Mr. David (Dudu) Mizrahi
Chief Financial Officer
Tel: +972 (54) 781 4951 |
Ms. Liat Glazer Shaft
Head of Investor Relations & Corporate Projects
Tel: +972 (54) 781 5051
E-mail: investors@partner.co.il
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2
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2
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3
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3
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3
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4
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5
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5
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6
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Please note that this translation was made for convenience purposes and for the company’s internal use only and under no circumstances shall obligate S&P Global Ratings Maalot. The translation has no legal status and S&P Global Ratings Maalot does not assume any responsibility whatsoever as to its accuracy and is not bound by its contents. In the case of any discrepancy with the official Hebrew version published on July 27, 2017, the Hebrew version shall apply.
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Rating Affirmation
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July 27, 2017 | 1
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Affirmed Corporate Credit Rating
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ilA+/Stable
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Business Risk
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Financial Risk
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· Continuous exposure to changes in the Israeli communication market, including changes in regulation and intense competition.
· Retaining a leading position in the mobile market.
· Continuously decreasing operating margin.
· Increasingly diversified activity in various communication segments.
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· Consistently sound financial risk profile and low leverage.
· Decrease in free cash flow (after investments and dividends)
· “Adequate” liquidity, according to our definitions.
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The stable outlook reflects our assessment that Partner Communications Co. Ltd. (“Partner”) will maintain its financial policy supporting leverage levels and coverage ratios commensurate with the current rating. We estimate that the company will retain liquidity levels commensurate with the current rating while generating sufficient cash flows albeit at more modest levels than in the past. We also estimate that Partner will maintain a balance between its liquidity level and its investment requirements.
We consider an adjusted debt/EBITDA ratio of 3.0x-4.0x and an adjusted EBITDA/revenue ratio of 20%-30% as commensurate with the current rating.
Downside Scenario
We may consider a negative rating action if the company’s liquidity profile or business risk profile weaken, e.g. as a result of significant deterioration in its operating measures and increasing volatility in the communication market. Furthermore, a negative rating would be possible if the company’s operational performance deteriorates, such that profitability drops below 20%, and company fails to take active steps to deleverage, resulting in adjusted debt/EBITDA exceeding 4.0x.
Upside Scenario
A positive rating action is possible if the company maintains its conservative financial policy while the market stabilizes, its financial position improves and its operational profitability increases. In addition, we may consider a positive rating action should the company consistently present an adjusted debt/EBITDA ratio of up to 3.0x and an adjusted EBITDA/revenue ratio exceeding 30%.
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www.maalot.co.il
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July 27, 2017 | 2
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Principal Assumptions
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Key Metrics*
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|||||
· Continued decrease in revenues, especially in revenues from mobile services, partly mitigated by first-time revenues from TV services.
· Decrease in EBITDA margin to about 20% due to larger expenditures on TV segment, partly mitigated by some decrease in expenditures due to network sharing agreement.
· Higher capital expenses in 2017-2018 than in 2016.
· Continued moderate decrease in ARPU (average revenue per user).
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2016A
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2017E
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2018E
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||
EBITDA margin
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21%
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20%-22%
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20%-22%
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FFO**/debt
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23%
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25%-31%
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27%-33%
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Debt/EBIDTA
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3.4x
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2.8x-3.2x
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2.5x-3.1x
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*A – Actual, E – Estimate.
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||||||
**FFO – funds from operations
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·
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Familiarity with the communication market.
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·
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Persisting leading market position.
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·
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Diversified operations.
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· |
Exposure to the characteristics of the Israeli communication market, including tight regulation, intense competition in most segments and continuous instability.
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· |
Continuous decrease in operating margin, expected to increase somewhat with our assessment of larger expenditures on content in the first years of entering the TV segment.
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·
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Continuous decrease in ARPU (average revenue per user) and high, albeit decreasing, churn rates.
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·
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Continuous decrease in financial debt.
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·
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Good coverage and leverage ratios compared to peers.
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·
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“Adequate” liquidity underpinned by cash balance and cash flow generation.
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·
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Good access to credit sources (demonstrated by the recent successful equity and debt issuances).
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www.maalot.co.il
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July 27, 2017 | 3
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·
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Decrease in free cash flow generation.
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· |
Continuous decrease in EBITDA base due to persisting price wars and entry into new segment (TV) which is likely to adversely affect the company’s EBITDA at least in the first two years, in light of high expected content-related expenditures.
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Partner Communications Co. Ltd. — Financial Summary
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Industry Sector: Diversified Telecom
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||||||||||||||||||||
--Fiscal year ended Dec. 31--
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||||||||||||||||||||
(Mil. MS)
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2016
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2015
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2014
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2013
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2012
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|||||||||||||||
Revenues
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3,544
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4,111
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4,400
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4,519
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5,572
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|||||||||||||||
EBITDA
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751
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994
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1,276
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1,268
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1,740
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|||||||||||||||
Funds from operations (FFO)
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569
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744
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998
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989
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1,320
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|||||||||||||||
Operating income
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(27
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)
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55
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417
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398
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824
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||||||||||||||
Cash flow from operations
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1,073
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1,002
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1,059
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1,590
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1,764
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|||||||||||||||
Capital expenditures
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196
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359
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432
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482
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500
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|||||||||||||||
Free operating cash flow
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877
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643
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627
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1,108
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1,264
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|||||||||||||||
Discretionary cash flow
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877
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643
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627
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1,108
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1,097
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|||||||||||||||
Debt
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2,517
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3,418
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3,961
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4,511
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5,316
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|||||||||||||||
Equity
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1,111
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1,020
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1,039
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840
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704
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Debt and equity
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3,628
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4,438
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5,000
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5,351
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6,020
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|||||||||||||||
Adjusted ratios
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||||||||||||||||||||
Annual revenue growth (%)
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(13.8
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)
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(6.6
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)
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(2.6
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)
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(18.9
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)
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(20.4
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)
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||||||||||
EBITDA margin (%)
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21.2
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24.2
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29.0
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28.1
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31.2
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|||||||||||||||
EBITDA interest coverage (x)
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4.9
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4.9
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6.2
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4.9
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6.2
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|||||||||||||||
Debt EBITDA (x)
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3.4
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3.4
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3.1
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3.6
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3.1
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|||||||||||||||
FFO/debt (%)
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22.6
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21.8
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25.2
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21.9
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24.8
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|||||||||||||||
Cash flow from operations/debt (%)
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42.6
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29.3
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26.7
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35.2
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33.2
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|||||||||||||||
Free operating cash flow/debt (%)
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34.8
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18.8
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15.8
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24.6
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23.8
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|||||||||||||||
Discretionary cash flow/debt (%)
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34.8
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18.8
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15.8
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24.6
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20.6
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|||||||||||||||
Debt/debt and equity (%)
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69.4
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77.0
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79.2
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84.3
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88.3
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www.maalot.co.il
|
July 27, 2017 | 4
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Principal Liquidity Sources
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Principal Liquidity Uses
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· Cash balance of about NIS 0.8 billion (following an NIS 0.2 billion equity issuance).
· Debt issuance of about NIS 0.3 billion (completed)
· Operating cash flow of about NIS 0.7 billion.
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· About NIS 0.7 billion in debt maturities.
· About NIS 0.3 billion in capital expenditures.
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·
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Deducting surplus cash, as we define it, from reported financial debt.
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· |
Discounting long-term leases and adding them to reported debt; increasing EBITDA and FFO to reflect annual rental payments and interest and depreciation components calculated from future rent payments discounted into financial debt.
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·
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Adjusting financial debt for postretirement benefit obligations.
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·
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Adjusting financial debt for litigation.
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·
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Adjusting financial debt for trade receivables securitization – NIS 72 million.
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www.maalot.co.il
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July 27, 2017 | 5
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Reconciliation Of Partner Communications Co. Ltd. Reported Amounts With S&P Global Ratings Adjusted Amounts (Mil. NIS)
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||||||||||||||||||||||||
--Fiscal year ended Dec. 31, 2016--
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||||||||||||||||||||||||
Partner Communications Co. Ltd. reported amounts
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||||||||||||||||||||||||
Operating
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Interest
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Cash flow from
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||||||||||||||||||||||
Debt
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EBITDA
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income
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expense
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EBITDA
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operations
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|||||||||||||||||||
Reported
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2,694.0
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788.0
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193.0
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105.0
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788.0
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945.0
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||||||||||||||||||
S&P Global Ratings adjustments
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||||||||||||||||||||||||
Interest expense (reported)
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--
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--
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--
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--
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(105.0
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)
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--
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|||||||||||||||||
Interest income (reported)
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--
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--
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--
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--
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1.0
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--
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||||||||||||||||||
Current tax expense (reported)
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--
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--
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--
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--
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(27.0
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)
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--
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|||||||||||||||||
Trade receivables securitizations
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72.0
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--
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--
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5.9
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(5.9
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)
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93.0
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|||||||||||||||||
Operating leases
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495.7
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180.0
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42.5
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42.5
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137.5
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137.5
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||||||||||||||||||
Postretirement benefit obligations deferred compensation
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29.3
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--
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--
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1.2
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(2.1
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)
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2.9
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|||||||||||||||||
Surplus cash
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(876.0
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)
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--
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--
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--
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--
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--
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|||||||||||||||||
Share-based compensation expense
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--
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45.0
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--
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--
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45.0
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--
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||||||||||||||||||
Asset retirement obligations
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26.3
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--
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--
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--
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(0.3
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)
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0.8
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|||||||||||||||||
Non-operating income (expense)
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--
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--
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4.0
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--
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--
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--
|
||||||||||||||||||
Reclassification of interest and dividend cash flows
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--
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--
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--
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--
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--
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(106.0
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)
|
|||||||||||||||||
Debt - Litigation
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76.0
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--
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--
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--
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--
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--
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||||||||||||||||||
EBITDA - Other income (expense)
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--
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(217.0
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)
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(217.0
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)
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--
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(217.0
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)
|
--
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|||||||||||||||
EBITDA - Other
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--
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(45.0
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)
|
(45.0
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)
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--
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(45.0
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)
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--
|
|||||||||||||||
Total adjustments
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(176.8
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)
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(37.0
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)
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(215.5
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)
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49.6
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(218.8
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)
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128.1
|
||||||||||||||
S&P Global Ratings adjusted amounts
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Interest
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Funds from
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Cash flow from
|
||||||||||||||||||||||
Debt
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EBITDA
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EBIT
|
expense
|
operations
|
operations
|
|||||||||||||||||||
Adjusted
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2,517.2
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751.0
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(22.5
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)
|
154.6
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569.2
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1,073.1
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·
|
Use Of CreditWatch And Outlooks, September 14, 2009
|
·
|
Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, November 13, 2012
|
· |
Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of ‘D’ And ‘SD’ Ratings, October 24, 2013
|
·
|
Group Rating Methodology, November 19, 2013
|
·
|
Corporate Methodology: Ratios And Adjustments, November 19, 2013
|
·
|
Corporate Methodology, November 19, 2013
|
·
|
Methodology: Industry Risk, November 19, 2013
|
·
|
Key Credit Factors For The Telecommunications And Cable Industry, June 22, 2014
|
·
|
National And Regional Scale Credit Ratings, September 22, 2014
|
· |
Standard & Poor’s Maalot (Israel) National Scale: Methodology For Nonfinancial Corporate Issue Ratings, September 22, 2014
|
·
|
Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, December 16, 2014
|
·
|
S&P Global Ratings’ National And Regional Scale Mapping Tables, June 1, 2016
|
·
|
Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
|
·
|
S&P Global Ratings Definitions, June 26, 2017
|
www.maalot.co.il
|
July 27, 2017 | 6
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Partner Communications Co. Ltd.
|
Rating Details (As of 27 July-2017)
|
|
|
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Partner Communications Co. Ltd.
|
|
Issuer rating(s)
|
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Local Currency LT
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ilA+/Stable
|
|
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Issue rating(s)
|
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Senior Unsecured Debt
|
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Series B, C, D, E
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ilA+
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|
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Issuer Rating history
|
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Local Currency LT
|
|
28-July-2015
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ilA+/Stable
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20-June-2013
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ilAA-/Stable
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6-Dec-2012
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ilAA-/Negative
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10-Sep-2012
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ilAA-/Watch Neg
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19-Oct-2010
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ilAA-/Negative
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05-Oct-2009
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ilAA-/Stable
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17-Sept-2009
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ilAA-
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14-July-2009
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ilAA-/Watch Dev
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24-March-2009
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ilAA-/Watch Pos
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28-Oct-2008
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ilAA-/Stable
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25-Sept-2007
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ilAA-/Positive
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20-March-2007
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ilAA-/Stable
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28-July-2004
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ilAA-
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16-Feb-2004
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ilA+
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01-Aug-2003
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ilA
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|
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Other Details
|
|
Time of the event
|
27/07/2017 16:52
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Time when the analyst first learned of the event
|
27/07/2017 16:52
|
Rating requested by
|
Issuer
|
www.maalot.co.il
|
July 27, 2017 | 7
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Partner Communications Co. Ltd.
|
www.maalot.co.il
|
July 27, 2017 | 8
|
Partner Communications Company Ltd.
|
|||
By:
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/s/ David (Dudu) Mizrahi
|
||
Name:
|
David (Dudu) Mizrahi
|
||
Title:
|
Chief Financial Officer
|