Cellcom Israel reported a 49% increase in its fourth-quarter net profit on Monday after it cut costs to cope with a cellular market that got increasingly competitive last year.
The company, Israel’s largest mobile phone operator, said net profit grew to NIS 113 million, up from 76 million in the preceding year’s Q4. Furthermore, free cash flow increased by 188% totaling NIS 288 million, and Cellcom reported fewer subscriber losses than its competition, Partner Telecommunications. For the quarter they were down by a net 1,000 and for the year by 12,000, while Partner lost 66,000 and 200,000, respectively.
Cellcom shares rose 0.9% in Tel Aviv Stock Exchange trading yesterday, to close at NIS 27.02.
However, in most respects Cellcom’s results were poor. Fourth-quarter net profit was below analysts’ estimates of NIS 127 million, according to a poll by Thomson Reuters I/B/E/S. In the fourth quarter of 2011, Cellcom was hit by a number of one-time factors, including a deferred tax expense.
In addition, Cellcom’s revenue fell 15.5% to NIS 1.41 billion, weighed down by declines in both service and equipment revenue. Earnings before interest taxes, depreciation and amortization, or Ebitda, fell 12% to NIS 374 million.
“2012 was a challenging year for the communications market and for the company,” said Yaacov Heen, Cellcom’s chief financial officer.
“While we continue implementing our efficiency plan in order to adjust the company’s expense structure to the revenue level, we expect further erosion in revenues in the first quarter of 2013, which will lead to further erosion of profitability,” he said.
The mobile phone industry was shaken up last year when government reforms enabled the entry of six new operators, sparking a price war. As a result, the company collected 17% less per subscriber, an average of NIS 87.80 a month less during 2012 than the year before.
Cellcom said its efficiency measures last year, including payroll cuts, yielded annual savings of NIS 550 million. The company said it opted against paying a fourth-quarter dividend, saying it wanted to strengthen its balance sheet at this time of uncertainty. The board, it added, will evaluate its decision in the coming quarters as market conditions develop.