Cellcom Israel Announces Second Quarter 2009 Results and Strengthens its Position...

Cellcom Israel Announces Second Quarter 2009 Results and Strengthens its
Position as the Market Leader
NETANYA, Israel, August 17 /PRNewswire-FirstCall/ --

- 15.0%(1) Increase in Net Income With an Increase in Operating Income
and EBITDA;

- Profitability Growth, Despite the Ongoing Economic Slowdown, Price
Erosions and Growing Competition;

- EBITDA(2) Up by 2.9%(3); EBITDA Margin of 39.6%

- Cellcom Israel Declares a Second Quarter Dividend of NIS 3.05
per Share (Totals Approx. NIS 300 Million)

Second Quarter 2009 Highlights (compared to the second quarter
2008(4)):

- Total Revenues from services increased 0.7% to NIS 1,420
million ($362 million)

- Revenues from content and value added services (including
SMS) increased 30.6%, represent 14.7% of services revenues

- Total Revenues totaled NIS 1,608 million ($410 million), a
0.5% increase

- EBITDA increased 2.9%(3) to NIS 637 million ($163 million);
EBITDA margin 39.6%

- Operating income increased 6.5%(5) to NIS 444 million ($113
million)

- Net income increased 15.0%(1) to NIS 277 million ($71 million)

- Free Cash Flow(2) increased 33.3% to NIS 400 million ($102
million)

- Subscriber base increased approx. 20,000 during the quarter,
mostly post-paid subscribers; reaching approx. 3.228 million at the
end of June 2009

- 3G subscribers reached approx. 877,000 at the end of June
2009, net addition of approx. 44,000 in the second quarter 2009

- The Company declared second quarter dividend of NIS 3.05 per
share

Cellcom Israel Ltd. (NYSE: CEL, TASE: CEL) ("Cellcom Israel", the
"Company"), announced today its financial results for the second quarter of
2009. Revenues for the second quarter 2009 totaled NIS 1,608 million ($410
million); EBITDA for the second quarter 2009 totaled NIS 637 million ($163
million), or 39.6% of revenues; and net income for the second quarter 2009
reached NIS 277 million ($71 million). Basic earnings per share for the
second quarter 2009 reached NIS 2.82($0.72).
Commenting on the results, Amos Shapira, Chief Executive Officer said,
"This quarter Cellcom Israel, Israel's largest and leading cellular operator,
further strengthened its standing in the market, continuing to present growth
in revenues, operating and net profit and cash flow, as well as steadily
increasing and improving its subscriber base. These results are especially
noteworthy as we are operating in a challenging competitive environment,
highly regulated and turbulent macro-economic environment. This
macro-economic environment mainly affected our roaming revenues, as inbound
and outbound tourism continued to be impacted by the global economic
slowdown. This effect of the decrease in roaming revenues was entirely offset
by the rapidly growing demand for content and value added services, which
increased by over 30% this quarter, as well as land line services in which we
continue to present a significant growth almost without adding to the
Company's costs due to the existing synergy to our core business. Moreover,
our ongoing efficiency measures this quarter enabled us to further reduce
operating expenses, as well as operating expense as a percent of revenues,
enabling us to present growth in both operating and net income and cash flow.
This quarter we continued to execute on our strategy of focusing on our
core competencies, mobile communications, addressing the growing needs of the
always on, anywhere consumer; the consumer that is constantly seeking
entertainment and information content, known as Infotainment. We continued
with our policy to offer our subscribers a variety of handsets to fulfill
their changing needs, while keeping a prudent purchase policy. In this
framework, we have launched, in a primary launch in Israel, the "Android" by
Samsung with Google's operating system and in the near future we will launch
the iPhone by Apple. ".
Shapira added, commenting on the change in Chief Financial Officers: "I
would like to take this opportunity to thank Tal Raz for his tremendous
dedication and contribution to Cellcom Israel. Tal has been instrumental in
bringing the Company to where it stands today, taking advantage of financial
opportunities to restructure our debt in an optimal and most successful
manner. Tal leaves us to take on the role of CEO of Clal Finance, another
company in the IDB Group, and I wish him the best of success. I would like to
also take the opportunity to welcome Yaacov Heen to the position of CFO.
Yaacov, a highly experienced manager has grown through the Cellcom Israel
ranks in the past 12 years, and is highly attuned and knowledgeable of the
company. I wish Yaacov the best of success and believe you will have the
opportunity to meet him in person in the near future."
Tal Raz, Chief Financial Officer, commented: "These strong quarterly
results were achieved mainly due to the increased revenues from content and
value added services as well as fixed line revenues, which totally offset the
3.1% erosion in ARPU we witnessed this quarter, compared to last year, which
resulted mainly from lower roaming revenues. Moreover, our very tight rein on
expenses further contributed to profitability as marketing, sales, general
and administrative expenses, as a percent of revenues, decreased from 21.9%
in second quarter last year to 21.3% in second quarter this year. In terms of
cash generation, we continued to generate a very healthy Free Cash Flow,
increasing 33% from last year to NIS 400 million, enabling us to once again
distribute a dividend totaling approximately NIS 300 million, representing
108% of net income, to our shareholders." Main Financial and Performance
Indicators(6):

Q2/2009 Q2/2008 % Change Q2/2009 Q2/2008

million NIS million US$
(convenience
translation)

Total Services revenues 1,420 1,410 0.7% 362.3 359.8

Revenues from content and
value added services 209 160 30.6% 53.3 40.8

Handset and accessories
revenues 188 190 (1.1%) 48.0 48.5

Total revenues 1,608 1,600 0.5% 410.3 408.3

Operating Profit, after
elimination of a one-time
effect in Q2/2008 * 444 417 6.5% 113.3 106.4

Net Income, after
elimination of a one-time
effect in Q2/2008 ** 277 241 15.0% 70.7 61.5

Cash Flow from Operating
Activities, net of
Investing Activities 400 300 33.3% 102.1 76.6

EBITDA, after elimination
of a one-time effect in
Q2/2008 *** 637 619 2.9% 162.5 157.9

EBITDA, as percent of
Revenues, after
elimination of a one-time
effect in Q2/2008 **** 39.6% 38.7% 2.3%

Subscribers end of period
(in thousands) 3,228 3,117 3.6%

Estimated Market Share(7) 34.7% 34.5% 0.6%

Monthly ARPU 143.7 148.9 (3.5%) 36.7 38.0

Average Monthly MOU ***** 330.4 331.8 (0.4%)

* Without the elimination, operating income for the second quarter of
2008 totaled NIS 431 million ($110 million), representing an increase of 3.0%
in the second quarter of 2009.
** Without the elimination, net income for the second quarter of 2008
totaled NIS 230 million ($59 million), representing an increase of 20.4% in
the second quarter of 2009.
*** Without the elimination, EBITDA for the second quarter of 2008
totaled NIS 633 million ($162 million), representing an increase of 0.6% in
the second quarter of 2009.
****Without the elimination, EBITDA as percent of revenues for the second
quarter of 2008 was 39.6%, similar to the second quarter of 2009.
*****Following the regulatory requirement to change the basic airtime
charging unit from twelve-second to one-second units commencing January 1,
2009, MOU for the second quarter of 2008 has been adjusted to the same
per-one second unit basis to enable a comparison. MOU for the second quarter
of 2008 based on the former charging units was 354.3 minutes.
Subscriber Acquisition and Retention Costs
Following the Company's earnings release for the first quarter of 2009,
dated May 26, 2009, relating to the accounting treatment for subscriber
acquisition and retention costs, management has decided to change its
accounting policy to recognize certain subsidies provided to handsets which
are sold with a service agreement containing guaranteed minimum future
revenue, as additional costs that are eligible for capitalization. Under the
Company's previous accounting policy, capitalized customer acquisition and
retention costs included only deferred costs in respect of sales commissions
related to the acquisition and retention of subscribers, provided the costs
could be measured reliably and were directly attributable to obtaining a
specific subscriber, and the Company recognized subsidies on handset sales as
an expense in the period incurred. The change in policy has been
retrospectively applied from January 1, 2007, and therefore, the comparable
data for previous periods has been amended to reflect this change in
accounting policy. The deferral and capitalization of such subsidies
increased the Company's retained earnings, as of January 1, 2009 by
approximately NIS 48 million ($12 million). The impact of the change in
accounting policy on the EBITDA for the second quarter of 2009 totaled
approximately NIS 16 million ($4 million), similar to the impact on the
EBITDA for the second quarter last year. The impact on the Company's net
income for the second quarter of 2009 totaled approximately NIS 4 million ($1
million), while net income for the second quarter last year did not change as
a result of the change in the accounting policy.
Financial Review
Revenues for the second quarter of 2009 increased 0.5% totaling NIS 1,608
million ($410 million), compared to NIS 1,600 million ($408 million) in the
second quarter last year. The increase in revenues is mainly attributed to a
0.7% increase in revenues from services, which reached NIS 1,420 million
($362 million) in the second quarter 2009 as compared to NIS 1,410 million
($360 million) in the second quarter last year. This increase was offset in
part by a 1.1% decrease in handset and accessories' revenues, from NIS 190
million ($48 million) in the second quarter last year, to NIS 188 million
($48 million) in the second quarter 2009.
The higher service revenues resulted mainly from a 30.6% increase in
content and value added services (including SMS) revenues in the second
quarter 2009, compared to the second quarter last year. Revenues from content
and value added services reached NIS 209 million ($53 million), or 14.7% of
service revenues. Furthermore, the increase in landline services revenues
during the quarter also contributed to the higher service revenues. These
increases were partially offset by the ongoing airtime price erosion as well
as a substantial decrease in revenues from roaming services following the
significant reduction in incoming and outgoing tourism resulting from the
global economic slowdown.
Cost of revenues for the second quarter of 2009 totaled NIS 819 million
($209 million), similar to the second quarter last year. Cost of revenues
reflects the deferral of handsets subsidies, as described above under
-"Subscriber Acquisition and Retention Costs" - which amounted to NIS 16
million ($4 million) in the second quarter of 2009, as well as in the second
quarter last year. The amortization of such deferred handsets subsidies
totaled NIS 21 million ($5 million) in the second quarter 2009 compared to
NIS 16 million ($4 million) in the second quarter 2008. Cost of revenues also
reflects a decrease in royalties to the Ministry of Communications due to the
reduced royalties' rate in 2009, as well as lower depreciation expenses.
These decreases were partially offset by an increase in cost of content and
value-added services, due to increased usage, and in rent expenses, due to
the one-time reversal of rent expenses in the amount of approximately NIS 14
million ($4 million) in the second quarter of 2008 following the
clarification by the Israel Accounting Standards Board to the International
Accounting Standard no. 39 ("Financial Instruments: Recognition and
Measurement").
Gross profit for the second quarter of 2009 increased 1% reaching NIS 789
million ($201 million), compared to NIS 781 million ($199 million) in the
second quarter of 2008. Gross profit margin for the second quarter 2009
increased to 49.1% from 48.8% in the second quarter last year.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses")
for the second quarter of 2009 totaled NIS 343 million ($87 million),
compared to NIS 350 million ($89 million) in the second quarter of 2008. The
decrease in SG&A Expenses in the quarter is mainly due to a decrease in
advertising expenses and in salaries and related expenses primarily resulted
from a decrease in option related expenses. These decreases were partially
offset by an increase in amortization of deferred sales commissions from NIS
8 million ($2 million) in second quarter last year to NIS 14 million ($4
million) in the second quarter this year, while deferred sales commissions
slightly increased from approximately NIS 14 million ($4 million) in second
quarter last year to approximately NIS 15 million ($4 million) in the second
quarter this year. The decrease in SG&A Expenses was also offset in part by
an increase in bad debts and doubtful accounts expenses, mainly following the
number portability, which allows subscribers to switch between cellular
operators prior to settling their outstanding debt. The increase in bad debts
and doubtful accounts may also have been influenced by the global economic
slowdown.
Operating income for the second quarter 2009 increased 6.5%, or 3.0%
without elimination of the effect of the one-time reversal of rent expenses
in the second quarter 2008 as mentioned above, reaching NIS 444 million ($113
million), compared to NIS 431 million ($110 million) in the second quarter
last year.
EBITDA for the second quarter 2009 increased 2.9%, or 0.6% without
elimination of the effect of the one-time reversal of rent expenses in the
second quarter 2008 as mentioned above, reaching NIS 637 million ($163
million), compared to NIS 633 million ($162 million) in the second quarter of
2008. EBITDA as a percent of revenues, totaled 39.6% similar to the second
quarter last year (without elimination of the above mentioned one-time
effect).
Financing Expenses, net for the second quarter 2009 totaled NIS 67
million ($17 million), compared to NIS 109 million ($28 million) in the
second quarter last year. The decrease resulted mainly from the 1.9%
inflation in the second quarter this year, compared to 2.4% in the second
quarter last year, which led to lower linkage expenses to the Israeli
Consumer Price Index (CPI), associated with the Company's debentures. The
decrease also resulted from the one-time reversal, in the second quarter last
year, of financing income in the amount of approximately NIS 29 million
related to embedded derivatives. These decreases were offset in part by an
increase in interest expenses related to the Company's debentures, due to the
increased debt level.
Net Income for the second quarter 2009 increased 15%, or 20.4% without
elimination of the one-time effects in the second quarter 2008 as mentioned
above, reaching NIS 277 million ($71 million), compared to NIS 230 million
($59 million) in the second quarter last year. Basic earnings per share for
the second quarter 2009 totaled NIS 2.82($0.72), compared to NIS 2.35($0.60)
in the second quarter 2008.
Operating Review
New Subscribers - at the end of June 2009 the Company had approximately
3.228 million subscribers. During the second quarter of 2009 the Company
added approximately 20,000 net new subscribers, mostly post-paid.
In the second quarter of 2009, the Company added approximately 44,000 net
new 3G subscribers to its 3G subscriber base, reaching approximately 877,000
3G subscribers at the end of June 2009, representing 27.2% of the Company's
total subscriber base, an increase from the 26% 3G subscribers represented of
total subscribers at the end of March 2009.
The Churn Rate in the second quarter 2009 declined to 4.6%, compared to
4.7% in the second quarter last year and 5.0% in the first quarter this year.
The churn for those quarters primarily consists of lower contribution
pre-paid subscribers and subscribers with collection problems.
Average monthly subscriber Minutes of Use ("MOU") in the second quarter
2009 totaled 330.4 minutes, compared to 331.8 minutes in the second quarter
2008, a decrease of 0.4%. Following the regulatory requirement to change the
basic airtime charging units from twelve-second to one-second units
commencing January 1, 2009, MOU for the second quarter 2008 has been adjusted
to the same per-one second unit basis to enable a comparison. MOU for the
second quarter of 2008 based on the former charging units was 354.3 minutes.
The monthly Average Revenue per User (ARPU) for the second quarter 2009
decreased 3.5% and totaled NIS 143.7($36.7), compared to NIS 148.9($38.0)
in the second quarter last year. This decrease was, among others, the result
of the lower roaming revenues recorded during the second quarter following
the decline in tourism.
Financing and Investment Review
Cash Flow
Free cash flow (Cash provided by operating activities, net of cash used
in investing activities) for the second quarter of 2009 increased 33.3%,
reaching NIS 400 million ($102 million), compared to NIS 300 million ($77
million) generated in the second quarter of 2008. The increase in Free Cash
Flow resulted mainly from an increase in net cash provided by operating
activities totaled NIS 522 million ($133 million) in second quarter this
year, compared to NIS 449 million ($115 million) in the second quarter last
year.
Shareholders' Equity
Shareholders' Equity as of June 30, 2009 amounted to NIS 412 million
($105 million), primarily consisting of accumulated undistributed retained
earnings.
Investment in Fixed Assets and Intangible Assets
During the second quarter 2009, the Company invested NIS 170 million ($43
million) in fixed assets and intangible assets (including, among others,
deferred sales commissions and handsets subsidies and investments in
information systems and software), compared to NIS 143 million ($36 million)
in the second quarter 2008.
Dividend
On August 16, 2009, the Company's board of directors declared a cash
dividend in the amount of NIS 3.05 per share, and in the aggregate amount of
approximately NIS 300 million (the equivalent of approximately $0.80 per
share and approximately $79 million in the aggregate, based on the
representative rate of exchange on August 14, 2009; The actual US$ amount for
dividend paid in US$ will be converted from NIS based upon the representative
rate of exchange published by the Bank of Israel on September 10, 2009),
subject to withholding tax described below. The dividend will be payable to
all of the Company's shareholders of record at the end of the trading day in
the NYSE on August 31, 2009. The payment date will be September 14, 2009.
According to the Israeli tax law, the Company will deduct at source 20% of
the dividend amount payable to each shareholder, as aforesaid, subject to
applicable exemptions. The dividend per share that the Company will pay for
the second quarter of 2009 does not reflect the level of dividends that will
be paid for future quarterly periods, which can change at any time in
accordance with the Company's dividend policy. A dividend declaration is not
guaranteed and is subject to the Company's board of directors' sole
discretion, as detailed in the Company's annual report for the year ended
December 31, 2008 on Form 20-F, under "Item 8 - Financial Information -
Dividend Policy".
Other developments during the second quarter of 2009 and subsequent to
balance sheet date
Site Licensing
As previously disclosed, following the Israeli Attorney General's opinion
that the exemption from obtaining building permits relied upon by cellular
operators, including us, applies to cellular networks, a petition seeking to
annul his opinion and apply a District Court ruling that the cellular
operators devices do not meet the exemption's requirements was filed with the
Supreme Court in July 2008. Furthermore, an inter-ministry committee was
established, as per the Attorney General's opinion, to examine the
appropriateness of future application of the exemption. In June 2009, another
petition seeking similar remedies as the July 2008 petition, was filed with
the Supreme Court, against the Attorney General, the Inter-ministry
committee, the Minister of Interior, the Minister of Environmental
Protection, the Minister of Communications, the Minister of Health and the
cellular companies, including us. The petitioners also requested an interim
order to prevent the construction of cell sites in reliance on the exemption.
The petition and the request for interim order are awaiting determination by
the Supreme Court. The Supreme Court decided to hear both petitions together
in November 2009. In July 2009, subsequent to the balance sheet date, the
inter-ministry committee published its recommendations for future application
of the exemption. While the Ministry of Communication recommended that, given
the difficulties in obtaining permits for the construction of cell sites, the
exemption should be reviewed after the lapse of one to two years from the
approval of the new National Zoning Plan 36, to verify that it provides an
adequate solution that allows the cellular operators to provide required
communication services, the Ministries of Interior and Environmental
Protection recommended that the exemption be annulled within 6 months from
the date of the recommendations, based ,among others, on the following
claims: (1) current cellular infrastructure is sufficient, given it is
currently used to provide advanced services such as internet, radio and
television broadcasting, while such services may be provided by a landline
network; and (2) sites constructed pursuant to a building permit are
preferable to radio access devices regarding radiation safety and the
provision of advanced services which can be provided through a landline
network, over a cellular network, is unjustified in light of the preventive
care principle set in the Israeli Non-Ionizing Radiation Law.
For additional details see the Company's most recent annual report for
the year ended December 31, 2008 on Form 20-F under "Item 3. Key Information
- D. Risk Factors - Risks related to our business - We may not be able to
obtain permits to construct cell sites" as well as under "Item 4. Information
on the Company - B. Business Overview - Government Regulations - Permits for
Cell site Construction - Site Licensing" and "Construction and operating
permits from the commissioner of environmental radiation".
MVNO
The Israeli Communication Law was amended in July 2009, subsequent to the
balance sheet date, to include a Mobile Virtual Network Operator, or MVNO,
license. Under the amendment, the Ministry of Communications is required to
enact the regulations necessary for the provision of the MVNO license by
September 1, 2009. The amendment further instructs that in the event that a
MVNO and the cellular operator will not have reached an agreement as to the
provision of service by way of MVNO within six months from the date the MVNO
has approached the cellular operator, and if the Ministry of Communications
together with the Ministry of Commerce determine that the failure to reach an
agreement is due to unreasonable conditions imposed by the cellular operator,
the Ministry Of Communications will use its authority to provide
instructions. Such instructions may include intervening in the terms of the
agreement, including by setting the price of the service.
For additional details see the Company's most recent annual report for
the year ended December 31, 2008 on Form 20-F under "Item 3. Key Information
- D. Risk Factors - Risks related to our business - We face intense
competition in all aspects of our business" as well as under "Item 4.
Information on the Company - B. Business Overview - Competition" and
"Government Regulations - Mobile Virtual Network Operators".
Handset Procurement
The Company has entered an agreement with Apple Sales International, for
the purchase and distribution of iPhone handsets in Israel. Under the terms
of the agreement, the Company has committed to purchase a minimum quantity of
handsets during a period of three years, which is expected to represent a
significant portion of the Company's expected handset purchase amount over
that period. The total amount of the purchases will depend on the handsets
purchase price at the time of purchase.
MIRS
In August 2009, subsequent to the balance sheet date, the Company
submitted a preliminary non-binding indication of interest to purchase 100%
of the equity of MIRS Communications Ltd, another Israeli cellular provider
with an estimated market share of 4-5%. For additional details regarding MIRS
see our most recent Annual Report on Form 20-F for the year 2008 under "B.
Business Overview - The Telecommunications Industry in Israel - Cellular
Services".
At this stage there is no certainty a transaction will be agreed upon nor
executed. Any such transaction would be subject, among others, to certain
regulatory approvals and there is no certainty that such approvals will be
given.
Change of Chief Financial Officer
In July 2009, Mr. Tal Raz notified the Company of his resignation from
office as the Company's CFO, effective September 20, 2009, following his
nomination as CEO of Clal Finance, an IDB group affiliate of the Company. The
Company's board of directors has nominated Mr. Yaacov Heen as the Company's
CFO, effective September 21, 2009, and resolved to recommend to the General
Meeting of Shareholders to nominate Tal Raz as a director of the Company. For
additional details see the Company's immediate report (on Form 6-K) dated
July 20, 2009 and the Company's Proxy Statement (on Form 6-K) dated July
21,2009.
Conference Call Details
The Company will be hosting a conference call on Monday, August 17, 2009
at 09:00 am EDT, 04:00 pmIsrael time, and 02:00 pm UK time. On the call,
management will review and discuss the results, and will be available to
answer questions. To participate, please either access the live webcast on
the Company's website, or call one of the following teleconferencing numbers
below. Please begin placing your calls at least 10 minutes before the
conference call commences. If you are unable to connect using the toll-free
numbers, please try the international dial-in number.
US Dial-in Number: 1-888-407-2553
UK Dial-in Number: 0-800-917-9141
Israel Dial-in Number: 03-918-0610
International Dial-in Number: +972-3-918-0610

at: 09:00 am Eastern Time; 06:00 am Pacific Time; 02:00 pm UK Time;
04:00 pm Israel Time

To access the live webcast of the conference call, please access the
investor relations section of Cellcom Israel's website:
http://www.cellcom.co.il. After the call, a replay of the call will be
available under the same investor relations section.
About Cellcom Israel
Cellcom Israel Ltd., established in 1994, is the leading Israeli cellular
provider; Cellcom Israel provides its approximately 3.228 million subscribers
(as at June 30, 2009) with a broad range of value added services including
cellular and landline telephony, roaming services for tourists in Israel and
for its subscribers abroad and additional services in the areas of music,
video, mobile office etc., based on Cellcom Israel's technologically advanced
infrastructure. The Company operates an HSPA 3.5 Generation network enabling
advanced high speed broadband multimedia services, in addition to
GSM/GPRS/EDGE and TDMA networks. Cellcom Israel offers Israel's broadest and
largest customer service infrastructure including telephone customer service
centers, retail stores, and service and sale centers, distributed nationwide.
Through its broad customer service network Cellcom Israel offers its
customers technical support, account information, direct to the door parcel
services, internet and fax services, dedicated centers for the hearing
impaired, etc. As of 2006, Cellcom Israel, through its wholly owned
subsidiary Cellcom Fixed Line Communications L.P., provides landline
telephone communication services in Israel, in addition to data communication
services. Cellcom Israel's shares are traded both on the New York Stock
Exchange (CEL) and the Tel Aviv Stock Exchange (CEL). For additional
information please visit the Company's website www.cellcom.co.il
Forward-Looking Statements
The following information contains, or may be deemed to contain
forward-looking statements (as defined in the U.S. Private Securities
Litigation Reform Act of 1995 and the Israeli Securities Law, 1968). In some
cases, you can identify these statements by forward-looking words such as
"may," "might," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements, which are
subject to risks, uncertainties and assumptions about us, may include
projections of our future financial results, our anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. There are important factors that could cause our actual results,
level of activity, performance or achievements to differ materially from the
results, level of activity, performance or achievements expressed or implied
by the forward-looking statements. Factors that could cause such differences
include, but are not limited to: changes to the terms of our license, new
legislation or decisions by the regulator affecting our operations, the
outcome of legal proceedings to which we are a party, particularly class
action lawsuits, our ability to maintain or obtain permits to construct and
operate cell sites, and other risks and uncertainties detailed from time to
time in our filings with the U.S. Securities and Exchange Commission,
including under the caption "Risk Factors" in our Annual Report for the year
ended December 31, 2008.
Although we believe the expectations reflected in the forward-looking
statements contained herein are reasonable, we cannot guarantee future
results, level of activity, performance or achievements. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness
of any of these forward-looking statements. We assume no duty to update any
of these forward-looking statements after the date hereof to conform our
prior statements to actual results or revised expectations, except as
otherwise required by law.
The Company prepares its financial statements in accordance with
International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB). Unless noted specifically
otherwise, the dollar denominated figures were converted to US$ using a
convenience translation based on the US$\New Israeli Shekel (NIS) conversion
rate of NIS 3.919 = US$ 1 as published by the Bank of Israel on June 30, 2009.
Use of non-GAAP financial measures
EBITDA is a non-GAAP measure and is defined as income before financing
income (expenses), net; other income (expenses), net; income tax;
depreciation and amortization. This is an accepted measure in the
communications industry. The Company presents this measure as an additional
performance measure as the Company believes that it enables us to compare
operating performance between periods and companies, net of any potential
differences which may result from differences in capital structure, taxes,
age of fixed assets and related depreciation expenses. EBITDA should not be
considered in isolation, or as a substitute for operating income, any other
performance measures, or cash flow data, which were prepared in accordance
with Generally Accepted Accounting Principles as measures of profitability or
liquidity. EBITDA does not take into account debt service requirements, or
other commitments, including capital expenditures, and therefore, does not
necessarily indicate the amounts that may be available for the Company's use.
In addition, EBITDA may not be comparable to similarly titled measures
reported by other companies, due to differences in the way these measures are
calculated. See the reconciliation between the net income and the EBITDA
presented at the end of this Press Release.
Free cash flow is a non-GAAP measure and is defined as the net cash
provided by operating activities minus the net cash used in investing
activities. See the reconciliation note at the end of this Press Release.
Financial Tables Follow
Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Balance Sheets

Convenience
translation
into US
dollar
June 30, June 30, June 30, December
31,
2009 2009 *2008 *2008
-------- -------- -------- --------
NIS millions US$ NIS millions NIS
millions millions
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Audited)
-------- -------- -------- --------

Assets
Cash and cash equivalents 1,223 312 195 275
Trade receivables 1,537 393 1,447 1,478
Other receivables, including
derivatives 201 51 132 112
Inventory 115 29 150 119
------ ------ ------ ------
Total current assets 3,076 785 1,924 1,984
------ ------ ------ ------

Trade and other receivables 620 158 608 602
Property, plant and equipment,
net 2,089 533 2,223 2,159
Intangible assets, net 716 183 741 743
------ ------ ------ ------

Total non- current assets 3,425 874 3,572 3,504
------ ------ ------ ------
Total assets 6,501 1,659 5,496 5,488
------ ------ ------ ------
Liabilities
Debentures current maturities 333 85 287 329
Trade payables and accrued
expenses 759 194 588 677
Current tax liabilities 128 32 84 85
Provisions 57 15 90 47
Other current liabilities,
including derivatives 381 97 367 385
------ ------ ------ ------

Total current liabilities 1,658 423 1,416 1,523
------ ------ ------ ------
Debentures 4,266 1,089 3,509 3,401
Provisions 17 4 16 17
Other long-term liabilities - - 1 1
Deferred taxes 148 38 137 156
------ ------ ------ ------
Total non- current liabilities 4,431 1,131 3,663 3,575
------ ------ ------ ------
Total liabilities 6,089 1,554 5,079 5,098
------ ------ ------ ------
Shareholders' equity
Share capital 1 - 1 1
Cash flow hedge reserve (11) (3) (60) (11)
Retained earnings 422 108 476 400
------ ------ ------ ------
Total shareholders' equity 412 105 417 390
------ ------ ------ ------
Total liabilities and
shareholders' equity 6,501 1,659 5,496 5,488
------ ------ ------ ------

(*) Retrospective application - see "Subscriber Acquisition and Retention
Costs" section in this press release Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Income

Six- month period ended Three- month period ended Year
ended
June 30, June 30, December
31,
Convenience Convenience
translation translation
into US into US
dollar dollar
2009 2009 *2008 2009 2009 *2008 *2008
----- ----- ----- ----- ----- ----- -----
NIS US$ NIS NIS US$ NIS NIS
millions millions millions millions millions millions millions
----- ----- ----- ----- ----- ----- -----
(Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Audited)
ited) ited) ited) ited) ited) ited)
----- ----- ----- ----- ----- ----- -----
Revenues 3,169 809 3,195 1,608 410 1,600 6,417

Cost of
revenues 1,630 416 1,697 819 209 819 3,396
----- ----- ----- ----- ----- ----- -----
Gross
profit 1,539 393 1,498 789 201 781 3,021

Selling and
marketing
expenses 335 85 333 178 45 177 701

General and
administrative
expenses 319 82 327 165 42 173 659

Other (income)
expenses, net 4 1 (18) 2 1 - (29)
----- ----- ----- ----- ----- ----- -----
Operating
income 881 225 856 444 113 431 1,690

Financing
income 112 29 80 52 13 18 83

Financing
expenses (151) (39) (234) (119) (30) (127) (393)
----- ----- ----- ----- ----- ----- -----
Financing
income
(expenses),
net (39) (10) (154) (67) (17) (109) (310)

Income before
income tax 842 215 702 377 96 322 1,380

Income tax 220 56 198 100 25 92 391
----- ----- ----- ----- ----- ----- -----

Net income 622 159 504 277 71 230 989
----- ----- ----- ----- ----- ----- -----
Earnings per
share
Basic earnings
per share in
NIS 6.32 1.61 5.16 2.82 0.72 2.35 10.12
----- ----- ----- ----- ----- ----- -----
Diluted
earnings per
share in NIS 6.27 1.60 5.09 2.79 0.71 2.32 9.96
----- ----- ----- ----- ----- ----- -----

(*) Retrospective application - see "Subscriber Acquisition and Retention
Costs" section in this press release Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows

Six- month period ended Three- month period ended Year
ended
June 30, June 30, December
31,
Convenience Convenience
translation translation
into US into US
dollar dollar
2009 2009 *2008 2009 2009 *2008 *2008
----- ----- ----- ----- ----- ----- -----
NIS US$ NIS NIS US$ NIS NIS
millions millions millions millions millions millions millions
----- ----- ----- ----- ----- ----- -----
(Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Audited)
ited) ited) ited) ited) ited) ited)
----- ----- ----- ----- ----- ----- -----
Cash flows
from
operating
activities
Net income
for the
period 622 159 504 277 71 230 989

Adjustments
to reconcile
net income
to funds
generated
from
operations:
Depreciation 238 61 286 117 30 142 570

Amortization 141 36 117 74 19 60 251

Capital gain
on sale of
land - - (9) - - - (9)

Loss (gain)
on sale of
assets 4 1 (8) 2 1 1 (9)

Income tax
expense 220 56 198 100 25 92 391

Financial
(income)
costs, net 39 10 154 67 17 109 310

Share based
payments - - 17 - - 13 28

Changes in
operating
assets and
liabilities:
Changes in
inventories (28) (8) 50 (3) (1) 57 36

Changes in
trade
receivables
(including
long-term
amounts) (51) (13) (113) (12) (3) (26) (117)

Changes in
other
receivables
(including
long-term
amounts) (88) (23) (42) (63) (16) (33) (34)

Changes in
trade
payables and
accrued
expenses 124 32 (269) 58 14 (92) (271)

Changes in
other
liabilities
(including
long-term
amounts) (9) (2) 35 (18) (4) 5 99

Payments for
inventory
hedging
contracts,
net 17 4 (20) 12 3 (11) (38)

Proceeds
(payments)
for
derivative
contracts,
net 34 9 (4) 10 2 1 18

Income tax
paid (189) (48) (260) (99) (25) (99) (451)
----- ----- ----- ----- ----- ----- -----
Net cash
provided by
operating
activities 1,074 274 636 522 133 449 1,763
----- ----- ----- ----- ----- ----- -----

(*) Retrospective application - see "Subscriber Acquisition and Retention
Costs" section in this press release Cellcom Israel Ltd.
(An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows (cont'd)

Six- month period ended Three- month period ended Year
ended
June 30, June 30, December
31,
Convenience Convenience
translation translation
into US into US
dollar dollar
2009 2009 *2008 2009 2009 *2008 *2008
----- ----- ----- ----- ----- ----- -----
NIS US$ NIS NIS US$ US$ NIS
millions millions millions millions millions millions millions
----- ----- ----- ----- ----- ----- -----
(Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Audited)
ited) ited) ited) ited) ited) ited)
----- ----- ----- ----- ----- ----- -----

Cash flows
from
investing
activities
Acquisition
of
property,
plant, and
equipment (196) (50) (225) (84) (21) (107) (429)

Acquisition
of
intangible
assets (89) (22) (93) (42) (11) (40) (175)

Payments
for
derivative
hedging
contracts,
net - - (10) - - (5) (17)

Proceeds
from sales
of
property,
plant, and
equipment - - 50 - - - 19

Interest
received 4 1 13 4 1 3 17

Proceeds
from sale
of long
term
receivables - - - - - - 39
----- ----- ----- ----- ----- ----- -----
Net cash
used in
investing
activities (281) (71) (265) (122) (31) (149) (546)
----- ----- ----- ----- ----- ----- -----
Cash flows
from
financing
activities
Proceeds
from
derivative
contracts,
net 4 1 15 - - 8 31

Repayment
of
long-term
loans from
banks - - (648) - - - (648)

Repayment
of
Debentures (164) (42) - - - (125)

Proceeds
from
issuance of
debentures,
net of
issuance
costs 989 252 589 989 252 - 589

Dividend
paid (596) (152) (955) (326) (83) (939) (1,525)

Interest
paid (78) (20) (88) 8 2 - (175)
----- ----- ----- ----- ----- ----- -----
Net cash
used in
financing
activities 155 39 (1,087) 671 171 (931) (1,853)
----- ----- ----- ----- ----- ----- -----
Changes in
cash and
cash
equivalents 948 242 (716) 1,071 273 (631) (636)

Balance of
cash and
cash
equivalents
at
beginning
of the
period 275 70 911 152 39 826 911
----- ----- ----- ----- ----- ----- -----
Balance of
cash and
cash
equivalents
at end of
the period 1,223 312 195 1,223 312 195 275
----- ----- ----- ----- ----- ----- -----

(*) Retrospective application - see "Subscriber Acquisition and Retention
Costs" section in this press release Cellcom Israel Ltd.
(An Israeli Corporation)
Reconciliation for Non-GAAP Measures
EBITDA
The following is a reconciliation of net income to EBITDA:

Year
Three-month period ended ended
June 31, December 31,
-----------------------------------------------------
Convenience
translation
into US
dollar

2009 2009 2008 2008
NIS
NIS millions US$ millions NIS millions millions

(Unaudited) (Unaudited) (Unaudited) (Audited)
---------- ----------- ----------- ---------
Net income........277 71 230 989
Income taxes......100 25 92 391
Financing income..(52) (13) (18) (83)
Financing
expenses..........119 30 127 393
Other expenses
(income)............2 1 - (29)
Depreciation and
amortization......191 49 202 821
---------- ----------- ----------- ---------
EBITDA............637 163 633 2,482
---------- ----------- ----------- ---------

Free Cash Flow
The following table shows the calculation of free cash flow:

Year
Three-month period ended ended
June 30, December 31,
-----------------------------------------------------
Convenience
translation
into US
dollar

2009 2009 2008 2008
NIS
NIS millions US$ millions NIS millions millions

(Unaudited) (Unaudited) (Unaudited) (Audited)
---------- ----------- ----------- ---------
Cash flows
from operating
activities.......522 133 449 1,763
Cash flows from
investing
activities......(122) (31) (149) (546)
---------- ----------- ----------- ---------
Free Cash Flow...400 102 300 1,217
---------- ----------- ----------- ---------

---------------------------------
(1) After elimination of a one-time negative effect of embedded
derivatives of approximately NIS 11million ($3 million) in the second quarter
of 2008. Without this elimination, net income increased 20.4%. See "Cost of
revenues" and "Financing Expenses, net" sections in this press release.
(2) Please see "Use of Non-GAAP financial measures" section at the end of
this press release.
(3) After elimination of a one-time positive effect of embedded
derivatives of approximately NIS 14 million ($4 million) in the second
quarter of 2008. Without this elimination, EBITDA increased 0.6%. See "Cost
of revenues" section in this press release.
(4) See "Subscriber acquisition and retention costs" section in this
press release for a change in accounting policy regarding recognition of
certain costs for capitalization. Comparison data for second quarter 2008 was
changed to reflect the retrospective application of that change.
(5) After elimination of a one-time positive effect of embedded
derivatives of approximately NIS 14 million ($4 million) in the second
quarter of 2008. Without this elimination, operating income increased 3.0%.
See "Cost of revenues" section in this press release.
(6) See "Subscriber acquisition and retention costs" section in this
press release for a change in accounting policy regarding recognition of
certain costs for capitalization. Comparison data for second quarter 2008 was
changed to reflect the retrospective application of that change.
(7) In order to estimate the Company's market share, the Company was
required to estimate the number of subscribers of one additional Israeli
cellular operator Mirs Communications Ltd. ("Mirs"), as at June 30, 2009,
since Mirs does not publish this information.
---------------------------------

Company Contact Investor Relations Contact
Shiri Israeli Ehud Helft / Ed Job
Investor Relations Coordinator CCGK Investor Relations
investors@cellcom.co.il ehud@gkir.com / ed.job@ccgir.com
Tel: +972-52-998-9755 Tel: (US) +1-866-704-6710 /
+1-646-213-1914

SOURCE Cellcom Israel Ltd.

Company Contact: Shiri Israeli, Investor Relations Coordinator,
investors@cellcom.co.il, Tel: +972-52-998-9755; Investor Relations Contact:
Ehud Helft / Ed Job, CCGK Investor Relations, ehud@gkir.com /
ed.job@ccgir.com, Tel: (US) +1-866-704-6710 / +1-646-213-1914