Fierce competition in the mobile phone and television markets is affecting the results of communications company Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), but the strongest effect of the second quarter results reported by the company today was its one-time expenses, which turned a NIS 7 million profit in the first quarter and a NIS 45 million profit in the second quarter last year into a NIS 37 million net loss in the second quarter.
Cellcom made a NIS 26 million provision in the quarter for early retirement of 200 employees, accounting differences resulting from the company's network sharing agreement with Golan Telecommunications, and unusually high expenses for class action lawsuits. It is difficult to determine whether Cellcom would have made a profit without these expenses, but the company would probably have been at least closer to making a profit.
Cellcom's revenue totaled NIS 927 million in the second quarter, 3.6% less than in the second quarter of 2017 and 0.6% less than in the preceding quarter. Its EBITDA amounted to NIS 133 million, 14.3% of revenue, which is 44% less than in the corresponding quarter last year.
Although the company's revenue was almost unchanged in comparison with the preceding quarter, its composition changed. Revenue from the mobile sector fell, while revenue in the landline sector (television and Internet) rose. The mobile sector generated NIS 591 million in revenue, down 12% in comparison with the corresponding quarter last year and 6% in comparison with the preceding quarter. Landline revenue totaled NIS 376 million, 13.6% more than in the corresponding quarter and 9.6% more than in the preceding quarter.
EBITDA in the mobile sector totaled NIS 71 million, down 55% in comparison with the corresponding quarter last year, while EBITDA in the landline sector totaled NIS 62 million, 21.5% less than in the second quarter of 2017. EBITDA was also affected by the one-time expenses in the quarter. Disposable cash flow amounted to NIS 56 million, 27% less than in the corresponding quarter in 2017.
Cellcom says that despite the entry of Xfone and stiffer competition in the mobile phone market, average revenue per user (ARPU) remained unchanged from the preceding quarter at NIS 51.80 (9% less than in the corresponding quarter last year. Cellcom had 2.8 million mobile phone subscribers at the end of the second quarter, after losing 13,000 subscribers during the quarter. Cellcom now has over 200,000 household subscribers for its Cellcom TV service, a profitable field for the company.
"This quarter ended in a loss due to a number of individual events that added to the company's expenses, headed by retirement of 200 employees, said Cellcom CEO Nir Sztern. "The positive effect of reducing the company's expenses will be evident next quarter. Despite the intense competition, the company succeeded in preserving its level of revenue in comparison with the first quarter, among other things due to successful marketing of the quatro packages.
"We welcome the signing of the memorandum of understanding with IBC, IEC, and the other shareholders and parties at interest in IBC for Cellcom's investment in the company. Signing the memorandum of understanding is a strategically important event for Cellcom and a breakthrough in Internet services in Israel. The cooperation between the companies will make it possible to also provide high-speed advanced Internet in the outlying areas and to a group of one million households within a number of years."
Published by Globes [online], Israel business news - www.globes-online.com - on August 16, 2018
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