Partner Communications Reports First Quarter 2020 Results1

ADJUSTED EBITDA²TOTALED NIS 215 MILLION COMPARED TO NIS 197 MILLION IN Q1 2019

NET DEBT² TOTALED NIS 673 MILLION AT QUARTER END

PARTNER TV SUBSCRIBER BASE REACHED 210 THOUSAND AS OF TODAY AND INCREASED BY 58 THOUSAND IN THE LAST 12 MONTHS

PARTNER’S FIBER OPTIC INFRASTRUCTURE REACHES OVER 625 THOUSAND HOUSEHOLDS ACROSS ISRAEL AS OF TODAY

First quarter 2020 highlights (compared with first quarter 2019)

• Total Revenues: NIS 807 million (US$ 226 million), an increase of 2%
• Service Revenues: NIS 629 million (US$ 176 million), an increase of 1%
• Equipment Revenues: NIS 178 million (US$ 50 million), an increase of 5%
• Total Operating Expenses (OPEX)²: NIS 460 million (US$ 129 million), a decrease of 3%
• Adjusted EBITDA: NIS 215 million (US$ 60 million), an increase of 9%
• Adjusted EBITDA Margin²: 27% of total revenues compared with 25%
• Profit for the Period: NIS 10 million (US$ 3 million), an increase of 400%
• Net Debt: NIS 673 million (US$ 189 million), a decrease of NIS 304 million since Q1 2019, and a decrease of NIS 284 million in the quarter
• Adjusted Free Cash Flow (before interest)²: NIS 10 million (US$ 3 million), an increase of NIS 21 million
• Cellular ARPU: NIS 53 (US$ 15), a decrease of 5%
• Cellular Subscriber Base: approximately 2.68 million at quarter-end, an increase of 56 thousand subscribers since Q1 2019, and an increase of 19 thousand in the quarter
• TV Subscriber Base: 200 thousand subscribers at quarter-end, an increase of 59 thousand subscribers since Q1 2019, and an increase of 12 thousand in the quarter

ROSH HA’AYIN, Israel–(BUSINESS WIRE)–Partner Communications Company Ltd. (“Partner” or the “Company”) (NASDAQ and TASE: PTNR), a leading Israeli communications provider, announced today its results for the quarter ended March 31, 2020.

Commenting on the results for the first quarter 2020, Mr. Isaac Benbenisti, CEO of Partner noted:

“We concluded the first quarter of 2020 with increases in the subscriber bases of the cellular segment and of Partner’s growth engines with growth in the TV subscriber base and in fiber optic deployment, despite the impact of the coronavirus crisis.

By virtue of our financial strength, and together with responsible management of costs, the continued decline in our net debt with a successful equity raise at the beginning of the quarter, and the organizational flexibility which enabled a quick transition to working from home, we were well prepared for the crisis affecting the economy.

In the first quarter, we continued to grow in the cellular segment, with the addition of 19 thousand subscribers, and despite the decline in roaming revenues, we maintained relative stability in cellular service revenues this quarter with a decrease of only 3% from the preceding quarter.

In the fixed-line segment, revenues from fixed-line services continued to grow. A fiber optic infrastructure has proven to be essential at the national level, as demonstrated strongly during the period of restrictions on movement due to the coronavirus crisis, mainly in March and April. During this period, internet demand spiked by several dozen percent, which clearly demonstrates how critical communication infrastructures are to the economy and to the private and business consumer. For this reason, Partner’s independent fiber optic infrastructure, which already reaches over 625 thousand households in Israel, provides a significant advantage to our customers.

Partner TV continues to grow more than any other
TV service in Israel, and as of today it totals 210 thousand subscribers, while we added 58 thousand new subscribers in the last year. In addition, we announced this month the expansion of Partner TV’s strategic partnership with Netflix with the launch of joint TV packages, in a business model employed with only a few of Netflix’s partners worldwide.

Partner’s activities in the business sector focused in the first quarter on ensuring business continuity for our customers – organizations, authorities, large, medium, small and micro businesses – who accelerated the transition to advanced home-based work systems and intensified the implementation of information security systems and cloud services which Partner offers its customers. The changes in business practices in the economy and the need for advanced communications infrastructures and services support the continued growth of Partner’s business sector activities.

As part of managing the current crisis, Partner has taken a series of steps aimed at addressing the effects of the coronavirus crisis, and is prepared for the day after, with the adjustment of the Company to the new reality.

This month, Partner was ranked by the CofaceBDI index as the best place to work in the Israeli communications market. The combination of a contented workforce, a clear corporate strategy and responsible financial management, is borne out in Partner’s performance and achievements.”

Mr. Tamir Amar, Partner’s Chief Financial Officer, commented on the results:

“The results for the first quarter of 2020 continued to reflect the trends of the past few quarters, with further growth in fixed-line segment revenues and profit, and further stabilization in the cellular market.

The coronavirus crisis began to have a harmful effect on our business from the beginning of March 2020. The near-complete cessation of international travel caused a significant decrease in revenues from roaming services, the closure of shopping malls adversely affected the volume of sales of equipment, and the expected increase in bad debts due to the crisis led to an increase in doubtful accounts expenses. Nevertheless, despite the fact that the crisis began to affect the business from the beginning of March, the overall impact on our results for the first quarter of 2020 was not significant, also reflecting the fact that the Company mitigated the impact with a set of rapidly implemented measures, including cutting costs and temporarily reducing the workforce by putting a significant number of employees on unpaid leave.

In the cellular segment, our subscriber base increased by 19 thousand subscribers in the first quarter, including an increase of 14 thousand Post-Paid subscribers, alongside a marginal increase in the churn rate, which increased from 7.2% in the previous quarter to 7.5% in this quarter, but decreased compared with 8.5% in the first quarter of 2019. ARPU totaled NIS 53 this quarter compared with NIS 55 in the previous quarter, the decrease largely reflecting the negative impact on roaming revenues from both the coronavirus crisis and seasonality effects.

Adjusted EBITDA this quarter totaled NIS 215 million, compared with NIS 217 million in the previous quarter. The stability in Adjusted EBITDA was achieved despite the impact of the coronavirus crisis and seasonality effects which were almost entirely offset by the refund of approximately NIS 20 million of surplus payments to Bezeq for access to the wholesale internet infrastructure during the years 2017 to 2019, in accordance with the Ministry of Communications’ decision regarding the update of the wholesale market tariffs.

Adjusted Free Cash Flow (before interest) totaled NIS 10 million in the first quarter. CAPEX totaled NIS 151 million, reflecting the Company’s continued efforts to expand the deployment of its fiber optic network and further penetration in the TV market. These investments continue to be possible as a result of Partner’s financial stability and strong balance sheet, and have continued through the challenging period of the coronavirus crisis.

The level of net debt at the end of the first quarter stood at NIS 673 million, compared with NIS 957 million at the end of the previous quarter, a decrease of NIS 284 million which mainly reflected the Company’s successful equity raise of NIS 276 million, net, in January 2020.

As of today, revenues from roaming services continue to be significantly constrained by the coronavirus crisis, the shopping malls have reopened to a large extent, and our employees who were on unpaid leave have returned to work. Looking ahead, the Company does not expect the coronavirus crisis to have a significant harmful effect on profit for the second quarter of 2020. The harmful impact on roaming services is expected to continue to a large extent through the second quarter, but its adverse effects on the business are expected to be mitigated by the cost cutting measures implemented by the Company. Looking further ahead, the Company cannot, at present, estimate the impact on the results for the year 2020 as a whole, since it will largely depend on the pace and extent of resumption of international travel and on the extent to which the Company is able to mitigate the adverse impact of the decrease in revenues from roaming services.”

Q1 2020 compared with Q4 2019

Key Financial Results

Key Operating Indicators

Partner Consolidated Results

Financial Review

In Q1 2020, total revenues were NIS 807 million (US$ 226 million), an increase of 2% from NIS 794 million in Q1 2019.

Service revenues in Q1 2020 totaled NIS 629 million (US$ 176 million), an increase of 1% from NIS 624 million in Q1 2019.

Service revenues for the cellular segment in Q1 2020 totaled NIS 423 million (US$ 119 million), a decrease of 4% from NIS 441 million in Q1 2019. The decrease was mainly the result of the negative impact of the coronavirus crisis on roaming service revenues and the continued price erosion of cellular services due to the continued competitive market conditions.

Service revenues for the fixed-line segment in Q1 2020 totaled NIS 245 million (US$ 69 million), an increase of 9% from NIS 224 million in Q1 2019. The increase mainly reflected higher revenues from TV and internet services, which were partially offset principally by a decline in revenues from international calling services.

Equipment revenues in Q1 2020 totaled NIS 178 million (US$ 50 million), an increase of 5% from NIS 170 million in Q1 2019, reflecting increases in sales volumes in both the cellular and fixed-line segments, despite the adverse impact of the coronavirus crisis.

Gross profit from equipment sales in Q1 2020 was NIS 37 million (US$ 10 million), compared with NIS 39 million in Q1 2019, a decrease of 5%, reflecting a change in the product mix which led to a decrease in the average profit per sale.

Total operating expenses (‘OPEX’) totaled NIS 460 million (US$ 129 million) in Q1 2020, a decrease of 3% or NIS 12 million from Q1 2019. The decrease mainly reflected the recognition in Q1 2020 of the refund of approximately NIS 20 million of surplus payments to Bezeq for access to the wholesale internet infrastructure during the years 2017 to 2019, in accordance with the Ministry of Communications’ decision regarding the update of the wholesale market tariffs and a decrease in marketing expenses and other operating expenses. These decreases were partially offset by an increase in credit losses mainly as a result of the coronavirus crisis, and an increase in expenses related to payments to operators. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q1 2020 decreased by 4% or NIS 24 million compared with Q1 2019, mainly reflecting, in addition to the factors mentioned above, the decrease in depreciation expenses of NIS 15 million resulting from a change in the estimated useful life of the Company’s cellular license which occurred in the fourth quarter of 2019.

Operating profit for Q1 2020 was 36 million (US$ 10 million), an increase of 300% compared with NIS 9 million in Q1 2019. The increase mainly resulted from the increase in Adjusted EBITDA (see Adjusted EBITDA analysis by segment below), as well as the decrease in depreciation expenses related to the Company’s cellular license, as explained above.

In view of the coronavirus crisis, as part of the preparation of the financial statements as of March 31, 2020, the Company reviewed and made the necessary adjustments to its critical accounting estimates and judgments, with no material impact on the financial results, and also carried out impairment tests of both the fixed-line and cellular segments, determining that no impairment was required.

Adjusted EBITDA in Q1 2020 totaled NIS 215 million (US$ 60 million), an increase of 9% or NIS 18 million from NIS 197 million in Q1 2019. As a percentage of total revenues, Adjusted EBITDA in Q1 2020 was 27% compared with 25% in Q1 2019.

Adjusted EBITDA for the cellular segment was NIS 132 million (US$ 37 million) in Q1 2020, a decrease of 12% from NIS 150 million in Q1 2019, largely reflecting the decrease in cellular service revenues. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q1 2020 was 23% compared with 26% in Q1 2019.

Adjusted EBITDA for the fixed-line segment was NIS 83 million (US$ 23 million) in Q1 2020, an increase of 77% from NIS 47 million in Q1 2019, mainly reflecting both the increase in fixed-line segment service revenues and the impact of the refund from Bezeq in Q1 2020, as explained above. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q1 2020 was 30%, compared with 19% in Q1 2019.

Finance costs, net in Q1 2020 were NIS 19 million (US$ 5 million), an increase of 36% compared with NIS 14 million in Q1 2019. The increase largely reflected expenses from foreign exchange linkages in Q1 2020 compared with income from foreign exchange linkages in Q1 2019, as well as an increase in interest expenses due to the increase in the average debt level.

Income tax expenses for Q1 2020 were NIS 7 million (US$ 2 million), compared with income tax income of NIS 7 million in Q1 2019, largely reflecting the profit before income tax of NIS 17 million in Q1 2020 compared with loss before income tax of NIS 5 million in Q1 2019.

Profit in Q1 2020 was NIS 10 million (US$ 3 million), an increase of 400% compared with a profit of NIS 2 million in Q1 2019.

Based on the weighted average number of shares outstanding during Q1 2020, basic earnings per share or ADS, was NIS 0.05 (US$ 0.02), compared with basic earnings per share of NIS 0.01 in Q1 2019.

Cellular Segment Operational Review

At the end of Q1 2020, the Company’s cellular subscriber base (including mobile data, 012 Mobile subscribers and M2M subscriptions included on an adjusted basis) was approximately 2.68 million, including approximately 2.38 million Post-Paid subscribers or 89% of the base, and approximately 296 thousand Pre-Paid subscribers, or 11% of the subscriber base.

During the first quarter of 2020, the cellular subscriber base increased by approximately 19 thousand. The Post-Paid subscriber base increased by approximately 14 thousand, and the Pre-Paid subscriber base increased by approximately 5 thousand.

Total cellular market share (based on the number of subscribers) at the end of Q1 2020 was estimated to be approximately 25%, unchanged from the end of Q1 2019.

The quarterly churn rate for cellular subscribers in Q1 2020 was 7.5%, compared with 8.5% in Q1 2019 and 7.2% in Q4 2019.

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q1 2020 was NIS 53 (US$ 15), a decrease of 5% from NIS 56 in Q1 2019, mainly the result of the impact of the coronavirus crisis on roaming service revenues and the continued price erosion of cellular services due to the continued competitive market conditions.

Funding and Investing Review

In Q1 2020, Adjusted Free Cash Flow (including lease payments) totaled NIS 10 million (US$ 3 million), an increase of NIS 21 million from a negative Adjusted Free Cash Flow of NIS 11 million in Q1 2019.

Cash generated from operating activities totaled NIS 204 million (US$ 58 million) in Q1 2020, a decrease of 4% from NIS 213 million in Q1 2019, reflecting the smaller decrease in operating assets and liabilities which more than offset the impact of the increase in Adjusted EBITDA.

Lease payments (principal and interest), recorded in cash flows from financing activities under IFRS 16, totaled NIS 43 million (US$ 12 million) in Q1 2020, an increase of NIS 4 million from NIS 39 million in Q1 2019.

Cash capital expenditures (‘CAPEX payments’), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 151 million (US$ 42 million) in Q1 2020, a decrease of 18% from NIS 185 million in Q1 2019, mainly reflecting lower expenditures on subscriber equipment and installation.

The level of Net Debt at the end of Q1 2020 amounted to NIS 673 million (US$ 189 million), compared with NIS 977 million at the end of Q1 2019, a decrease of NIS 304 million. The decrease mainly reflected the Company’s share issuance in January 2020 for which the total net consideration received was approximately NIS 276 million.

Conference Call Details

Partner will hold a conference call on Wednesday, May 27, 2020 at 10.00AM Eastern Time / 5.00PM Israel Time.

To join the call, please dial the following numbers (at least 10 minutes before the scheduled time):

International: +972.3.918.0691
North America toll-free: +1.888.407.2553

A live webcast of the call will also be available on Partner’s Investors Relations website at: www.partner.co.il/en/Investors-Relations/lobby/

If you are unavailable to join live, the replay of the call will be available from May 27, 2020 until June 10, 2020, at the following numbers:

International: +972.3.925.5927
North America toll-free: +1.877.456.0009

In addition, the archived webcast of the call will be available on Partner’s Investor Relations website at the above address for approximately three months.

Forward-Looking Statements

This press release includes forward-looking 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 1995. Words such as “estimate”, “believe”, “anticipate”, “expect”, “intend”, “seek”, “will”, “plan”, “could”, “may”, “project”, “goal”, “target” and similar expressions often identify forward-looking statements but are not the only way we identify these statements. In particular, this press release communicates our belief in the continued growth in our business sector activities, the possibility for mitigating the harmful effects to the Company’s business resulting from the coronavirus crisis and preparing for the day after by adjusting the Company to the new reality, our ability to maintain Partner’s position as the best place to work in the Israeli communications market, the sufficiency of our financial resources to continue efforts to expand the deployment of its fiber optic network and further penetrate the TV market, that the coronavirus crisis will not have a significant harmful effect on profit for the second quarter of 2020, the potential for the cost-cutting measures implemented by the Company to partially offset the adverse effects of the impact on roaming services in the second quarter. In addition, all statements other than statements of historical fact included in this press release regarding our future performance are forward-looking statements. We have based these forward-looking statements on our current knowledge and our present beliefs and expectations regarding possible future events. These forward-looking statements are subject to risks, uncertainties and assumptions, including in particular the severity and duration of the impact on our business of the current health crisis, especially on our customers’ international travel (which impacts our income from roaming fees), on the closure and re-opening of shopping centers (which impacts our sales of services and equipment), on employee absences and disruptions in our equipment supply chain (which impact our ability to continue to provide services and sales of equipment), on future consumer habits for on-line or remote services, on issues which may arise with our employees in connection with cost-reduction efforts or working conditions, and on credit losses, which may increase. In light of the current unreliability of predictions as to the ultimate severity and duration of the health crisis, future results may differ materially from those currently anticipated. For further information regarding risks, uncertainties and assumptions about Partner, trends in the Israeli telecommunications industry in general, the impact of current global economic conditions and possible regulatory and legal developments, and other risks we face, see “Item 3. Key Information – 3D. Risk Factors”, “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects”, “Item 8. Financial Information – 8A. Consolidated Financial Statements and Other Financial Information – 8A.1 Legal and Administrative Proceedings” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Reports on Form 20-F filed with the SEC, as well as its immediate reports on Form 6-K furnished to the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The quarterly financial results presented in this press release are unaudited financial results. The results were prepared in accordance with IFRS, other than the non-GAAP financial measures presented in the section, “Use of Non-GAAP Financial Measures”.

Contacts

Tamir Amar
Chief Financial Officer
Tel: +972-54-781-4951

Liat Glazer Shaft
Head of Investor Relations and Corporate Projects
Tel: +972-54-781-5051
E-mail: investors@partner.co.il

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