

In this quarter, we have demonstrated impressive service, content and equipment revenue growth, as well as significant improvement in profitability parameters, as reflected in the record net income we achieved. The early signs of recovery that we identified last quarter are now clearly and significant. We are identifying an increase in the demand for data cards that is one of our growth engines. Our fixed line business has also improved, as we expected.

On May 4, 2010, the Ministry of Communications announced its intention to materially reduce the interconnect tariffs on the cellular network. The radical decision is clearly out of line with previous Ministry policies, as well as worldwide common practices and benchmarks. We believe that we have persuasive arguments against this decision. Our arguments challenge the Modus Methodology, assumptions and calculations. Thus, we intend to vigorously fight this decision and in parallel publicly promote the opening of the fixed line market for fair competition for the benefit of the customers.

The Ministry of Communications' proposed decision might have a material adverse impact on our earnings and we intend to take all necessary measures to mitigate it by reviewing our cost structure and generating additional revenues from the fixed line business.

In this quarter, we launched a unique project for the benefit of the community. The project's goal is to contribute to the community by recruiting motivated volunteers to invest in the community, with the help of Partner's facilitators. The initiative gained strong momentum and has once again demonstrated Partner's commitment to the community, as well as its ability to realize it by creative ideas.

I am certain that Partner's assets and unique spirit, combined with the most dedicated and enthusiastic employees, the best customer service and the strongest brand in the communications market, will serve as a platform to continue and strengthen the business and overcome the challenges to come.

With that said, I would now like to hand the call over to Emanuel Avner, our CFO. Emanuel, please.

Thank you, David. We are pleased with the results for the first quarter of 2010, which showed encouraging growth in service revenues and profitability. Service revenues increased by 4.3%, from ILS1.3b in the first quarter of 2009 to ILS1.4b in the first quarter of 2010.

Whilst it should be remembered that Q1 2009 was a weak quarter for Partner due to the recession at the time, service revenues have recovered strongly, coming off the back of increased data and content revenues and also the growing subscriber base. In this quarter alone, postpaid subscribers increased by 20,000 and accounted for 77% of the net subscriber additions for the quarter.

In addition, fixed line segment service revenues more than doubled, from ILS9m in Q1 2009 to ILS24m in Q1 2010, mainly attributable to the growth of the ISP and fixed line telephony services, which are growing as planned, as David mentioned.

Operating profit for the quarter was ILS451m, compared with ILS434m in the first quarter of 2009, a 3.9% increase. This mainly reflected the growth in the gross profit from service revenues, as well as the improved margin on equipment sales.

EBITDA totaled ILS619m in Q1 2010, the equivalent of 39% of total revenues. This represents a marked increase, of 12.1%, from the parallel quarter of 2009. The negative contribution from the fixed line segment was significantly narrowed this quarter, to a loss of ILS3m compared with ILS15m loss in Q1 2009.

Turning to funding, as most of you know, Partner's debt refinancing in April was very successful and provided the Company with net proceeds of approximately ILS1b. We believe that our improved debt financing will deliver good value to our shareholders, in part thanks to the [totally] low coupons we achieved for the notes.

Regarding dividends, the Board has updated the dividend policy for 2010, targeting at least 80% payout ratio for the Company annual net income for the year. For this quarter, the Board has approved a dividend distribution of approximately ILS330m, or $89m, the equivalent of 98% of net income.

With that, I will now hand the conference back to Oded. Oded.

Thank you very much, Emanuel. You are now invited to ask your questions. Tessa, please open the floor to Q&A.

Thank you. (Operator Instructions). The first question is from Daniel Meron of RBC Capital Markets. Please go ahead.

Thank you. Congrats on the ongoing execution here. My question relates first of all to the market backdrop that you are seeing right now, with respect to the improved economy and its impact on your business.

And then your -- you did have some growth initiatives in this quarter, if you can elaborate on those, both on the data cards, the equipment side, it has had nice growth, and also on the subscriber growth that exceeded the competitors. Thank you.

Okay. Daniel, I will try to elaborate more on our business in the Q1 of this quarter. We had a very successful quarter, first of all due to increased number of subscribers, 26,000 subscribers, that most of them were postpaid subscribers. We had a very nice growth in equipment, due to equipment sales, due to high number of transactions this quarter and many transactions with handsets of smartphones, mainly iPhone handsets. The weighted average of the price of the handsets this quarter was higher compared to other quarters. And as David mentioned before, due to the efficiency measures that we started to take beginning of this year, we see improved operating profit by reducing part of our costs.

Right now, we see a recovery from the recession. And in Israel we don't see any impact of the global, let's say, impact of national bonds that we have in Europe and other countries.

Okay. And turning to the regulatory front, what kind of steps are you taking to deal with the regulations that are going to be imposed on you as far as the efforts to curtail this, both in your discussions with the regulators and what could be the possible outcomes? I understand that you do have the most severe case, which is almost 15% impact to your EBITDA. But if you can draw some of the parameters that could be in play here, as far as the impact on your business. How could you offset that in your business, depending on the outcome that they [set]?

Okay. Daniel, hi. It's Oded. First and foremost, I can assure you that we will take all the necessary steps to learn the [nearest] model and to prepare ourselves for the hearing in the most, I would say, professional manner. We'll invest a lot of effort and also use the external consultants in order to deeply evaluate and review the model. And as David gave a clue during his speech, I think that we have already found a few indications and we believe that we have strong arguments.

The bottom line is that if you compare the decision of the Ministry of Communications to the worldwide benchmark and to other cases -- and to other case studies, you can immediately conclude that it's an unprecedented one. And I believe that with this regard we have a strong case. Of course, we cannot assure you the positive result. After all, it's a hearing process and we are dealing with the Ministry of Communications, so you'll need to be patient and wait for the final result. But again, I can assure that we'll do it in a most professional and attentive manner.

Regarding the potential mitigation measures and effort, again, we in parallel of course started to analyze the options we have and we believe that we have sufficient degree of freedom to cope and to mitigate part of the impact. And we can of course review again our cost structure. As mentioned in many conference calls in the past, we historically prepared the launching pad and the platform to penetrate other areas of activity. And of course, that we can also review our tariff plans and rethink about the way how to readjust those tariff plans to our customers.

But it's too early to speak about it. We are now concentrating and investing a lot of effort in learning the model and building the counterargument. And I believe that it will take at least a few weeks or months until we have a final answer.

Okay. Very good. Good luck.

I would like to add that - it's David speaking - that we took two avenues. One, the internal one, I think that we have a lot of -- a large variety of marketing ideas how to tackle the situation if it occurs and we believe that we can mitigate. In case the interconnect will be reduced as mentioned, we believe that we will be creative enough and find ways to compensate the Company through efficiencies and a variety of marketing steps that we will take.

The other avenue is of course the hearing that we are preparing now. We already believe that we have very strong arguments. We find mistakes in the calculations, little mistakes in the calculation of [MERA]. And we also believe that we have strong arguments regarding the methodology, the interpretation of the methodology and the methodology in general. So we think that we are -- we will be very well prepared to the hearing and still believe that the final decision will not be the same that was announced lately.

Okay. Very good. Thank you, David. Good luck.

Thank you.

Thank you.

(Operator Instructions). There are no further questions at this time. Before I ask Mr. Degany to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the US, please call 1 888 782 4291. Is Israel, please call 03 925 5937. Internationally, please call 9723 925 5937. Mr. Degany, would you like to make a concluding statement, sir?

Thank you, Tessa. This concludes the first question of 2010 results conference call of Partner Communications. We appreciation your interest and please feel free to contact us at Investor Relations if you have any additional questions. Access to the call and to other valuable information on Partner is available through our website at www.orange.co.il. Thank you very much and have a good day.

Thank you. This concludes the Partner Communications Company first quarter 2010 results conference call. Thank you for your participation. You may go ahead and disconnect.