Partner Communications Company Ltd. Company presentation Q2 2010

Transcription

1 Partner Communications Company Ltd. Company presentation Q2 2010

2 g This presentation includes forwardlooking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of Words such as "believe", "anticipate", "expect", "intend", "seek", "will", "plan", "could", "may", "project", "goal", "target" and similar expressions often identify forwardlooking statements but are not the only way Safe we identify these statements. All statements other than statements of historical fact included in this presentation regarding our future performance, plans to increase revenues or margins or preserve or expand market share in existing or new markets, reduce expenses and any statements regarding other future events or our future prospects, are forwardlooking statements. Harbor the macro economic environment, consumer habits and preferences in cellular g We have based these forwardlooking statements on our current knowledge and our present beliefs and expectations regarding possible future events. These forwardlooking statements are subject to risks, uncertainties and assumptions about Partner, telephone usage, trends in the Israeli telecommunications industry in general, the impact of current global economic conditions and possible regulatory and legal developments. For a description of some of the risks we face, see "Item 3D. Key Information Risk Factors", "Item 4. Information on the Company", "Item 5. Operating and Financial Review and Prospects, "Item 8A. Consolidated Financial Statements and Other Financial Information Legal and Administrative Proceedings" Statement and Item 11. Quantitative and Qualitative Disclosures about Market Risks in the Company s 2009 Annual Report (20F) filed with the SEC. In light of these risks, uncertainties, assumptions, and the global recession, the impact of which is still unknown, the forwardlooking events discussed in this presentation might not occur, and actual results may differ materially from the results anticipated. We undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise.

3 Agenda 1. Partner in a Nutshell 2. The Israeli Telecommunications Market 3. Partner s Financial and Operational Results 4. Partner s Strategic Direction 3

4 Partner Today A Company with Key Assets A leading cellular company operating in Israel under the orange brand The strongest telecom brand in Israel A 32% estimated market share The highest industry ARPU, leader in content & data revenues Outstanding customer service Significant customer interaction Operational excellence Attractive dividend yield A company committed to shareholders return Addressing new areas of activity: ISP, fixed telephony and Media 4

5 New Ownership Structure g In October 2009, Scailex Corporation completed the acquisition of the controlling equity interest in Partner from Hutchison Telecom (through its subsidiary Advent) g Scailex is an Israeli company whose shares are traded on the Tel Aviv Stock Exchange (SCIX) and are quoted on "Pink Quote" (SCIXF.PK). Scailex currently operates in two major domains of activity: n The sole import, distribution and maintenance of Samsung mobile handset products and accessories primarily to the three major cellular operators in Israel n Management of its own financial assets Ilan BenDov 66.79% Partner's Ownership Structure Ilan BenDov 0.95% Scailex, 44.76% Public, 45.61% Suny Telecom 8.53% Suny, 1.40% SCAILEX OWNERSHIP Suny Electronics 82.34% SCAILEX CORPORATION LTD. TAO 4.8% Leumi Partners, 4.96% Israeli Holders, 3.27% Public 16.57% Public 19.26% 5

6 Q2/10 Highlights Financial Results g Record Revenues of NIS 1.68 billion ($ 433 million) g Record content and data revenues of NIS 273 million ($ 70 million), or 19% of service revenues g Record EBITDA of NIS 646 million ($ 167 million), representing 39% of total revenues and 46% of service revenues g Net income of NIS 293 million ($ 76 million) g Quarterly dividend of approximately NIS 290 million ($ 75 million) g 105% growth (vs. Q2 09) in the fixed line business revenues to NIS 45 million ($ 12 million) Operational Performance g Addition of 28K new subscribers g Addition of 78K 3G subscribers g ARPU of NIS 149 ($ 38) 6 The convenience translations of the Nominal Israeli Shekel (NIS) figures into US Dollars were made at the exchange rate prevailing at June 30, 2010: US$ equals NIS The translations are purely for the convenience of the reader.

7 Partner Creates Value for its Shareholders g Since 2005 the Company has returned approximately NIS 6.7 billion ($1.7 billion) to its shareholders n Buyback of 18% of Partner s shares in 2005 (approximately NIS 1.1 billion) n Buyback in 2008 in an amount of NIS 351 million n Approximately NIS 3.9 billion dividend distributed since 2005 (including Q2 10) n In addition, NIS 1.4 billion one time dividend in 2010 g Dividend policy of at least 80% payout ratio in 2010 g Annual dividend yield of 13% n Based on end of Q2 PPS and dividend paid during the LTM (not including one time dividend)* 2,500 2,000 Return to Shareholders (NIS m) NIS millions 1,500 1,000 1, , * Dividend Per Share (LTM) = 13% Price Per Share (June 30) 1, H1 10 Dividend announced Buy back One Time

8 Orange shops and orange stores g More than 70 nationwide contact centers, highly efficient, owned and managed by the company n 33 Service Centers n 9 Orange Shops n 36 Orange Stores g High productivity g Concept stores g Sale of cellular, ISP & VOB services 8

9 Agenda 1. Partner in a Nutshell 2. The Israeli Telecommunications Market 3. Partner s Financial and Operational Results 4. Partner s Strategic Direction 9

10 The Israeli Telecom Market Leadership of the Cellular Industry g g g By end 2009, the Israeli telecom market represented revenues of approximately NIS 32 billion, of which 59% are attributed to cellular Partner generated more than NIS 6 billion revenues in 2009, more than any other telecom area. Partner ~ 20% of total telecom market MCTV, 11.5% ISP, 5.2% Internet access, 3.9% ILD, 5.2% Transmission, 3.6% Cellular, 58.6% Revenues 2009 Subscribers EOP 09' CAGR 09' 12' * Cellular 18,938 9, % Fixed telephony 3,892 3, % ISP 1,673 NA 2.5% MCTV 3,728 1, % ILD 1,677 NA 0.5% Internet access 1,273 1, % Fixed telephony, 12.0% 10 * Based on 2009 companies reports and Partner's estimates. Transmission 1,156 NA 6.0% Total 32,337 New short term addressable market for Partner

11 Regulatory Environment g Reduction of interconnect tariffs to be paid to cellular operators n Possible 84% reduction in interconnect tariffs in 2010, followed by additional reductions in Reductions are expected to have a material adverse effect on the Company s earnings* g The proposed Financial Arrangements Law** n Regulation of national roaming in order to facilitate the entry of new cellular operators n Increase in royalties from 1% today to 2% in 2011 and 2.5% in 2012 and 2013 n Limitation on exit fees that the cellular operators may impose on their private customers g Multiple MVNO licenses issued g A new committee (Haiak committee) has been set up to recommend on new Bezeq s fixed line tariffs and future regulations n Committees recommendations might introduce a new regulatory regime that will open the fixed line market for competition a potential upside * For additional details on the possible reductions and their impact on the Company s earnings, please see the Company s press releases dated May 4, 2010, May 5, 2010 and June 24, 2010, ** For additional details on the Financials Arrangement Law, please see the Company s Press release dated August 30, Please also refer to the Company's 2009 Annual Report (20F) filed with the SEC.

12 Regulatory Opportunities ILD Regulatory status/ Partner activity g Following the MOC recent ruling on the ILD IC charging method + release of MVNO regulations Expected TTM Market Size MidShort term 1.6B market ISP g Partner s new ISP business line Short term 1.6B market Fixed voice g Partner s new VOB business line Short term 4B market Transmission g WLR* policy under MOC review g Med1 fiber optics Network MidShort Term 1.2B market Access g WLR* policy under MOC review MidShort Term 1.2B market MCTV g Following Bezeq NGN, the average HH bandwidth is expected to increase to +10MB, allowing OTT IPTV Long Term 3.7B market Additional Topics: Corporate tax rate from 31% in 2006 to 25% in 2010 with further potential decrease to 16% in * WLR Wholesale Line Rental 12

13 The Cellular Market in Israel Start of Operations No. of Subscribers * Major Shareholder Technology Partner ,096k Scailex Corporation GSM, UMTS, HSDPA, HSUPA Cellcom ,341k IDB Group GSM, TDMA, EDGE, HSDPA, HSUPA Pelephone ,807k Bezeq (Shaul Alovitz) NAMPS, CDMA, HSUPA MIRS 1997 ~500 Altice (Patrick Drahi) iden Q2 10 Estimated Market Share (subscribers) * H Estimated Market Share (revenues) ** 4,000 Subscriber Growth (EOP in 000)* Pelephone 28.8% Mirs 5.1% Partner 31.8% Pelephone 28.6% Mirs 5.1% Partner 33.1% 3,500 3,000 2,500 2,000 1,500 3,074 3,187 3,259 3,341 2,884 2,898 3,042 3,096 2,603 2,860 2,470 2,450 2,668 2,807 2,300 2,529 2,721 2,260 2,622 2,649 2,340 2,103 2,427 1,850 2,287 1,837 2,132 1,955 1,378 1,513 1,762 1,318 1,458 Cellcom 34.2% Cellcom 33.2% 1, , H Partner Cellcom Pelephone * As of Q2 10, in thousands (based on companies reports and Partner s estimates) ** Cellcom and Pelephone revenues are based on companies H reports. Mirs revenues are based on Partner s estimates

14 Agenda 1. Partner in a Nutshell 2. The Israeli Telecommunications Market 3. Partner s Financial and Operational Results 4. Partner s Strategic Direction 14

15 3,500 3,000 2,500 2,000 1,500 1, Key Business Indicators Subscriber Growth (EOP, in 000 ) 2,103 2,340 2,529 2,668 2,860 2,898 3,042 3, H1 10 ARPU and MOU* Change in subscribers recognition policy 3G Subscribers (EOP, in 000 ) & Content Revenues 1,400 1,200 1, % 8.7% % % % 1, % 1, % H1 10 3G subs Quarterly Churn Rate Content rev as % of service rev 30% 25% 20% 15% 10% 5% 0% ARPU (NIS) MOU (minutes) 6% 5% 4% 3% 2% 1% 4.4% 3.9% 4.3% 4.8% 3.9% 4.2% 4.8% 5.2% 5.1% Q110 Q210 ARPU * From 2008 the calculation of ARPU has been modified to include revenues from sales of extended handset warranties, in line with the industry standard. This has the effect of increasing ARPU for 2008 and 2009 by approximately 2 NIS MOU 0% Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10

16 Financial Performance Total Revenue in NIS millions Q Q Q Q Q Revenues 1,514 1,575 1,578 1,587 1,676 Cost of Revenues 924 1, ,017 Gross Profit SG&A Other income Operating Profit Financial Costs net Income Taxes Net Income NIS millions 7,000 6,000 5,000 4,000 3,000 2,000 1,000 5,141 US GAAP 5,123 5, : First decrease in Interconnect tariffs 6,114 6,302 6,079 IFRS 2,926 12% 3, H1 09 H1 10 EBITDA US GAAP IFRS SG&A US GAAP IFRS NIS millions 2,500 2,000 1,500 1, , % 1, % 1, % 1, % 2, % 2, % 2, % 38.8% 34.5% 1,265 1,126 40% 35% 30% NIS millions 6,302 5,607 6,114 6,079 6,000 5,123 5, % 11.1% 11.2% 10.8% 10.2% 4, % 8.8% 3,263 2,926 3,000 12% 2,000 25% 12% 1, % 12% 10% 8% 6% 4% 2% H1 09 H % H1 09 H1 10 0% 16 EBITDA EBITDA margin Revenues SG&A SG&A margin

17 High Financing Capacity Net debt / EBITDA 1 US GAAP IFRS Fixed Assets CAPEX / Revenue 2 US GAAP IFRS NIS millions 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,764 2, ,934 3, , ,102 2,073 1,997 1, H1 09 H NIS millions 7,000 6,000 5,000 4,000 3,000 2,000 1,000 4, % 377 5, % ,123 5, % % 442 6, % 6,302 8% 6,079 9% ,926 H % 317 3,263 H1 10 5% % 12% 10% 8% 6% 4% 2% 0% Net Debt Net debt / EBITDA Revenues CAPEX CAPEX margin NIS millions EBITDA CAPEX 3 US GAAP 2,000 1,600 1,409 1,480 1,200 1, ,780 1,548 IFRS 688 1,062 1 The net debt as of June 30, Does not include dividend payable. 2 The Fixed Assets CAPEX investment refer to the Cash Flow from investing activities for the years In 2008 and later, it refers to acquisition of property and equipment. 3 The CAPEX investment refer to acquisition of property and equipment and Acquisition of intangible assets H1 09 H1 10

18 Agenda 1. Partner in a Nutshell 2. The Israeli Telecommunications Market 3. Partner s Financial and Operational Results 4. Partner s Strategy 18

19 Partner s Strategy Focus on Mobile Centric while Broadening Portfolio Maintaining Wireless Leadership Internet Content New Communication services Market Share ARPU Brand Facilitate cost reduction and efficiency improvement Mobile and Nomadic Content as a growth engine Source of differentiation Move up along the value chain ISP Fixed Telephony New telecom areas 19

20 Remaining Mobile Centric g Increase in mobile content consumption g Data cards: complementary and DSL substitution g Location based services: GPS g Enterprise mobile services: s, fleet management, M2M, etc. 20

21 Entering The Home The Rationale of Becoming an ISP and Fixed Line Provider g ISP and VOB markets size ~NIS 5 B g VOB is becoming mainstream technology g VOB and mobile synergy: FMS/FMC g Off load of data traffic from mobile backhauling to wireline infrastructure g Increase stickiness g Presence in the customer premises is important: Home gateway & SLA g Leverage of Partner s existing market presence & brand 21 g Requires limited CAPEX investment

22 Local and international features & TV series The leading music store in Israel Games arena offering games for heavy and casual gamers Forums, blogs, user generated video, talkbacks Mobile content Community & UGC Games Music VOD A rich Mix of TV, Music, UGS and Mobile Content A leading Mobile content store

23 PRI and Transmission Approximately 1,400 km of distributed nationwide optical network aimed at business sector and for cellular network needs Broad network avenue by four axes length mutually backed up Full optical monitoring of all network routes Communication stations (PoP) in major business centers 23

24 In Summary Partner offers a top quality network, an excellent customer service, the number one brand in the Israeli telecom industry and a wide variety of value added services Future sources of growth Fixed Telephony and ISP Increase in data and content revenues Strong cash flow, and a significant dividend yield 24

25 Keep in touch Oded Degany VP Corporate Development, Regulation & IRO Emanuel Avner VP finance and CFO Investors Web Site: