Cellcom Israel (CEL) Reports Q3 Loss of $0.003

Cellcom Israel (NYSE: CEL) reported Q3 EPS of $-0.003, versus $-0.003 reported last year. Revenue for the quarter came in at $269 million, versus $261 million reported last year.

Third Quarter 2019 Highlights (compared to third quarter of 2018):

• Total Revenues totaled NIS 938 million ($269 million) compared to NIS 910 million ($261 million) in the third quarter last year, an increase of 3.1%
• Service revenues totaled NIS 719 million ($206 million) compared to NIS 712 million ($204 million) in the third quarter last year, an increase of 1.0%
• Operating income totaled NIS 32 million ($9 million) compared to NIS 40 million ($11 million) in the third quarter last year, a decrease of 20.0%
• Loss totaled NIS 2[2] million ($1 million) compared to net income of NIS 1 million ($0.3 million) in the third quarter last year.
• Basic loss per share for the third quarter of 2019 totaled NIS 0.01 ($0.003), compared to basic earnings per share of NIS 0.01 ($0.003) in the third quarter last year.
• Adjusted EBITDA[1] totaled NIS 271[2] million ($78 million) compared to NIS 191 million ($55 million) in the third quarter last year, an increase of 41.9%
• Net cash from operating activities totaled NIS 273[2] million ($78 million) compared to NIS 194 million ($56 million) in the third quarter last year, an increase of 40.7%
• Free cash flow[1] totaled NIS 234 million ($67 million) compared to NIS 34 million ($10 million) in the third quarter last year.

Nir Sztern, the Company's Chief Executive Officer, referred to the results of the third quarter of 2019: "In light of the continued fierce competition and low price levels in the Israeli telecommunications market, this quarter we announced the adoption of a restructuring plan in order to strengthen the Company and better address the market conditions.

"We are currently in the midst of comprehensive steps to implement the plan and to improve the Company's financial and operational metrics.

"Amongst the steps we have taken, we have called on the Company's suppliers to reduce their cost of services, we have made changes to the Company's investment plan, we have cut expenses and we are negotiating with the employee representatives.

"The effect of the reduction in some expenses has already had a clear positive impact by the end of this quarter, and is expected to increase in the coming quarters.

"While market conditions remain challenging, we are determined to implement the restructuring plan.

"In this quarter we recorded an increase in revenues and Adjusted EBITDA compared to the corresponding quarter last year, the Adjusted EBITDA in this quarter includes a positive effect of NIS 72 million as a result of initial implementation of IFRS 16 and a NIS 8 million gain from the sale of fiber optic infrastructure in residential areas to IBC. Excluding this positive effects, the Adjusted EBITDA in this quarter amounted NIS 191 million, similar to the corresponding quarter last year.

"Currently, over 300,000 households are connected to IBC's fiber infrastructure. IBC is continuing to deploy fiber optics and is preparing to significantly accelerate its deployment rate in 2020, incorporating IEC's rapid deployment capabilities.

We continue to focus on moving our Internet and TV customers onto the fiber infrastructure, while improving the segment's profitability and reducing the payments to Bezeq."

Shlomi Fruhling, Chief Financial Officer, said:

"The Company's service revenues in the third quarter of 2019 totaled NIS 719 million. This revenue level reflects a 3.5% increase over that of the previous quarter and 1.1% over the same quarter last year.

"Service revenues from the cellular segment in the third quarter of 2019 totaled NIS 439 million, an increase of 4.5% from the previous quarter. The increase is due to a positive seasonality in international roaming income and increased activities to enhance revenue.

"Service revenues from the fixed line segment in the third quarter of 2019 totaled NIS 321 million, an increase of 2.8% compared to the previous quarter. The increase was due to Cellcom's revenues for fiber-optic deployment to IBC, and an increase in Internet revenues that compensated for the decline in minute sales among international operators. The Company continues to transfer Internet customers to the fiber-optic infrastructure while improving the profitability of the segment and increasing its penetration in connected buildings.

"Adjusted EBITDA in the third quarter amounted to NIS 271 million, compared with NIS 233 million in the previous quarter, a 16% improvement. This is due to an increase in service revenues and a profit of NIS 8 million for the sale of the Company's fiber-optic infrastructure in residential areas to IBC.

"During the quarter, the Company completed the investment in IBC and the sale of the Company's fiber-optic infrastructure in residential areas to IBC. As part of the two transactions, the Company invested in the equity of IBC and gave shareholder loans to IBC at a total cumulative sum of 154 million, and received from IBC NIS 181 million for the fiber-optic sale. The net cash effect of the two transactions was a positive cash flow of NIS 27 million. Free cash flow for the third quarter of 2019 totaled NIS 234 million and included the sale of the fiber infrastructure for NIS 181 million.

"The Company is working to implement the recovery plan it recently announced. As part of the expense reduction plan, the Company contacted its suppliers to lower service costs, and began negotiations with employee representatives for the implementation of a manpower efficiency plan. At the same time, the Company is preparing to raise equity as soon as possible."

For earnings history and earnings-related data on Cellcom Israel (CEL) click here.

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