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In a release, Partner reported total revenues of NIS 1.6 billion (US$ 478 million) in Q3 2008, EBITDA of NIS 624 million (US$ 182 million), and net income of NIS 296 million (US$87 million).
Commenting on the quarter's results, Partner's CEO, David Avner, said, "I am very pleased with the third quarter's results. We have managed to maintain a competitive cost structure despite the tough competition and the current implementation of our new strategic activities, thereby reaching impressive profitability margins."
Partner's total net revenues were NIS 1,636.0 million (US$ 478.2 million) in Q3 2008, an increase of 2.2 percent from NIS 1,601.0 million in Q3 2007. Within the total, service revenues increased by 4.1 percent from NIS 1,401.1 million in Q3 2007 to NIS 1,458.1 million (US$ 426.2 million) in Q3 2008. The increase primarily reflects the 3.1 percent growth in the subscriber base, an increase in the weight of post-paid subscribers with higher levels of ARPU in our subscriber base, higher average minutes of use, as well as an increase in content and data revenues. The increase that resulted was partially offset by a decrease in average revenue per minute resulting from competitive pressures and regulatory intervention including the approximate 14 percent reduction in interconnect tariffs which went into effect on March 1, the final reduction in the Ministry of Communications' program of mandated gradual reductions from 2005 to 2008.
Revenues from content and data excluding SMS were NIS 135.6 million (US$ 39.6 million), or 9.3 percent of service revenues, in Q3 2008, compared with 7.6 percent of service revenues in Q3 2007, an increase of 27.0 percent. Compared with Q2 2008, non-SMS content revenues increased by 11.7 percent.
SMS services revenues totaled NIS 86.3 million (US$ 25.2 million) in Q3 2008, an increase of 25.4 percent compared with Q3 2007, the equivalent of 5.9 percent of service revenues in Q3 2008, compared with 4.9 percent in Q3 2007.
Gross profit from services in Q3 2008 was NIS 640.8 million (US$ 187.3 million), compared with NIS 593.5 million in Q3 2007, an 8.0 percent increase. The increase reflects the growth in service revenues, offset by a 1.2 percent increase in the cost of service revenues. The cost of service revenues increase is mainly due to additional depreciation expenses of approximately NIS 12 million resulting from the accelerated depreciation of the equipment to be replaced under an agreement with LM Ericsson Israel Ltd. The agreement is expected to result in annual depreciation expenses of approximately NIS 74 million over 2008, of which NIS 67 million has already been recorded, with the remaining NIS 7 million to be recorded in Q4 2008. In addition, the services revenues cost increase reflects higher variable airtime and content costs as a result of higher airtime and content usage.
In Q3 2008, equipment revenues were NIS 177.9 million (US$ 52.0 million), an 11.0 percent decrease from NIS 199.9 million in Q3 2007. The decrease is primarily attributed to the lower number of transactions, partially offset by the impact of an increase in the proportion of 3G handsets sold compared with 2G handsets. The gross loss on equipment amounted to NIS 12.6 million (US$ 3.7 million) in Q3 2008, compared with NIS 66.0 million in Q3 2007, a decrease of 80.8 percent. This mainly reflects the lower number of sales, as well as a decrease in handset costs due, in part, to the fall in the dollar-shekel exchange rate.
Total gross profit in Q3 2008 was NIS 628.2 million (US$ 183.6 million), an increase of 19.1 percent from NIS 527.5 million in Q3 2007.
Selling, marketing, general and administration expenses totaled NIS 158.7 million (US$ 46.4 million) in Q3 2008, an increase of 15.2 percent from NIS 137.8 million in Q3 2007. This reflects the incremental cost of growing the subscriber base, including larger provisions for doubtful accounts from receivables on handset sales and service revenues and higher selling costs, as well as additional costs related to the planned gradual launch of our portfolio of services which is expected during the first half of 2009.
Overall, operating profit was NIS 469.4 million (US$ 137.2 million) in Q3 2008, a 20.5 percent increase compared with NIS 389.7 million in Q3 2007.
Quarterly EBITDA in Q3 2008 totaled NIS 624.2 million (US$ 182.5 million), the equivalent of 42.8 percent of service revenues and 38.2 percent of total revenues. Compared with NIS 539.3 million or 38.5 percent of service revenues and 33.7 percent of total revenues in Q3 2007, this represents an increase of 15.7 percent.
Financial expenses in Q3 2008 were NIS 63.7 million (US$ 18.6 million), compared with NIS 73.8 million in Q3 2007, a 13.6 percent decrease. The decrease is mainly attributed to lower linkage expenses due to the increase of 2.0 percent in the CPI level of Q3 2008 compared to an increase in the CPI level of 2.5 percent in Q3 2007.
Net income for Q3 2008 totaled NIS 296.2 million (US$ 86.6 million), representing an increase of 38.4 percent from NIS 214.0 million in Q3 2007.
Basic earnings per share or ADS, based on the average number of shares outstanding during Q3 2008, was NIS 1.92 (56 US cents), up by 40.1 percent from NIS 1.37 in Q3 2007.
In Q3 2008, cash flows generated from operating activities, net of cash flows from investing activities totaled NIS 440.0 million (US$ 128.6 million), compared with NIS 135.3 million in Q3 2007, an increase of 225.3 percent. The increase reflects the higher net income as well as two other factors; firstly, operating cash flow in Q3 2007 was relatively low since payments to suppliers and interest charges for Q2 2007 were deferred to Q3 2007 and inventories were built-up during Q3 2007 for reasons related to number portability. Secondly, the increase reflects the initiatives that were taken in Q2 2008 to reduce working capital and cash flow volatility and the factoring of handset revenues that increased quarterly operating cash flow in Q3 2008 by approximately NIS 40 million. Cash flow from investing activities this quarter totaled NIS 118.2 million, compared to NIS 138.9 million in Q3 2007, a decrease of 14.9 percent. The Company has generated free cash flow of NIS 1,021.1 million during the first nine months of 2008, compared with NIS 610.7 million generated during the first nine months of, an increase of 67.2 percent.
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