Cellcom Israel, Ltd. (CEL)

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Cellcom Israel Ltd. (CEL)

Q3 2009 Earnings Call

November 16, 2009 9:00 am ET


Fiona Darmon - CCGK IR

Amos Shapira - CEO

Yaacov Heen - CFO


Tom Ehrlich - RBC Capital Markets

David Kaplan - Barclays Capital

Anupam Palit - Jefferies Capital

Brian Nugent - William Blair



Welcome to the Cellcom Israel Ltd. third quarter 2009 results conference call. All participants are at present in listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded November 16, 2009.

I would now like to hand over the call to Ms. Fiona Darmon of CCGK Investor Relations. Ms. Darmon, would you like to begin?

Fiona Darmon

Thank you, operator. I would like to welcome you all to conference call and thank Cellcom Israel’s management for hosting the call today.

With us on the call is Mr. Amos Shapira, CEO and Mr. Yaacov Heen, CFO. Mr. Shapira will open the call by providing a summary of the main highlights of the quarter, followed by Mr. Heen, who will review Cellcom Israel’s financial performance in more detail.

Before I turn the call over to Mr. Shapira, I would like to remind our listeners that in this call, management’s prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995 and in the Israeli Securities Laws, 1968.

Actual results may differ from those discussed today, and, therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company’s filings with the Securities and Exchange Commission, including under Risk Factors in the company’s annual report for the year-ended December 31, 2008, 20-F filed with the SEC.

In addition, any projections as to the company’s future performance represent management’s estimates as of today, November 16, 2009. Cellcom Israel assumes no obligation to update these projections in the future as market conditions change. You should by now have received a copy of the company’s press release. If you have not received so, please call CCGK Investor Relations at 1646-797-2868.

I would now like to hand over the call to Mr. Shapira.

Amos Shapira

Thank you, Fiona. Good day, everyone, and welcome to our third quarter earnings call. The third quarter of 2009 was a quarter of new financial records for Cellcom Israel, a noteworthy feat in the current environment. Our third quarter revenues, EBITDA and operating income all reached new highs, driven by our growing content and value-added services, landline revenues and tight cost management, enabling us to totally offset the macroeconomic impact on our roaming revenues.

These strong financial results, the highest in the local market, reaffirm once again, the proven success of our business strategy, namely to focus on our core competency, cellular communications while constantly identifying and introducing new complementary services that leverage our existing assets to drive revenue, growth and margin expansion.

The success of our focus strategy is clearly visible in our ongoing increasing content and value-added services revenues, one of our major growth drivers. Our content and value-added service revenues are now the highest in the local market, surpassing both our competitors, a major achievement if take into account that we were the last to introduce 3G services in Israel. Furthermore, our revenues from landline services to business customers also grew this quarter.

Both of these revenue growths have contributed leverage existing infrastructure, meeting our defined expansion requirement that complementary activities need to also be synergetic on a cost basis. These revenue drivers also enabled us to totally offset the substantial impact that the economic climate bore on our roaming revenues.

This quarter we continue to strengthen our position as Israel’s leading and largest cellular operator by adding an additional 31,000 net new subscribers ending the quarter with a total of 3.259 billion subscribers, again 3.259 billion subscribers. We remained committed to delivering premium content and value-added services, viewing this profitable and fast growing area as a key element of our strategy.

Furthermore, this quarter, we further increased our 3G subscriber base by adding 64,000 net new subscribers for a total of 941,000. Our 3G subscribers now represent 28.9% of our total subscriber base, up from 27.2% at the end of last quarter and we are constantly introducing new innovative and advanced handsets to support and to satisfy the needs of the lucrative and growing 3G customer base.

In addition to driving revenue growth, we also continue to tightly monitor expenses. This enabled our higher revenue to translate into even higher gross operating and net income margins. Furthermore, these efficiency measures enabled us to achieve a record EBITDA, the highest in our history.

Here at Cellcom Israel, we continue to grow revenues and drive efficiencies without compromising on service, transparency or customer trust. This is visible in the conclusions of the "Public Trust" organization’s report, which analyzed the complaint levels has determined that Cellcom Israel service levels and complaint treatment is the highest for the customer.

Our strong performance enabled us to once again generate a healthy free cash flow of NIS 454 million, NIS 286 million of which, I am pleased to note we are giving back to our shareholders in dividends. This brings our 12 months dividend yield to 10.5%.

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