Form 6-K Cellcom Israel Ltd. For: Aug 12

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For August 12, 2021

Commission File Number:  001-33271

CELLCOM ISRAEL LTD.

10 Hagavish Street

Netanya, Israel 42140

________________________________________________

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒       Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):            

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):            

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ☐       No ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not Applicable

English summary of Registrant's report filed with the Israeli Securities Authority,

on August 12, 2021, in connection with the Registrant's Periodic Report and Financial Results for the Second Quarter of 2021

 

Cellcom Israel Ltd., established in 1994, is a leading Israeli communications group, providing a wide range of communications services. Cellcom Israel is the largest Israeli cellular provider, providing its cellular subscribers with a broad range of services including cellular telephony, roaming services, text and multimedia messaging, advanced cellular and data services and other value-added services in the areas of  mobile office, data protection etc., based on Cellcom Israel's technologically advanced infrastructure. The Company operates advanced networks enabling high-speed broadband and advanced multimedia services. Cellcom Israel offers nationwide customer service including telephone customer service, retail stores, and service and sale centers. Cellcom Israel further provides OTT TV services, internet infrastructure and connectivity services and international calling services, as well as landline telephone services in Israel.

Chapter A

 

Report", respectively)  as updated in the Company's periodic report for the first

 

 

 

Further to the description in this section regarding a hearing and a secondary hearing published by the Israeli Ministry of Communications, or MOC, on its intention to terminate the current policy and separation between broadband infrastructure service and Internet connectivity service, which requires a customer interested in connecting to the Internet to purchase these two complementary services, in June 2021 the MOC resolved to terminate such separation policy and to adopt the layout proposed in the secondary hearing as detailed in the Company's Periodic Report. Since the Company has an Internet infrastructure (through IBC), the Company estimates the said change is not expected to have a material effect on the Company's results of operations. The Company's estimate as aforesaid is a forward-looking information as defined in the Israeli and U.S Securities Laws. The Company's estimate may be realized differently, among others, in light of the recruitment rates of new customers and the churn rates of Internet customers without infrastructure.

 

 

Further to the description in Section a, Internet infrastructure services and Section A.1 to the First Quarter report, regarding the offering of Internet infrastructure service on fiber optics, this service is available within the wholesale market as of July 2021.

 

 

Further to the description in these Sections regarding a hearing published by the MOC regarding the shutdown of the 2G and 3G networks (the "Old Technologies") until 2025 year-end, on June 2021, the MOC resolved, among others, to shut down the Old Technologies' service on December 31, 2025 (the "Due Date") (with an option to advance such date to January 1, 2025, subject to certain conditions) and certain interim arrangements until the Due Date. In addition, the competent body in the MOC ordered the extension of the allocations of the frequency bands initially allocated for the Old Technologies, to be used also with more advanced technologies, until 2030 year-end. See also Note 2 to the consolidated financial statements of the Company as of June 30 2021, included in Chapter C of this quarterly Report (the "Interim Financial Report"), regarding the effect of this resolution on the depreciation of fixed assets and intangible assets attributed to the Old Technologies.

 

 

Further to the description in Section (3) regarding the agreement with the RGE Group Ltd., or RGE, in July 2021, the Company extended its agreement with RGE for an additional period.

 

 

For the repayment of loans (further to the description in section 18.3), see Note 7 to the Interim Financial Statements.

 

 

Further to the description in this section, on August 9, 2021, Standard & Poor’s Maalot, or Maalot, reaffirmed the Company's ilA rating and updated the rating outlook from negative to stable and further reaffirmed the ilA debt rating.

 

A security rating is not a recommendation to buy, sell or hold securities, it may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.

 

For details regarding Maalot's report as stated above, see the Company's current report on form 6-K dated August 9, 2021

 

 

In August 2021, the Israeli government approved a proposed resolution for legislation amendments to be included in the Israeli Economic Efficiency Law (Legislative Amendments to Achieve the Budget Goals in the Budget Years 2021-2022), which includes provisions to advance the deployment of advanced communications infrastructure in Israel and reducing exposure to non-ionizing radiation, including changing the current regulation regarding exemption from building permits for construction, replacement or supplement to certain cell sites; inclusion of cell sites in the definition of National Infrastructure and authorizing the Israeli National Infrastructure Committee to serve as a parallel planning committee for the planning and licensing of such sites; and instructions for advancing the construction of cell sites over government housing structures. The purpose of the proposed resolution is to facilitate the procedures of deployment of communications infrastructure but there is no certainty that the legislative changes will be approved in the Israeli Parliament or in the proposed drafting as well as to the manner in which they will be implemented by the various authorities and therefore at this stage it is not possible to evaluate the effect of the proposed resolution, should it be adopted in legislation, on the Company's activity.

 

 

Further to the description in section (3), and in section A.5 of the First Quarter Report, in July 2021, the recommendations report of the Committee for Examination of Broadcasting Overarching Legislation headed by Mr. Roy Folkman ("the Committee") was published, and includes, among others, the following principal recommendations: (a) Establishment of a unified regulator for the area of broadcasting; (b) Gradual implementation of regulation to audio-visual content providers whose activities are primarily intended for the public in Israel according to the total annual revenues from content provider activities. A provider with an annual revenues of less than NIS 300 million will be excluded from the regulation, other than provisions to prevent exclusivity in the area of sports. A provider with an annual revenues between NIS 300 million and NIS 600 million will be required to obtain a license and shall be under gradual obligation to invest in elite-genre productions (4% of revenues in the first three years and 6.5% of revenues thereafter) as well as duties in the area of child protection, broadcast accessibility obligations for people with disabilities and ethics. A provider with an annual revenues of more than NIS 600 million will also be subject to an extended obligation to invest in elite-genre productions (amounting to 6.5% of revenues) and obligations in the area of broadcast consumerism; (c) Imposing an obligation on an international content provider whose revenues from all broadcasting activity in Israel exceeds NIS 300 million per year to invest in local content, the scope and ways of which to be defined in the future; (d) Provisions regarding the prohibition of exclusivity in the field of sports broadcasting and regarding the broadcasting and purchase of sports content; (5) Reduction of micro-regulation and regulatory intervention. On a number of issues, the Committee did not reach a final conclusion, including revoking the ban on content providers from owning a news company, regarding which the Committee requested further comments for the purpose of further examination by the MOC. The Committee's recommendations are subject to the approval of the MOC and procedures for their implementation, including legislation, and their final drafting, insofar as they are adopted, may differ materially. The Company estimates that those changes, insofar as they are adopted, are not expected to have a material effect on the Group's results. The Company's estimate as aforesaid is a forward-looking information as defined in the U.S and Israeli Securities Laws. The Company's estimate may be realized differently than it estimated, among others, due to regulatory changes and other factors that are not under the Company's control.

 

 

Further to the description in Section (c) and in section A.6 of the First Quarter Report, regarding the dispute and legal proceedings against Marathon (018) Xfone Ltd., or Xfone, see Note 11.c. of the Interim Financial Statements.

 

 

Further to the description in this section, see Note 9 to the Interim Financial Statements regarding the dismissal of a purported class action filed against the Company in January 2021, in an amount estimated by the plaintiff to be over NIS 50 million and regarding a judgment given against the Company in a class action lawsuit filed against the Company in December 2014.

 

 

In June 2021, the Company entered a term sheet for collaboration via a joint venture with Meshek Energy - Renewable Energy Ltd., or Meshek Energy, in the field of electricity provision in Israel to private and business customers (who own smart electricity meters) in accordance with the emerging reform of the Israeli Public Services Authority-Electricity to open segments in the production and supply chain of electricity to competition and in July 2021, the Company received a license for electricity provision without means of production in Israel from the Israeli Electricity-Authority. The activity in the field in collaboration with Meshek Energy is subject to various conditions and approvals, including entering into a definitive agreement, which there is no certainty that will be met.

 

The Company estimates that this activity will not have a material effect on its results of operations in the coming years. The Company's estimation as aforesaid is a forward-looking information as defined in the Israeli and U.S Securities Laws. The Company's estimation may be realized differently than it estimated, among others, due to regulatory changes, technological changes and other factors that are not under the Company's control.

 

 

 

On June 3, 2021, Elco Ltd. reported that it had completed the purchase of approximately 29.8% of the issued share capital of Discount Investment Corporation Ltd., the indirect controlling shareholder of the Company.

 

 

Further to the description in this Section, on May 20, 2021, Mr. Mauricio Wior's term as Deputy Chairman of the Company's Board of Directors ended; on May 20, 2021, Mr. Itamar Yehuda Regev was appointed as a director of the Company; on June 24, 2021, Mr. Michael Joseph Salkind was appointed as a director of the Company; On August 2, 2021, Mr. Aaron Kaufman's term as a director of the Company ended and Mr. Baruch Itzhak was appointed as a director of the Company.

 

For additional details, see the Company's current reports on form 6-K dated May 20, June 28 and August 3, 2021

 

 

 

 

 

Chapter B   Board of Directors’ Report on the State of the Company’s Affairs   June 30, 2021

1.	Brief description of the Company, its business, and its activity during the Report Period

1.1.

General

1.1.1.

The cellular communications area (cellular segment) - In the framework of this area of activity, the Group provides its customers with a wide range of cellular telecommunication services in Israel, under licenses it was granted by the Ministry of Communications. In addition, the Group provides overseas roaming services to its customers and to customers of foreign operators who are visiting Israel. The Company sells related services and equipment and equipment repair services to its customers. The cellular segment also includes the Company’s revenues arising from the sharing agreement with Marathon 018 Xfone Ltd. (“Xfone”). For details see section 1.3 of chapter A of this report.

1.1.2.

The fixed-line communications area (fixed-line segment) - In the framework of this area of activity, the Group provides internet connectivity services, internet infrastructure (based on the fixed-line wholesale market and IBC’s fiber-optic infrastructure), television services internet based (“Cellcom tv”), international telephony services, fixed-line telephony services (“Domestic Operator Services”) for the business and private sectors, and transmission services for business customers and for telecommunication operators on the basis of the Group’s independent infrastructure. The communication services are provided under licenses it was granted by Ministry of Communications (except for the internet television services that do not require a license). Similarly, the Group provides additional services such as: Conferencing services, server hosting services, cloud information security services and IOT solutions. In addition, the Group offers equipment and equipment repair services to its customers.

1.2.

A review of the Company’s management regarding the results of the Group’s activity for the second quarter of 2021

2.	Financial position

Section	As of June 30		Board of directors’ explanation
	2021	2020
	NIS millions
Current assets	2,160	2,696	The decrease was mainly due to decrease in cash as a result of the acquisition of Golan in August 2020, as well as a decrease of trade receivables in respect of sales of equipment and cancellation of inter-company balances with Golan and from the realization of the investment portfolio.
Non-current assets	4,758	4,086	The increase due to an increase in intangible assets in respect of the allocation of cost surplus from the acquisition of Golan. This increase partially offset against a decrease in the long-term balance of customers for selling equipment and cancellation of inter-company balances with Golan.
Total assets	6,918	6,782
Current liabilities	1,727	1,485	The increase mainly derived from an increase in current maturities of loans and debentures and an increase in trade payables and provisions section as a result of Golan’s consolidation.
Non-current liabilities	3,306	3,423	The decrease mainly derived from a decrease in liabilities for leases and a decrease in long-term loans due to ongoing repayments. This decrease is partially offset by an increase in liabilities for debentures which were issued in December 2020.
Total liabilities	5,033	4,908
Equity	1,885	1,874	The increase mainly derived from proceeds of exercise of options which was offset by the Company’s loss.
Total liabilities and equity	6,918	6,782

3.	Analysis of the operating results

3.1.

Below is an analysis of the Company’s operating results for the three and six months period ended on June 30, 2021 compared to the corresponding periods last year

Section	For the six months ended at June 30, 2021	For the six months ended at June 30, 2020	For the three months ended at June 30, 2021	For the three months ended at June 30, 2020	Board of directors’ explanation
	NIS millions
Revenues from services	1,449	1,365	728	683	The increase in the six and three months periods compared to corresponding periods mainly derived from Golan’s revenues consolidated from September 2020
Revenues from equipment	587	382	275	172	The increase in the six and three months periods compared to corresponding periods in 2020 mainly derived from an increase in revenue from equipment in the fixed-line segment as well as an increase in cellular equipment sales.
Total revenues	2,036	1,747	1,003	855
Cost of revenues	(1,496)	(1,308)	(727)	(664)	The increase in six months period and the current quarter of 2021 compared to corresponding periods in 2020 mainly derived from an increase in sales of end equipment and the consolidation of Golan results. The increase is partially offset by reducing cost (salaries, content, depreciation, etc.) as part of efficiency measures the Company has taken.
Gross profit	540	439	276	191
Gross profit rate from total revenues	26.6%	25.1%	27.5%	22.3%
Sale and marketing, General and administrative costs and credit losses	(475)	(455)	(233)	(220)	The increase in the six months period and the current quarter of 2021 compared to corresponding periods in 2020 mainly derived from the first-time consolidation of Golan results, increase of advertising expenses partially offset by a decrease in credit losses expenses.
Other income, net	18	12	(10)	7	The increase in the six months period and first quarter of 2021 compared to corresponding period in 2020 mainly derived from one time profit as a result from performing contracting work of deploying the fiber optics network for IBC partially offset by a provision of a lawsuit at the sum of 32 million NIS recorded in the current quarter.
Operating profit (loss)	83	(4)	33	(22)
Financing costs, net	(87)	(98)	(49)	(34)	The decrease in first quarter of 2021 compared to corresponding quarter in 2020 mainly derived from financing losses in the 2020 investments portfolio as a result of the Corona crisis. The decrease in of six months period compared the corresponding period, mainly due to loss in respect of the Company's investment portfolio as a result of the Corona crisis. The increase in the current quarter of 2021 compared to the corresponding quarter last year, mainly due to an increase of index, which led to the increase in financing expenses of the index-linked debentures. In addition, in the corresponding quarter last year, income from the securities portfolio was recorded. until the full sale of the portfolio.
Share in the losses of equity accounted investees	(2)	(7)	-	(2)
loss before taxes on revenue	(6)	(109)	(16)	(58)
Tax benefit (Taxes on income)	(1)	20	2	12	In the first quarter of 2021, the Company recorded tax expenses as a result of profit before tax compared to tax benefit recorded in the corresponding quarter as a result of a loss before tax.
loss for the period	(7)	(89)	(14)	(46)

3.2.

Below is central financial data according to segments of activity (in NIS millions):

	Cellular			Fixed-line			Inter-segment adjustments
	4-6/2021	4-6/2020	Change in %	4-6/2021	4-6/2020	Change in %	4-6/2021	4-6/2020
Revenue from services	461	385	19.7%	305	339	(10.0)%	(38)	(41)
Revenue from equipment	223	147	51.7%	52	25	108%	-	-
Total revenue	684	532	28.6%	357	364	(1.9)%	(38)	(41)
Adjusted EBITDA1	175	125	40.0%	122	97	25.8%	-	-
Adjusted EBITDA as a percentage of total revenue	25.6%	23.5%	8.9%	34.2%	26.6%	28.6%	-	-

	Cellular			Fixed-line			Inter-segment adjustments
	1-6/2021	1-6/2020	Change in %	1-6/2021	1-6/2020	Change in %	1-6/2021	1-6/2020
Revenue from services	919	781	17.7%	607	666	(8.9)%	(77)	(82)
Revenue from equipment	462	303	52.5%	125	79	58.2%	-	-
Total revenue	1,381	1,084	27.4%	732	745	(1.7)%	(77)	(82)
Adjusted EBITDA1	336	256	31.25%	232	210	10.5%	-	-
Adjusted EBITDA as a percentage of total revenue	24.3%	23.6%	2.3%	31.7%	28.2%	12.4%	-	-

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4.	Operational and financial indicators (KPIs)

4.1.

As of the Report date, the Company’s management uses financial performance indicators that are not based on accepted accounting rules, for evaluating, tracking, and presenting the Company’s financial performance. These indicators do not constitute a substitute for the information included in the Company’s financial statements. Below are the details of the indicators:

Indicator	Calculation/components	Details of the indicator’s purposes	Data
Adjusted EBITDA	Represents the net profit before: net financing costs, taxes, other income (expenses) that are not part of the Company's current activity (including provisions of lawsuits that are included in other expenses), depreciation and amortization, profits (losses) equity accounted investees and share-based payments. In addition, including other income (expenses) that are part of the Company's current activity, such as interest income in respect of sale transactions in installments and costs in respect of voluntary retirement plan.	The Company presents this indicator as an additional performance indicator, since it believes that it enables operational performance comparisons between periods and between companies, while neutralizing potential discrepancies arising from differences in the capital structure, taxes, age of fixed assets and amortization costs of which. The adjusted EBITDA does not take into account the requirement of the debt service and additional obligations, including capital investments, and therefore it does not necessarily indicate the amounts available for the Company’s use. In addition, no comparison can be made between the adjusted EBITDA and the indicators that are similarly referred to and that are reported by other companies due to a change in the calculation of these indicators.	See Section 4.2 below.
Free cash flow	Net cash deriving from current activity plus the proceeds from selling fixed assets or investments, which are related to the day-to-day business, and less cash used for investment activity in fixed assets or other assets, less payments for leases. The free cash flow does not include investments in subsidiaries.	The Company presents this indicator as an additional performance indicator, since it believes that it enables comparisons between the cash production rate from the operational activity by periods, while neutralizing potential discrepancies arising from differences in the capital structure and debt. The free cash flow does not take into account the requirements of the debt service and additional financing activity, and therefore it does not necessarily indicate the amounts to be available for the Company’s use. In addition, no comparison can be made between the free cash flow and indicators that are similarly referred to and that are reported by other companies due to a change in the calculation of these indicators.	See Section 4.3 below.

4.2.

Below are details on the adjustments between the Company’s net profit and adjusted EBITDA (in NIS millions):

Indicator	For the Six months period ended June 30		For the Three months period ended June 30
	2021	2020	2021	2020
Loss for the period	(7)	(89)	(14)	(46)
Taxes on income (tax benefit)	1	(20)	(2)	(12)
Financing costs, net	87	98	49	34
Other expenses than are not part of the Company's current activity	21	2	32	-
Depreciation and amortization	453	460	227	240
Losses from equity accounted investees	2	7	-	2
Share-based payment	11	8	5	4
Adjusted EBITDA	568	466	297	222

4.3.

Below are details on the data regarding the Company’s free cash flow (in NIS millions):

	For the six months period ended June 30		For the three months period ended June 30
Section	2021	2020	2021	2020
Net cash deriving from operating activities	445	436	245	196
Cash used for investment activities(*)	(216)	(223)	(131)	(116)
cash used for leases (financing activities)	(118)	(132)	(52)	(56)
Free cash flow	111	81	62	24

4.4.

As of the Report date, the Company’s management uses operational performance indicators that are not based on accepted accounting rules, for evaluating, tracking, and presenting each segments operational performance. Below are the details of the indicators:

Indicator	For the three month period ended June 30			Company’s explanations
	2021	2020	Change in %
No. of cellular subscribers at the end of the period (in thousands)2	3,226	2,734	18.0%	The increase in the subscribers' base compared to the corresponding quarter last year derives mainly from the acquisition of Golan which was partially offset by excluding Data subscribers (approximately 427,000 subscribers producing negligible revenue to the Company) from the beginning of the fourth quarter of 2020.
Churn rate of cellular subscribers3 (in %)	8.6%	8.7%	(1.1)%
Average monthly revenues per cellular subscriber (ARPU) (in NIS)4	47.7	46.9	1.7%	The increase in ARPU, arises from excluding Data subscribers from the beginning of the fourth quarter of 2020, partially offset by ongoing erosion of cellular services tariffs, and roaming revenues as a result of the Corona virus crisis.

Indicator	As of June 30			Company’s explanations
	2021	2020	Change in %
Internet infrastructure - no. of subscribers (households) as of the end of the period (in thousands)5	296	283	4.5%	The increase in the number of subscribers is a result of the Group’s continued growth in this area.
Television - no. of subscribers as of the end of the period (in thousands)5	250	245	2.0%	The increase in the number of television subscribers is a result of the Group’s continued growth in this area.

4.5.

Main results and operational data in quarterly division:

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5.

Liquidity

Section	1-6/2021	1-6/2020	1-3/2021	1-3/2020	Board of directors’ explanation
Cash flow from current activities	445	436	245	196	The increase in six month period and first quarter of 2021 compared to corresponding quarter in 2020, derived mainly from working capital differences and higher operating profit.
Cash flow from investment activities	94	(268)	179	(167)	The decrease in six month period and first quarter 2021 compared to corresponding quarter in 2020, is mainly due to a change in deposits.
Cash flow (used) derived from financing activities	(373)	(255)	(207)	83	The decrease in second quarter of 2021 compared to corresponding quarter in 2020, is mainly due to the proceeds if a debentures issuance in the corresponding quarter last year.
Balance of cash and cash equivalents as of the end of the period	885	919	885	919

6.	Financing sources

6.1.

The Company mainly finances its activity through cash flow from current activity, by issuing securities, including debentures and ordinary shares, and with loans from institutional entities.

6.2.

Details about the Company’s debentures in Circulation as of June 30, 2021 are attached to this Board of Directors Report.

6.3.

Credit from financial institutions

6.4.

There were no significant changes in the credit days received by the Company from its vendors and customers in relation to the description in the Periodic Report for the year 2020.

6.5.

As of the date of the Report, there are no warning signs as defined in Regulation 10 (B) (14) of the Report Regulations, The Company is in compliance of all financial covenants and the additional terms and liabilities which are included in the deeds of the debentures issued.

7.	Proforma data included in the proforma report

8.	Highly material evaluations

Identifying the subject of evaluation:	The value of the cellular segment use for purpose of examining a devaluation in goodwill set forth in the financial statements, according to International Accounting Standard 36.
Timing of the evaluation:	June 30, 2021 Evaluation executed on August 11, 2021
The value of the evaluation’s subject that was determined right before the evaluation date:	NIS 3,015 million bookkeeper’s value of the cellular segments, goodwill of NIS 831 million.
The value of the evaluation’s subject that was determined according to the evaluation:	NIS 4,027 million value of the cellular segment.
Details about the appraiser:	The evaluation was conducted by BDO Consulting and Management Ltd. which is part of the international BDO network. The work was conducted by a team led by CPA Moti Dattelkramer, a managing partner who has a BA in economics and computer science, with more than 10 years of experience in business consulting. The team specializes in evaluation work, allocation of PPA cost balances, due diligence, devaluation examinations, and more.
Is there an indemnification agreement with the appraiser?	The Company undertook to indemnify the appraiser in an amount exceeding three time his fees unless he acted negligently or maliciously. In such cases the indemnification shall not apply.
The evaluation model under which the appraiser acted:	Cash flow capitalization method.
The assumptions under which the appraiser made the evaluation, according to the evaluation model:	Capitalization rate after tax - 8.8% Growth rate - 1.5% Market share 24.1% Long range ARPU NIS 52.5 With respect to additional assumptions of the appraiser, see details in the work attached as an annex to this Board of Directors Report.

Mr. Avi Gabbay		Mr. Doron Cohen
CEO of the Company		Chairman of the Board of Directors

1.	Details Regarding debentures in Circulation:

Series (**)

Date of issue

Par value on the issue date (in NIS millions)

Par value on June 30, 2021

Par value on June 30, 2021, including linkage

Accrued interest

Financial statements balance as of June 30, 2021

Stock market value

Type of interest

Payment dates of principal

Payment dates of interest(1)

Terms of linkage

Convertible

Right to early redemption

Series H(2)

July 8, 2014; February 3, 2015*; February 11, 2015*;

949.624

616.822

594.518

5.889

600.407

480.434

Annual interest of 1.98%.

From July 5, 2018, until July 5, 2024 (including)

On January 5 and July 5, every year from 2015 until 2024 (including)

Linked (principal and interest) to the Consumer Price Index.

No

Subject to certain terms

Series I(2)

July 8, 2014; February 3, 2015*; February 11, 2015*; March 28, 2016.

804.010

562.807

552.622

11.235

563.857

474.559

Annual interest of 4.14%.

Eight annual payments: Three equal annual payments of 10% from the principal amount on July 5 of 2018 until 2020 (including), and five equal annual payments of 14% from the principal amount on July 5 of 2021 until 2025 (including).

On January 5 and July 5, every year from 2015 until 2025 (including)

Not Linked

No

Subject to certain terms

Series J

September 25, 2016

103.267

105.652

105.238

1.248

106.486

96.081

Annual interest of 2.45%.

On July 5 of 2021 until 2026 (including).

On January 5 and July 5, every year from 2017 until 2026 (including)

Linked (principal and interest) to the Consumer Price Index

No

Subject to certain terms

Series K

September 25, 2016; July 1, 2018*; December 10, 2018*

710.634

710.634

707.578

12.164

719.742

635.207

Annual interest of 3.55%.

On July 5 of 2021 until 2026 (including).

On January 5 and July 5, every year from 2017 until 2026 (including)

Not Linked

No

Subject to certain terms

Series L(4)(5)(6)

January 24, 2018; December 10, 2018*; May 12, 2020*, December 1, 2020*

1,235.937

1,224.979

1,165.269

14.767

1,180.036

1,243.353

Annual interest of 2.50%.

On January 5 of 2023 until 2028 (including).

On January 5 every year from 2019 until 2028 (including)

Not Linked

No

Subject to certain terms

Total

3,803.472

3,220.894

3,125.225

45.303

3,170.528

2,929.634

2.	Details regarding the trustee:

Series	Name of the trust company	Name of responsible person for the debentures	Contact	Address for delivery of documents
Series H	Mishmeret Trust Services Company Ltd.	CPA Ram Sabati	email: [email protected] Tel: 03-6374354	48 Menachem Begin Road, Tel Aviv 6618001
Series I	Mishmeret Trust Services Company Ltd.	CPA Ram Sabati	email: [email protected] Tel: 03-6374354	48 Menachem Begin Road, Tel Aviv 6618001
Series J	Mishmeret Trust Services Company Ltd.	CPA Ram Sabati	email: [email protected] Tel: 03-6374354	48 Menachem Begin Road, Tel Aviv 6618001
Series K	Mishmeret Trust Services Company Ltd.	CPA Ram Sabati	email: [email protected] Tel: 03-6374354	48 Menachem Begin Road, Tel Aviv 6618001
Series L	Strauss Lazer, Trust Company (1992) Ltd.	Ori Lazer	email: [email protected] Tel: 03-6237777	17 Yitzchak Sadeh Street, Tel Aviv 5613824

3.	Details regarding the rating of the debentures:

Series	Name of rating company	Rating as of the issue date	Rating as of the Report date	Additional ratings between the issue and Report date		Details regarding the intention of the rating company to change the rating
				Rating dates(1)	The rating
Series H	Maalot Standard & Poor’s Ltd. (“Maalot”)	A+	A	06/2014, 08/2014, 01/2015, 09/2015, 03/2016, 08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020, 08/2021 (1)	A+, A	In August 2021, Maalot updated the Company’s rating forecast from A with a negative outlook to a rating of A with a stable outlook.
Series I	Maalot	A+	A	06/2014, 08/2014, 01/2015, 09/2015, 03/2016, 08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020, 08/2021 (1)	A+, A
Series J	Maalot	A+	A	08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020, 08/2021 (1)	A+, A
Series K	Maalot	A+	A	08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020, 08/2021 (1)	A+, A
Series L	Maalot	A+	A	01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020, 08/2021 (1)	A+, A

4.	Additional undertakings:

4.1.

The Company’s debentures (Series H to L) are not secured and include, in addition to accepted terms and undertakings, the following undertakings:

a.

A negative pledge undertaking, subject to certain exceptions. Failure to comply with this undertaking shall be deemed a cause for acceleration.

b.

An undertaking not to distribute more than 95% of the profits suitable for distribution under the Companies Law (the “Profits”); provided that (1) should the Company’s net debt to EBITDA6 ratio exceed the ratio of 3.5:1, the Company shall not distribute more than 85% of the Profits; (2) should the Company’s net debt to EBITDA ratio exceed 4:1, the Company shall not distribute more than 70 of the Profits; and (3) should the Company’s net debt to EBITDA ration exceed 5:1, or 4.5:1 during four consecutive quarters, the Company shall not distribute dividends.

c.

And undertaking to rate the debentures through a rating company (insofar as this is under the Company’s control).

d.

An undertaking to pay additional interest of 0.25% for a two-point decrease in the rating of the debentures Series H to K, and 0.5% for a two point decrease in the rating of debentures Series L, and additional interest of 0.25% for any one point decrease in the rating of the debentures until the maximum addition of 1%, compared to their rating before their issue.

e.

The Company’s undertaking not to issue additional debentures of any series should the Company not meet the financial criteria, or if such issue would cause a decrease in the rating of the debentures.

4.2.

In addition, the Company’s debentures include events of default, including:

a.

Accelerating a different debt of the Company (cross default) by a non-supplier lender, except with respect to a debt of NIS 150 million or less. Such debt acceleration restriction shall not apply to a cross default caused by a different series of Company debentures.

b.

A case where the Company shall cease to be active in the cellular communications area and/or ceased to hold its Cellular License for a period exceeding 60 days.

c.

Trading suspension of the debentures on the Tel Aviv Stock Exchange, for a period exceeding 45 days.

d.

Making a distribution that does not comply with the Company’s undertaking with respect to the restrictions on distributing profits.

e.

Failure to rate the debentures for a period exceeding 60 days.

f.

A court request or order to stay proceedings against the Company or submitting a motion for a creditors settlement.

g.

Selling a substantive part of the Company’s assets or a merger (except for certain exceptions).

h.

Failure to publish financial statements on time.

i.

A net debt to EBITDA ratio that exceeds 5:1, or that exceeds 4.5:1 during four consecutive quarters.

j.

Failure to comply with the Company’s undertaking not to create any pledges.

k.

A material deterioration in the Company’s business compared to the condition thereof on the issue date of the debentures, and real concern that the Company would not be able to repay the debentures on time.

l.

A substantial concern that the Company shall not meet, its material obligations towards the debenture holders.

m.

Including a note in the Company’s financial statements regarding a concern of the Company continued existence as a “going concern” for a period of two consecutive quarters.

n.

Violating the Company’s undertaking with respect to the issue of additional debentures.

Cellcom Israel Ltd. Condensed Consolidated Interim Financial Statements   As at June 30, 2021

The accompanying review report is a non-binding translation into English of the original review report published in Hebrew. The version in Hebrew is the approved text.

Tel-Aviv, Israel	Kesselman & Kesselman
August 11, 2021	Certified Public Accountants (lsr.)
	A member firm of PricewaterhouseCoopers International Limited

August 11, 2021
Date of approving the financial statements		Doron Cohen Chairman of the board		Avi Gabbay CEO		Shai Amsalem CFO

A.	Statement of compliance

B.	Functional and presentation currency

C.	Basis of measurement

D.	Use of estimates and judgments

D.	Use of estimates and judgments (cont'd)

E.	Exchange rates and known Consumer Price Indexes are as follows:

		Exchange rates of US$				Consumer Price Index (points)*
As of June 30, 2021			3.260				226.47
As of June 30, 2020			3.466				223.11
As of December 31, 2020			3.215				223.34
Increase (decrease) during the period:
Six months ended June 30, 2021			1.40	%			1.40	%
Six months ended June 30, 2020			0.29	%			(0.69	)%
Three months ended June 30, 2021			(2.20	)%			1.30	%
Three months ended June 30, 2020			(2.78	)%			(0.20	)%
Year ended December 31, 2020			(6.97	)%			(0.60	)%

F.	Convenience translation into U.S. dollars (“dollars” or “$”)

●

Cellular segment - the segment includes the cellular communications services, cellular equipment and supplemental services.

●

Fixed-line segment - the segment includes landline telephony services, internet services, television services, transmission services, landline equipment and supplemental services.

(1)	Financial instruments measured at fair value for disclosure purposes only

		Cash generating unit Cellular segment
discount rate after tax		7.25%
Pre-tax discount rate		8.8%
Terminal value growth rate		1.5%
Market share in the long term		29.0%
ARPU in representative year		NIS 52.50

•

The terminal value growth rate is denominated in real terms.

•

The cash generating units have cash flows for 4.5 years, as included in their discounted cash flow model.

•

The long-term growth rate has been determined as 1.5% which represents, among others, the natural population growth rate.

•

The pre-tax discount rate is estimated and calculated using several assumptions, among others, cash generating units' Cost of Equity, risk premium for normative debt leveraging of the Group and estimates of the normative leverage ratio for the industry.

•

ARPU (Average revenue per user) in terminal year (except revenue from hosting services and national roaming services), in NIS.

		Cash generating unit Cellular segment
Pre-tax discount rate		11.2%
Terminal value growth rate		(0.3)%
Market share		23.8%
ARPU		NIS 50.3