Orange franchisee Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), controlled by Ilan Ben-Dov reported a sharp drop in net profit, despite higher revenue for the second quarter of 2011, and predicts worse to come in the second half of the year. Revenue rose 12.6% to $553 million (NIS 1.89 billion) for the second quarter from NIS 1.68 billion for the corresponding quarter of 2010.
Net profit fell 30% to $60 million (NIS 205 million (NIS 1.32 or $0.39 per share) for the second quarter from NIS 293 million for the corresponding quarter.
Partner's service revenue fell 3.7% to $398 million (NIS 1.36 billion) for the second quarter from NIS 1.41 billion for the corresponding quarter, and fell 22% to NIS 258 million if the contribution from ISP and international calls carrier 012 Smile Telecom Ltd. is excluded. Like its rivals, Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Pelephone Communications Ltd., Partner attributes the drop in service revenue to the mandated "71% reduction in the interconnect voice tariffs and the 94% reduction in the interconnect SMS tariff which came into effect on January 1, 2011, which cut second quarter service revenues by NIS 265 million."
Also like Cellcom and Pelephone, Partner reported strong growth in equipment revenue from increased sales of smartphones. Equipment revenue rose 99.6% to $154 million (NIS 527 million) for the second quarter from NIS 264 million for the corresponding quarter.
Free cash flow from operations fell 55% to NIS 158 million for the second quarter from NIS 350 million for the corresponding quarter.
In the company's guidance, Partner CFO Emanuel Avner said, "In light of the recent regulatory changes, including the reduction in interconnect tariffs, the reduction of exit fines and the increased competition in the market, we are witnessing a material reduction in the profitability of cellular services. We therefore expect net income for the second half of 2011 to be significantly lower than the second half of 2010." He also expects the company's free cash flow in 2011 to be much less than in 2010.
Partner added a net 26,000 new subscribers during the second quarter to 3.18 million at the end of June. Average revenue per user (ARPU) fell 9% to NIS 112 per month in the second quarter from NIS 123 per month in the corresponding quarter, but average minutes of use (MOU) rose 8% to 396 per month per user from 368 minutes.
Partner CEO Yaacov Gelbard said the company had decided not to distribute a dividend.
Partner's share price rose 4.5% on Nasdaq yesterday to $11.93, giving a market cap of $1.86 billion, but fell 8% by mid-afternoon on the TASE today to NIS 41.
Published by Globes [online], Israel business news - www.globes-online.com - on August 10, 2011
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