SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15a-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Report on Form 6-K dated

 

August 17, 2016

 

(Translation of Registrant’s Name Into English)

 

8 Amal Street

Afeq Industrial Park

Rosh Ha’ayin 48103

Israel

(Address of Principal Executive Offices)

 

(Indicate by check mark whether the registrant files or will file annual reports

under cover of Form 20-F or Form 40-F.)

 

Form 20-F  ☒ Form 40-F ☐

 

(Indicate by check mark whether the registrant by furnishing the

information contained in this Form is also thereby furnishing the information to the

Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

 

Yes ☐  No ☒

 

(If “Yes” is marked, indicate below the file number assigned to the

registrant in connection with Rule 12g3-2(b): 82- ______)

 

This Form 6-K is incorporated by reference into the Company’s Registration Statements on Form S-8 filed with the Securities and Exchange Commission on December 4, 2002 (Registration No. 333-101652), September 5, 2006 (Registration No. 333-137102) and on September 11, 2008 (Registration No. 333-153419)

 

Enclosure: Partner Communications reports second quarter 2016 results

 

ADJUSTED EBITDA² IN THE SECOND QUARTER TOTALED NIS 228 MILLION

 

NET DEBT² DECLINED TO NIS 1.96 BILLION

 

Second quarter 2016 highlights (compared with second quarter 2015)

 

·	Total Revenues: NIS 897 million (US$ 233 million), a decrease of 14%

·	Service Revenues: NIS 692 million (US$ 180 million), a decrease of 9%

·	Equipment Revenues: NIS 205 million (US$ 53 million), a decrease of 29%

·	Operating Expenses (OPEX)2: NIS 572 million (US $ 149 million), a decrease of 5%

·	Adjusted EBITDA: NIS 228 million (US$ 59 million), a decrease of 3%

·	Adjusted EBITDA Margin: 25% of total revenues, compared with 23%

·	Profit for the period: NIS 26 million (US$ 7 million), an increase of 189%

·	Net Debt2: NIS 1,964 million (US$ 511 million), a decrease of NIS 662 million

·	Free Cash Flow (before interest)2: NIS 160 million (US$ 42 million), an increase of  NIS 136 million

·	Cellular ARPU: NIS 65 (US$ 17), a decrease of 7%

·	Cellular Subscriber Base: approximately 2.7 million at quarter-end, a decrease of 2%

Rosh Ha’ayin, Israel, August 17, 2016 – Partner Communications Company Ltd. (“Partner” or the “Company”) (NASDAQ and TASE: PTNR), a leading Israeli communications provider, announced today its results for the quarter ended June 30, 2016.

Commenting on the second quarter 2016 results, Mr. Isaac Benbenisti, CEO of Partner, noted:

 

“During the second quarter we continued with the implementation of the Company's vision to transform into a comprehensive communications company. We are currently unifying the systems of 012 Smile and Partner, a process that includes the gradual transfer of all our fixed-line customers to the Partner brand.

We announced our intention to promote the deployment of an independent fixed-line infrastructure using fiber optics, and we began a field test around a month ago in which we connected the first residential internet customers to Partner's fiber network at a speed of up to one Gigabit per second (Gbps). Over the last few weeks we have been promoting this issue with the Ministry of Communications and we expect to receive the support of the regulator to establish an advanced fixed-line infrastructure that will both open the market to competition and narrow the gap in internet speeds and available technologies for the Israeli communications consumer, compared to the rest of the world.

 

In parallel, we are working towards entry into the television broadcast market while taking into account the changing needs of the consumer in the digital era. We await the implementation of the Filber Committee recommendations with respect to the ‘must sell’ requirement for sports content and linear broadcast channels over the internet. The implementation of these steps, along with other steps, will enable the opening of the television market to competition and lead to lower prices for consumers.

 

In the second quarter we continued to successfully expand our cellular Post-Paid customer base, marking the fourth consecutive quarter of growth in the cellular post-paid subscriber base. This positive trend can be attributed, among others, to the significant steps we are taking in our customer service, including the expansion of available platforms for digital support and customer service, with an emphasis on the social networking platforms.”

Mr. Ziv Leitman, Partner's Chief Financial Officer, commented on the second quarter results of 2016 as compared to the first quarter results of 2016:

 

“During the second quarter of 2016, the competition in the cellular market continued to erode service revenues, however, to a lesser extent than in previous quarters.

 

The churn rate for cellular subscribers stood at 9.8% in the second quarter of 2016 compared to 11.2% in the previous quarter and 10.9% in the second quarter of 2015. We continue to see a decrease in Post-Paid subscriber churn which reached the lowest level since mid-2013.

 

Cellular ARPU in the second quarter of 2016 totaled NIS 65, a decline of NIS 2 from the first quarter of 2016, mainly reflecting the decline in revenues related to the network Right of Use Agreement with Hot Mobile, which was partially offset by an increase in seasonal roaming revenues as well as one-time service revenue items.

 

Revenues and gross profit from equipment sales in the second quarter of 2016 decreased by NIS 62 million and NIS 14 million respectively, compared to the previous quarter. The decreases were primarily due to a decline in the amount of sales, largely resulting from tightening of the Company's customer credit policy.

Operating expenses (OPEX)³ decreased by NIS 40 million compared with the previous quarter, primarily reflecting the decline in sales and marketing expenses and the impact of the network sharing agreement, which began in the second quarter of 2016, initiating the implementation of the cost sharing mechanism between the Company and Hot Mobile.

 

Adjusted EBITDA³ in the second quarter of 2016 increased by NIS 6 million (3%), compared with the previous quarter. The increase mainly reflected the decline in operating expenses, which was partially offset by the decline in service revenues and the decline in gross profit from equipment sales.

 

Finance costs, net, totaled NIS 28 million in the reported quarter, an increase of NIS 4 million compared to the previous quarter, reflecting higher linkage costs resulting from the increase in CPI, partially offset by lower early debt repayment costs and higher gains from foreign exchange movements.

 

Profit for the second quarter of 2016 totaled NIS 26 million compared with NIS 14 million in the previous quarter. The increase largely reflected the increase in operating profit.

 

Cash capital expenditures (CAPEX payments)³ in the second quarter of 2016 totaled NIS 57 million compared to NIS 48 million in the previous quarter, an increase of 19%.

 

Free cash flow (before interest payments)³ in the reported quarter totaled NIS 160 million, compared with NIS 114 million in the previous quarter. The increase in free cash flow primarily reflected the first installment, in an amount of NIS 35 million, of the lump sum of NIS 250 million under the Network Sharing Agreement with Hot Mobile, which is expected to be paid fully during 2016, as well as a decrease in other operating working capital items.

 

As of June 30, 2016, net debt³ amounted to approximately NIS 1.96 billion (total short and long term debt and current maturities of NIS 2.88 billion less cash and cash equivalents of NIS 0.92 billion).

 

In April 2016 the Company repurchased part of its Series C Notes in the amount of approximately NIS 62 million, this being the final purchase under the October 2015 buy-back plan.”

³ See footnote 2.

 

 

 

 

 

In Q2 2016, total revenues were NIS 897 million (US$ 233 million), a decrease of 14% from NIS 1,044 million in Q2 2015.

 

Service revenues in Q2 2016 totaled NIS 692 million (US$ 180 million), a decrease of 9% from NIS 757 million in Q2 2015.

 

 

Service revenues for the cellular segment in Q2 2016 were NIS 527 million (US$ 137 million), a decrease of 9% from NIS 581 million in Q2 2015. The decrease was mainly the result of the decline in revenues related to the ending of the network Right of Use Agreement with Hot Mobile as well as the continued price erosion of Post-Paid and Pre-Paid cellular services due to the competitive market conditions, partially offset by one-time service revenue items.

 

Service revenues for the fixed-line segment in Q2 2016 totaled NIS 219 million (US$ 57 million), a decrease of 3% from NIS 226 million in Q2 2015. The decrease mainly reflected lower revenues from international calls services.

 

Equipment revenues in Q2 2016 totaled NIS 205 million (US$ 53 million), a decrease of 29% from NIS 287 million in Q2 2015. The decrease largely reflected a decline in the amounts of cellular and other devices and accessories sold.

 

Gross profit from equipment sales in Q2 2016 was NIS 42 million (US$ 11 million), compared with NIS 67 million in Q2 2015, a decrease of 37%, again largely reflecting the reduction in the amount of sales.

 

Operating expenses (OPEX) totaled NIS 572 million (US$ 149 million) in Q2 2016, a decrease of 5% or NIS 29 million from Q2 2015. The decrease largely reflected the decline in payroll and related expenses, as well as a decline in cellular network-related operating expenses following the implementation of the cost sharing mechanism under the Network Sharing Agreement with Hot Mobile, and lower expenses related to payments to other communications providers, partially offset by higher advertising and marketing expenses and expenses related to bad debts and doubtful accounts. Operating expenses including depreciation and amortization expenses in Q2 2016 increased by 5% compared with Q2 2015.

 

In Q2 2016 the Company continued to record income with respect to the settlement agreement with Orange in an amount of NIS 54 million (US$ 14 million). The income resulted from advance payments received from Orange during 2015 in a total amount of €90 million.  As set forth in the settlement agreement, the advance payments are to be recognized and reconciled evenly on a quarterly basis over a period until the second quarter of 2017, against contingent marketing, sales, customer services and other expenses to be incurred over this period. 

 

Adjusted EBITDA in Q2 2016 totaled NIS 228 million (US$ 59 million), a decrease of 3% from NIS 236 million in Q2 2015.

 

Adjusted EBITDA for the cellular segment was NIS 155 million (US$ 40 million) in Q2 2016, a decrease of 3% from NIS 160 million in Q2 2015. The decrease principally reflected the decreases in service revenues and in gross profit from equipment sales, which were partially offset by the income with respect to the settlement agreement with Orange and by the decrease in operating expenses. As a percentage of total cellular revenues, Adjusted EBITDA margin for the cellular segment in Q2 2016 was 22%, compared with 19% in Q2 2015.

Adjusted EBITDA for the fixed-line segment was NIS 73 million (US$ 19 million) in Q2 2016, a decrease of 4% from NIS 76 million in Q2 2015. The decrease also mainly reflected the decreases in service revenues and in gross profit from equipment sales, which were partially offset by the decrease in operating expenses.  As a percentage of total fixed-line revenues, Adjusted EBITDA margin for the fixed line segment in Q2 2016 was 31%, no change from Q2 2015.

 

Operating profit for Q2 2016 was NIS 67 million (US$ 17 million), no change from Q2 2015.

 

Finance costs, net in Q2 2016 were NIS 28 million (US$ 7 million), a decrease of 39%, compared with NIS 46 million in Q2 2015. The decrease was mainly due to lower CPI (Consumer Price Index) linkage expenses as a result of the smaller increase in the CPI level, as well as higher gains from foreign exchange movements in Q2 2016.

 

Income tax expenses for Q2 2016 were NIS 13 million (US$ 3 million), an increase of 8% compared with NIS 12 million in Q2 2015, reflecting the increase in profit before tax.

 

Profit in Q2 2016 totaled NIS 26 million (US$ 7 million), an increase of 189% compared with NIS 9 million in Q2 2015.

 

Based on the weighted average number of shares outstanding during Q2 2016, basic earnings per share or ADS, was NIS 0.17 (US$ 0.04), compared to NIS 0.06 in Q2 2015.

 

 

At the end of the second quarter of 2016, the Company's cellular subscriber base (including mobile data and 012 Mobile subscribers) was approximately 2.7 million, including approximately 2.19 million Post-Paid subscribers or 81% of the base, and approximately 509 thousand Pre-Paid subscribers, or 19% of the subscriber base.

 

During the second quarter of 2016, the cellular subscriber base increased by approximately 8 thousand subscribers. The Post-Paid subscriber base increased by approximately 17 thousand subscribers, while the Pre-Paid subscriber base declined by approximately 9 thousand subscribers.

 

The quarterly churn rate for cellular subscribers in Q2 2016 was 9.8%, compared with 10.9% in Q2 2015, reflecting a decrease in the churn of Post-Paid subscribers, which was partially offset by an increase in the churn of Pre-Paid subscribers.

 

Total cellular market share (based on the number of subscribers) at the end of Q2 2016 was estimated to be approximately 27%, unchanged from Q2 2015.

 

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q2 2016 was NIS 65 (US$ 17), a decrease of 7% from NIS 70 in Q2 2015. The decrease in ARPU mainly reflected the decline in revenues related to the network Right of Use Agreement with Hot Mobile as well as the continued price erosion of Post-Paid and Pre-Paid cellular services due to the competitive market conditions, partially offset by one-time service revenue items.

 

 

In Q2 2016, cash flow generated from operating activities before interest payments (NIS 217 million), net of cash flow used for investing activities (NIS 57 million) (‘Free Cash Flow (before interest)’), totaled NIS 160 million (US$ 42 million), an increase of 567% from NIS 24 million in Q2 2015, reflecting both an increase in cash generated from operations and a decrease in CAPEX payments.

 

Cash generated from operations increased by 61% to NIS 217 million (US$ 57 million) in Q2 2016 from NIS 135 million in Q2 2015. The increase in cash generated from operations reflected both the first installment, in an amount of NIS 35 million, of the lump sum of NIS 250 million under the Network Sharing Agreement with Hot Mobile (which is expected to be paid fully during 2016), and the decrease in operating assets, which was mainly explained by the decrease in equipment sales under installment payment plans.

 

Cash capital expenditures (CAPEX payments) totaled NIS 57 million (US$ 15 million) in Q2 2016, a decrease of 49% from NIS 111 million in Q2 2015.

 

Net debt at the end of Q2 2016 amounted to NIS 1,964 million (US$ 511 million), compared with NIS 2,626 million at the end of Q2 2015, a decrease of NIS 662 million.

 

Partner will hold a conference call on Wednesday, August 17, 2016 at 10.00AM Eastern Time / 5.00PM Israel Time.

 

To join the call, please dial the following numbers (at least 10 minutes before the scheduled time):

 

International: +972.3.918.0664

North America toll-free: +1.888.668.9141

 

A live webcast of the call will also be available on Partner's Investors Relations website at: www.partner.co.il/en/Investors-Relations/lobby/

 

If you are unavailable to join live, the replay of the call will be available from August 17, 2016 until August 24, 2016, at the following numbers:

 

International: +972.3.925.5937

North America toll-free: +1.877.456.0009

 

In addition, the archived webcast of the call will be available on Partner's Investor Relations website at the above address for approximately three months.

---

 

This press release includes forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Words such as “estimate”, “believe”, “anticipate”, “expect”, “intend”, “seek”, “will”, “plan”, “could”, “may”, “project”, “goal”, “target” and similar expressions often identify forward-looking statements but are not the only way we identify these statements. Specific statements have been made regarding (i) the unification of the Group's systems and a gradual transfer of the Company's fixed-line customers to the Partner brand; (ii) the Company's intention to promote the deployment of an independent fixed-line infrastructure using fiber optics, and the Company's expectation to receive the regulator's support to establish the said infrastructure and insofar as the Company's expectation will not be realized, this may have an adverse effect on the Company's business, the results of operations and on the market competition;(iii) the Company's intention to enter into the television broadcast market and the expectation for the implementation of the Filber Committee conclusions and recommendations regarding the regulation of the broadcast market, including with respect to the ‘must sell’ requirement for sport content and liner broadcast channels over the internet and insofar as these events will not occur, this might have an adverse effect on the Company's entrance into the television broadcast market and its ability to open the market for competition and reduce prices for consumers, and (iv) anticipated future cash payments from Hot Mobile. In addition, all statements other than statements of historical fact included in this press release regarding our future performance are forward-looking statements.

 

We have based these forward-looking statements on our current knowledge and our present beliefs and expectations regarding possible future events. These forward-looking statements are subject to risks, uncertainties and assumptions, including, as regards in particular the statements identified above, (i) the current lack of visibility as to the implementation of the Filber Committee conclusions and recommendations regarding the regulation of the broadcast market; (ii) any unanticipated technological, technical or other difficulty which might arise in connection with the Group's systems unification and the transfer to the Partner brand,(iii) operational, regulatory, financial or other unanticipated difficulties, which could prevent the Company from promoting the deployment of an independent fixed-line infrastructure using fiber optics, and (iv) the risk of non-compliance by Hot Mobile, for financial or other reasons, with its contractual obligations to Partner to make the anticipated cash payments. Future results may differ materially from those anticipated herein. For further information regarding risks, uncertainties and assumptions about Partner, trends in the Israeli telecommunications industry in general, the impact of current global economic conditions and possible regulatory and legal developments, and other risks we face, see “Item 3. Key Information - 3D. Risk Factors”, “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects”, “Item 8 Financial Information - 8A. Consolidated Financial Statements and Other Financial Information - 8A.1 Legal and Administrative Proceedings” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Reports on Form 20-F filed with the SEC, as well as its immediate reports on Form 6-K furnished to the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

The quarterly financial results presented in this press release are unaudited financial results.

 

The results were prepared in accordance with IFRS, other than the non-GAAP financial measures presented below.

 

The financial information is presented in NIS millions (unless otherwise stated) and the figures presented are rounded accordingly.

The convenience translations of the New Israeli Shekel (NIS) figures into US Dollars were made at the rate of exchange prevailing at June 30, 2016: US $1.00 equals NIS 3.846. The translations were made purely for the convenience of the reader.

‘Adjusted EBITDA’ represents earnings before interest (finance costs, net), taxes, depreciation, amortization (including amortization of intangible assets, deferred expenses-right of use, and amortization of share based compensation) and impairment charges, as a measure of operating profit. Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures provided by other companies. Adjusted EBITDA may not be indicative of the Company’s historic operating results nor is it meant to be predictive of potential future results. Adjusted EBITDA is presented solely to enhance the understanding of our operating results. We use the term “Adjusted EBITDA” to highlight the fact that amortization includes amortization of deferred expenses – right of use and employee share-based compensation expenses, but Adjusted EBITDA is fully comparable to EBITDA information which has been previously provided by Partner for prior periods.

 

'Cash capital expenditures' or 'CAPEX payments' represent cash flows used in acquisition of property and equipment and acquisition of intangible assets.

 

'Capital Expenditures (additions)' represents additions to property and equipment and intangible assets.

 

'Net Debt' represents notes payable and borrowings form banks and others including current maturities less cash and cash equivalents.

 

'Free Cash Flow (before interest)' represents cash flows from operating activities before interest payments, net of cash flows used for investment activities.

 

'Free Cash Flow (after interest)' represents cash flows from operating activities before interest payments, net of cash flows used for investment activities and net of interest paid.

 

'Operating Expenses (OPEX)' represents cost of service revenues, selling, marketing and administrative expenses net of depreciation, amortization, impairment charges and other expenses (mainly employee share based compensation expenses).

 

 

Partner Communications Company Ltd. is a leading Israeli provider of communications services (cellular, fixed-line telephony and internet services) under the Partner brand and the 012 Smile brand. Partner’s ADSs are quoted on the NASDAQ Global Select Market™ and its shares are traded on the Tel Aviv Stock Exchange (NASDAQ and TASE: PTNR).

 

For more information about Partner, see: http://www.partner.co.il/en/Investors-Relations/lobby

 

Contacts:

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

*   Net of treasury shares.

** Including restricted shares in amount of 2,887,798 and 2,911,806 as of June 30, 2016 and December 31, 2015 respectively held by trustee under the Company's Equity Incentive Plan, such shares will become outstanding upon completion of vesting conditions.

 

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

SEGMENT INFORMATION & Adjusted EBITDA reconciliation

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

SEGMENT INFORMATION & Adjusted EBITDA reconciliation

 

*	Representing an amount of less than 1 million.

(1)	Mainly amortization of employee share based compensation.

(2)

Adjusted EBITDA as reviewed by the CODM represents Earnings Before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use, amortization of share based compensation and impairment charges), as a measure of operating profit. Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Group's historic operating results nor is it meant to be predictive of potential future results. The usage of the term "Adjusted EBITDA" is to highlight the fact that the Amortization includes amortization of deferred expenses – right of use and amortization of employee share based compensation and impairment charges.

 

  PARTNER COMMUNICATIONS COMPANY LTD.

   (An Israeli Corporation)

   INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

* Representing an amount of less than 1 million.

 

PARTNER COMMUNICATIONS COMPANY LTD.

   (An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Appendix - Cash generated from operations and supplemental information

             

* Representing an amount of less than 1 million.

At June 30, 2016 and 2015, trade and other payables include NIS 95 million ($25 million) and NIS 109 million, respectively, in respect of acquisition of intangible assets and property and equipment; payments in respect thereof are presented in cash flows from investing activities.

 

These balances are recognized in the cash flow statements upon payment.

 

 

 

(1) Mainly amortization of employee share based compensation.