---

 

 

ADJUSTED EBITDA² TOTALED NIS 239 MILLION

 

ADJUSTED FREE CASH FLOW² TOTALED NIS 202 MILLION

 

NET DEBT² DECLINED BELOW NIS 1 BILLION TO NIS 887 MILLION

 

30 THOUSAND HOUSEHOLDS ARE CONNECTED TO PARTNER TV AS OF TODAY

 

CELLULAR SUBSCRIBERS INCREASE FOR THE SECOND CONSECUTIVE QUARTER

 

Third quarter 2017 highlights (compared with third quarter 2016)

 

·	Total Revenues: NIS 826 million (US$ 234 million), a decrease of 3%

·	Service Revenues: NIS 666 million (US$ 189 million), a decrease of 5%

·	Equipment Revenues: NIS 160 million (US$ 45 million), an increase of 6%

·	Total Operating Expenses (OPEX2): NIS 477 million (US$ 135 million), a decrease of 16%

·	Adjusted EBITDA: NIS 239 million (US$ 68 million), an increase of 9%

·	Adjusted EBITDA Margin2: 29% of total revenues compared with 26%

·	Profit for the Period: NIS 54 million (US$ 15 million), an increase of 184%

·	Net Debt: NIS 887 million (US$ 251 million), a decrease of NIS 881 million

·	Adjusted Free Cash Flow (before interest): NIS 202 million (US$ 57 million), a decrease of NIS 13 million

·	Cellular ARPU: NIS 64 (US$ 18), a decrease of 3%

·	Cellular Subscriber Base: approximately 2.68 million at quarter-end, a decrease of 1%

 

Rosh Ha’ayin, Israel, November 21, 2017 – 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 September 30, 2017.

---

 

Commenting on the third quarter 2017 results, Mr. Isaac Benbenisti, CEO of Partner noted:

 

"Our strong entrance to the TV market, together with our significant presence in the internet and cellular markets, establishes Partner as a comprehensive communications group. The customer recruitment figures for Partner TV are high compared to our preliminary forecasts. In the last month, the sales rate has increased even more and the number of daily installations has accelerated compared to the period from August through October. In less than a month, we have completed installations in 10,000 additional households and currently the number of households that are already connected to the Partner TV service is approximately 30,000. In addition, thousands of additional households have scheduled installations by the end of the month after they have already completed joining the service. Most of the customers that have joined the TV service have chosen the service as part of our bundle and triple offerings which also includes ISP and internet infrastructure.

 

As part of our strategic plan as a comprehensive communications group, in August we also announced the commencement of the commercial phase of our independent fiber optic infrastructure project - Partner Fiber - which provides, for the first time, a more advanced and cost-effective alternative to the existing fixed infrastructure in Israel.

 

Partner's optic fibers have already reached tens of thousands of households throughout the country, and we are working to deploy further at an accelerated rate in several cities simultaneously. In complete alignment with the Ministry of Communications and other regulatory bodies, we will continue to offer the most advanced technology with an attractive value offering to more and more customers.

 

In the cellular segment we added approximately 33 thousand net Post-Paid subscribers in the last quarter and recorded a net increase in our cellular subscriber base for the second consecutive quarter, despite a decline of approximately 18 thousand Pre-Paid subscribers.”

 

Mr. Dudu Mizrahi, Partner's Chief Financial Officer, commented on the third quarter 2017 results:

 

“In the third quarter, many of the activities that the Company has been engaged in during the last year were reflected, among others, in the growth of 33 thousand Post-Paid cellular subscribers, a continued single digit cellular churn rate, a significant improvement in the equipment sales gross profit margin which stood at 27%, an improvement in the EBITDA margin compared with Q3 2016, and an additional quarter with a strong free cash flow before interest which totaled NIS 202 million.

 

The increase in CAPEX in the quarter mainly reflected the acceleration of the Company's fiber project, which enables the Company to offer advanced services based on an independent fixed-line infrastructure both to the residential market and the business market, as well as the entrance to the TV market.

 

In the third quarter the Company early adopted the new International Financial Reporting Standard 15 ("IFRS 15"), retroactively as from January 1, 2017 (the standard is effective from January 1, 2018, earlier application is permitted). The total increase in operating profit and profit for the first three quarters of 2017 amounted to NIS 51 million and NIS 39 million, respectively. The increase in the operating profit and profit for the third quarter 2017 alone amounted to NIS 19 million and NIS 15 million, respectively. The increase is mainly a result of costs capitalization of obtaining contracts with customers (part of payroll expenses and selling commissions).

 

The financial steps which we executed in the past months, including among others, the early repayments of loans in an amount of approximately NIS 0.9 billion and the raising of a new traded bond series, are reflected in the significant decline in finance expenses compared to Q3 2016. The financial steps, together with the strong free cash flow presented by the Company in the current quarter, resulted in a decline in net debt to below NIS 1 billion – to NIS 887 million.”

NIS Million	Q3’17	Q2’17	Comments
Service Revenues	666	646	The increase results mainly from higher cellular seasonal roaming revenues
Equipment Revenues	160	159
Total Revenues	826	805
Gross profit from equipment sales	43	33
OPEX	477	*472	Q3 2017 include expenses related to the launch of the Company's TV services
Adjusted EBITDA	239	*269	Q2 2017 was the last quarter for which the Company recorded NIS 54 million income with respect to the settlement agreement with Orange. This was partially offset by an increase in service revenues and an increase in gross profit from equipment
Profit for the Period	54	*46
Capital Expenditures (additions)	107	*78
Adjusted free cash flow (before interest payments)	202	208
Net Debt	887	1,081

* Figures include the impact of IFRS15 retroactive implementation as from beginning of 2017.

 

	Q3’17	Q2’17	Comments
Cellular Post-Paid Subscribers (end of period, thousands)	2,306	2,273	Increase of 33 thousand subscribers
Cellular Pre-Paid Subscribers (end of period, thousands)	371	389	Decrease of 18 thousand subscribers
Monthly Average Revenue per Cellular User (ARPU) (NIS)	64	62	Mainly the result of higher seasonal roaming revenues
Quarterly Cellular Churn Rate (%)	9.3%	9.0%

 

NIS MILLION (except EPS)	Q3'17	Q3'16	% Change
Revenues	826	849	-3%
Cost of revenues	625	691	-10%
Gross profit	201	158	+27%
Operating profit	92	64	+44%
Profit for the period	54	19	+184%
Earnings per share (basic, NIS)	0.32	0.12	+167%
Adjusted free cash flow (before interest)	202	215	-6%

 

 

	Q3'17	Q3'16	Change
Adjusted EBITDA (NIS million)	239	220	+9%
Adjusted EBITDA (as a % of total revenues)	29%	26%	+3
Cellular Subscribers (end of period, thousands)	2,677	2,693	-16
Quarterly Cellular Churn Rate (%)	9.3%	9.7%	-0.4
Monthly Average Revenue per Cellular User (ARPU) (NIS)	64	66	-2

 

 

	Cellular Segment			Fixed-Line Segment			Elimination		Consolidated
NIS Million	Q3'17	Q3'16	Change %	Q3'17	Q3'16	Change %	Q3'17	Q3'16	Q3'17	Q3'16	Change %
Total Revenues	652	670	-3%	216	232	-7%	(42)	(53)	826	849	-3%
Service Revenues	514	531	-3%	194	220	-12%	(42)	(53)	666	698	-5%
Equipment Revenues	138	139	-1%	22	12	+83%			160	151	+6%
Operating Profit	74	36	+106%	18	28	-36%			92	64	+44%
Adjusted EBITDA	189	156	+21%	50	64	-22%			239	220	+9%

 

 

In Q3 2017, total revenues were NIS 826 million (US$ 234 million), a decrease of 3% from NIS 849 million in Q3 2016.

 

Service revenues in Q3 2017 totaled NIS 666 million (US$ 189 million), a decrease of 5% from NIS 698 million in Q3 2016.

 

Service revenues for the cellular segment in Q3 2017 totaled NIS 514 million (US$ 146 million), a decrease of 3% from NIS 531 million in Q3 2016. The decrease was mainly the result of the continued price erosion of cellular services (both Post-Paid and Pre-Paid) due to the continued competitive market conditions.

 

Service revenues for the fixed-line segment in Q3 2017 totaled NIS 194 million (US$ 55 million), a decrease of 12% from NIS 220 million in Q3 2016. The decrease reflected the continuing decrease in revenues from international calls as well as other fixed line services.

 

Equipment revenues in Q3 2017 totaled NIS 160 million (US$ 45 million), an increase of 6% from NIS 151 million in Q3 2016, largely reflecting a change in product mix.

 

Gross profit from equipment sales in Q3 2017 was NIS 43 million (US$ 12 million), compared with NIS 28 million in Q3 2016, an increase of 54%, mainly reflecting higher profit margins from sales due to a change in the product mix.

 

Total operating expenses (‘OPEX’) totaled NIS 477 million (US$ 135 million) in Q3 2017, a decrease of 16% or NIS 93 million from Q3 2016. The decrease mainly reflected a decline in expenses related to the cellular network, the implementation of the International Financial Reporting Standard 15 ("IFRS 15"), a nonrecurring decrease in site-rental expenses as well as a decrease in other expenses reflecting the impact of various efficiency measures undertaken as part of a long-term plan to reduce the Company’s cost base, partially offset by additional expenses relating to the Company's TV services which were launched in June 2017. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), OPEX in Q3 2017 decreased by 14% compared with Q3 2016.

 

Operating profit for Q3 2017 was NIS 92 million (US$ 26 million), an increase of 44% compared with NIS 64 million in Q3 2016.

 

Adjusted EBITDA in Q3 2017 totaled NIS 239 million (US$ 68 million), an increase of 9% from NIS 220 million in Q3 2016. As a percentage of total revenues, Adjusted EBITDA in Q3 2017 was 29% compared with 26% in Q3 2016.

 

Adjusted EBITDA for the cellular segment was NIS 189 million (US$ 54 million), in Q3 2017, an increase of 21% from NIS 156 million in Q3 2016, reflecting the decrease in OPEX (as explained above) and the increase in gross profit from equipment sales partially offset by the decrease in service revenues and despite the fact that Q3 2017 was the first quarter (since Q2 2015) in which the Company did not record any income with respect to the settlement agreement regarding the Orange brand. As a percentage of total cellular segment revenues, Adjusted EBITDA for the cellular segment in Q3 2017 was 29% compared with 23% in Q3 2016.

 

Adjusted EBITDA for the fixed-line segment was NIS 50 million (US$ 14 million) in Q3 2017, a decrease of 22% from NIS 64 million in Q3 2016, reflecting the decrease in service revenues, partially offset by the decrease in OPEX and the increase in gross profit from equipment sales. As a percentage of total fixed-line segment revenues, Adjusted EBITDA for the fixed-line segment in Q3 2017 was 23%, compared with 28% in Q3 2016.

 

Finance costs, net in Q3 2017 were NIS 15 million (US$ 4 million), a decrease of 50% compared with NIS 30 million in Q3 2016. The decrease largely reflects lower interest expenses due to the lower level of debt as a result of early repayments made in June and July 2017 as well as regular maturities, in addition to lower linkage expenses due to a lower CPI level.

 

Income taxes for Q3 2017 were NIS 23 million (US$ 7 million), compared with NIS 15 million in Q3 2016.

 

Profit in Q3 2017 was NIS 54 million (US$ 15 million), compared with a profit of NIS 19 million in Q3 2016, an increase of 184%.

 

Based on the weighted average number of shares outstanding during Q3 2017, basic earnings per share or ADS, was NIS 0.32 (US$ 0.09), compared to basic earnings per share of NIS 0.12 in Q3 2016.

 

 

At the end of Q3 2017, the Company's cellular subscriber base (including mobile data and 012 Mobile subscribers) was approximately 2.68 million including approximately 2.31 million Post-Paid subscribers or 86% of the base, and approximately 371 thousand Pre-Paid subscribers, or 14% of the subscriber base.

 

During the third quarter of 2017, the cellular subscriber base increased by approximately 15 thousand subscribers. The Post-Paid subscriber base increased by approximately 33 thousand subscribers, while the Pre-Paid subscriber base declined by approximately 18 thousand subscribers.

 

The quarterly churn rate for cellular subscribers in Q3 2017 was 9.3%, compared with 9.7% in Q3 2016.

 

Total cellular market share (based on the number of subscribers) at the end of Q3 2017 was estimated to be approximately 26%, unchanged from Q3 2016.

 

The monthly Average Revenue per User (“ARPU”) for cellular subscribers in Q3 2017 was NIS 64 (US$ 18), a decrease of 3% from NIS 66 in Q3 2016. The decrease mainly reflected the continued price erosion in key cellular services due to the persistent competition in the cellular market.

 

 

In Q3 2017, Adjusted Free Cash Flow totaled NIS 202 million (US$ 57 million), a decrease of 6% from NIS 215 million in Q3 2016. Excluding the impact of the NIS 35 million payment received from Hot Mobile in Q3 2016, Adjusted Free Cash Flow increased by 12%.

 

Cash generated from operations increased by 21% to NIS 306 million (US$ 87 million) in Q3 2017 from NIS 253 million in Q3 2016. The increase mainly reflected the increase in Adjusted EBITDA and the smaller decrease in operating assets and liabilities.

 

Cash capital expenditures (‘CAPEX payments’), as represented by cash flows used for the acquisition of property and equipment and intangible assets, were NIS 105 million (US$ 30 million) in Q3 2017, an increase of 139% from NIS 44 million in Q3 2016. The increase mainly reflected the impact of the implementation of IFRS 15 (capitalization of part of payroll and selling commission expenses) and the increase in investments related to fiber deployment and TV services.

 

The level of Net Debt at the end of Q3 2017 amounted to NIS 887 million (US$ 251 million), compared with NIS 1,768 million at the end of Q3 2016.

 

 

The Company's Board of Directors approved on November 20, 2017 the appointment of Mr. Tomer Bar Zeev as a member to the Company's Board of Directors. Mr. Tomer Bar Zeev was nominated by S.B. Israel Telecom Ltd., the Company's principal shareholder. In accordance with the Company's Articles of Association and applicable law, Mr. Bar Zeev shall serve in office until the coming Annual General Meeting of shareholders.

 

Mr. Bar Zeev is the founder and CEO of ironSource since 2010, a leading digital content company that offers monetization and distribution solutions for app developers, software developers, mobile carriers, and device manufacturers. Mr. Bar Zeev holds a BA in computer science from IDC Herziliya.

 

An active investor in other technology startups, Mr. Bar Zeev has a deep understanding of companies in the telecommunication and technology fields.

 

 

In August 2015, the Ministry of Communications' regulation regarding access to Bezeq's passive infrastructure came into force. The purpose of this regulation is to allow other licensees to use Bezeq's passive infrastructure (such as ducts, manholes, poles, boxes etc.) in order to deploy their own high speed fiber optical cables. According to the Ministry's temporary instructions at the time (which was in force until November 1, 2015), any work inside Bezeq's passive infrastructure was to be performed by Bezeq's employees. Although the interim period has since passed, the Ministry of Communications did not effectively enforce its abovementioned decision on Bezeq.

 

Following the enactment of the Economic Program Law for the years 2017-2018 (which set Bezeq's obligation to allow access to its passive infrastructure into law), Bezeq has begun to partially observe its duty to provide access to its passive infrastructures. Bezeq has deployed several fiber optic cables for licensees using its own personnel.

 

On October 19, 2017, the Ministry of Communications instructed Bezeq to allow other domestic operators (including Partner) to deploy fiber optic cables with their own contractors (without the need for the use of Bezeq personnel). This change has the potential to substantially increase the speed of deployment of Partner's fiber infrastructure.

 

 

In the third quarter of 2017 the Company early adopted (the standard is effective from January 1, 2018, earlier application is permitted), as from January 1, 2017 (the transition date), IFRS 15, Revenue from Contracts with Customers, which outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes IAS 18, Revenue, and IAS 11, Construction contracts (the "previous standards"). The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount:

 

1)

Identifying the contract with the customer.

 

2)

Identifying separate performance obligations in the contract.

 

3)

Determining the transaction price.

 

4)

Allocating the transaction price to separate performance obligations.

 

5)

Recognizing revenue when the performance obligations are satisfied.

 

In accordance with the model, the Company recognizes revenue when the customer obtains control over the goods or services. Revenue is based on the consideration that the Company expects to receive for the transfer of the goods or services promised to the customer, excluding amounts collected on behalf of third parties, and where collection is probable.

 

The Company applied IFRS 15 using the cumulative effect approach as from the transition date, without a restatement of comparative figures. As part of the initial implementation of IFRS 15, the Company has chosen to apply the expedients in the transitional provisions, according to which the cumulative effect approach is applied only for contracts not yet complete at the transition date, and therefore there is no change in the accounting treatment for contracts completed at the transition date. The Company also applied the practical expedient of examining the aggregate effect of contracts changes that occurred before the transition date, instead of examining each change separately. Contracts that are renewed on a monthly basis and may be cancelled by the customer at any time, without penalty, were considered completed contracts at the transition date. The cumulative effect as of the transition date was immaterial and did not affect the financial statements.

 

The application of IFRS 15 did not have a material effect on the measurement and timing of the Company’s revenue in the reporting period, compared to the provisions of the previous standards.

 

The main effect of the Company’s application of IFRS 15 is the accounting treatment for the incremental costs of obtaining contracts with customers, which in accordance with IFRS 15, are recognized as assets when the costs are incremental to obtaining the contracts, and it is probable that the Company will recover these costs, instead of recognizing these costs in the statement of income as incurred. IFRS 15 also determines that direct costs of fulfilling a contract which the Company can specifically identify and which produce or improve the Company’s resources that are used for its future performance obligation (and it is probable that the Company will recover these costs) are recognized as assets (the incremental and direct costs together: "contract costs"). Contract costs that were recognized as assets are presented in the statements of cash flows as part of cash flows used in investing activities.

 

Direct commissions paid to resellers and sales employees for sales and upgrades, are recognized as an asset for obtaining a contract instead of an expense in the statement of income. The assets are amortized in accordance with the expected service period (mainly over 2 to 3 years), using the portfolio approach.

 

For the effect of IFRS 15 on the financial reports, see also the section, 'Effect of IFRS15 implementation' in this press release.

 

 

Partner will hold a conference call on Tuesday, November 21, 2017 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: +972.3.918.0687

North America toll-free: +1.866.860.9642

 

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 November 21, 2017 until December 12, 2017, at the following numbers:

 

International: +972.3.925.5940

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 the Company's anticipated acceleration of the deployment of its fiber optic infrastructure.  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 the anticipated acceleration of fiber cable deployment, whether the Ministry of Communications’ instruction to Bezeq to allow other domestic operators (including Partner) to deploy fiber optic cables with their own contractors (without the need for the use of Bezeq personnel) will be respected or enforced and whether the Company will have the financial resources needed to continue to increase the number of customers served by its fiber optic infrastructure. The 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 in the section, “Use of Non-GAAP Financial Measures”.

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 September 30, 2017: US $1.00 equals NIS 3.529. The translations were made purely for the convenience of the reader.

 

The following non-GAAP measures are used in this report. These measures are not financial measures under IFRS and may not be comparable to other similarly titled measures for other companies. Further, the measures may not be indicative of the Company’s historic operating results nor are meant to be predictive of potential future results.

 

Non-GAAP Measure	Calculation	Most Comparable IFRS Financial Measure
Adjusted EBITDA*	Adjusted EBITDA: Profit (Loss) add Income tax expenses, Finance costs, net, Depreciation and amortization expenses (including amortization of intangible assets, deferred expenses-right of use and impairment charges), Other expenses (mainly amortization of share based compensation)	Profit (Loss)
Adjusted EBITDA margin (%)	Adjusted EBITDA margin (%): Adjusted EBITDA divided by Total revenues
Adjusted Free Cash Flow**	Adjusted Free Cash Flow: Cash flows from operating activities deduct Cash flows from investing activities add Short-term investment in (proceeds from) deposits	Cash flows from operating activities deduct Cash flows from investing activities
Total Operating Expenses (OPEX)	Total Operating Expenses: Cost of service revenues add Selling and marketing expenses add General and administrative expenses deduct Depreciation and amortization expenses, Other expenses (mainly amortization of employee share based compensation)	Sum of: Cost of service revenues, Selling and marketing expenses, General and administrative expenses
Net Debt	Net Debt: Current maturities of notes payable and borrowings add Notes payable add Borrowings from banks and others deduct Cash and cash equivalents deduct Short-term deposits	Sum of: Current maturities of notes payable and borrowings, Notes payable, Borrowings from banks and others

* Adjusted EBITDA is fully comparable with EBITDA measure which was provided in reports for prior periods.

**Adjusted Free Cash Flow measure is fully comparable to Free Cash Flow measure which was provided in reports for prior periods.

 

Partner Communications Company Ltd. is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony, internet services and television services). 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:

Dudu Mizrahi    Chief Financial Officer    Tel: +972-54-781-4951

Liat Glazer Shaft Head of Investor Relations and Corporate Projects Tel: +972-54-781-5051 E-mail: investors@partner.co.il

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

		New Israeli Shekels								Convenience translation into U.S. Dollars
		September 30,				December 31,				September 30,
		2017				2016				2017
		(Unaudited)				(Audited)				(Unaudited)
		In millions
CURRENT ASSETS
Cash and cash equivalents			1,010				716				286
Short-term deposits			150				452				43
Trade receivables			819				990				232
Other receivables and prepaid expenses			62				57				18
Deferred expenses – right of use			40				28				11
Inventories			90				96				25
			2,171				2,339				615
NON CURRENT ASSETS
Trade receivables			228				333				65
Prepaid expenses and other			2				2				1
Deferred expenses – right of use			121				75				34
Property and equipment			1,128				1,207				320
Intangible and other assets			716				793				203
Goodwill			407				407				115
Deferred income tax asset			27				41				8
			2,629				2,858				746
TOTAL ASSETS			4,800				5,197				1,361

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

		New Israeli Shekels								Convenience translation  into U.S. Dollars
		September 30,				December 31,				September 30,
		2017				2016				2017
		(Unaudited)				(Audited)				(Unaudited)
		In millions
CURRENT LIABILITIES
Current maturities of notes payable and borrowings			557				498				158
Trade payables			702				681				199
Payables in respect of employees			51				101				14
Other payables (mainly institutions)			28				28				8
Income tax payable			83				45				23
Deferred income with respect to settlement
agreement with Orange							108
Deferred revenues from HOT mobile			31				31				9
Other deferred revenues			42				38				12
Provisions			78				77				22
			1,572				1,607				445
NON CURRENT LIABILITIES
Notes payable			899				646				255
Borrowings from banks and others			591				1,550				167
Liability for employee rights upon retirement, net			36				39				11
Dismantling and restoring sites obligation			28				35				8
Deferred revenues from HOT mobile			172				195				49
Other non-current liabilities			21				14				6
			1,747				2,479				496
TOTAL LIABILITIES			3,319				4,086				941
EQUITY
Share capital - ordinary shares of NIS 0.01    par value: authorized - December 31, 2016    and September 30, 2017 - 235,000,000 shares;    issued and outstanding -			2				2				1
December 31, 2016 – *156,993,337 shares
September 30, 2017 – *167,527,166 shares
Capital surplus			1,199				1,034				340
Accumulated retained earnings			538				358				152
Treasury shares, at cost    December 31, 2016 – **3,603,578 shares          September 30, 2017 – **3,296,619 shares			(258	)			(283	)			(73	)
TOTAL EQUITY			1,481				1,111				420
TOTAL LIABILITIES AND EQUITY			4,800				5,197				1,361

 

*   Net of treasury shares.

** Including, restricted shares in amount of 2,008,584 and 2,061,201 as of September 30, 2017 and December 31, 2016 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

 

		New Israeli shekels																Convenience translation into U.S. dollars
		9 month period ended September 30								3 month period ended September 30								9 month period ended September 30,				3 month period ended September 30,
		2017				2016				2017				2016				2017				2017
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
		In millions (except per share data)
Revenues, net			2,434				2,723				826				849				690				234
Cost of revenues			1,916				2,218				625				691				543				177
Gross profit			518				505				201				158				147				57
Selling and marketing expenses			189				330				70				98				54				20
General and administrative expenses			146				188				46				60				41				13
Income with respect to settlement agreement with Orange			108				163								55				30
Other income, net			24				35				7				9				7				2
Operating profit			315				185				92				64				89				26
Finance income			4				10				5				*				1				1
Finance expenses			96				92				20				30				27				5
Finance costs, net			92				82				15				30				26				4
Profit before income tax			223				103				77				34				63				22
Income tax expenses			59				44				23				15				17				7
Profit for the period			164				59				54				19				46				15
Earnings per share
Basic			1.02				0.38				0.32				0.12				0.29				0.09
Diluted			1.01				0.37				0.32				0.12				0.28				0.09
Weighted average number of shares outstanding (in thousands)
Basic			161,002				156,120				167,371				156,178				161,002				167,371
Diluted			162,745				157,925				168,815				157,953				162,745				168,815

 

* Representing an amount of less than 1 million.

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

		New Israeli shekels																Convenience translation into U.S. dollars
		9 month period ended September 30,								3 month period ended September 30,								9 month period ended September 30,				3 month period ended September 30,
		2017				2016				2017				2016				2017				2017
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
		In millions
Profit for the period			164				59				54				19				46				15
Other comprehensive income      for the period, net of income tax			-				-				-				-				-				-
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD			164				59				54				19				46				15

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 

		New Israeli Shekels																New Israeli Shekels
		Nine months ended September 30, 2017																Nine months ended September 30, 2016
		In millions (Unaudited)																In millions (Unaudited)
		Cellular segment				Fixed line segment				Reconciliation for consolidation				Consolidated				Cellular segment				Fixed line segment				Reconciliation for consolidation				Consolidated
Segment revenue - Services			1,487				465								1,952				1,586				514								2,100
Inter-segment revenue - Services			13				115				(128	)							15				147				(162	)
Segment revenue - Equipment			428				54								482				571				52								623
Total revenues			1,928				634				(128	)			2,434				2,172				713				(162	)			2,723
Segment cost of revenues – Services			1,093				443								1,536				1,261				460								1,721
Inter-segment cost of  revenues- Services			114				14				(128	)							146				16				(162	)
Segment cost of revenues - Equipment			342				38								380				454				43								497
Cost of revenues			1,549				495				(128	)			1,916				1,861				519				(162	)			2,218
Gross profit			379				139								518				311				194								505
Operating expenses (3)			268				67								335				428				90								518
Income with respect to settlement      agreement with Orange			108												108				163												163
Other income, net			23				1								24				32				3								35
Operating profit			242				73								315				78				107								185
Adjustments to presentation of  segment Adjusted  EBITDA
–Depreciation and amortization			327				100												338				110
–Other (1)			17																37
Segment Adjusted EBITDA (2)			586				173												453				217
Reconciliation of  segment subtotal     Adjusted EBITDA to      profit for the period
Segments subtotal Adjusted EBITDA (2)															759																670
-  Depreciation and amortization															(427	)															(448	)
-  Finance costs, net															(92	)															(82	)
-  Income tax expenses															(59	)															(44	)
-  Other (1)															(17	)															(37	)
Profit for the period															164																59

 

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

INTERIM SEGMENT INFORMATION & ADJUSTED EBITDA RECONCILIATION

 

		New Israeli Shekels																New Israeli Shekels
		Three months ended September 30, 2017																Three months ended September 30, 2016
		In millions (Unaudited)																In millions (Unaudited)
		Cellular segment				Fixed line segment				Reconciliation for consolidation				Consolidated				Cellular segment				Fixed line segment				Reconciliation for consolidation				Consolidated
Segment revenue - Services			510				156								666				526				172								698
Inter-segment revenue - Services			4				38				(42	)							5				48				(53	)
Segment revenue - Equipment			138				22								160				139				12								151
Total revenues			652				216				(42	)			826				670				232				(53	)			849
Segment cost of revenues – Services			358				150								508				410				158								568
Inter-segment cost of  revenues- Services			38				4				(42	)							48				5				(53	)
Segment cost of revenues - Equipment			102				15								117				112				11								123
Cost of revenues			498				169				(42	)			625				570				174				(53	)			691
Gross profit			154				47								201				100				58								158
Operating expenses (3)			87				29								116				127				31								158
Income with respect to settlement    agreement with Orange																			55												55
Other income, net			7				*								7				8				1								9
Operating profit			74				18								92				36				28								64
Adjustments to presentation of  segment Adjusted  EBITDA
–Depreciation and amortization			109				32												108				35
–Other (1)			6																12				1
Segment Adjusted EBITDA (2)			189				50												156				64
Reconciliation of  segment    subtotal Adjusted EBITDA     to profit for the period
Segments subtotal Adjusted EBITDA (2)															239																220
-  Depreciation and amortization															(141	)															(143	)
-  Finance costs, net															(15	)															(30	)
-  Income tax expenses															(23	)															(15	)
-  Other (1)															(6	)															(13	)
Profit for the period															54																19

 

*   Representing an amount of less than 1 million.

 

 

  PARTNER COMMUNICATIONS COMPANY LTD.

   (An Israeli Corporation)

   INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		New Israeli Shekels								Convenience translation  into U.S. Dollars
		9 months ended September 30,
		2017				2016				2017
		(Unaudited)				(Unaudited)				(Unaudited)
		In millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash generated from operations (Appendix)			804				652				227
Income tax paid			(7	)			(20	)			(2	)
Net cash provided by operating activities			797				632				225
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment			(146	)			(97	)			(41	)
Acquisition of intangible and other assets			(117	)			(52	)			(33	)
Proceeds from (investment in) short-term deposits, net			302								85
Interest received			2				2				1
Consideration received from sales of property and equipment			*				4				*
Net cash provided by (used in) investing activities			41				(143	)			12
CASH FLOWS FROM FINANCING ACTIVITIES:
Share issuance			190								54
Interest paid			(85	)			(80	)			(24	)
Current borrowings received							52
Repayment of non-current borrowings			(901	)			(11	)			(255	)
Proceeds from issuance of notes payable, net of issuance costs			252								71
Repayment of notes payable							(235	)
Net cash used in financing activities			(544	)			(274	)			(154	)
INCREASE IN CASH AND CASH EQUIVALENTS			294				215				83
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			716				926				203
CASH AND CASH EQUIVALENTS AT END OF PERIOD			1,010				1,141				286

 

* 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

 

		New Israeli Shekels								Convenience translation  into U.S. Dollars
		9 months ended September 30,
		2017				2016				2017
		(Unaudited)				(Unaudited)				(Unaudited)
		In millions
Cash generated from operations:
Profit for the period			164				59				46
Adjustments for:
Depreciation and amortization			399				427				113
Amortization of deferred expenses - Right of use			28				21				8
Employee share based compensation expenses			16				36				5
Liability for employee rights upon retirement, net			(3	)			(3	)			(1	)
Finance costs, net			(3	)			2				(1	)
Change in fair value of derivative financial instruments			(1	)			*				*
Capital loss from property and equipment			*				1				*
Interest paid			85				80				24
Interest received			(2	)			(2	)			(1	)
Deferred income taxes			14				12				4
Income tax paid			7				20				2
Changes in operating assets and liabilities:
Decrease (increase)in accounts receivable:
Trade			276				122				78
Other			(5	)			8				(1	)
Increase (decrease) in accounts payable and accruals:
Trade			45				(3	)			13
Other payables			(49	)			(38	)			(14	)
Provisions			1				(6	)			*
Deferred income with respect to settlement agreement with Orange			(108	)			(163	)			(31	)
Deferred revenues from HOT mobile			(23	)			54				(7	)
Other deferred revenues			5				6				1
Increase in deferred expenses - Right of use			(86	)			(52	)			(24	)
Current income tax liability			38				11				11
Decrease in inventories			6				60				2
Cash generated from operations			804				652				227

 

             * Representing an amount of less than 1 million.

 

At September 30, 2017 and 2016, trade and other payables include NIS 102 million ($29 million) and NIS 96 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.

 

 

 

The tables below summarize the effects on the interim condensed consolidated statement of financial position as at September 30, 2017 and on the interim condensed consolidated statements of income and cash flows for the nine and three months periods ended as of the same date.

Effect of change on interim condensed consolidated statement of financial position:

		New Israeli Shekels in millions
		As of September 30, 2017
		Previous accounting policy				Effect of change				According to IFRS15
		(Unaudited)
Costs to obtain contracts recognized in intangible assets, net – non-current assets			-				51				51
Deferred income tax asset			39				(12	)			27
Equity			1,442				39				1,481

Effect of change on interim condensed consolidated statement of income:

		New Israeli Shekels in millions
		Nine months ended September 30, 2017												Three months ended September 30, 2017
		Previous accounting  policy				Effect of change				According to IFRS15				Previous accounting policy				Effect of change				According  to IFRS15
		(Unaudited)
Selling and marketing expenses			240				(51	)			189				89				(19	)			70
Operating profit			264				51				315				73				19				92
Profit before income tax			172				51				223				58				19				77
Income tax expenses			47				12				59				19				4				23
Profit for the period			125				39				164				39				15				54
Depreciation and amortization expense			422				5				427				138				3				141

Effect of change on interim condensed consolidated statement cash flows:

		New Israeli Shekels in millions
		Nine months ended September 30, 2017												Three months ended September 30, 2017
		Previous accounting policy				Effect of change				According to IFRS15				Previous accounting policy				Effect of  change				According to IFRS15
		(Unaudited)
Net cash provided by operating activities			746				51				797				286				20				306
Net cash provided by (used in) investing activities			92				(51	)			41				(234	)			(20	)			(254	)

 

 

		New Israeli Shekels																Convenience translation into U.S. Dollars				Convenience translation into U.S. Dollars
		9 months period ended September 30,				9 months period ended September 30,				3 months period ended September 30,				3 months period ended September 30,				9 months period ended September 30,				3 months period ended September 30,
		2017				2016				2017				2016				2017				2017
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
		In millions
Net cash provided by operating activities			797				632				306				253				225				87
Net cash used in investing activities			41				(143	)			(254	)			(38	)			12				(72	)
Proceeds from (investment in) short-term deposits			(302	)							150								(85	)			43
Adjusted Free Cash Flow			536				489				202				215				152				58
Interest paid			(85	)			(80	)			(10	)			(14	)			(24	)			(3	)
Adjusted Free Cash Flow After Interest			451				409				192				201				128				55

 

 

		New Israeli Shekels																Convenience translation into U.S. Dollars				Convenience  translation into U.S. Dollars
		9 months period ended September 30,				9 months period ended  September 30,				3 months period ended September 30,				3 months period ended  September 30,				9 months period ended September 30,				3 months period ended September 30,
		2017				2016				2017				2016				2017				2017
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
		In millions
Cost of revenues – Services			1,536				1,721				508				568				435				144
Selling and marketing expenses			189				330				70				98				54				20
General and administrative expenses			146				188				46				60				41				13
Depreciation and amortization			(427	)			(448	)			(141	)			(143	)			(121	)			(40	)
Other (1)			(17	)			(37	)			(6	)			(13	)			(5	)			(2	)
OPEX			1,427				1,754				477				570				404				135