Cellcom Company Presentation | 2015
1 FORWARD LOOKING STATEMENTS
The following information contains, or may be deemed to contain forward-looking statements (as defined in the U.S. Private Securities Litigation Reform Act of 1995 and the Israeli Securities Law, 1968). In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial results, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause such differences include, but are not limited to: changes to the terms of our license, new legislation or decisions by the regulator affecting our operations, the outcome of legal proceedings to which we are a party, particularly class action lawsuits, our ability to maintain or obtain permits to construct and operate cell sites, and other risks and uncertainties detailed from time to time in our filings with the U.S. Securities and Exchange Commission, including under the caption “Risk Factors” in our Annual Report for the year ended December 31, 2014. Although we believe the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We assume no duty to update any of these forward-looking statements after the date hereof to conform our prior statements to actual results or revised expectations, except as otherwise required by law.
2 Snapshot
Cellcom Israel
3 Cellcom Israel Group Snapshot December 2015
Israel’s largest . 2.835M Subscribers(1) Cellular Operator . Largest market share of ~27% ( 1,2) . Independent transmission network . Leading brand in Israel’s cellular market (3)
Fastest growing . ISP Service for appx. 685K Households (27% market share) company in TV, . More then 10% of our ISP subscribers use our Internet & fixed line wholesale internet infrastructure services services . 45% market share out of total wholesale subscribers ( 2) . Reaching 4% of the TV market in one year ( 2 ) . Holds large market share in ILD . Leading advanced communications solutions provider for business customers
(1) As of December 31, 2015 (2) Based on company estimations and public figures (3) According to Globes 2012-2015 brand index (an Israeli financial daily paper) 4 Full end-to-end service communications company
Residential
Internet
Triple play Telephony (VOB)
OTT TV
Cellular services
International Calls
5 Offering our business customers A large range of products
Business
Cellular services Internet Security
Internet Cloud services
Telephony (VOB) Transmission
International Calls Content
Integration services Hosting Services Our Strategy
. Offering our customers comprehensive
telecommunications solutions
. Growing in wireline services(1 )
. Optimization of cost structure
(1) Based on the wholesale market, launched in February 2015 7 Opportunities
2016 - Year of change . Golan purchase transaction(-1) If approved and consummated will lead to consolidation from 5 to 4 MNO’S in Israel and will further cement our position as the largest cellular operator in Israel . Fixed Line market - 2016 positioning us strongly in the fixed line market, disrupting the current duopoly of Bezeq and Hot
(1) Subject to approval by the Anti-Trust commissioner and the Ministry of Communication in Israel 8 Golan Transaction Summary
. In November 2015, Cellcom entered an agreement for the purchase Golan Telecom's shares. we have not received regulatory approval for the acquisition of Golan (1)
. Total purchase price is NIS 1.17 billion representing NIS 1.0 billion EV of Golan Telecom (2 )
. The transaction represents a multiple of 5.0x FY2015 for (3) Golan Telecom Adj. EBITDA
. Cellcom currently expects to finance the transaction by: . Equity offering of NIS 200 million . Sellers' Convertible note of NIS 400 millions . Existing cash and new debt
(1) The Company estimates that the receipt of such approvals will be challenging specifically given the strong opposition to the transaction, and there is no certainty that such approvals will be granted. (2) NIS 0.16 billion working capital adjustments and tax shield. Golan's financial and operational information included in this press release was prepared by Golan and provided to the Company as part of Golan's representations in the Agreement (3) Adjusted EBITDA before national roaming costs calculated annually based on the first 8 month of 2015 For description of the main terms of the transaction see the Company's current report regarding the transaction on Form 6-K, dated 05/11/2015. 9 Golan Telecom( 1) Snapshot
. Entered the Market in May 2012 . Low Cost player with aggressive prices and basic service . Apx. 900K subscribers( 2)
. 32% Annual churn rate (Q4’14-Q3’15) . NIS 500 million revenues( 3)
. NIS 53 ARPU (H1 2015)
(4) . NIS 204 million EBITDA
(1) Golan's financial and operational information included in this press release was prepared by Golan and provided to the Company as part of Golan's representations in the Agreement. Golan's financial information included in this press release was prepared by Golan in accordance with Israeli GAAP. Israeli GAAP differs from IFRS, and the differences could be material. The Company has not reviewed this information and takes no responsibility for it. (2) As of November 2015 (3) calculated annually based on the first 8 month of 2015 (4) Adjusted EBITDA before national roaming costs calculated annually based on the first 8 month of 2015 10
Highly Complementary Combination
Consolidated Cellcom Golan Pro-forma
(1) Subscribers (m) 2.8 0.9 3.7
(1) Mobile Sub. 36% Market Share 27% 9%
national roaming using 2G, 3G & 4G Networks 2G, 3G & 4G Cellcom's network
A highly complementary combination, with strong synergies
(1) As of December 2015 (2) Adjusted EBITDA before national roaming costs calculated annually based on the first 8 month of 2015 11 Soft Synergies
• Access to new households – an Fixed line services opportunity to increase fixed line cross- selling penetration (using wholesale market)
(1) New offering • Cell phones, value added services, repair of mobile services services
• unify overlapping activities Cost synergies • Generate efficiencies in property, logistics and procurement
(1) Golan doesn't sell cell phones 12 Telecom Transactions EBITDA Multiple
13.8
10.3 9.7 8.2 7.8 7.8 7.8 6.5 6.5 5.0
Glentel Ziggo Holding Dodo Australia Telecom New SkyWave Mobile InTechnology Enventis Telefônica Brasil Hispasat Golan Telecom Zealand Australia Communications Managed Services Corporation S.A.
Average Multiple x8.7
Source: public figures 2013-2015 13 Golan cost structure after Golan purchase agreement
. Golan's national payments to the Company on an annual basis increased to approximately NIS 252 million . Golan to pay NIS 600 million to Cellcom if no closing is reached . According to the agreement if the acquisition is not approved the parties
shall negotiate a new network sharing agreement M’NIS 548 600
296
(1) Golan Expenses 2015 Golan Expenses 2016 (1) (2) Debt to Cellcom if no closing is reached (1) Expenses = Revenues minus EBITDA , calculated annually based on the first 8 month of 2015 (2) Estimated total expenses according to 2015 expenses + annual payment increase to Cellcom 14 Television Market Cellcom tv - A new tv experience
Our offer to the Israeli Market includes:
. Linear channels including the Israeli Digital terrestrial broadcasting . Video on Demand library . Live and catch up sports application . Access to internet video content from selected internet sites . Music streaming service . An improved and advanced user experience . Highly competitive price
15 Growing in TV Cellcom’s Tv Opportunity
. Two large Multichannel pay-tv incumbents and Cellcom Israel as a newcomer with hybrid OTT-DTT service
. The incumbents’ price levels are relatively high TV Subscribers (1) at between $60-120 per month Net adds 2015 (000’) +63 . The company offers OTT-TV services for 25$ per month
. Appx. 63,000 TV customers - +8 4% market share at the end of 2015
-33 HOT YES Cellcom
(1) The figures are based on HOT and Bezeq reports for Q1-Q3 2015 and company estimations for Q4 2015 16 Growing in Fixed Line Cellcom’s Fixed line Opportunity
Key advantages of Cellcom which are expected to facilitate expansion in the landline business : . Triple play package – the first of its kind in Israel providing Cellcom tv, Internet access and infrastructure and telephony for a highly competitive price . Large subscriber base: appx. 2.8 million cellular subscribers, Broadband Subscribers (1) appx. 27% market share in ISP market and appx. Net adds 2015 (000’) 138 thousand VOB subs +94 . Leveraging the fiber network infrastructure
(appx. 1,750 KM of fiber optic infrastructure) -29 together with the wholesale market aiming
to increase market share in the business sector -148 Bezeq HOT Cellcom (1) The figures are based on HOT and Bezeq reports for Q1-Q3 2015 and company estimations for Q4 2015 17 Aggressive Triple play offer
Price Aggregate ARPU Nis Nis
(1) (3) (2)
18 On going Cutting Costs
. Reduction of head count . Dealers commission reduction . Reduction of advertising and sales promotion expenses . IT Systems and building maintenance expenses reduction . Warranty and repair services expenses reduction . Reduction in walk in centers branches and office space
19 On going Cutting Costs
(1) Positions SG&A (M’Nis)
1,676 7,254 1,494 1,287 5,435 1,135 1,065 4,403 3,921 3,645
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
(1) Number of Full-Time Equivalent Positions 20 Financial and Operational Results
21 Financials
Last 4 Quarters (1)
(2) Revenues M’Nis ARPU Nis EBITDA M’Nis
65.5 65.5 66 1,062 1,040 1,032 1,046 63 235 225 196 216
Q1'15 Q2'15 Q3'15 Q4'15 Q1'15 Q2'15 Q3'15 Q4'15 Q1'15 Q2'15 Q3'15 Q4'15
(1) The figures are based on company reports for the relevant quarters (2) The results for the first quarter of 2015 include a one-time expense in an amount of NIS 30 million. The results for the second quarter of 2015 include a one-time net expenses of NIS 25 million 22 Decreasing Leverage
The company substantially reduced the level of financial debt
B’Nis
6.7 6.5 6.1 6.0 5.4 4.9 5.0 4.9 4.6 4.6 4.3 4.1 3.9 3.8 3.3 3.0 2.9 2.7
Q4'11 Q2'12 Q4'12 Q2'13 Q4'13 Q2'14 Q4'14 Q2'15 Q4'15
(1) Debt (1) Net Debt
(1) The figures are based on company reports for the relevant quarters (2) Net Debt defined as credit and loans from banks and others and debentures, net of cash and cash equivalents and current investments in tradable securities 23 Debt Structure(1) as of December 31, 2015
Yield to Series Name Amount Coupon Duration Linkage (2) Maturity Series B 442 5.30% 0.52 CPI Linked 1.62% Series D 698 5.19% 0.98 CPI Linked 1.69% Series E 327 6.25% 0.49 Fixed 1.03% Series F 732 4.60% 2.60 CPI Linked 1.90% Series G 285 6.99% 1.92 Fixed 1.29% Series H 950 1.98% 5.38 CPI Linked 2.76% Series I 558 4.14% 5.44 Fixed 3.95% Total 3,991
(1) In May and August 2015, the Company entered deferred loan agreements with Israeli financial institutions and a bank, for the total sum of NIS 540 million, under certain customary conditions (2) As of December 2015 24 Financial highlights 2015 Vs. 2014
2015 2014 yoy % (M NIS) (M NIS) Total Revenues 4,180 4,570 (8.5%)
Service Revenues 3,132 3,565 (12.1%)
Equipment Revenues 1,048 1,005 4.3%
(1) EBITDA 872 1,282 (32.0%)
(1) EBITDA Margin 20.9% 28.0% (0.25%)
(1) Net Income 97 354 (72.6%)
Free Cash Flow 494 1,204 (59.0%)
Cellular ARPU 65.0 72.1 (9.9%)
Cellular Churn % 42.0% 44.0% (4.5%)
(1) The results for the year 2015 include a one-time expense in a total amount of NIS 55 million. EBITDA for 2014 include two one time expenses in the net amount of 27 million. 25 Financial highlights Q4’15 Vs. Q4’14
Q4’15 Q4’14 yoy % (M NIS) (M NIS) Total Revenues 1,046 1,140 (8.2%)
Service Revenues 757 835 (9.3%)
Equipment Revenues 289 305 (5.2%)
EBITDA 225 282 (20.2%)
EBITDA Margin 21.5% 24.7% (13.0%)
Net Income 19 55 (39.7%)
Free Cash Flow 121 174 (30.5%)
Cellular ARPU 62.4 67.8 (7.9%)
Cellular Churn % 11.1% 11.5% (3.4%)
26 Contact us Shlomi Fruhling Chief Financial Officer E-mail: [email protected] Tel : + 972 52 9989755 Elad Levy Fax: + 972 52 9989700 Investor Relations Manager
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