Cellcom revenue declines but beats analysts

CEO Nir Sztern: The decline in service revenues will continue in the following quarters and may even escalate.

Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) reported its results for the first quarter of 2012 this morning. The mobile carrier's revenue totaled NIS 1.58 billion ($427 million) in the quarter, which was similar to the figure for the first quarter last year.

Revenue from services fell 1.6% to NIS 1.18 billion ($319 million) in the first quarter of 2012, compared with NIS 1.2 billion in the first quarter of 2011. Most of this fall was offset by a 4.5% rise in revenue from equipment sales, to NIS 399 million ($107 million), from NIS 382 million in the corresponding quarter.

ISP Netvision's contribution to revenue in the first quarter of 2012 was NIS 258 million ($69 million), after inter-company revenue is excluded. Excluding Netvision's contribution, Cellcom's total revenue fell 16.4% in comparison with the corresponding quarter.

The fall in services revenue is mainly due to continuing erosion of calls prices because of growing competition. However, revenue from content and value added services (including SMS) rose 10.9% in the first quarter of 2012 in comparison with the corresponding quarter of 2011. Content and value added services revenue totaled NIS 316 million in the first quarter of 2012, representing 33.4% of total services revenue (excluding Netvision).

Gross profit shrank 18% to NIS 686 million ($185 million) from NIS 837 million in the first quarter of 2011, and the gross profit margin fell 43.3% from 52.7% in the corresponding quarter.

Operating profit in the first quarter of 2012 was NIS 275 million ($74 million), compared with NIS 471 million in the corresponding quarter, representing a decline of 41.6%.

Net profit in the first quarter this year totaled NIS 173 million ($47 million), compared with NIS 306 million in the corresponding quarter, representing a decline of 43.5%. Earnings per share were NIS 1.74 ($0.47), compared with NIS 3.09 in the corresponding quarter. Analysts had expected revenue of NIS 1.62 billion and earnings per share of NIS 1.27, so that the actual results were better than the consensus estimates.

Cellcom declared a first quarter dividend of NIS 1.31 per share (approximately NIS 130 million in total), representing approximately 75% of net profit.

At the end of March 2012, Cellcom had 3.362 million subscribers. It recruited a net total of 13,000 subscribers during the first quarter, all post-paid. The number of 3G subscribers rose by 57,000 to 1.388 million, representing 41.3% of all subscribers, a rise from 35% at the end of March 2011.

The company's churn rate of subscribers was 6.3% in the first quarter of 2012, compared with 7.1% in the corresponding quarter. The company said that most of the subscribers who left were low-value pre-paid subscribers, and subscribers with collection problems.

Cellcom CEO Nir Sztern said, "I am pleased with the success of the Netvision merger, which already had a positive effect on costs and contributed to revenues, this quarter. Comparing the results of the first quarter of 2012 with the first quarter of 2011, we see a decline in profitability as a result of the regulatory changes and increased competition. However, if we compare the first quarter 2012 with the fourth quarter 2011, we can see a decrease in the company's expenses of approximately NIS 80 million as a result of the efficiency measures we implemented. "The intensified competition which characterized this past year, led to a continued reduction in service revenues. The decline in service revenues will continue in the following quarters and may even escalate as a result of the new competition, and so, we intend to implement additional efficiency measures regarding costs and merger synergies, but we estimate that these measures will only partly compensate for the decrease in revenues.

"I congratulate the Ministry of Communications for its decision to open the landline market for competition. We see this as an opportunity to grow and strengthen Cellcom Israel's position as a communications group providing a wide variety of solutions to business and private customers. However, the success of opening this market to competition still depends on the active involvement and supervision of the regulator for the benefit of creating competition in the market. "We continue to make every effort to ensure that Cellcom Israel is ready to face the challenges expected this year. We are the company with the best consumer conduct from among the Israeli cellular operators (according to the Public Trust organization), our brand is the leading brand in the cellular market (according to Globes brand index) and we are in the midst of upgrading our network to enable future surfing speeds of up to 84 Mbps. I am confident that all these, together with the qualified human resources of the company will assist in continuing our leadership in the coming years."

Published by Globes [online], Israel business news - www.globes-online.com - on May 15, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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