Cellcom Israel : Financial and Operational Results Q4 2020

TOC

For further information:
Cellcom Israel Investor Relations
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Email	[e-mail]
Websites	investors.cellcom.co.il
www.cellcom.co.il
Facts & Figures
Table of Contents
Sheet I - Income Statement
Sheet II - Cash Flows
Sheet III - Operational Metrics
Sheet IV - Footnotes & Glossary
All data contained in this file should be reviewed in conjunction with our financial statements and the description of our business, results of operations and the risks that we face, which may be found in our Annual Report for the years of 2018,2019 on Form 20-F dated March 18, 2019 and March 23, 2020 and for the year 2020 0n Form 6-K dated March 17, 2021 respectively.
Please note the red remarks within the cells

investors.cellcom.co.il

www.cellcom.co.il

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Sheet I - Income Statement

Sheet IV - Footnotes & Glossary

Sheet II - Cash Flows

Sheet III - Operational Metrics

Income Statement

Income Statement	2018	2019	2020
NIS millions	Q1'18	Q2'18	Q3'18	Q4'18	FY'18	Q1'19	Q2'19	Q3'19	Q4'19	FY'19	Q1'20	Q2'20	Q3'20	Q4'20	FY'20
Revenues	933	927	910	918	3,688	928	920	928	932	3,708	892	855	956	973	3,676
Cost of revenues	665	675	645	676	2,661	695	679	659	692	2,725	644	664	744	748	2,800
Gross profit	268	252	265	242	1,027	233	241	269	240	983	248	191	212	225	876
Gross margin	28.7%	27.2%	29.1%	26.4%	27.8%	25.1%	26.2%	29.0%	25.8%	26.5%	27.8%	22.3%	22.2%	23.1%	23.8%
YoY change	-8.8%	-15.2%	-13.1%	-18.0%	-13.8%	-13.1%	-4.4%	1.5%	-0.8%	-4.3%	6.4%	-20.7%	-21.2%	-6.3%	-10.9%
Selling and marketing expenses	132	144	143	148	567	158	149	161	142	610	145	119	147	169	580
General and administrative expenses	91	94	89	86	360	67	82	73	75	323	79	90	76	85	330
Credit Loses	4	10	9	9	6	11	11	4	1	27
Other expenses (income), net	-7	19	-7	-6	-1	-5	-6	-10	41	20	-5	-7	-9	-17	-38
Operating profit (loss)	52	-5	40	14	101	9	6	36	-27	24	18	-22	-6	-13	-23
Operating margin	5.6%	n.a.	4.4%	1.5%	2.7%	1.0%	0.7%	3.9%	-2.9%	0.6%	2.0%	n.a.	n.a.	n.a.	n.a.
YoY change	-22.4%	n.a.	-51.8%	-68.9%	-66.0%	-82.7%	-220.0%	-10.0%	n.a.	-76.2%	100.0%	n.a.	n.a.	n.a.	n.a.
Financing expenses (income), net	40	43	37	51	171	27	52	31	34	144	64	34	32	42	172
Share of profit of equity accounted investees	4	6	10	5	2	2	5	14
Profit before taxes on income (loss)	12	-48	3	-37	-70	-18	-46	1	-67	-130	-51	-58	-40	-60	-209
Taxes on income (tax benefit)	5	-11	2	-2	-6	-2	-11	3	-13	-23	-8	-12	-3	-16	-39
Profit for the period (loss)	7	-37	1	-35	-64	-16	-35	-2	-54	-107	-43	-46	-37	-44	-170
Net profit margin	0.8%	n.a.	0.1%	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
YoY change	-73.1%	n.a.	-96.9%	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Key Income Statement Metrics
Consolidated
Service revenues	701	694	712	677	2,784	678	695	709	694	2,776	682	683	695	738	2,798
YoY change	-5.1%	-5.1%	-3.4%	-4.9%	-4.6%	-3.3%	0.1%	-0.4%	2.5%	-0.3%	0.6%	-1.7%	-2.0%	6.3%	0.8%
Equipment revenues	232	233	198	241	904	250	225	219	238	932	210	172	261	235	878
YoY change	5.5%	0.9%	-16.8%	-8.4%	-5.0%	7.8%	-3.4%	10.6%	-1.2%	3.1%	-16.0%	-23.6%	19.2%	-1.3%	-5.8%
Total revenues	933	927	910	918	3,688	928	920	928	932	3,708	892	855	956	973	3,676
YoY change	-2.7%	-3.6%	-6.7%	-5.8%	-4.7%	-0.5%	-0.8%	2.0%	1.5%	0.5%	-3.9%	-7.1%	3.0%	4.4%	-0.9%
Adjusted EBITDA	187	140	191	169	687	224	233	271	212	940	244	222	231	221	918
Margin	20.0%	15.1%	21.0%	18.4%	18.6%	24.1%	25.3%	29.2%	22.7%	25.4%	27.4%	26.0%	24.2%	22.7%	25.0%
YoY change	-7.0%	-40.9%	-15.5%	-10.6%	-19.5%	19.8%	66.4%	41.9%	25.4%	36.8%	8.9%	-4.7%	-14.8%	4.2%	-2.3%
Cellular
Service revenues	437	434	443	416	1,730	404	420	439	416	1,679	396	385	414	465	1,660
YoY change	-14.1%	-9.8%	-9.2%	-7.8%	-10.3%	-7.6%	-3.2%	-0.9%	0.0%	-2.9%	-2.0%	-8.3%	-5.7%	11.8%	-1.1%
Equipment revenues	193	157	146	159	655	158	162	172	169	661	156	147	223	178	704
YoY change	5.5%	-18.2%	-23.6%	-22.1%	-14.9%	-18.1%	3.2%	17.8%	6.3%	0.9%	-1.3%	-9.3%	29.7%	5.3%	6.5%
Total revenues	630	591	589	575	2,385	562	582	611	585	2,340	552	532	637	643	2,364
YoY change	-9.0%	-12.2%	-13.3%	-12.2%	-11.6%	-10.8%	-1.5%	3.7%	1.7%	-1.9%	-1.8%	-8.6%	4.3%	9.9%	1.0%
Adjusted EBITDA	119	78	118	103	418	146	163	185	133	627	131	125	114	155	525
Margin	18.9%	13.2%	20.0%	17.9%	17.5%	26.0%	28.0%	30.3%	22.7%	26.8%	23.7%	23.5%	17.9%	24.1%	22.2%
YoY change	-25.2%	-50.6%	-26.3%	-12.7%	-29.7%	22.7%	109.0%	56.8%	29.1%	50.0%	-10.3%	-23.3%	-38.4%	16.5%	-16.3%
Fixed - Line
Service revenues	304	300	310	301	1,215	317	312	311	318	1,258	327	339	327	313	1,306
YoY change	9.0%	2.7%	6.2%	-0.7%	4.2%	4.3%	4.0%	0.3%	5.6%	3.5%	3.2%	8.7%	5.1%	-1.6%	3.8%
Equipment revenues	39	76	52	82	249	92	63	47	69	271	54	25	38	57	174
YoY change	5.4%	94.9%	10.6%	39.0%	36.8%	135.9%	-17.1%	-9.6%	-15.9%	8.8%	-41.3%	-60.3%	-19.1%	-17.4%	-35.8%
Total revenues	343	376	362	383	1,464	409	375	358	387	1,529	381	364	365	370	1,480
YoY change	8.5%	13.6%	6.8%	5.8%	8.6%	19.2%	-0.3%	-1.1%	1.0%	4.4%	-6.8%	-2.9%	2.0%	-4.4%	-3.2%
Adjusted EBITDA	68	62	73	66	269	78	70	86	79	313	113	97	117	66	393
Margin	19.8%	16.5%	20.2%	17.2%	18.4%	19.1%	18.7%	24.0%	20.4%	20.5%	29.7%	26.6%	32.1%	17.8%	26.6%
YoY change	61.9%	-21.5%	10.6%	-7.0%	4.3%	14.7%	12.9%	17.8%	19.7%	16.4%	44.9%	38.6%	36.0%	-16.5%	25.6%
Consolidation adjustments	(40)	(40)	(41)	(40)	(161)	(43)	(37)	(41)	(40)	(161)	(41)	(37)	(46)	(44)	(168)

According to the terms of the Network Sharing Agreement with Golan, part of the consideration is recognized as revenues and part is recognized as a reduction of operation costs. In addition, revenues from the Network Sharing Agreement are divided between the cellular and fixed-line segments.

Reclassified - See Voluntary change in accounting policy at the Glossary sheet EBITDA for the second quarter of 2018, includes an expense for a new employee voluntary retirement plan in the amount of approximately NIS 26 million ($7 million).

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

Reclassified - See Voluntary change in accounting policy at the Glossary sheet

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the first quarter of 2019 amounted to an increase of NIS 63 million in Adjusted EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the first quarter of 2019 amounted to an increase of NIS 4 million in the loss.

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the first quarter of 2019 amounted to an increase of NIS 56 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the first quarter of 2019 amounted to an increase of NIS 7 million in Adjusted Fixed line EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the second quarter of 2019 amounted to an increase of NIS 1 million in the loss.

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the second quarter of 2019 amounted to an increase of NIS 68 million in Adjusted EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the second quarter of 2019 amounted to an increase of NIS 61 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the second quarter of 2019 amounted to an increase of NIS 7 million in Adjusted Fixed line EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the third quarter of 2019 amounted to an increase of NIS 72 million in Adjusted EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the third quarter of 2019 amounted to an increase of NIS 65 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the third quarter of 2019 amounted to an increase of NIS 7 million in Adjusted Fixed line EBITDA Adjusted EBITDA for the third quarter 2019 includes a profit of approximately NIS 8 million for the sale of the Company's fiber-optic infrastructure in residential areas to IBC.

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the third quarter of 2019 amounted to an increase of NIS 1 million in the loss.

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the Fourth quarter of 2019 amounted to an increase of NIS 65 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the Fourth quarter of 2019 amounted to an increase of NIS 7 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the Fourth quarter of 2019 amounted to an increase of NIS 65 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the Fourth quarter of 2019 amounted to an increase of NIS 1 million in the loss.

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in the 2019 amounted to an increase of NIS 6 million in the loss.

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in 2019 amounted to an increase of NIS 275 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in 2019 amounted to an increase of NIS 247 million in Adjusted Cellular EBITDA

As of January 1, 2019 the Company is applying International Financial Reporting Standard (IFRS 16), Leases. The effects of applying the standard in 2019 amounted to an increase of NIS 28 million in Adjusted Cellular EBITDA

EBITDA for Q1'20 includes a decrease in the costs related to the internet services in the fixed line segment as a result of retrospective update of wholesale services tariffs by the MOC which resulted in one time expenses in amount of NIS 28 million

EBITDA for Q1'20 includes a decrease in the costs related to the internet services in the fixed line segment as a result of retrospective update of wholesale services tariffs by the MOC which resulted in one time expenses in amount of NIS 28 million

Consolidated results with Golan as of acquisition date

Consolidated results with Golan as of acquisition date

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Cash Flow

Cash Flow	2018	2019	2020
NIS millions	Q1'18	Q2'18	Q3'18	Q4'18	FY'18	Q1'19	Q2'19	Q3'19	Q4'19	FY'19	Q1'20	Q2'20	Q3'20	Q4'20	FY'20
Net income (loss)	7	(37)	1	(35)	(64)	(16)	(35)	(2)	(54)	(107)	(43)	(46)	(37)	(44)	(170)
Tax benefit (tax on income) income	5	(11)	2	(2)	(6)	(2)	(11)	3	(13)	(23)	(8)	(12)	(3)	(16)	(39)
Financing expense, net	40	43	37	51	171	27	52	31	34	144	64	34	32	42	172
Other expenses (income),net (excluding expense related to employee retirement plans and gain from the sale of a subsidiary );	1	0	6	3	10	2	0	1	(6)	(3)
Losses of equity	0	0	0	4	6	10	5	2	2	5	14
Depreciation and amortization	133	145	151	155	584	214	225	226	233	898	220	240	230	234	924
Share based payments	2	0	0	2	0	2	3	3	8	4	4	6	6	20
Adjusted EBITDA	187	140	191	169	687	224	233	271	212	940	244	222	231	221	918
Changes in Working Capital	54	44	7	1	106	84	1	2	30	117	10	(5)	(42)	157	120
Income Tax Paid, net	(9)	(5)	(6)	(10)	(30)	(3)	(4)	(7)	2	(12)	(2)	(4)	2	(5)	(9)
Other expenses (income)	(2)	0	3	5	6	(2)	(5)	1	(3)	(9)	(12)	(17)	11	(18)	(36)
Operating Cash Flow	230	179	195	165	769	303	225	267	241	1,036	240	196	202	355	993
Lease payments and other expenses*	0	0	0	0	0	(74)	(64)	(65)	(76)	(279)	(75)	(56)	(65)	(57)	(253)
Cash flows from investing activities	(143)	(156)	(184)	(148)	(631)	(177)	(115)	(120)	(149)	(561)	(101)	(167)	(267)	(480)	(1,015)
Purchase (sale) of short-term tradable debentures and deposits	(3)	33	23	(10)	43	(6)	9	(2)	37	38	(10)	51	(446)	307	(98)
Investment in equity accounted investees	0	0	0	0	0	0	0	154	3	157	3	0	620	0	623
Free Cash Flow	84	56	34	7	181	46	55	234	56	391	57	24	44	125	250
*Including the effects of exchange rate fluctuations in cash and cash equivalents and lease payments.

Consolidated results with Golan as of acquisition date

Consolidated results with Golan as of acquisition date

Operational Metrics

Operational Metrics	2018	2019	2020
NIS millions	Q1'18	Q2'18	Q3'18	Q4'18	FY'18	Q1'19	Q2'19	Q3'19	Q4'19	FY'19	Q1'20	Q2'20	Q3'20	Q4'20	FY'20
Cellular
Cellular subscribers (in 000's)	2,822	2,809	2,825	2,851	2,851	2,853	2,745	2,767	2,744	2,744	2,747	2,734	3,641	3,204	3,204
YoY Change	1.1%	1.1%	0.7%	1.2%	1.2%	1.1%	-2.3%	-2.1%	-3.8%	-3.8%	-3.7%	-0.4%	31.6%	16.8%	16.8%
Net adds (in 000's)	5	-13	16	26	34	2	-108	22	-23	-107	3	-13	907	-437	460
ARPU (in NIS)	51.8	51.8	52.5	49.0	51.3	47.2	51.9	53.2	50.5	50.7	48.1	46.9	45.7	48.6	47.3
YoY Change	-14.0%	-9.1%	-9.2%	-8.6%	-10.2%	-8.9%	0.2%	1.3%	3.1%	-1.2%	1.9%	-9.6%	-14.1%	-3.8%	-6.7%
Churn rate (%)	9.5%	12.6%	10.0%	11.1%	43.2%	11.0%	10.6%	11.4%	11.3%	48.8%	8.8%	8.7%	8.7%	8.4%	40.2%
Fixed - Line
Internet infrastructure field subscribers (in 000's)	235	248	259	269	269	278	278	276	278	278	279	283	289	293	293
YoY Change	35.8%	31.2%	25.7%	21.2%	21.2%	18.3%	12.1%	6.6%	3.3%	3.3%	0.4%	1.8%	4.7%	5.5%	5.5%
Net adds (in 000's)	13	13	11	10	47	9	0	-2	2	9	1	4	6	4	15
TV subscribers (in 000's)	184	195	206	219	219	227	239	247	258	258	246	245	251	252	252
YoY Change	48.4%	42.3%	33.8%	28.8%	28.8%	23.4%	22.6%	19.9%	17.8%	17.8%	8.4%	2.5%	1.6%	-2.5%	-2.5%
Net adds (in 000's)	14	11	11	13	49	8	12	8	11	39	-12	-1	6	1	-6

In this quarter, the Company's counting mechanism of M2M (machine to machine) subscribers was changed, so as that M2M subscribers are added to the cellular subscriber base only upon first use instead of at the time of sale as was done until the change. This change did not have a material effect on the prior subscriber data.

The increase resulted, among others, from subscribers that were added to the Company's cellular subscriber base as part of the Company's purchase of an Israeli MVNO's operations during the third quarter of 2017

Cellular subscriber base of the company increase by 45,000 subscribers during the second quarter of 2019 and was approximately 2.745 million subscribers. At the end of the first quarter of 2019, the company deleted 153,000 subscribers from its subscriber base count, due to a change in the counting method of the company's cellular subscriber base. These subscribers generate negligible revenues to the Company

Cellular subscriber base of the company increase by 45,000 subscribers during the second quarter of 2019 and was approximately 2.745 million subscribers. At the end of the first quarter of 2019, the company deleted 153,000 subscribers from its subscriber base count, due to a change in the counting method of the company's cellular subscriber base. These subscribers generate negligible revenues to the Company

As of the first quarter of 2020, the churn rate includes only the negative net churn of M2M subscribers, in order to eliminate changes that do not change the amount of lines held by the customers.

As of the first quarter of 2020, the Company changed the counting method in the way that does not include subscribers who own the Cellcom tv light application who did not activate the service. As a result, the company erased 14 thousands subscribers from its active customer base.

The decrease in the subscriber base in the TV field was due to a change in the counting method. During this quarter, the Company changed the way of counting TV subscribers by advancing the date of withdrawal from its subscriber base, from the date of returning the equipment to the Company to the date in which the subscriber's request to disconnect from the service was received. The Company applied the change retroactively and as a result deleted approximately 5,000 subscribers.

Cellular subscriber base of the company at the end of the third quarter of 2020 stands at 3.641 million subscribers. As a result of completion of Golan's acquisition during the third quarter of 2020, a 927 thousands subscribers added to the subscribers base.

Cellular subscriber base of the company at the end of the fourth quarter of 2020 stands at 3.204 million subscribers. The number of subscribers decreased following a change in the counting mechanizem which led to a write-off of approximately 427,000 data subscribers

Consolidated results with Golan as of acquisition date

Consolidated results with Golan as of acquisition date

Glossary

Glossary and calculations
Adjusted EBITDA	=	Adjusted EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses) that are not part of the Companies on going operations, net; income tax; depreciation and amortization, profits (losses) of equity account investees and share based payments. This is an accepted measure in the communications industry. The Company presents this measure as an additional performance measure as the Company believes that it enables us to compare operating performance between periods and companies, net of any potential differences which may result from differences in capital structure, taxes, age of fixed assets and related depreciation expenses.. Adjusted EBITDA does not take into account debt service requirements, or other commitments, including capital expenditures, and therefore, does not necessarily indicate the amounts that may be available for the Company's use. In addition, Adjusted EBITDA as presented by the Company may not be comparable to similarly titled measures reported by other companies, due to differences in the way these measures are calculated
Free cash flow	=	Free cash flow is defined as the net cash provided by operating activities including proceesd from sale of property, plant and equipment, intangible assets and others , minus the net cash used in investing activities in intangible assets and others and minus lease payments
Cellular ARPU	=	Average monthly revenue per cellular subscriber (ARPU) is calculated by dividing average revenues from cellular services for the period by the average number of cellular subscribers during the period. Revenues from inbound roaming services and hosting and network sharing services and repair services are included. Repair services carried out on a random basis and revenues from user aquipment are not included.
Cellular Churn rate	=	Churn rate is calculated as the ratio between the total number of voluntary and involuntary permanent deactivations, plus the number of subscribers that became unactive, and the number of active subscribers in the beginnig of the period. The Churn rate does not include the write-of of subscribers in the years 2019-2020
Voluntary change in accounting policy	Voluntary change in accounting policy - In 2019, the management has updated the accounting policy as follows: revenues from long-term credit arrangements (more than 12 monthly payments) are recognized on the basis of the present value of future cash flows, discounted according to market interest rates at the time of the transaction. The difference between the original credit and its present value over the credit period, is recorded from 2019 as other income (previously was recorded as interest income). The application of the change in the new accounting policy was applied retrospectively.
IFRS 15	As of the first quarter of 2017 the Company applies International Financial Reporting Standard (IFRS 15) and capitalizes part of the salaries expenses and commissions related to customer acquisition costs.
IFRS 16	As of first quarter of 2019 the Company is applying International Financial Reporting Standard IFRS 16, Leases.