Israeli mobile carrier Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) has reported a 6.7% decline in third quarter revenue to NIS 1,142 million ($309 million), compared with NIS 1,224 million ($331 million) in the third quarter last year. Analysts had been looking for revenue of NIS 1.1 billion.
Net profit for the third quarter of 2014 was NIS 106 million ($29 million), compared with NIS 52 million ($14 million) in the third quarter of 2013, representing a 103.8% increase, mainly thanks to a reduction in operating expenses resulting from efficiency measures, a one-time reduction in the provision for cell-site rent expenses, and a decrease in net financing expenses. The increase in net profit was offset in part by the erosion in service revenue resulting from the continued intensified competition in the cellular and landline communications market. Excluding the one-time effect, net profit for the third quarter of 2014 totaled NIS 74 million ($20 million), a 42.3% increase compared with the third quarter of 2013.
Basic earnings per share for the third quarter of 2014 totaled NIS 1.06 ($0.29), compared with NIS 0.53 ($0.14) in the third quarter of last year.
The decline in quarterly revenue is mainly because of a 13.1% fall in service revenue, which totaled NIS 880 million ($238 million) in the third quarter of 2014, compared with NIS 1,013 million ($274 million) in the third quarter last year. The decline resulted mainly from a decrease in cellular services revenues, due to the ongoing erosion in the price of these services as a result of the intensified competition in the cellular market. The decrease in service revenues also resulted from a decrease in revenues from internet services and long distance calls services due to intensified competition, a decrease in revenues from roaming services, as well as a decrease in revenues from hosting operators on the company's communications networks. This was partially offset by a 24.2% rise in equipment revenue, which totaled NIS 262 million ($71 million) in the third quarter of 2014, compared with NIS 211 million ($57 million) in the third quarter of 2013. Internet service provider Netvision's contribution to revenue for the third quarter of 2014 totaled NIS 212 million ($57 million) (excluding inter-company revenues) compared with NIS 230 million ($62 million) in the third quarter of 2013.
The increase in third quarter 2014 equipment revenues resulted mainly from an approximately 24% increase in the number of smartphones sold during the third quarter of 2014 compared with the third quarter of 2013, as well as an approximately 8% increase in the average sale price of cellular handsets.
EBITDA for the third quarter of 2014 decreased 0.3% to NIS 346 million ($94 million) from NIS 347 million ($94 million) in the third quarter of 2013. EBITDA was 30.3% of revenue, up from 28.3% in the third quarter of 2013. Excluding the one-time effect described above, EBITDA for the third quarter of 2014 totaled NIS 302 million ($82 million), a 13.0% decrease compared with the third quarter of 2013. EBITDA for the third quarter 2014. As a percentage of third quarter revenue, excluding the one-time effect, EBITDA totaled 26.4%, down from 28.3% in the third quarter of 2013.
At the end of September 2014, Cellcom had approximately 3.010 million cellular subscribers. The subscriber base decreased by approximately 19,000 net cellular subscribers during the quarter, all of them pre-paid subscribers. The cellular churn rate for the third quarter of 2014 was 11.0%, compared with 8.9% in the third quarter of 2013. The cellular churn rate was primarily affected by the intensified competition in the cellular market.
Monthly cellular average revenue per user (ARPU) for the third quarter of 2014 was NIS 70.6 ($19.1), compared with NIS 79.6 ($21.5) in the third quarter of 2013.
Free cash flow for the third quarter of 2014 fell 22.1% to NIS 303 million ($82 million), compared with NIS 389 million ($105 million) in the third quarter of 2013.
Cellcom CEO Nir Sztern said, "We are in the middle of several important processes for the Group's development as a communications group. The preparations for launching the television over the internet services are in the final stages and we will soon bring new tidings to the TV market. We continue with a rapid deployment of our 4.5G network supporting LTE Advanced technology, which will be able to provide Cellcom Israel's customers a very high speed internet surfing, subject to receiving additional frequencies and regulatory approvals.
"Completion of the regulation of the wholesale market will be a complementary layer and will allow us to offer a whole and attractive communication package. We are pleased with the results of our focus on equipment sales, which led to an increase of these revenues in the third quarter, compared with both the previous quarter and the third quarter of last year, as well as the results of the efficiency measures we implemented. On the other hand, the aggressive price competition, mainly in the cellular arena, continues, the effects of which are reflected in the decrease in EBITDA excluding a one-time effect, and the continued erosion in service revenues, which is expected to continue in the coming quarters as well."
Cellcom will not distribute a dividend in respect of the third quarter results.
Published by Globes [online], Israel business news - www.globes-online.com - on November 12, 2014
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