SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
FILED PURSUANT TO SECTION 12, 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
As filed with the Securities and Exchange Commission on February 28, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
OR
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________
Commission file number 1-14968
PARTNER COMMUNICATIONS COMPANY LTD.
(Exact Name of Registrant as Specified in its Charter)
ISRAEL
(Jurisdiction of Incorporation or Organization)
8 AMAL STREET
AFEK INDUSTRIAL PARK
ROSH-HA’AYIN 48103
ISRAEL
(Address of Principal Executive Offices)
Sarit Hecht, Adv.
Vice President, Chief Legal Counsel & Corporate Secretary
Telephone: +972-54-7813888
Partner Communications Company Ltd.
8 Amal Street
Afek Industrial Park
Rosh-Ha’ayin 48103
ISRAEL
ExecutiveOffices@partner.co.il
(Name, Telephone, E-mail and/or facsimile Number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
American Depositary Shares, each representingone ordinary share, nominal value NIS 0.01 per share | PTNR | The NASDAQ Global Select Market | ||
Ordinary Shares, nominal value NIS 0.01 per share* | The NASDAQ Global Select Market |
* Not for trading, but only in connection with the registration of American Depositary Shares representing such ordinary shares, pursuant to the requirements of the Securities and Exchange Commission.
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
ORDINARY SHARES OF NIS 0.01 EACH 183,678,220
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.
Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,"accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ |
| Accelerated Filer ☒ |
| Non-Accelerated Filer ☐ |
Emerging Growth Company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | ||
| ||
International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | ||
| ||
Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by checkmark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
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Year ended December 31, | ||||||||||||||||
2019 | 2020 | 2021 | 2021 | |||||||||||||
New Israeli Shekels in millions (except per share data) | US$ in millions(1) | |||||||||||||||
Consolidated Statement of Income Data | ||||||||||||||||
Revenues, net | 3,234 | 3,189 | 3,363 | 1,081 | ||||||||||||
Cost of revenues | 2,707 | 2,664 | 2,732 | 878 | ||||||||||||
Gross profit | 527 | 525 | 631 | 203 | ||||||||||||
Selling and marketing expenses | 301 | 291 | 323 | 104 | ||||||||||||
General and administrative expenses | 149 | 145 | 164 | 52 | ||||||||||||
Credit losses | 18 | 23 | 9 | 3 | ||||||||||||
Other income, net | 28 | 30 | 28 | 9 | ||||||||||||
Operating profit | 87 | 96 | 163 | 53 | ||||||||||||
Finance income | 7 | 8 | 4 | 1 | ||||||||||||
Finance expenses | 75 | 77 | 68 | 22 | ||||||||||||
Finance costs, net | 68 | 69 | 64 | 21 | ||||||||||||
Profit before income tax | 19 | 27 | 99 | 32 | ||||||||||||
Income tax income (expenses) | * | (10 | ) | 16 | 5 | |||||||||||
Profit for the year | 19 | 17 | 115 | 37 | ||||||||||||
Earnings per ordinary share and per ADS | ||||||||||||||||
Basic: | 0.12 | 0.09 | 0.63 | 0.20 | ||||||||||||
Diluted: | 0.12 | 0.09 | 0.62 | 0.20 | ||||||||||||
Weighted average number of shares outstanding (in thousands) | ||||||||||||||||
Basic: | 162,831 | 182,331 | 183,203 | 183,203 | ||||||||||||
Diluted (for calculation above): | 163,608 | 183,188 | 184,334 | 184,334 |
Year ended December 31, | ||||||||||||||||
2019 | 2020 | 2021 | 2021 | |||||||||||||
New Israeli Shekels in millions | US$ in millions(1) | |||||||||||||||
Capital expenditures (2) | 578 | 595 | 680 | 219 | ||||||||||||
Adjusted EBITDA (3) | 853 | 822 | 922 | 296 | ||||||||||||
Statement of Cash Flow Data | ||||||||||||||||
Net cash provided by operating activities | 837 | 786 | 774 | 249 | ||||||||||||
Net cash used in investing activities | (1,181 | ) | (581 | ) | (727 | ) | (234 | ) | ||||||||
Net cash provided by (used in) financing activities | 227 | (128 | ) | (115 | ) | (37 | ) | |||||||||
Financial Position Data (at year end) | ||||||||||||||||
Current assets | 1,664 | 1,496 | 1,489 | 480 | ||||||||||||
Non current assets | 3,351 | 3,629 | 3,904 | 1,255 | ||||||||||||
Lease - right of use | 582 | 663 | 679 | 218 | ||||||||||||
Property and equipment | 1,430 | 1,495 | 1,644 | 529 | ||||||||||||
Intangible and other assets | 538 | 521 | 472 | 152 | ||||||||||||
Goodwill | 407 | 407 | 407 | 131 | ||||||||||||
Deferred income tax asset | 41 | 29 | 34 | 11 | ||||||||||||
Total assets | 5,015 | 5,125 | 5,393 | 1,735 | ||||||||||||
Current liabilities (4) | 1,489 | 1,334 | 1,422 | 457 | ||||||||||||
Non current liabilities (4) | 2,109 | 2,068 | 2,112 | 680 | ||||||||||||
Total liabilities | 3,598 | 3,402 | 3,534 | 1,137 | ||||||||||||
Total equity | 1,417 | 1,723 | 1,859 | 598 | ||||||||||||
Total liabilities and equity | 5,015 | 5,125 | 5,393 | 1,735 |
(1) | The NIS figures at December 31, 2021, and for the 12-month period then ended have been translated throughout this Annual Report into dollars using the representative exchange rate of the dollar at December 31, 2021 (USD 1 = NIS 3.110). The translation was made solely for convenience, is supplementary information, and is distinguished from the financial statements. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars. |
(2) | Capital Expenditures represent additions to property and equipment (see note 10 to our consolidated financial statements) and intangible assets (see note 11 to our consolidated financial statements). |
(3) | Adjusted EBITDA represents Earnings Before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use and impairment charges) and Other expenses (mainly amortization of share-based compensation). Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Group's historic operating results nor is it meant to be predictive of potential future results. The usage of the term "Adjusted EBITDA" is to highlight the fact that the Amortization includes amortization of deferred expenses – right of use and amortization of employee share-based compensation and impairment charges. |
(4) | See Note 15 to the consolidated financial statements for information regarding long-term liabilities and current maturities of long-term borrowings and notes payable. |
Year ended December 31, | ||||||||||||||||
2019 | 2020 | 2021 | 2021 | |||||||||||||
New Israeli Shekels in millions | US$ in millions (1) | |||||||||||||||
Reconciliation Between Profit and Adjusted EBITDA | ||||||||||||||||
Profit | 19 | 17 | 115 | 37 | ||||||||||||
Depreciation and amortization expenses | 751 | 714 | 744 | 239 | ||||||||||||
Finance costs, net | 68 | 69 | 64 | 21 | ||||||||||||
Income tax income (expenses) | * | (10 | ) | 16 | 5 | |||||||||||
Other (**) | 15 | 12 | 15 | 4 | ||||||||||||
Adjusted EBITDA (2) | 853 | 822 | 922 | 296 |
(*) | Representing an amount of less than 1 million. |
(**) | Mainly amortization of employee share-based compensation. |
(1) | The translations of NIS amounts into US dollars appearing throughout this Annual Report have been made at the exchange rate on December 31, 2021, of NIS 3.110 = US$1.00 as published by the Bank of Israel, unless otherwise specified. |
(2) | Adjusted EBITDA represents Earnings Before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use and impairment charges) and Other expenses (mainly amortization of share-based compensation). Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Group's historic operating results nor is it meant to be predictive of potential future results. The usage of the term "Adjusted EBITDA" is to highlight the fact that the Amortization includes amortization of deferred expenses – right of use and amortization of employee share-based compensation and impairment charges. |
At December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Cellular Industry Data | ||||||||||||
Estimated population of Israel (in millions) (1) | 9.1 | 9.3 | 9.4 | |||||||||
Estimated Israeli cellular telephone subscribers (in millions) (2) | 10.4 | 10.4 | 10.9 | |||||||||
Estimated Israeli cellular telephone penetration (3) | 114 | % | 113 | % | 116 | % |
Year Ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Company's Data | ||||||||||||
Cellular subscribers (000’s) (at period end) (4) (5) | 2,657 | 2,836 | 3,023 | |||||||||
Pre-paid cellular subscribers (000’s) (at period end) (4) | 291 | 341 | 352 | |||||||||
Post-paid cellular subscribers (000’s) (at period end) (4) | 2,366 | 2,495 | 2,671 | |||||||||
Share of total Israeli cellular subscribers (at period end) (5) | 25 | % | 27 | % | 28 | % | ||||||
Average monthly revenue per cellular subscriber including roaming (“ARPU”) (NIS) (6) | 57 | 51 | 48 | |||||||||
Churn rate for cellular subscribers (7) | 31 | % | 30 | % | 28 | % | ||||||
TV subscribers (000’s) (at period end) (8) | 188 | 232 | 226 | |||||||||
Infrastructure-based internet subscribers (000’s) (at period end) (9) | 268 | 329 | 374 | |||||||||
Fiber-optic subscribers (000’s) (at period end) (10) | 76 | 139 | 212 | |||||||||
Homes Connected (HC) to the fiber-optic infrastructure (000’s) (at period end) (11) | 324 | 465 | 700 | |||||||||
Estimated cellular coverage of Israeli population (at period end) (12) | 99 | % | 99 | % | 99 | % | ||||||
Number of employees (full time equivalent) (at period end) (13) | 2,834 | 2,655 | 2,574 |
(1) | The population estimates are as published by the Central Bureau of Statistics in Israel as of December 31, 2021. |
(2) | We have estimated the total number of Israeli cellular telephone subscribers based on Partner subscriber data as well as information contained in published reports and public statements issued by operators and data regarding the number of subscribers porting between operators. |
(3) | Total number of estimated Israeli cellular telephone subscribers expressed as a percentage of the estimated population of Israel. The total number of estimated cellular telephone subscribers includes dormant subscribers as well as other subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers, as well as SIM cards used in modems, datacards and other cellular devices. |
(4) | In accordance with general practice in the cellular telephone industry, we use the term “subscriber”, unless the context otherwise requires, to indicate a subscription that provides access to the PSTN using cellular technology, rather than either a bill-paying customer who may have a number of subscriptions, or a cellular device user who may share the device with a number of other users. Subscribers include customers of both post-paid and pre-paid services under the Partner and 012 Mobile brands, and also include subscribers to dedicated data packages for use with data cards or USB modems. A pre-paid subscriber is recognized as such only following the actual use of his pre-paid SIM card and only once they have generated revenues in the amount of at least one shekel (excluding VAT). |
(5) | Total number of Partner subscribers expressed as a percentage of the estimated total number of Israeli cellular subscribers. |
(6) | We have calculated our average monthly revenue per cellular subscriber by (i) dividing, for each month in the relevant year, the total cellular segment service revenues during the month by the average number of our cellular subscribers during that month, and (ii) dividing the sum of all such results by the number of months in the relevant period. |
(7) | We define the “churn rate” as the total number of cellular subscribers (excluding M2M subscriptions) who disconnect from our network, either involuntarily or voluntarily, in a given period expressed as a percentage of the average of the number of our subscribers at the beginning and end of such period. Our churn rate includes subscribers who have not generated revenue for us for a period of the last six consecutive months ending at a reporting date. This includes cellular subscribers who have generated minute revenues only from incoming calls directed to their voice mail. Involuntary churn includes disconnections due to non-payment of bills or suspected fraudulent use, and voluntary churn includes disconnections due to subscribers terminating their use of our services. |
(8) | TV subscribers – active subscriptions to Partner TV, each of which may have a number of users over a number of different platforms. TV subscribers include subscriptions within time-limited trial periods without charge to the customer. In the second quarter of 2021, the Company removed from its TV subscriber base approximately 21,000 subscribers who had remained in trial periods of over six months without charge or usage. |
(9) | Infrastructure-based internet subscribers – active subscribers to an end-to-end service including both infrastructure access and access to the internet. Access to the internet is provided primarily through Partner’s fiber-optic infrastructure network, as well as through Partner’s connection to the wholesale market on Bezeq and Hot's infrastructure. |
(10) | Fiber-optic subscribers – active subscribers to an end-to-end service including both Partner’s fiber-optic infrastructure and access to the internet. |
(11) | Homes Connected (HC) to the fiber-optic infrastructure – The total number of residential households within buildings connected to Partner's fiber-optic infrastructure. |
(12) | We measure cellular coverage using computerized models of our network, radio propagation characteristics and topographic information to predict signal levels at two meters above ground level in areas where we operate a network site. According to these coverage results, we estimate the population serviced by our network and divide this by the estimated total population of Israel. Population estimates are published by the Central Bureau of Statistics in Israel. |
(13) | A full-time employee is contracted to work a standard 182 hours per month. Part-time employees are converted to full-time equivalents by dividing their contracted hours per month by the full-time standard. The result is added to the number of full-time employees to determine the number of employees on a full-time equivalent basis. Starting in 2019, the number of full-time employees also includes the number of full-time employees of PHI on a proportional basis of Partner's share in the subsidiary (50%). See also "Item 6D Employees". |
- | imposes limitations on our flexibility in managing our business and seeks to increase industry competition; |
- | limits our ability to compete by, among other measures, giving preference to new competitors; and |
- | also limits our ability to expand our business and develop our network. |
- | It is not certain that the regulator will effectively prevent other telecommunications companies from abusing their competitive positions, in particular as regards service providers which, for historical reasons, have highly developed fixed-line infrastructures in addition to mobile networks. |
- | The regulator might limit our use of spectrum ranges already allocated or which we require. |
- | The regulator may add new regulatory burdens, including on TV content. |
- | The regulator may limit our ability to charge customers for certain services, such as interconnect or roaming charges. |
- | possible early termination of our agreement for a shared network; |
- | possible failure to comply with data protection requirements; |
- | possible disagreements with the regulator over the interpretation of applicable regulations; and |
- | possible non-compliance with building or environmental permits applicable to our cellular network sites. |
- | intense competition has caused significant price erosion both in cellular services and profits from equipment sales; |
- | competition may continue to decrease service tariffs and increase subscriber acquisition and retention costs or otherwise adversely affect our business and results of operations; |
- | cyber attacks could have an adverse effect on our business; |
- | further downward pressure on prices may also cause impairment in the value of our assets; |
- | the Coronavirus ("COVID-19") crisis may have a material harmful effect on our results of operations and financial position for 2022 and create difficulties in the recruitment and retention of personnel; |
- | Covid-induced work patterns and changes in the labor market due to competition for technical and professional personnel have also created substantial difficulties in the recruitment and retention of personnel; |
- | equipment or system failures, natural disasters and hostile events may materially adversely affect our results of operations; and |
- | we are exposed to, and currently engaged in, a variety of legal proceedings, including class actions and requests to approve lawsuits as class actions. |
- | our level of indebtedness, |
- | dependence on a limited number of suppliers, |
- | relations with our employees and their union, |
- | purchase commitments for i-Phones, and |
- | the possible early termination of our network sharing agreement. |
1) | Pursuant to the Competition Commissioner Approval - as of April 22, 2021, the Competition Commissioner will be entitled to notify Partner and HOT Mobile that the network sharing is terminated, if at that time the Competition Commissioner will be of the opinion that PHI or its activities may adversely affect competition, in which case the parties will be required to cease sharing the active part of the shared network within two years and the passive parts within five years from the Competition Commissioner's notice to that effect; |
2) | In the event we are found to be in breach of any of the conditions set out in the Competition Commissioner Approval or in the MoU's Approval, the Competition Commissioner Approval or the MoU Approval might be terminated, which could create significant uncertainty as to the management of the shared radio access network; |
3) | PHI is operating under a special license granted by the Ministry of Communications on August 9, 2015. The term of the license is 10 years from the grant thereof. If the term of the license will not be extended, we may not be able to continue sharing the network. |
• | at least 5% of our issued and outstanding share capital and of each of our means of control had to have been held by Israeli entities from among our founding shareholders and their approved substitutes; |
• | in addition, at least 10% of our Board of Directors had to be appointed by Israeli entities, provided that if the Board of Directors was comprised of up to 14 members, only one such director must be so appointed, and if the Board of Directors was comprised of between 15 and 24 members, only two such directors must be so appointed. |
- | the closure of shopping malls for limited periods during 2020 and changes in general consumer behavior negatively affected the volume of sales of equipment; |
- | delays in global shipping and shortages in raw materials and production have negatively affected our supply chain and increased our costs for handsets, spare parts, accessories, fixed-line network equipment, fixed-line products, terminal equipment, and other items sold or relied upon as part of our normal business; |
- | we have experienced human resource shortages due to employee absences from illness or the need for quarantine. In addition, Covid-induced changes in work patterns have created new difficulties in recruiting and retaining personnel. See also “Item 3D.2f Covid-induced work patterns and changes in the labor market due to competition for technical and professional personnel have created substantial difficulties in the recruitment and retention of personnel.” |
• | requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the funds available for financing ongoing operating expenses and future business development; |
• | limiting our flexibility in planning for, or reacting to, changes in our industry and business as well as in the economy generally; |
• | increasing the likelihood of a downgrade in the rating of our notes by the rating company; |
• | increasing the risk of a substantial impairment in the value of our telecommunications assets; and |
• | limiting our ability to obtain the additional financing we may need to serve our debt, operate, develop and expand our business on acceptable terms or at all. |
• | In April 1998, we received our license to establish and operate a cellular telephone network in Israel. |
• | In January 1999, we launched full commercial operations with approximately 88% population coverage and established a nationwide distribution. |
• | In October 1999, we completed our initial public offering of ordinary shares in the form of American Depositary Shares, and received net proceeds of approximately NIS 2,092 million, with the listing of our American Depositary Shares on NASDAQ and the London Stock Exchange. We used part of these net proceeds to repay approximately NIS 1,494 million in indebtedness to our principal shareholders, and the remainder to finance the continued development of our business. (In March 2008, we voluntarily delisted our ADSs from the London Stock Exchange.) |
• | In August 2000, we completed an offering, registered under the US Securities Act of 1933, as amended, of $175 million (approximately $170.5 million after deducting commissions and offering expenses) in 13% unsecured senior subordinated notes due 2010. These notes were redeemed in August 2005. |
• | In July 2001, we registered our ordinary shares for trading on the Tel Aviv Stock Exchange. |
• | In December 2001, the Ministry of Communications awarded us two bands of spectrum: one band of GSM 1800 spectrum and one band of 2100 UMTS third generation spectrum. |
• | In June 2002, our cellular license was extended until February 2022. |
• | In December 2004, we commercially launched our 3G network. |
• | In March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in Israel of notes due 2012. |
• | In April 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, representing approximately 18.1% of our outstanding shares immediately before the repurchase. |
• | In the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million. |
• | In March 2006, we launched services based on the High Speed Downlink Packet Access (“HSDPA”) technology. |
• | In July 2006, we purchased Med-1 I.C.–1 (1999) Ltd.’s fiber-optic transmission business for approximately NIS 71 million, in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice and fixed-line services. |
• | In January 2007, we were granted a domestic fixed license by the Ministry of Communications, and in February 2007 we were granted a network termination point license. |
• | In December 2008 and January 2009, we launched three additional non-cellular business lines: VoB telephony services, ISP services and Web VOD (video on demand). |
• | In October 2009, Scailex Corporation Ltd. ("Scailex') became our principal shareholder through acquiring the entire interest in the Company of our previous controlling shareholder. |
• | In February 2010, following the District Court’s approval, a total amount of NIS 1.4 billion or approximately NIS 9.04 per share was paid on March 18, 2010, to shareholders and ADS holders of record on March 7, 2010, as a special dividend distribution. |
• | In March 2011, we acquired all of the outstanding shares of 012 Smile Telecom Ltd., a leading provider of broadband and traditional telecommunications services in Israel. The acquisition of 012 Smile supported our strategy of becoming a leading comprehensive communications group, expanding our range of services and products. |
• | In January 2013, S.B. Israel Telecom Ltd. ("S.B. Israel Telecom"), an affiliate of Saban Capital Group, a private investment firm, based in Los Angeles, California, specializing in the media, entertainment and communications industries, became our principal shareholder through acquiring 30.87% of our issued and outstanding shares, principally from our previous controlling shareholder, Scailex. |
• | In November 2013, we entered into a 15-year Network Sharing Agreement with HOT Mobile pursuant to which the parties agreed to create a 50-50 limited partnership to operate and develop a cellular network to be shared by both parties (among others, as a result of pooling both parties’ radio access network infrastructures to create a single radio access network). The Network Sharing Agreement was approved by the Israeli anti-trust authorities, subject to conditions in May 2014, and by the Ministry of Communications in April 2015. Following approval by the Minister of Communications, the Network Sharing Agreement with HOT Mobile entered into effect. See “Item 4B.8 Our Network”. |
• | In July 2014, we commercially launched limited 4G services in Israel over a frequency band of only 5 MHz in the 1800 spectrum. |
• | In March 2015, the acting Minister of Communications approved the results of the tender bid process in which we won an additional 5 MHz in the 1800 spectrum (in addition to our 10 MHz frequency bands in the 1800 spectrum). |
• | In February 2016, we rebranded our products and services that were previously under the “Orange” brand to be under the new “Partner” brand. |
• | In June 2017, we launched Partner TV service based on Over the Internet (OTT) platform which completed our offering as a comprehensive communications company. |
• | In August 2017, we launched the commercial phase and accelerated deployment of our fiber-optic infrastructure in residential areas throughout the country. |
• | In November 2019, the MoC appointed a permanent receiver for the Company shares held by S.B. Israel Telecom and granted the receiver a permit to exercise means of control of the Company by himself. See "Item 3D.3a Approximately 27% of our issued and outstanding shares and voting rights are held by a receiver (under Israeli law)." |
• | In August 2020, the Company acquired through an MoC tender 2x5 MHz in the 700 band, 2x10 MHz in the 2600 band and 50 MHz in the 3500 band (as the 5G frequency). |
• | In February 2022, our cellular license was extended until February 2032. |
- | the cellular segment, our main business, which represents the largest portion of our total revenues. The cellular business segment includes cellular communications services such as airtime calls, international roaming services, text messaging, internet browsing, value-added and content services, handset repair services and services provided to other operators that use the Company's cellular network. The Company also sells and leases a range of equipment related to cellular services. See "Item 4B.5a Cellular Services and Products". |
- | the fixed-line segment, which includes a number of services provided over fixed-line networks including (a) Internet services including access to the internet through both fiber-optics and wholesale broadband access, ISP services, internet Value Added Services (“VAS”) such as cyber protection, anti-virus and anti-spam filtering, and fixed-line voice communication services provided through Voice Over Broadband (“VOB”); (b) Business solutions including SIP voice trunks, Network Termination Point Services ("NTP") – under which the Group supplies, installs, operates and maintains endpoint network equipment and solutions, including providing and installing equipment and cabling within a subscriber's place of business or premises, hosting services, transmission services, Primary Rate Interface (“PRI”) and other fixed-line communications solution services; (c) International Long Distance services (“ILD”): outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services; (d) television services over the Internet ("TV"); and (e) connections and data transfer services provided to international telecommunications operators over the fiber-optic infrastructure. In addition, this segment includes sales and leasing of telecommunications, audio-visual, and internet-related devices including cellular handsets, phones, tablets, laptops, modems, data cards, domestic routers, servers and related peripherals, equipment and integration projects. See also "Item 4B.5b Fixed-line Services and Products". |
• | High Rate of Unlimited Packages. Israeli cellular operators provide, among other price-competitive offers, a particularly high rate of unlimited voice and text packages, and various data packages consisting of relatively high volumes of data at competitive prices. |
• | Lack of Migration Barriers, High Churn and Recruitment Rate of Subscribers. The Israeli cellular market to date has limited migration barriers. There is full number portability. Operators are prohibited from selling SIM locked handsets and are no longer able to link the sale of handsets to services. In addition, operators are no longer allowed to charge exit fees from residential or small business customers or offer better tariff plans to new customers. As a result of this, as well as the entrance of new competitors, there is a high rate of churn and recruitment rate of subscribers in the Israeli cellular market. |
• | Multiple Operators in a Small Market. The regulatory changes in the telecommunications industry, particularly with respect to additional entrants that include cellular operators and MVNOs, have created multiple operators in a relatively small market, which has led to a high level of competition in the industry. |
• | Favorable Geography. Israel covers an area of approximately 8,000 square miles (20,700 square kilometers) and its population tends to be centered in a small number of densely populated areas. In addition, the terrain of Israel is relatively flat. These factors facilitate the roll out, maintenance and subsequent upgrades of a cellular network in a cost effective manner. |
• | Fiber and 5G deployment – In fiber, the Company is accelerating its independent fiber-optic infrastructure deployment with the goal of reaching approximately 1 million connected households by the end of 2022. In 5G, the Company is continuing the deployment of our 5G network, with the goal of reaching population coverage of over 40% by the end of 2022, which will help Partner to continue to maintain high quality services for home offices and a higher consumption of entertainment services. |
• | Connectivity - This is the enabler for all digital services. Partner provides a wide range of services over connectivity through a fixed and mobile bundled offer which includes video and digital services. We offer our customers additional data in order to amplify services through unique, simple and clear offers. |
• | Customer service - Focusing on customers’ needs, to improve their experience and deepen customer engagement. Driving revenue growth by providing 360 - degree customer service through expanded online services which offer simplified, transparent processes on any digital platform used by the customer. |
• | ISP services. As an internet service provider providing access to the World Wide Web, we offer our customers, in addition to access, additional ISP services including email accounts, Wi-Fi networking as well as additional value added services such as anti-virus and anti-spam filtering. We also offer a bundled package that includes infrastructure and ISP access services following the wholesale market reform, a triple package that includes in addition to the bundled package also TV services and since 2017, we also offer access services over our own fiber-optic fixed-line infrastructure in certain parts of the country, with speeds up to 3 GB. Furthermore, we offer our business customers additional tailored value services that combine an entire array of solutions including: network and data infrastructures, advanced information security solutions, integration solutions, designated services for customers with multiple branches and commercial networks, business information storage in a secured and advanced data center and cloud services. ISP services include the leasing of related equipment including modems and routers. |
• | ILD services. As an international long distance provider, we offer our residential and business customers international telephony services including direct international dialing services, international and domestic pre-paid and post-paid calling cards, and call-back services. Most of the pre-paid calling cards are sold to foreign workers in Israel. In addition, we offer our business customers international toll-free numbers that offer fixed rates on calls from many countries around the world. As an international long distance provider, we also provide hubbing traffic routing between network operators for termination of long distance calls outside of Israel. |
• | Transmission. We provide fixed-line transmission and data capacity services. Our fixed-line capacity also includes capacity which we lease from other fixed-line telecommunications service providers as well as inland fiber-optic infrastructure and complimentary micro wave radio links. The services we offer include primarily connectivity services, on an SDH (Synchronous Digital Hierarchy) transmission network, by which we provide high quality, dedicated, point-to-point connection for business customers and telecommunications providers, as well as fixed-line services to business customers. We also provide international transmission services to our business customers between Israel and other countries. |
• | VoB and PRI. The VOB service allows business and residential customers to make and receive telephone calls over the Internet through an internet connection. The PRI is a landline network service connecting organizational switchboards to Partner's network and allows business customers to make multiple calls simultaneously. We offer traditional voice services to business customers throughout Israel. |
• | Television services. In June 2017, we launched our OTT television services that provide our customers with an enhanced user interface experience of television services based on an open platform, Android TV. Partner TV service offers our customers dozens of live linear channels, including "catch up" capability of up to 14 days, video on demand library, Network Personal Video Recorder (NPVR), direct access to YouTube, Netflix, Spotify and Amazon Prime Video content through a dedicated button on our remote control allowing our customers to access their favorite show with a simple click. We also enable customers to subscribe and pay for Netflix and Amazon Prime Video through the Partner TV bill. Our TV service also includes a fully supported 4K set-top box with an Android TV operating system which enables the viewer to add content, games and music applications directly from the Google Play store. Our full TV service can also be accessed by smartphones, tablets, Apple TV boxes, Smart TVs and personal computers (“TV everywhere”) and we continue to work on developing our smart TV offerings. Over 80% of our TV subscribers have bundled offerings with internet services. Since 2019, we offer an addressable TV advertisement system based on an integrated advertising management platform-Google Ad manager that enables the targeting of specific audiences and maximizes the ability of the Android TV set top boxes. Our strategy is to offer our customers unique television services, by partnering with world-leading media service providers, at attractive prices. As part of our strategy, we continue to be a super aggregator which enables our customers the ability to access the leading streaming services in the world including Netflix, Amazon Prime Video, Spotify and YouTube, using a single interface as well as cloud gaming services. |
• | High speed broadband fiber-optic based network. In 2017 we launched the commercial phase and acceleration of our fiber-optic infrastructure in residential areas throughout the country, which provided for the first time a more advanced and cost-effective alternative to the existing fixed infrastructure in Israel. As of year-end 2021, 700 thousand households were able to connect to Partner's fiber services and the number of fiber-optic subscribers totaled 212 thousand. As of the date of this Annual Report, 740 thousand households were able to connect to Partner's fiber services and the number of fiber-optic subscribers totaled 225 thousand. See "Item 4B.8d Fiber-optic infrastructure". In February 2022, we signed an agreement with two wholesale telecommunication suppliers, which enables them to provide fiber services on our fiber-optic network to their subscribers. In addition, we have entered into IRU (Indefeasible Right of Use) agreements with international telecommunications operators and large international business customers for the sale of IRUs and lease of certain fiber-optics in our fiber-optic infrastructure ("dark fibers"), as well as maintenance and operation services with respect to such fibers. See "Item 4B.8d Fiber-optic infrastructure". |
4B.6b - i | Direct Sales Channels |
• | A team of representatives and customer account managers that support small to medium-sized businesses; |
• | A team of corporate representatives and customer account managers who support large corporate customers; |
• | A Small Medium Enterprises (“SME”) sales-force team focuses on individual and small business customers; |
• | A telemarketing department conducts direct sales by phone (to private and business customers) and initiates contacts with prospective customers. |
4B.6b - ii | Indirect Sales Channels |
4B.6b - iii | Online Sales Channels |
• | Prohibition on exchange of information that is not required for the activities of PHI under the Restrictive Trade Practices Law, 1988 ("Restrictive Trade Practices Law"). See 4B.12e - xii Anti-Trust Regulation"; |
• | Limitations with respect to serving as an officer or employee in either Partner or HOT Mobile concurrent with serving as an officer or employee of PHI and certain cooling off periods were set in case of transition of officers and employees from PHI to the companies. However, this should not prevent PHI from employing employees or officers, who are currently serving as employees or officers in the companies and does not prevent an office holder in Partner or HOT Mobile from serving as a director in PHI's general partner's board of directors; |
• | Rules regarding the administration and documentation of the meetings of PHI management bodies were set; |
• | Either of the companies shall be allowed, at any time and at its sole discretion, to engage in an agreement with a third party for the provision of cellular telecommunications services that involves use of the core network of that company. All of the rights and obligations deriving from such service agreement shall apply solely to that company and PHI shall not be a party to such service agreement and will not be entitled to payments payable pursuant to it; |
• | After a period of seven years from the date of the Commissioner’s approval or after a period of six years from the issue date of all the approvals of the Ministry of Communications, whichever is earlier, the Commissioner shall be allowed to notify the companies of the cancellation of his resolution, if he has concluded that the establishment of PHI, its existence or operations are liable to be substantively detrimental to the competition (“Cancellation Notice”). If a Cancellation Notice is issued, a graduated layout of dismantling PHI activity was set in the Commissioner resolution, as follows: |
a. | at the end of two years after the issuance of the Cancellation Notice, PHI shall cease all activity apart from the management, maintenance and operation of the passive elements of the network. |
b. | at the end of five years after the issuance of the Cancellation Notice, the companies shall dismantle PHI and shall separate their assets fully and entirely. |
• | Our radio access network domain consists of 2,054 macro GSM base transceiver stations, 19 micro GSM base transceiver stations and 104 indoor GSM transceiver stations, all linked to 7 base station controllers (HDBSC); |
• | 2,324 macro UMTS base transceiver base stations (eNodesBs), 572 indoor UMTS transceiver stations all linked to 14 radio network controllers; |
• | 2,290 macro LTE base transceiver base stations (eNodesBs) and 345 indoor LTE transceiver stations; |
• | 469 Macro 5G NSA base transceiver base stations (gNodeBs). |
1. | 2100MHz (Band1) -2 x 10 MHz of UMTS/HSDPA third generation in the 2100 MHz frequency band. We operate GSM 900 MHz band base transceiver stations that enhance the capacity of our network’s quality. In 2012, we shifted 5MHz of our 900MHz spectrum from the 2G GSM network to the 3G HSPA+ network. In 2014, we shifted 10MHz of our 1800MHz spectrum from the 2G GSM network to the 4G LTE network. In 2015, the Minister of Communications approved the results of the tender bid process in which we won an additional 2x5 MHz in the 1800 spectrum. HOT Mobile was also awarded two bandwidths of 5 MHz of frequencies in the 1800 band, both of which are used for the limited partnership created by the companies. Now that we have been allocated these frequencies, and have successfully refarmed our existing frequency bands and successful implemented the Network Sharing Agreement with HOT Mobile, our total spectrum available for 4G is 50 MHz, which allows us to offer full 4G services. See “Item 4B.8a Overview – Cellular Network Sharing Agreement”. We have amended the technical annex to our license in order to allow us to refarm some of our existing spectrum (in the 2100 MHz band) for the implementation of LTE Advanced and carrier aggregation technologies. In February 2017, the MoC approved the refarming (the conversion of existing frequencies to a different technology) of these frequencies. |
2. | 700 MHz (Band28) -In 2020, we acquired through an MoC tender 2x5 MHz in 700 band. We operate this frequency on our shared 4G network together with 2*5MHz acquired by Hot-Mobile. |
3. | 2600 MHz (Band 7) - In 2020, we acquired through an MoC tender 2x10 MHz in 2600 band, we operate this frequency on our shared 4G network together with 2*10MHz acquired by Hot-Mobile. |
4. | 3500 Mhz (Band 78) - In 2020, we acquired through an MoC tender 50 MHz in 3500 band. we operate this frequency on our shared 4G network together with 50 aquired by Hot-Mobile. |
• | erection and operating permits from the Ministry of Environmental Protection; |
• | permits from the Civil Aviation Authority, in certain cases; and |
• | permits from the Israeli Defense Forces. |
• | sports and kids content channels; |
• | set top boxes for our TV service manufactured by Technicolor SA; |
• | back office & content management system (CMS) manufactured by SeaChange International Inc.; |
• | video content distribution system (CDN) manufactured by Broadpeak; |
• | encoding systems manufactured by Harmonic & AWS Elemental; |
• | TV application installed on set top boxes, PCs Apple TV boxes, tablets and cellular devices manufactured by I Feel Smart. |
Estimated Market Shares (%)* | 2019 | 2020 | 2021 | |||||||||
Partner | 25 | 27 | 28 | |||||||||
Cellcom** | 26 | 31 | 30 | |||||||||
Pelephone | 22 | 23 | 24 | |||||||||
HOT Mobile | 13 | 13 | 13 | |||||||||
Others | 14 | 6 | 5 |
4B.12e - i | Cellular license renewal |
4B.12e - ii | Decision regarding the shutdown of 2G and 3G networks |
4B.12e - iii | Approval of the Bezeq – Yes merger |
4B.12e - iv | Folkman Committee Recommendations |
• | The establishment of a single regulatory authority for commercial broadcasting (which would replace the Council for Cable and Satellite Broadcasting and the Second Authority Council); |
• | The single regulatory authority will regulate all audiovisual content providers, including TV content services which are provided over the Internet ("OTT"), such as those of the Company, and which are currently unregulated; |
• | Regulation would be applied to audiovisual content providers in a gradual manner, in accordance with their annual income: (1) all audiovisual content providers (regardless of their annual income) would be subject to rules regarding ethics and a ban on exclusivity in sports programming, rules concerning accessibility would be applied gradually (in accordance with annual income); (2) an audiovisual content provider with an annual income of more than NIS 300 million would be subject to a license and would be required to invest between 4% to 6.5% of its annual income in specific local production genres; (3) an audiovisual content provider with an annual income of more than NIS 600 million would be required to invest 6.5% of its annual income in specific local production genres. |
4B.12e - v | Decision regarding a reform in the structure of the Internet Market |
• | Bezeq and Hot Telecom are to submit an agreement containing Key Performance Indicators (“KPIs”) and agreed compensation provisions with an access seeker (an ISP licensee with at least 10,000 active subscribers in the wholesale market;( |
• | In September, 2021 the MoC announced that the agreement submitted by Bezeq (after the MoC made several alterations to its terms) is reasonable and therefore is approved as a binding "shelf offer" which will apply to all access seekers. In this announcement the MoC also informed that a separate announcement will be made in relation to the process regarding Hot Telecom (no such announcement has been made to date); |
• | From September to December 2021, a "calibration stage" will apply, during which Bezeq and access seekers shall report on the KPIs on a monthly basis. In January 2022, the MoC announced the completion of the "calibration stage". |
• | At the end of the calibration stage, a "preparation stage" of three months will apply during which the agreed compensation mechanism will be first implemented (alongside the KPIs;( |
• | At the end of the "preparation stage", on April, 3, 2022, Bezeq will be allowed to market a unified product (comprised of both infrastructure and ISP components) to household subscribers (the “Effective Date"). |
4B.12e - vi | First annual incentive tender for the deployment of FTTH networks |
4B.12e - vii | First annual payment to the incentive fund for deployment of FTTH networks |
4B.12e - viii | Reform regarding communication devices |
• | for communication devices that do not exceed 6 meters or 2/3 of the height of the building on which it is placed (the lower of the two); |
• | for replacement of broadcasting devices; and |
• | for the addition of an antenna to an existing device which has been granted a permit. |
4B.12e - ix | MoC’s update to Bezeq's wholesale BSA tariffs applicable to its existing copper network |
4B.12e - x | Approval of the HOT-IBC Merger |
• | IBC will be required to deploy its network to 1.7 million households within 5 years; |
• | IBC will be required to provide a "shelf offer" to any operator interested in purchasing its services. This shelf offer will include the services and the terms specified in IBC’s IRU Agreements with Cellcom and HOT and be subject to a minimum obligation regarding the number of lines to be purchased and offer a reduced tariff to any operator purchasing 5% or more of lines from the total number of households accessible to IBC’s network; |
• | IBC would also be obliged to offer up to a 10% discount on its wholesale prices to any operator who would purchase over 15,000 lines. |
4B.12e - xi | Hearings and Examinations |
• | Hearing regarding a potential reduction in interconnection tariffs. In September 2021, the MoC published a hearing outlining its intention to gradually reduce interconnection tariffs (for both mobile and fixed-line calls) over a period of three years, after which interconnection payments will be cancelled and each operator will bear its own costs for calls terminating on its network (a "bill and keep" regime). The Company filed its position regarding this hearing and argued against the change to the current tariff regime and against the suggested reduction timeline. |
• | Call for comments regarding 5G private networks. In December 2021, the MoC published a call for comments regarding 5G private networks in the 26 GHz range for businesses and other organizations. The Company filed its position opposing the grant of frequencies to private networks and argued for grant of such spectrum to existing MRT operators. |
4B.12e - xii | Anti-Trust Regulation |
• | observing the provisions of the Telecommunications Law, the Wireless Telegraphy Ordinance, the regulations and the provisions of our license; |
• | acting to continuously improve our mobile telephone services, their scope, availability, quality and technology, and that there has been no act or omission by us harming or limiting competition in the mobile telephone sector; |
• | having the ability to continue to provide mobile telephone services of a high standard and to implement the required investments in the technological updating of our system in order to improve the scope of such services, as well as their availability and quality; and |
• | using the spectrum allocated to us efficiently, compared to alternative applications. |
• | We have illegally ceased, limited or delayed any one of our services; |
• | Any means of control in Partner or control of Partner has been transferred in contravention of our license; |
• | We fail to invest the required amounts in the establishment and operation of the mobile radio telephone system in accordance with our undertakings to the Ministry of Communications; |
• | We have harmed or limited competition in the area of mobile radio telephone services; |
• | A receiver or temporary liquidator is appointed for us, an order is issued for our winding up or we have decided to voluntarily wind up; or |
• | Partner, an Office Holder in Partner or an Interested Party in Partner or an Office Holder in an Interested Party of Partner is an Interested Party in a competing mobile radio telephone operator or is an Office Holder in a competing mobile radio telephone operator or in an interested party in a competing mobile radio telephone operator without first obtaining a permit from the Ministry of Communications to do so or has not fulfilled one of the conditions included in such permit. See “Item 4B.12f Our Mobile Telephone License-Our Permit Regarding Cross Ownership.” |
• | We must at all times be a company registered in Israel. |
• | Our founding shareholders and their approved substitutes must hold, in the aggregate, at least 26% of each of our means of control. Furthermore, the maintenance of at least 26% of our means of control by our founding shareholders and their approved substitutes allows Partner to be protected from a license breach that would result from a transfer of shares for which the authorization of the Ministry of Communications was required, but not obtained. |
• | Until February 2021, our general mobile telephone license included two additional obligations: |
• | at least 5% of our issued and outstanding share capital and of each of our means of control had to have been held by Israeli entities from among our founding shareholders and their approved substitutes; |
• | in addition, at least 10% of our Board of Directors had to be appointed by Israeli entities, provided that if the Board of Directors was comprised of up to 14 members, only one such director must be so appointed, and if the Board of Directors was comprised of between 15 and 24 members, only two such directors must be so appointed. |
• | Matters relating to national security shall be dealt with only by a Board of Directors' committee that has been formed for that purpose. The committee includes at least 4 members, of which at least one is an external director. Only directors with the required clearance and those deemed appropriate by Israel’s General Security Service may be members of this committee. Resolutions approved by this committee shall be deemed adopted by the Board of Directors. |
• | The Ministry of Communications shall be entitled to appoint an observer to the Board of Directors and its committees, subject to certain qualifications and confidentiality undertakings. |
• | voting rights in Partner; |
• | the right to appoint a director or managing director of Partner; |
• | the right to participate in Partner’s profits; or |
• | the right to share in Partner’s remaining assets after payment of debts when Partner is wound up. |
• | the founding shareholders or their approved substitutes of Partner continue to hold in the aggregate at least 26% of the means of control of Partner; |
• | our Articles of Association include the provisions described in this paragraph; |
• | we act in accordance with such provisions; |
• | our Articles of Association provide that an ordinary majority of the voting power at the general meeting of Partner is entitled to appoint all the directors of Partner other than external directors. |
• | Founding shareholders or their approved substitutes must hold at least 26% of the means of control of Partner. |
• | Until February 2021, our general mobile telephone license included two additional obligations: |
• | at least 5% of our issued and outstanding share capital and of each of our means of control had to have been held by Israeli entities from among our founding shareholders and their approved substitutes; |
• | in addition, at least 10% of our Board of Directors had to be appointed by Israeli entities, provided that if the Board of Directors was comprised of up to 14 members, only one such director must be so appointed, and if the Board of Directors was comprised of between 15 and 24 members, only two such directors must be so appointed. |
• | The majority of our directors, and our general manager, must be citizens and residents of Israel. |
• | Neither the general manager of Partner nor a director of Partner may continue to serve in office if he has been convicted of certain legal offenses. |
• | No trust fund, insurance company, investment company or pension fund that is an Interested Party in Partner may: (a) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator without having obtained a permit to do so from the Ministry of Communications, or (b) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator in accordance with a permit from the MoC, and in addition have a representative or appointee who is an Office Holder in a competing mobile radio telephone operator, unless it has been legally required to do so, or (c) hold, either directly or indirectly, more than 10% of any means of control in a competing mobile radio telephone operator, even if it received a permit to hold up to 10% of such means of control. |
• | No trust fund, insurance company, investment company or a pension fund that is an Interested Party in a competing mobile radio telephone operator may: (a) hold, either directly or indirectly, more than 5% of any means of control in Partner, without having obtained a permit to do so from the Ministry of Communications; or (b) hold, directly or indirectly, more than 5% of any means of control in Partner in accordance with a permit from the Ministry of Communications, and in addition have a representative or appointee who is an Office Holder in Partner, unless it has been legally required to do so; or (c) hold, either directly or indirectly, more than 10% of any means of control in Partner, even if it received a permit to hold up to 10% of such means of control. |
• | Partner, an Office Holder or Interested Party in Partner, or an Office Holder in an Interested Party in Partner does not control a competing mobile radio telephone operator, is not controlled by a competing mobile radio telephone operator, by an Office Holder or an Interested Party in a competing mobile radio telephone operator, by an Office Holder in an Interested Party in a competing mobile radio telephone operator, or by a person or corporation that controls a competing mobile radio telephone operator. |
• | A change has occurred in the suitability of Partner to implement the actions and services that are the subject of our license. |
• | A change in our license is required in order to ensure effective and fair competition in the telecommunications sector. |
• | A change in our license is required in order to ensure the standards of availability and grade of service required of Partner. |
• | A change in telecommunications technology justifies a modification of our license. |
• | A change in the electromagnetic spectrum needs justifies, in the opinion of the Ministry of Communications, changes in our license. |
• | Considerations of public interest justify modifying our license. |
• | A change in government policy in the telecommunications sector justifies a modification of our license. |
• | A change in our license is required due to its breach by Partner. |
• | “Office Holder” means a director, manager, company secretary or any other senior officer that is directly subordinate to the general manager. |
• | “Control” means the ability to, directly or indirectly, direct the activity of a corporation, either alone or jointly with others, whether derived from the governing documents of the corporation, from an agreement, oral or written, from holding any of the means of control in the corporation or in another corporation, or which derives from any other source, and excluding the ability derived solely from holding the office of director or any other office in the corporation. Any person controlling a subsidiary or a corporation held directly by him will be deemed to control any corporation controlled by such subsidiary or by such controlled corporation. It is presumed that a person or corporation controls a corporation if one of the following conditions exist: (1) such person holds, either directly or indirectly, fifty percent (50%) or more of any means of control in the corporation; (2) such person holds, either directly or indirectly, a percentage of any means of control in the corporation which is the largest part in relation to the holdings of the other Interested Parties in the corporation; or (3) such person has the ability to prevent the taking of business decisions in the corporation, with the exception of decisions in the matter of issuance of means of control in a corporation or decisions in the matters of sale or liquidation of most businesses of the corporation, or fundamental changes of these businesses. |
• | “Controlling Corporation” means a company that has control, as defined above, of a foreign mobile radio telephone operator. |
• | “Interested Party” means a person who either directly or indirectly holds 5% or more of any type of means of control, including holding as an agent. |
Year ended December 31, | ||||||||
2020 | 2021 | |||||||
Revenues (NIS million) | 3,189 | 3,363 | ||||||
Operating profit (NIS million) | 96 | 163 | ||||||
Profit before income taxes (NIS million) | 27 | 99 | ||||||
Profit for the year (NIS million) | 17 | 115 | ||||||
Capital expenditures (additions) (NIS million) | 595 | 680 | ||||||
Cash flows from operating activities (NIS million) | 786 | 774 | ||||||
Cash flows used in investing activities (NIS million) | (581 | ) | (727 | ) | ||||
Cellular Subscribers (end of period, thousands) | 2,836 | 3,023 | ||||||
Annual cellular churn rate (%) | 30 | % | 28 | % | ||||
Average monthly revenue per cellular subscriber (ARPU) (NIS) | 51 | 48 | ||||||
TV subscribers (end of period, thousands) | 232 | 226 | ||||||
Infrastructure-based internet subscribers (end of period, thousands) | 329 | 374 | ||||||
Fiber-optic subscribers (end of period, thousands) | 139 | 212 | ||||||
Homes Connected (HC) to the fiber-optic infrastructure (end of period, thousands) | 465 | 700 |
Non-GAAP Measure | How Measures May Be Used | Calculation | Most Comparable IFRS Measure |
Adjusted EBITDA Adjusted EBITDA margin (%) | • For assessing ongoing operating performance excluding depreciation and amortization expenses which are primarily related to past capital expenditures. • Commonly reported and widely used among analysts, investors and other stakeholders in the sector. • Management uses to track performance and to make decisions regarding the ongoing operations of the business. • Also an input to debt covenant ratio calculations for Company’s notes payable and borrowings. | Profit add Income tax income, Finance costs, net, Depreciation and amortization expenses (including amortization of intangible assets, deferred expenses-right of use and impairment charges), Other expenses (mainly amortization of share-based compensation). Adjusted EBITDA divided by Total revenues | Profit |
Adjusted Free Cash Flow | • For assessing liquidity and comparing performance and coverage ratios with other companies in sector. • Management uses to manage and control the level of cash available to service and repay debt, plan capital expenditures and return capital to investors. | Cash flows from operating activities add Cash flows from investing activities deduct Investment in deposits, net deduct Lease principal payments deduct Lease interest payments | Cash flows from operating activities add Cash flows from investing activities |
Total Operating Expenses (OPEX) | • For assessing ongoing expenses of service revenues, excluding depreciation and amortization expenses which are primarily related to past capital expenditures, and excluding the costs of equipment sales. • Management uses to track current expenses related to service revenues and to make decisions regarding the ongoing operations of our business. | Cost of service revenues add Selling and marketing expenses add General and administrative expenses add Credit losses deduct Depreciation and amortization expenses deduct Other expenses (mainly amortization of employee share-based compensation) | Sum of: Cost of service revenues, Selling and marketing expenses, General and administrative expenses, Credit losses |
Net Debt | • For assessing financial stability, leverage and flexibility. • Management uses in assessments and planning of capital structure, liquidity and financial flexibility. • Also an input to debt covenant ratio calculations for Company’s notes payable and borrowings. | Current maturities of notes payable and borrowings add Notes payable add Borrowings from banks add Financial liability at fair value deduct Cash and cash equivalents deduct Short-term and long-term deposits | Sum of: Current maturities of notes payable and borrowings, Notes payable, Borrowings from banks, Financial liability at fair value Less Sum of: Cash and cash equivalents, Short-term deposits, Long-term deposits |
As of December 31, | ||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||
Terminal growth rate | 0.9% | 1.0% | 1.0% | 1.0% | 1.0% | |||||||||||||||
After-tax discount rate | 9.3% | 9.5% | 8.0% | 7.5% | 7.0% | |||||||||||||||
Pre-tax discount rate | 11.2% | 11.5% | 9.6% | 9.0% | 8.5% |
March 31, 2020 | |
Terminal growth rate | 1.0% |
After-tax discount rate | 8.25% |
Pre-tax discount rate | 9.9% |
• | Transmission, communication and content providers |
• | Depreciation and amortization |
• | Cost of equipment and accessories |
• | Wages, employee benefits expenses and car maintenance |
• | Internet infrastructure and service providers |
• | Network and cable maintenance |
• | Operating lease, rent and overhead expenses |
• | Costs of handling, replacing or repairing equipment |
• | IT support and other operating expenses |
• | Amortization of deferred expenses - rights of use |
• | Starting in 2021, expenses related to the government-mandated fiber incentive fund |
• | Depreciation and amortization |
• | Wages, employee benefits expenses and car maintenance |
• | Advertising and marketing |
• | Selling commissions, net |
• | Operating lease, rent and overhead expenses |
• | Wages, employee benefits expenses and car maintenance |
• | Professional fees |
• | Depreciation |
• | Credit card and other commissions |
• | Unwinding of trade receivables |
• | Interest expenses |
• | Interest for lease liabilities |
• | Finance charges for financial liability |
• | Interest income from cash, cash equivalents and deposits |
• | Net foreign exchange rate gains |
• | Cellular subscriber base |
• | Cellular average monthly revenue per subscriber (ARPU) |
• | Cellular churn rate |
• | TV subscriber base |
• | Infrastructure-based internet subscribers |
• | Fiber-optic subscribers |
• | Homes Connected (HC) to the fiber-optic infrastructure |
New Israeli Shekels | ||||||||||||||||
Year ended December 31, 2021 | ||||||||||||||||
In millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue – Services | 1,687 | 948 | 2,635 | |||||||||||||
Inter-segment revenue – Services | 12 | 118 | (130 | ) | ||||||||||||
Segment revenue – Equipment | 602 | 126 | 728 | |||||||||||||
Total revenues | 2,301 | 1,192 | (130 | ) | 3,363 | |||||||||||
Segment cost of revenues – Services | 1,204 | 952 | 2,156 | |||||||||||||
Inter-segment cost of revenues - Services | 117 | 13 | (130 | ) | ||||||||||||
Segment cost of revenues – Equipment | 498 | 78 | 576 | |||||||||||||
Cost of revenues | 1,819 | 1,043 | (130 | ) | 2,732 | |||||||||||
Gross profit | 482 | 149 | 631 | |||||||||||||
Operating expenses (1) | 302 | 194 | 496 | |||||||||||||
Other income, net | 17 | 11 | 28 | |||||||||||||
Operating profit (loss) | 197 | (34 | ) | 163 | ||||||||||||
Reconciliation of profit for the year to Adjusted EBITDA | ||||||||||||||||
Profit for the year | 115 | |||||||||||||||
Finance costs, net | 64 | |||||||||||||||
Income tax income | (16 | ) | ||||||||||||||
Sub Total | 163 | |||||||||||||||
Depreciation and amortization | 410 | 334 | 744 | |||||||||||||
Other (2) | 9 | 6 | 15 | |||||||||||||
Adjusted EBITDA (3) | 616 | 306 | 922 |
New Israeli Shekels | ||||||||||||||||
Year ended December 31, 2020 | ||||||||||||||||
In millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue – Services | 1,647 | 861 | 2,508 | |||||||||||||
Inter-segment revenue – Services | 16 | 132 | (148 | ) | ||||||||||||
Segment revenue – Equipment | 545 | 136 | 681 | |||||||||||||
Total revenues | 2,208 | 1,129 | (148 | ) | 3,189 | |||||||||||
Segment cost of revenues – Services | 1,272 | 856 | 2,128 | |||||||||||||
Inter-segment cost of revenues - Services | 131 | 17 | (148 | ) | ||||||||||||
Segment cost of revenues – Equipment | 451 | 85 | 536 | |||||||||||||
Cost of revenues | 1,854 | 958 | (148 | ) | 2,664 | |||||||||||
Gross profit | 354 | 171 | 525 | |||||||||||||
Operating expenses (1) | 300 | 159 | 459 | |||||||||||||
Other income, net | 19 | 11 | 30 | |||||||||||||
Operating profit | 73 | 23 | 96 | |||||||||||||
Reconciliation of profit for the year to Adjusted EBITDA | ||||||||||||||||
Profit for the year | 17 | |||||||||||||||
Finance costs, net | 69 | |||||||||||||||
Income tax expenses | 10 | |||||||||||||||
Sub Total | 96 | |||||||||||||||
Depreciation and amortization | 450 | 264 | 714 | |||||||||||||
Other (2) | 10 | 2 | 12 | |||||||||||||
Adjusted EBITDA (3) | 533 | 289 | 822 |
(1) | Operating expenses include selling and marketing expenses, general and administrative expenses and credit losses. |
(2) | Mainly amortization of employee share-based compensation. |
(3) | Adjusted EBITDA represents Earnings Before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use and impairment charges) and Other expenses (mainly amortization of share-based compensation). Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Group's historic operating results nor is it meant to be predictive of potential future results. See “Item 5A.1a - NON-GAAP MEASURES” above. The usage of the term "Adjusted EBITDA" is to highlight the fact that the Amortization includes amortization of deferred expenses – right of use and amortization of employee share-based compensation and impairment charges. |
Reconciliation of Segment Information to Total Operating Expenses | Year ended December 31, | |||||||
2020 | 2021 | |||||||
NIS in millions | ||||||||
Segment cost of revenues – Services | 2,128 | 2,156 | ||||||
Add Operating expenses | 459 | 496 | ||||||
Deduct depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share-based compensation) | (716) | (751) | ||||||
Total Operating Expenses | 1,871 | 1,901 |
New Israeli Shekels | ||||||||||||||||
Year ended December 31, 2019 | ||||||||||||||||
In millions | ||||||||||||||||
Cellular segment | Fixed line segment | Elimination | Consolidated | |||||||||||||
Segment revenue - Services | 1,783 | 777 | 2,560 | |||||||||||||
Inter-segment revenue - Services | 15 | 148 | (163 | ) | ||||||||||||
Segment revenue - Equipment | 571 | 103 | 674 | |||||||||||||
Total revenues | 2,369 | 1,028 | (163 | ) | 3,234 | |||||||||||
Segment cost of revenues - Services | 1,367 | 810 | 2,177 | |||||||||||||
Inter-segment cost of revenues - Services | 147 | 16 | (163 | ) | ||||||||||||
Segment cost of revenues - Equipment | 464 | 66 | 530 | |||||||||||||
Cost of revenues | 1,978 | 892 | (163 | ) | 2,707 | |||||||||||
Gross profit | 391 | 136 | 527 | |||||||||||||
Operating expenses (1) | 334 | 134 | 468 | |||||||||||||
Other income, net | 20 | 8 | 28 | |||||||||||||
Operating profit | 77 | 10 | 87 | |||||||||||||
Reconciliation of profit for the year to Adjusted EBITDA | ||||||||||||||||
Profit for the year | 19 | |||||||||||||||
Finance costs, net | 68 | |||||||||||||||
Income tax expenses | * | |||||||||||||||
Sub Total | 87 | |||||||||||||||
Depreciation and amortization | 542 | 209 | 751 | |||||||||||||
Other (2) | 16 | (1 | ) | 15 | ||||||||||||
Adjusted EBITDA (3) | 635 | 218 | 853 |
Three months ended | ||||||||||||||||
NIS in millions | March 31 | June 30 | Sept. 30 | Dec. 31 | ||||||||||||
(Unaudited) | ||||||||||||||||
Service Revenues | ||||||||||||||||
2019 | 624 | 642 | 658 | 636 | ||||||||||||
2020 | 629 | 616 | 631 | 632 | ||||||||||||
2021 | 639 | 649 | 672 | 675 |
Principal amount | Annual interest rate | Interest payment terms | Original issuance date | |||||
Notes payable series F | 384 | 2.16% fixed | Semi-annual | July 2017 | ||||
Notes payable series G(*) | 851 | 4% fixed | Annual | January 2019 | ||||
Notes payable series H | 198 | 2.08% fixed | Annual | December 2021 |
2022 | 2023 | 2024 | 2025 to 2026 | 2027 and thereafter | Total | |||||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||||||
Principal payments of long-term indebtedness: | ||||||||||||||||||||||||
Notes payable series F | 128 | 128 | 128 | 384 | ||||||||||||||||||||
Notes payable series G | 85 | 85 | 85 | 255 | 341 | 851 | ||||||||||||||||||
Notes payable series H | 60 | 138 | 198 | |||||||||||||||||||||
Total | 213 | 213 | 213 | 315 | 479 | 1,433 |
Annual interest rate | Interest payment terms | Original reception date | ||||
Borrowing P | 2.38% fixed | Quarterly | December 2017 | |||
Borrowing Q | 2.5% fixed | Quarterly | December 2017 | |||
Borrowing R | 2.55% fixed | Semi-annual | December 2021 |
2022 | 2023 | 2024 | 2025 to 2026 | 2027 and thereafter | Total | |||||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||||||
Borrowing P | 29 | 29 | ||||||||||||||||||||||
Borrowing Q | 23 | 23 | 11 | 57 | ||||||||||||||||||||
Borrowing R | 45 | 105 | 150 | |||||||||||||||||||||
52 | 23 | 11 | 45 | 105 | 236 |
• | Shareholders' equity shall not decrease below NIS 400 million and no dividends will be declared if shareholders' equity will be below NIS 650 million regarding Series F notes, borrowing P and borrowing Q; |
• | Shareholders' equity shall not decrease below NIS 600 million and no dividends will be declared if shareholders' equity will be below NIS 750 million regarding Series G notes and borrowing R; |
• | Shareholders' equity shall not decrease below NIS 700 million and no dividends will be declared if shareholders' equity will be below NIS 850 million regarding Series H notes; |
• | With respect to notes payable series F, series G and series H: the Company shall pay additional annual interest of 0.5% in the case of a two-notch downgrade in the Notes rating and an additional annual interest of 0.25% for each further single-notch downgrade, up to a maximum additional interest of 1%; the Company shall pay additional annual interest of 0.25% during a period in which there is a breach of the financial covenant; debt rating will not decrease below BBB- for a certain period. In any case, the total maximum additional interest for Series F, Series G and Series H, shall not exceed 1.25%, 1% or 1.25% respectively; and |
• | The Company shall not create floating liens subject to certain terms. The Company has the right for early redemption under certain conditions regarding all notes and borrowings. |
Current Portion Payable in 2022 as of December 31, 2021 | NIS in millions | |||
Principal on notes payable | 213 | |||
Principal on borrowings | 52 | |||
Accrued interest on notes payable | 43 | |||
Accrued interest on borrowings | 6 | |||
Total | 314 |
• | Cash on hand; |
• | Operating cash flows, net of cash flows used for investing activities; |
• | Issuance of notes payable and long-term borrowings; |
• | Share issuance; |
• | Short-term deposits; and |
• | Long-term deposits. |
Reconciliation of cash flows to Adjusted Free Cash Flow | Year ended December 31, | |||||||
2020 | 2021 | |||||||
NIS in millions | ||||||||
Cash flows from operating activities | 786 | 774 | ||||||
Add Cash flows from investing activities | (581 | ) | (727 | ) | ||||
Deduct investment in deposits, net | 14 | 58 | ||||||
Deduct lease principal payments | (129 | ) | (130 | ) | ||||
Deduct lease interest payments | (18 | ) | (18 | ) | ||||
Adjusted Free Cash Flow | 72 | (43 | ) |
Payments due by period (NIS in millions) | ||||||||||||||||||||
Contractual Obligations | Total | 2022 | 2023-2024 | 2025-2026 | 2027 and thereafter | |||||||||||||||
Notes Series F* | 396 | 135 | 261 | |||||||||||||||||
Notes Series G* | 1,001 | 119 | 229 | 299 | 354 | |||||||||||||||
Notes Series H* | 225 | 2 | 8 | 67 | 148 | |||||||||||||||
Long term borrowings* | 264 | 58 | 43 | 51 | 112 | |||||||||||||||
Lease liabilities | 784 | 139 | 216 | 151 | 278 | |||||||||||||||
Trade payables | 705 | 705 | ||||||||||||||||||
Payables in respect of employees | 99 | 99 | ||||||||||||||||||
Other payables | 45 | 45 | ||||||||||||||||||
Commitments to pay for inventory purchases** | 458 | 231 | 227 | |||||||||||||||||
Commitments to pay for property, equipment purchases and software elements purchases (capital expenditures)** | 117 | 117 | ||||||||||||||||||
Commitments to pay for rights of use of capacities and maintenance** | 91 | 63 | 26 | 2 | ||||||||||||||||
Total Contractual Cash Obligations | 4,185 | 1,713 | 1,010 | 570 | 892 |
Name of Director | Age | Position | ||
Osnat Ronen (5) (6) | 59 | Chairperson of the Board of Directors | ||
Richard Hunter | 52 | Director | ||
Roly Klinger(1)(2)(3)(4) | 62 | Director | ||
Jonathan Kolodny(1)(2)(3)(4) | 52 | Director | ||
Michal Maron-Brikman(1)(2)(3)(4) | 52 | Director | ||
Yehuda Saban | 42 | Director | ||
Yossi Shachak | 76 | Director | ||
Ori Yaron | 56 | Director | ||
Shlomo Zohar(1)(2)(4) | 70 | Director |
(1) | Member of the Audit Committee |
(2) | Member of the Compensation Committee |
(3) | External Director under the Israeli Companies Law (See “Item 6C Board Practices”) |
(4) | Independent Director under NASDAQ rules and under the Israeli Companies Law |
(5) | Independent Director under NASDAQ rules |
(6) | Appointed by the Israeli founding shareholders |
Name of Officer | Age | Position | ||
Avi Zvi | 51 | Chief Executive Officer | ||
Tamir Amar | 48 | Deputy CEO & Chief Financial Officer | ||
Addie Koren | 49 | Chief Operating Officer & Vice President Human Resources | ||
Sarit Hecht | 47 | Vice President, Chief Legal Counsel & Corporate Secretary | ||
Ori Gal | 49 | Vice President, Marketing | ||
Yael Gaoni | 50 | Vice President, Communications | ||
Yigal Giladi* | 46 | Vice President, Engineering Division | ||
Snir Niv | 35 | Vice President, Regulations Division | ||
Galit Shakalo Offenberg | 44 | Vice President, Customer Service Division | ||
Yakov Truzman | 51 | Vice President, Deputy CEO-Sales | ||
Roi Zohar* | 44 | Vice President, Information Technology Division |
A. | The table below sets forth information regarding compensation on an individual basis for the five Office Holders with the highest compensation for the year 2021. |
Details of the Compensation Recipient | Compensation for services (the compensation amounts are displayed in terms of cost for the Company) (NIS thousands) | Other compensation & vehicle (the compensation amounts are displayed in terms of cost for the Company) (NIS thousands) | Total (NIS thousands) | |||||||||||||||||||
Name | Position | Payroll & Related expenses | Annual & Special Bonus | Share-based payments(9) | Other | |||||||||||||||||
Avi Zvi | Chief Executive Officer | 1,131 | 750 | 3,552 | (1) | 1,550 | (2) | 6,983 | ||||||||||||||
Tamir Amar | Deputy CEO & Chief Financial Officer | 1,604 | 968 | 1,335 | (3) | 336 | (2) | 4,243 | ||||||||||||||
Yakov Truzman | Vice President Business & Sales Division | 1,386 | 868 | 1,317 | (4) | 372 | (2) | 3,943 | ||||||||||||||
Isaac Benbenisti | Former Chief Executive Officer | 1,071 | (5) | 1,286 | (6) | (352 | )(7) | 268 | (2) | 2,273 | ||||||||||||
Addie Koren | Chief Operating Officer& Vice President Human Resources | 650 | 243 | 1,003 | (8) | 443 | (2) | 2,339 |
(1) | In 2021, 1,143,005 share options and 215,661 restricted shares were granted to Mr. Avi Zvi with a vesting period of up to four years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) was approximately NIS 4.2 million and the fair value of the restricted shares was approximately NIS 3.4 million. |
(2) | “Other compensation” includes: expenses for retirement that were accumulated during the reporting period of this Annual Report and will be paid only upon retirement and vehicle expenses. |
(3) | In 2018, 245,887 share options and 79,118 restricted shares were granted to Mr. Tamir Amar with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million. In 2021, 280,814 share options and 60,182 restricted shares were granted to Mr. Tamir Amar with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) was approximately NIS 1.2 million and the fair value of the restricted shares was approximately NIS 1.0 million. |
(4) | In 2018, 272,968 share options and 86,451 restricted shares were granted to Mr. Yakov Truzman with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million. In 2021, 285,979 share options and 60,329 restricted shares were granted to Mr. Yakov Truzman with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) was approximately NIS 1.2 million and the fair value of the restricted shares was approximately NIS 1.0 million. |
(5) | Mr. Benbenisti's monthly salary (gross) was in an amount of NIS 150 thousand, linked to the CPI as of the index June 2015 (at the end of April 2021 the monthly salary (gross) was NIS 152.5 thousand). In addition, Mr. Benbenisti was entitled to reimbursement for the cost of vehicle use and maintenance as well as accepted related terms that are usually granted to the other office holders and other benefits in accordance with the Company's compensation policy and procedures (including indemnification, release and insurance arrangements as customary in the Company) and social benefits including sick days, vacation and allocations to plans and funds. |
(6) | The annual bonus for the months during 2021 for which Mr. Benbenisti served as CEO was based on two elements: (a) 90% - Company targets (see below) while using the main performance indices determined by the compensation committee and Board of Directors after approval of the Company's annual budget, and (b) 10% - CEO performance evaluation for that year by the compensation committee and Board of Directors, based on qualitative and quantitative criteria. The minimum criterion for receiving the annual bonus was that the Company achieved as least 80% of the Company's targets for 2021 and that the total EBITDA of 2021 shall not have decreased by more than 35% of the EBITDA from 2020. With respect to the amount of the annual bonus, tiers were set to calculate the amount of the bonus according to the former CEO's global achievement rate with respect to all of the elements of the annual bonus (a weighted score of the Company targets and an evaluation of the former CEO's performances), as follows: achievement at a rate lower than 80% will not entitle the CEO to an annual bonus; achievement at a rate between 80%-120% will entitle the CEO to 80%-120% of the annual bonus budget; achievement at a rate that exceed 120% will entitle the CEO to 120% of the annual bonus budget. The former CEO's Company targets for the year 2021 were determined by the Board of Directors of the Company in March 2021, based on the annual work plan of the Company for the year. They included eight individual targets: (1) Company EBITDA target with a weight of 30% of the Company's targets (2021 achievement rate: 101%); (2) Free Cash flow target with a weight of 15% of the Company's targets (2021 achievement rate: 137%); (3) Cellular ARPU Base (2021 achievement rate: 79%) and subscriber target (2021 achievement rate: 200%) with a weight of 15% of the Company's targets; (4) Sale of equipment profits target with a weight of 5% of the Company's targets (2021 achievement rate: 91%); (5) Fixed line income target with a weight of 10% (2021 achievement rate: 99%); (6) TV combined index target ARPU (2021 achievement rate: 97%) and subscriber target (2021 achievement rate: 75%) with a weight of 10% of the Company's targets; (7) Fiber combined index ARPU (2021 achievement rate: 100%) and subscriber target with a weight of 10% of the Company's targets (2021 achievement rate: 105%); (8) Reducing customer complaint target with a weight of 5% of the Company's targets (2021 achievement rate: 79%). With respect to the above Company targets, a threshold and upper limit for achieving the target were determined as follows: achievement at a rate lower than 20% of the target will not allow eligibility for a bonus for that criteria; achievement at a rate between 20% - 200% of the target will allow eligibility at a rate of 20% - 200% for that criteria; achievement at a rate above 200% will allow eligibility of 200% for that criteria. The global achievement rate of the former CEO of all of the elements of the annual bonus for the relative portion of 2021 for which Mr. Benbenisti served as CEO was 102%. |
(7) | In 2018, 810,027 share options and 194,064 restricted shares were granted to Mr. Isaac Benbenisti, in his capacity as the Company's CEO with a vesting period of up to four years. The exercise price of the options is NIS 18.86 which constitutes a premium of 5% on the average share price of the Company on the Tel-Aviv Stock Exchange, during the 30 days preceding the grant date. The theoretical fair value of the share options (according to Black-Scholes model) was approximately NIS 3.4 million and the fair value of the restricted shares was approximately NIS 3.4 million. Mr. Benbenisti's options and restricted shares vested in four tranches: 25% of the entire amount on October 28, 2019, 25% of the entire amount on October 28, 2020, 25% of the entire amount on October 28, 2021 and the rest were forfeited. With respect to the restricted shares, each tranche was conditioned on the achievement of at least 80% of the Company targets of each year. |
(8) | In 2021, 308,474 share options and 59,050 restricted shares were granted to Mrs. Addie Koren with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) was approximately NIS 1.2 million and the fair value of the restricted shares was approximately NIS 0.9 million. |
(9) | These sums represent the relative portion of the expenses of all option and restricted share allocations recorded during the reported period and include expenses for the 2021 vesting period of options and restricted shares (including those which have not fully vested yet). In accordance with the 2004 Amended and Restated Equity Incentive Plan, under certain conditions, the share options and the restricted shares are entitled to vesting acceleration upon a change in control event. As of December 31, 2021, the Company estimated that a future change of control event was probable as a result of the possible Transaction by the Offerer referred to in Item 3D.3a and the table above reflects such vesting acceleration. The Transaction is subject to MOC approval. |
– | In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications, including in our mobile license, in relation to ownership or control over us, under certain events specified in our Articles of Association, the Board of Directors may determine that certain ordinary shares are dormant shares. Consequently, we received an exemption from NASDAQ with respect to its requirement (now under NASDAQ Rule 5640) that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance. |
– | As permitted under Israeli Companies Law, the Company’s Board of Directors generally proposes director nominees for shareholder approval. The conditions of NASDAQ Rule 5605(e), that director nominees must either be selected or recommended to the Board by the independent directors or a nomination committee comprised solely of independent directors, are thus not satisfied. |
– | According to applicable Israeli legal requirements, the establishment or amendment of certain stock option or purchase plans requires the approval of the company’s Board of Directors and approval of the shareholders’ meeting only for the grant of equity compensation to the Chief Executive Officer, directors or controlling partners. We received an exemption from the requirement set out in NASDAQ Rule 5635(c) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended, based on the fact that the NASDAQ requirement is inconsistent with the applicable Israeli legal requirements described above. |
– | The Israeli Companies Law, requires that at least two members of the Board of Directors satisfy the conditions of ”external directors”, which also satisfies the conditions of an Israeli independent director (“bilty taluy”). Three of our nine directors are external directors and satisfy the conditions of both Israeli independent directors and independent directors according to NASDAQ criteria. Two additional directors, (who are not external directors) satisfy the conditions of independent directors according to NASDAQ criteria, one of whom satisfies the conditions of an Israeli independent director. Therefore, the requirement of NASDAQ Rule 5605(b), that a majority of the Board of Directors be comprised of independent directors, is presently satisfied. However, in previous years and possibly in the future, we were and may not be in compliance with this NASDAQ requirement, since it is not a requirement under Israeli Companies law as stated above. |
6C.5d | SECURITY COMMITTEE |
6C.5e | Investment Committee |
1. | Financial liability incurred by, or imposed upon the Office Holder in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by an authorized court; |
2. | Reasonable legal expenses, including attorney fees, incurred by the Office Holder or which he was ordered to pay by an authorized court in the context of a proceeding filed against him by Partner or on Partner’s behalf or by a third party, in a criminal proceeding in which he was acquitted or in a criminal proceeding in which he was convicted of an offense which does not require criminal intent; |
3. | Reasonable legal expenses, including attorney fees, incurred by the Office Holder due to an investigation or proceeding conducted against him by an authority authorized to conduct such investigation or proceeding and which ended without filing of an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding or that was ended without filing of an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms under the law or in connection with a financial sanction(“itzum caspi”); |
4. | Payment to an injured party as a result of a violation set forth in Section 52.54(a)(1)(a) of the Israeli Securities Law, including by indemnification in advance or expenses incurred in connection with a proceeding (“halich”) under Chapters H3, H4 or I1 of the Israeli Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees, including by indemnification in advance; and |
5. | Expenses, including reasonable legal fees, including attorney fees, incurred by an Office Holder with respect to a proceeding in accordance with the Restrictive Trade Practices Law- 1988 ("Restrictive Trade Practices Law"). |
1. | a breach of the duty of loyalty toward us, unless the Office Holder acted in good faith and had reasonable grounds to assume that the action would not harm Partner’s interest; |
2. | a breach of the duty of care done intentionally or recklessly (“pzizut”) other than if made only by negligence; |
3. | an act intended to unlawfully yield a personal profit; |
4. | a fine, a civil fine (“knas ezrahi”), a financial sanction (“itzum kaspi”) or a penalty (“kofer”) imposed on him; and |
5. | a proceeding (“halich”). |
(1) | The breach of the duty of care towards the Company or towards any other person; |
(2) | The breach of the duty of loyalty towards the Company provided that the Office Holder has acted in good faith and had reasonable grounds to assume that the action would not harm the Company; |
(3) | A financial liability imposed on him in favor of another person; |
(4) | A payment which the office holder is obligated to pay to an injured party as set forth in section 52.54(a)(1)(a) of the Securities Law and expenses that the Office Holder incurred in connection with a proceeding under Chapters H3, H4 or I1 of the Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees. |
(5) | Expenses, including reasonable legal expenses fees, including attorney fees, incurred by the Office Holder with respect to a proceeding in accordance with the Restrictive Trade Practices Law. |
(6) | Any other matter in respect of which it is permitted or will be permitted under any law to insure the liability of an Office Holder in the Company. |
2019 | ** | 2020 | 2021 | |||||||||
Customer service* | 1,456 | 1,370 | 1,257 | |||||||||
Sales and sales support* | 541 | 491 | 537 | |||||||||
Information technology | 403 | 388 | 372 | |||||||||
Marketing and Content | 56 | 52 | 48 | |||||||||
Finance | 88 | 85 | 86 | |||||||||
Human Resources, Administration & Security | 91 | 86 | 86 | |||||||||
Operations & Logistics | 136 | 122 | 121 | |||||||||
Remaining operations | 63 | 61 | 67 | |||||||||
TOTAL | 2,834 | *** 2,655 | **** 2,574 |
Option expiration year (*) | Number of outstanding options held | Weighted average exercise price (NIS) | ||||
2022 | 437,726 | 15.15 | ||||
2023 | 2,332,996 | 15.39 | ||||
2026 | 175,370 | 13.94 | ||||
2027 | 91,157 | 16.61 | ||||
TOTAL | 3,037,249 | 15.31 |
Through December 31, 2021 | ||||||||
Number of options | Number of RSAs | |||||||
Granted | 39,936,212 | 6,727,668 | ||||||
Shares issued upon exercises and vesting | (7,022,000 | ) | (3,633,131 | ) | ||||
Cancelled upon net exercises, expiration and forfeitures | (25,979,213 | ) | (1,746,720 | ) | ||||
Outstanding | 6,934,999 | 1,347,817 | ||||||
Of which (*): | ||||||||
Exercisable | 2,189,520 | 201,225 | ||||||
Vest in 2022 | 2,540,988 | 640,912 | ||||||
Vest in 2023 | 1,852,136 | 424,467 | ||||||
Vest in 2024 | 352,355 | 81,213 |
Name | Shares beneficially owned | Issued Shares (1)% | Issued and Outstanding Shares (1)% | |||||||||
S.B. Israel Telecom Ltd.(2) | 49,862,800 | 26.10 | 26.95 | |||||||||
Phoenix-Excellence Group (3) | 17,400,660 | 9.11 | 9.40 | |||||||||
Meitav Dash Group (4) | 16,993,673 | 8.90 | 9.18 | |||||||||
Menora Mivtachim Group (5) | 13,353,537 | 6.99 | 7.22 | |||||||||
Harel Group (6) | 13,576,166 | 7.11 | 7.34 | |||||||||
Clal Insurance Group (7) | 13,249,633 | 6.94 | 7.16 | |||||||||
Treasury shares (8) | 5,988,640 | 3.135 | - | |||||||||
Public (9) | 60,593,070 | 31.72 | 32.75 | |||||||||
Total | 191,018,179 | 100.00 | 100.00 |
(1) | As shown above and used throughout this Annual Report, the term “Issued and Outstanding Shares” does not include any treasury shares held by the Company. Treasury shares, which are included in “Issued Shares”, have no voting, dividend or other rights under the Israeli Companies Law, as long as they are held by the Company (“dormant shares”). |
(2) | S.B. Israel Telecom, an affiliate of Saban Capital Group LLC, a private investment firm, based in Los Angeles, California, specializing in the media, entertainment and communications industries, is the registered owner of 49,862,800 shares in the Company’s share register. On November 11, 2019, S.B. Israel Telecom filed an amendment to its Schedule 13D with the SEC stating that it had no sole or shared voting or dispositive power over any shares of the Company, and that as a result of the Receiver Appointment (as defined in the filed amendment), as of November 12, 2019, the Reporting Persons (as defined in the filed amendment) ceased to beneficially own any ordinary shares of the Company. On November 12, 2019, the District Court of Tel Aviv issued a judicial order which appointed attorney Ehud Sol as receiver (the "Receiver") for all of the Company’s shares held by S.B. Israel Telecom. For risks related to the control of these shares by a single shareholder, and the possibility of their being acquired, see "Item 3D.3a Approximately 27% of our issued and outstanding shares and voting rights are held by a receiver (under Israeli law)." |
(2a) | On December 14, 2021, the Court granted an approval in principle, effective as of December 15, 2021, for the purchase of the shares held by the Receiver by a group of parties led by the Phoenix group, Mr. Avi Gabbay and Mr. Shlomo Rodav (jointly, the “Offeror”), on an “as is” basis, in consideration for US $ 300,000,000 (the “Transaction"), as proposed by the Offeror. The Transaction is still subject to the approval of the MoC. See "Item 3D.3a Approximately 27% of our issued and outstanding shares and voting rights are held by a receiver (under Israeli law)." |
(3) | Phoenix Holdings Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange (“Phoenix”), and Excellence Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange (“Excellence”), which is controlled by Phoenix, hold shares in the Company directly and through its wholly owned subsidiaries. (Phoenix, Excellence and their subsidiaries collectively, the “Phoenix-Excellence Group”). These holdings are held according to the following segmentation: 2,717,526 ordinary shares are held by Excellance Investments, Kesem trust funds, 1,287,987 ordinary shares are held by Provident funds, Management Companies of Provident funds and other Provident funds; 1,055,855 ordinary shares are held by Phoenix "Nostro" accounts; 75,303 ordinary shares are held by Phoenix Pension funds; 11,344,402 ordinary shares are held by Partnership for Israeli shares; 864,693 ordinary shares are held by Partnership for stocks index; 68,550 ordinary shares are held by 'Phoenix Mishtatef'. 1,935,000 shares of the 17,449,660 shares held by the Phoenix-Excellence Group, representing approximately 1.046% of our Issued and Outstanding shares and total voting rights, are registered in the Company’s Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. For further information regarding required holdings by Israeli founding shareholders, see "Item 3D.1l Our cellular telephone license imposes certain obligations on our shareholders and restrictions on who can own our shares. Ensuring compliance with these obligations and restrictions may be outside our control. If the obligations or restrictions are not respected by our shareholders, we could be subject to significant monetary sanctions or lose our license.” |
(4) | Meitav Dash Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its wholly owned subsidiaries (Meitav Dash and their subsidiaries collectively, the “Meitav Dash Group”). These holdings are held according to the following segmentation: 11,404,682 ordinary shares are held by Meitav Dash provident funds; 2,905,110 ordinary shares are held by Meitav Dash mutual funds; 2,683,881 ordinary shares are held by Meitav Dash portfolio management. 1,313,911 shares of the 16,993,673 held by the Meitav Dash Group, representing approximately 0.710% of our Issued and Outstanding shares and total voting rights, are registered in the Company’s Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. |
(5) | Menora Mivtachim Holdings Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its subsidiaries (Menora Mivtachim Holdings Ltd. and their subsidiaries collectively, the “Menora Mivtachim Group”). These holdings are held according to the following segmentation: 68,914 ordinary shares are held by Menora holdings; 289,931 ordinary shares are held by "Nostro" insurance; 44,859 ordinary shares are held by "Nostro" Shomera; 3,087 ordinary shares are held by Menora Mivtachim Nostro Pension; 12,946,746 ordinary shares are held by Sal Shares. |
(6) | Harel Insurance Investments & Financial Services Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its subsidiaries (the "Harel Group"). These holdings are held according to the following segmentation: 479,190 ordinary shares are held by "Mivtach"; 556,554 ordinary shares are held by provident funds; 994,331 ordinary shares are held by "Nostro"; 2,149,935 ordinary shares are held by Harel Group mutual funds; and 9,386,156 ordinary shares are held by "Amitim". 815,531 shares of the 13,576,166 held by Harel Insurance Company Ltd., representing approximately 0.441% of our Issued and Outstanding shares and total voting rights, are registered in the Company’s Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. |
(7) | Clal Insurance Company Ltd. an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its subsidiaries. (Clal Insurance Company Ltd. and their subsidiaries collectively, the “Clal Group”). These holdings are held according to the following segmentation: 713,539 ordinary shares are held by "Nostro"; 12,213,721 ordinary shares are held by "Amitey Clal Group" and 322,373 ordinary shares are held by Clal Israel Pension and Provident funds. |
(8) | Treasury shares do not have a right to dividends or to vote. During 2008, the Company repurchased 4,467,990 of the Company's shares and during 2018, the Company repurchased an additional 6,501,588 of the Company's shares, as part of buy-back plans. Since March 1, 2021, the Company has allocated under the Company’s 2004 Amended and Restated Equity Incentive Plan, 820,059 restricted shares from the treasury shares to a trustee on behalf of the Company’s employees. See “Item 6E.2 EQUITY INCENTIVE PLAN”. |
(9) | The shares under “Public” include 6,254,995 shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes including 937,283 Israeli founding shareholders shares which were issued following a public issuance of the Company shares during January 2020 and were approved by the Ministry of Communications on March 16, 2020. These shares, together with 1,935,000 shares held by the Phoenix-Excellence Group and 1,313,911 shares held by the Meitav Dash Group, represent approximately 4.98% of our issued shares (approximately 5.14% of the Issued and Outstanding Shares). For further information regarding required holdings by Israeli founding shareholders, see "Item 3D.1l Our cellular telephone license imposes certain obligations on our shareholders and restrictions on who can own our shares. Ensuring compliance with these obligations and restrictions may be outside our control. If the obligations or restrictions are not respected by our shareholders, we could be subject to significant monetary sanctions or lose our license.” |
1. | On July 15, 2014, a claim and a motion to certify the claim as a class action were filed against the Company and against additional cellular operators and content providers. The claim alleges that the cellular operators, including the Company, breached legal provisions and provisions of their licenses and thereby created a platform that led to the customers’ damages alleged in the claim. The total amount claimed against all of the defendants is estimated by the applicant to be approximately NIS 300 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
2. | On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner required their customers to purchase a Smartbox device which is terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 116 million. In February 2019, the Court approved the request to certify the claim as a class action with certain changes. In March 2019, the Company filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court and the proceedings have resumed. |
3. | On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that 012 Smile required their customers to purchase a Smartbox device which is terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against 012 Smile is estimated by the plaintiff to be approximately NIS 64 million. In February 2019, the Court approved the request to certify the claim as a class action with certain changes. In March 2019, the Company filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court and the proceedings have resumed. |
4. | On January 4, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner charges its customers the full price of telecommunication packages that are intended for use abroad despite the fact that the packages are not fully utilized and does not allow customers to transfer the balance to the next trip abroad or to receive a credit for the balance. The total amount claimed against Partner is estimated by the applicant to be approximately NIS 234 million. In April 2020, the Court dismissed the case and in June 2020 the plaintiffs filed an appeal of this decision. |
5. | On November 20, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. On February 17, 2021, the applicant filed an amended motion that claimed, among other things, that the Company breached legal provisions when it does not update its customers who purchased equipment from the Company in a credit transaction regarding the required interest rate and/or that it does not specify the cash price and/or that it notes an incorrect interest rate. The total amount claimed against Partner is estimated by the applicant to be approximately NIS 157.5 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
6. | On October 24, 2017, a claim and a motion to certify the claim as a class action were filed against the Company and another cellular operator. The claim alleges that Partner harms the privacy of its customers by unlawfully using their location data. The total amount claimed against Partner is estimated by the applicant to be approximately NIS 1 billion. The claim is still in its preliminary stage of the motion to be certified as a class action. |
7. | On November 2, 2020, a claim and a motion to certify the claim as a class action were filed against the Company and two of its subsidiaries, 012 Smile Telecom Ltd. and 012 Telecom Ltd. as well as against another operator. The claim alleges that the Company as well as the other respondents charged its customers a fee for ISP service after they began receiving this service from another company and that the respondents did not provide the service in return for payment. The total amount claimed from the Company was estimated by the applicants to be approximately NIS 2.5 million (however the claim was estimated by the applicants to be tens of millions of Shekels). The claim is still in its preliminary stage of the motion to be certified as a class action. |
8. | On December 15, 2020, a claim and a motion to certify the claim as a class action were filed against the Company and 012 Smile Telecom Ltd. The claim alleges that the Company charged its customers a fee for anti-virus and/or anti- spam services for email boxes while they did not use these services and that the Company does not keep records of their requests to receive these services. The total amount claimed against the Company was not stated by the applicant (however the claim was estimated by the applicant to be over NIS 2.5 million). The claim is still in its preliminary stage of the motion to be certified as a class action. |
1. | On September 7, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully charges its customers for services of various content providers, which are sent through text messages (SMS). The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 405 million. The claim was certified as a class action in December 2016. In January 2017, the plaintiffs filed an appeal to the Supreme Court, regarding the definition of the group of customers. In November 2018, the Supreme Court dismissed the appeal and the claim was reverted back to the District Court. In February 2020, a settlement agreement was filed for the Court's approval, and in July 2021 it was approved by the Court. |
2. | On July 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner is breaching its contractual and/or legal obligation and/or is acting negligently by charging V.A.T for roaming services that are consumed abroad. The applicant demands to return the total amount of V.A.T that was charged by Partner for roaming services that were consumed abroad. The applicant also pursued an injunction that will order Partner to stop charging VA.T for roaming services that are consumed abroad. In August 2014, the claim was dismissed and in October 2014, the applicant filed an appeal with the Supreme Court. The hearing was held in May 2016 before an expanded panel of seven judges and the Supreme Court accepted the appeal in July 2017 and dismissed the District Court's decisions. The claim was reverted back to the District Court. In March 2020, a settlement agreement was filed for the Court's approval and in August 2021 it was approved by the Court. |
3. | On September 11, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile and two other international long distance operators. The claim alleges that the respondents charged excessive tariffs from occasional customers for each long distance call minute, contrary to the Telecommunications Law (Telecommunications and Broadcasting), that allows a licensee to charge reasonable payment for a telecommunication service that it provides. The total amount claimed against 012 Smile if the lawsuit is certified as a class action was not stated by the applicant. In July 2019, the Court dismissed the motion and in October 2019, an appeal was filed with the Supreme Court. In June 2021, the applicants withdrew the appeal and the Court dismissed the appeal. |
4. | On November 17, 2019, a claim and a motion to certify the claim as a class action were filed against the Company and two additional cellular operators. The claim alleges that the Company, as well as the other respondents collected money from its customers for content services for third parties, by using the means of payment that were given to the Company for the purpose of the cellular invoice payment for content services, without receiving consent from these customers prior to the charge, and/or without having documentation with respect to the customers' consent, unlawfully and against its license provisions and/or without the Company first ensuring that the customers received a document that complies with the Consumer Protection Law regarding the specific transaction for which it intends to collect money from them. The total amount claimed from each of the respondents if the lawsuit is recognized as a class action is NIS 400 million in addition to compensation in the amount of NIS 500 for each one of the group members for non-monetary damages which were allegedly caused to them. The group on whose behalf the claim was filed is all Partner subscribers who made such payments from September 2003 until the date that Partner is found to have stopped charging customers for such content services (from this group, a group of customers charged for certain content services were excluded in light of other court decisions). In December 2020, the applicants notified that they wish to withdraw from the proceedings and the Court approved the request in January 2022. |
5. | On September 15, 2020, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully sent advertisement messages to customers that did not agree to receive such messages. The claim also alleges that advertisement messages were sent without including the possibility for the recipients to remove themselves from the Company's mailing lists or did not include means of contacting the Company or did not clarify that this is an advertisement and that the recipients had a right to send a refusal to receive the message and that the Company continued to send advertisement messages to customers that requested to be removed from the mailing lists. The total amount claimed against the Company was not stated by the applicants (however the claim was estimated by the applicants to be over NIS 2.5 million). The parties filed a withdrawal settlement which was approved by the Court in November 2021. |
6. | On November 1, 2020, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully displays advertising POP UP messages before and during TV services that constitute spam. The total amount claimed against the Company is estimated by the applicants to be approximately NIS 175 million. The parties filed a withdrawal settlement which was approved by the Court in December 2021. |
7. | On November 2, 2020, a claim and a motion to certify the claim as a class action were filed against the Company and 012 Telecom Ltd. The claim alleges that the Company charged its customers a fee for ISP service after they began receiving this service from another company and that the respondents did not provide the service in return for payment. The total amount claimed against the Company was not stated by the applicants (however the claim was estimated by the applicants to be over NIS 2.5 million). In April 2021, the motion was dismissed in accordance with the plaintiff's request. |
1. | On May 4, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner discriminates between its cellular customers, including between new customers and existing customers by offering the same type of customers, different terms, an action which would not be in accordance with the provisions of its license. The applicant noted that it cannot estimate the total amount claimed in the lawsuit, if the lawsuit is certified as a class action. In December 2019, the Court dismissed the motion and in January 2020, an appeal was filed with the Supreme Court. |
2. | On April 21, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that the infrastructure included in the 012 Smile's plans does not support data speeds that the Company publishes to its customers. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiffs. In January 2021, the Court approved the request to certify the claim as a class action. |
3. | On September 24, 2017, a claim and a motion to certify the claim as a class action were filed against the Company and Partner Land-Line. The claim alleges that the infrastructure included in the Company's plan does not support data speeds that the Company publishes to its customers. The applicant noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action. |
4. | On August 6, 2018, a claim and a motion to certify the claim as a class action were filed against the Company and 012 Smile and at a later date, following a revision to the motion, also against Partner Land-Line. The claim alleges that the respondents unlawfully charge its customers different and higher rates for international calls that are not included in their tariff plans, than those set forth in its customer tariff chart on the 012 Smile website. The applicants noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action. |
5. | On April 11, 2019, a claim and a motion to certify the claim as a class action were filed against the Company and additional telecommunication service companies. The claim alleges that the Company, as well as the other respondents, breached their obligations under the law and their license and does not inform its customers as required regarding a free content filtering service and prioritizes a paid service over a free service and the filtering service does not meet the legal requirements and those of the license and is ineffective. The total amount claimed against the respondents, if the lawsuit is recognized as a class action, was not stated by the applicants. The claim is still in its preliminary stage of the motion to be certified as a class action. |
6. | On July 4, 2019, a claim and a motion to certify the claim as a class action were filed against the Company and two additional cellular operators. The claim alleges that the Company charges its customers for voicemail service without receiving their prior express consent for this service and for its charge and without a contractual right. The total amount claimed against the respondents, if the lawsuit is recognized as a class action, was not stated by the applicants. The claim is still in its preliminary stage of the motion to be certified as a class action. |
7. | On April 1, 2020, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully charges its customers for anti-virus services without their consent. The total amount claimed from the Company was not stated by the applicant but was estimated by the applicant to be at least tens of millions of NIS. The claim is still in its preliminary stage of the motion to be certified as a class action. |
8. | On November 26, 2020, a claim and a motion to certify the claim as a class action were filed against the Company and three of its subsidiaries. The claim alleges that the Company unlawfully reduced the operating hours of its customer service centers. The total amount claimed against the Company, if the lawsuit is recognized as a class action, was not stated by the applicants. The claim is still in its preliminary stage of the motion to be certified as a class action. |
9. | On January 25, 2021, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company does not disclose interest rates to customers that purchase items in credit transactions prior to the conclusion of the transaction. The total amount claimed against the Company was not stated by the applicant (however the claim was estimated by the applicant to be over NIS 2.5 million). The claim is still in its preliminary stage of the motion to be certified as a class action. |
10. | On February 25, 2021, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges, among others, that the Company provided its customers with TV service for viewing through a free application, as an ancillary benefit to other services and that the Company began charging customers for the TV service upon the cancellation of the ancillary service. The total amount claimed against the Company was not stated by the applicant (however the claim was estimated by the applicant to be over NIS 2.5 million). The claim is still in its preliminary stage of the motion to be certified as a class action. |
11. | On January 27, 2022, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company breached legal provisions with respect to accessibility to its website and various documents located in the personal area and/or anywhere else on the website. The total amount claimed against the Company was not stated by the applicant (however the claim was estimated by the applicant to be over NIS 2.5 million). The claim is still in its preliminary stage of the motion to be certified as a class action. |
• | General. |
• | Taxation of Israeli Residents |
• | Taxation of Non-Israeli Residents |
• | Taxation of Investors Engaged in a Business of Trading Securities |
• | Withholding at Source from Capital Gains from Traded Securities |
• | a citizen or individual resident of the United States for US federal income tax purposes; |
• | a corporation (or an entity taxable as a corporation for US federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
• | an estate whose income is subject to US federal income taxation regardless of its source; or |
• | a trust if (A) a US court is able to exercise primary supervision over the trust’s administration and (B) one or more US persons have the authority to control all of the trust’s substantial decisions. |
As of December 31, (NIS equivalent in millions, except percentages) | ||||||||||||||||
2020 | 2021 | |||||||||||||||
Fair Value | Book Value | Fair Value | Book Value | |||||||||||||
NIS-denominated debt linked to the CPI | ||||||||||||||||
Trade payables (1) | 29 | 29 | ||||||||||||||
Lease liabilities | 699 | 699 | 707 | 718 | ||||||||||||
NIS-denominated debt not linked to the CPI | ||||||||||||||||
Long-term variable interest Notes payable series D due 2021 | 110 | 109 | ||||||||||||||
Weighted average interest rate payable | 1.31 | % | ||||||||||||||
Long-term fixed Notes payable series F due 2024 | 524 | 512 | 392 | 384 | ||||||||||||
Weighted average interest rate payable | 2.16 | % | 2.16 | % | ||||||||||||
Long-term fixed Notes payable series G due 2027 | 939 | 824 | 952 | 851 | ||||||||||||
Weighted average interest rate payable | 4 | % | 4 | % | ||||||||||||
Long-term fixed Notes payable series H due 2030 | 199 | 198 | ||||||||||||||
Weighted average interest rate payable | 2.08 | % | ||||||||||||||
Long-term borrowing bearing fixed interest | 60 | 59 | 30 | 29 | ||||||||||||
Weighted average interest rate payable | 2.38 | % | 2.38 | % | ||||||||||||
Long-term borrowing bearing fixed interest | 82 | 79 | 58 | 57 | ||||||||||||
Weighted average interest rate payable | 2.5 | % | 2.5 | % | ||||||||||||
Long-term borrowing bearing fixed interest | 150 | 150 | ||||||||||||||
Weighted average interest rate payable | 2.55 | % | ||||||||||||||
Financial liability at fair value (1) | 4 | 4 | ||||||||||||||
Debt denominated in foreign currencies (1) | ||||||||||||||||
Trade payables denominated in USD | 92 | 92 | 127 | 127 | ||||||||||||
Trade payables denominated in other foreign currencies (mainly Euro) | 11 | 11 | 13 | 13 | ||||||||||||
Lease liabilities denominated in USD | 3 | 3 | 2 | 2 | ||||||||||||
Total | 2,553 | 2,421 | 2,630 | 2,529 |
Change | Equity | Profit | ||||||||||
New Israeli Shekels in millions | ||||||||||||
December 31, 2021 | ||||||||||||
Increase in the USD of | 10 | % | (9 | ) | (9 | ) | ||||||
Decrease in the USD of | (10 | )% | 9 | 9 |
Change | Equity | Profit | ||||||||||
New Israeli Shekels in millions | ||||||||||||
December 31, 2021 | ||||||||||||
Increase in the CPI of | 2 | % | (2 | ) | (2 | ) | ||||||
Decrease in the CPI of | (2 | )% | 2 | 2 |
• | pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions during the year; |
• | provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles; |
• | provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and Board of Directors (as appropriate); and |
• | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
2020 | 2021 | |||||||
(NIS thousands) | (NIS thousands) | |||||||
Audit Fees (1) | 2,220 | 2,457 | ||||||
Audit-related Fees (2) | 385 | 286 | ||||||
Tax Fees (3) | 448 | 513 | ||||||
TOTAL | 3,053 | 3,256 |
(1) | Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the group audit; statutory audits; comfort letters and consents; and assistance with and review of documents filed with the SEC. |
(2) | Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and include consultations concerning financial accounting and reporting standards, as well as the purchase of an accounting database. |
(3) | Tax Fees include fees billed for tax compliance services, including the preparation of tax returns and claims for tax refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, and requests for rulings or technical advice from the taxing authority. |
Page | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-3-F-4 |
CONSOLIDATED FINANCIAL STATEMENTS: | |
Statements of Financial Position | F5-F-6 |
Statements of Income | F-7 |
Statements of Comprehensive Income | F-8 |
Statements of Changes in Equity | F-9 |
Statements of Cash Flows | F-10-F-11 |
Notes to financial statements | F-12-F-84 |
Exhibit No. | Description | ||
**1.2 | Partner’s Certificate of Incorporation | ||
**1.3 | Partner’s Memorandum of Association | ||
**2.(a).1 | Form of Share Certificate | ||
^^2.(a).2 | [Reserved] | ||
^2.(b).1 | [Reserved] | ||
>>>>2.(b).2 | [Reserved] | ||
>>>>2.(b).3 | [Reserved] | ||
>>>>4.(a).1.1 | [Reserved] | ||
[Reserved] | |||
4.(a).2.2 | [Reserved] | ||
4.(a).2.3 | [Reserved] | ||
4.(a).2.4 | Reserved] | ||
**4.(a).4 | [Reserved] | ||
+>4.(a).4.1 | [Reserved] | ||
4.(a).4.2 | [Reserved] | ||
**4.(a).5 | Brand Support/Technology Transfer Agreement dated July 18, 1999 | ||
**4.(a).6 | Agreement with Ericsson Radio Systems AB dated May 28, 1998 | ||
#++4.(a).7 | Agreement with LM Ericsson Israel Ltd. dated November 25, 2002 | ||
**4.(a).9 | Lease Agreement with Mivnei Taasia dated July 2, 1998 | ||
4.(a).14-60 | [Reserved] | ||
+++4.(a).65 | [Reserved] | ||
4.(a).68 | [Reserved] | ||
>>>>4.(a).69 | [Reserved] | ||
4.(a).70 | [Reserved] | ||
4.(a).71 | [Reserved] | ||
4.(a).74-97 | [Reserved] | ||
>>>>4.(b).2 | [Reserved] | ||
+>>>4.(b).3 | [Reserved] | ||
+>>6. | See note 2x to the consolidated financial statements for information explaining how earnings (loss) per share information was calculated. |
** | Incorporated by reference to our registration statement on Form F-1 (No. 333-10992). | |
++ | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2002. | |
+++ | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2003. | |
^ | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004. | |
^^ | Incorporated by reference to our registration statement on Form F-6 (No. 333-132680). | |
^^^ | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2005. | |
^^^^ | Incorporated by reference to our registration statement on Form F-6 (No. 333-177621). | |
>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2007. | |
>>>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2009. | |
>>>>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2010. | |
+> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2011. | |
+>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2012. | |
+>>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2013. | |
+>>>>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2015. | |
++** | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2016 | |
# | Confidential treatment requested. |
Partner Communications Company Ltd. | ||
By: /s/ Avi Zvi | ||
Avi Zvi | ||
Chief Executive Officer | ||
February 28, 2022 | ||
By: /s/ Tamir Amar | ||
Tamir Amar | ||
Deputy CEO & Chief Financial Officer | ||
February 28, 2022 |
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
2021 ANNUAL REPORT
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
2021 ANNUAL REPORT
TABLE OF CONTENTS
Page | |
F - 3 - F - 4 |
(PCAOB ID 1309)
CONSOLIDATED FINANCIAL STATEMENTS: | |
F - 5 - F - 6 | |
F - 7 | |
F - 8 | |
F - 9 | |
F - 10 - F - 11 | |
F - 12 - F - 84 |
The amounts are stated in New Israeli Shekels (NIS) in millions.
F - 2
| ||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Board of Directors and Shareholders of Partner Communications Company Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Partner Communications Company Ltd. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 15b. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F - 3
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment – Fixed line segment
As described in Notes 4(3) and 13 to the consolidated financial statements, the Company’s goodwill balance in respect of the fixed line segment was NIS 407 million as of December 31, 2021. Management conducts an impairment test at each year end, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. Potential impairment is identified by comparing the carrying amount of the relevant cash-generating unit to its recoverable amount, including goodwill. The recoverable amount is the higher of an asset's fair value less costs of disposal and its value-in-use. The recoverable amount of the fixed-line segment to which the goodwill has been allocated was estimated by management using a discounted cash flow model. Management’s cash flow projections for the Fixed line segment included significant judgments and assumptions relating to the revenue growth rate, the terminal growth rate, and the discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the fixed line segment is a critical audit matter are (i) the significant judgment by management when developing the value-in-use measurement of the fixed line segment; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rate, terminal growth rate and discount rate; (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included obtaining an understanding, evaluating the design and testing the effectiveness of controls over the Company's goodwill impairment review process including controls over managements review of the significant assumptions described above. These procedures also included, among others, evaluating the appropriateness of the discounted cash flow model; testing the completeness and accuracy of underlying data used in the model; comparing projected cash flows to the Company's historical cash flows; evaluating the significant assumptions used by management related to the revenue growth rate, terminal growth rates and discount rate by amongst others: assessing the historical accuracy of managements estimates, performing sensitivity analyses and reviewing the changes of the Company's regulatory environment and consumers' market. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and the discount rate assumption.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
February 28, 2022
We have served as the Company’s auditor since 1998.
F - 4
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
New Israeli Shekels | Convenience translation into U.S. dollars (note 2b3) | |||||||||||
December 31, | ||||||||||||
2020 | 2021 | 2021 | ||||||||||
Note | In millions | |||||||||||
CURRENT ASSETS | ||||||||||||
Cash and cash equivalents | 376 | 308 | 99 | |||||||||
Short-term deposits | 6 | 411 | 344 | 111 | ||||||||
Trade receivables | 7 | 560 | 571 | 184 | ||||||||
Other receivables and prepaid expenses | 14 | 46 | 152 | 49 | ||||||||
Deferred expenses – right of use | 12 | 26 | 27 | 9 | ||||||||
Inventories | 8 | 77 | 87 | 28 | ||||||||
1,496 | 1,489 | 480 | ||||||||||
| ||||||||||||
NON CURRENT ASSETS | ||||||||||||
Long-term deposits | 6 | 155 | 280 | 90 | ||||||||
Trade receivables | 7 | 232 | 245 | 79 | ||||||||
Deferred expenses – right of use | 12 | 118 | 142 | 45 | ||||||||
Lease – right of use | 19 | 663 | 679 | 218 | ||||||||
Property and equipment | 10 | 1,495 | 1,644 | 529 | ||||||||
Intangible and other assets | 11 | 521 | 472 | 152 | ||||||||
Goodwill | 13 | 407 | 407 | 131 | ||||||||
Deferred income tax asset | 25 | 29 | 34 | 11 | ||||||||
Other non-current receivables | 9 | 1 | 0* | |||||||||
3,629 | 3,904 | 1,255 | ||||||||||
| ||||||||||||
TOTAL ASSETS | 5,125 | 5,393 | 1,735 | |||||||||
| ||||||||||||
* Representing an amount of less than 1 million |
The financial statements were authorized for issue by the board of directors on February 28, 2022. | ||||||
| ||||||
|
|
| ||||
Avi Zvi | Tamir Amar | Jonathan Kolodny | ||||
Chief Executive Officer | Deputy CEO & Chief | Director | ||||
Financial Officer |
F - 5
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
New Israeli Shekels | Convenience translation into U.S. dollars (note 2b3) | |||||||||||
December 31, | ||||||||||||
2020 | 2021 | 2021 | ||||||||||
Note | In millions | |||||||||||
CURRENT LIABILITIES | ||||||||||||
Current maturities of notes payable and borrowings | 6,15 | 290 | 268 | 86 | ||||||||
Trade payables | 666 | 705 | 227 | |||||||||
Other payables and provisions | 14 | 127 | 185 | 59 | ||||||||
Current maturities of lease liabilities | 19 | 120 | 125 | 40 | ||||||||
Deferred revenues and other | 9,14 | 131 | 139 | 45 | ||||||||
1,334 | 1,422 | 457 | ||||||||||
| ||||||||||||
NON CURRENT LIABILITIES | ||||||||||||
Notes payable | 6,15 | 1,219 | 1,224 | 394 | ||||||||
Borrowings from banks | 6,15 | 86 | 184 | 59 | ||||||||
Financial liability at fair value | 6,15 | 4 | ||||||||||
Liability for employee rights upon retirement, net | 16 | 42 | 35 | 12 | ||||||||
Lease liabilities | 19 | 582 | 595 | 191 | ||||||||
Deferred revenues from HOT mobile | 9,14 | 71 | 39 | 13 | ||||||||
Non-current liabilities and provisions | 14 | 64 | 35 | 11 | ||||||||
2,068 | 2,112 | 680 | ||||||||||
| ||||||||||||
TOTAL LIABILITIES | 3,402 | 3,534 | 1,137 | |||||||||
| ||||||||||||
EQUITY | 21 | |||||||||||
Share capital – ordinary shares of NIS 0.01 par value: | ||||||||||||
authorized – December 31, 2020 and 2021 – 235,000,000 shares; issued and outstanding - | 2 | 2 | 1 | |||||||||
December 31, 2020 – *182,826,973 shares | ||||||||||||
December 31, 2021 – *183,678,220 shares | ||||||||||||
Capital surplus | 1,311 | 1,279 | 411 | |||||||||
Accumulated retained earnings | 606 | 742 | 239 | |||||||||
Treasury shares, at cost – | ||||||||||||
December 31, 2020 – **7,741,784 shares | ||||||||||||
December 31, 2021 – **7,337,759 shares | (196 | ) | (164 | ) | (53 | ) | ||||||
TOTAL EQUITY | 1,723 | 1,859 | 598 | |||||||||
TOTAL LIABILITIES AND EQUITY | 5,125 | 5,393 | 1,735 |
| |
* | Net of treasury shares. |
** | Including shares held by trustee under the Company's Equity Incentive Plan, see note 21(a), such shares will become outstanding upon completion of vesting conditions, see note 21(b). |
The accompanying notes are an integral part of the financial statements.
F - 6
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF INCOME
New Israeli Shekels | Convenience translation into U.S. dollars (note 2b3) | ||||||||||||||
Year ended December 31, | |||||||||||||||
2019 | 2020 | 2021 | 2021 | ||||||||||||
Note | In millions (except earnings per share) | ||||||||||||||
Revenues, net | 5,22 | 3,234 | 3,189 | 3,363 | 1,081 | ||||||||||
Cost of revenues | 5,22 | 2,707 | 2,664 | 2,732 | 878 | ||||||||||
Gross profit | 527 | 525 | 631 | 203 | |||||||||||
| |||||||||||||||
Selling and marketing expenses | 22 | 301 | 291 | 323 | 104 | ||||||||||
General and administrative expenses | 22 | 149 | 145 | 164 | 52 | ||||||||||
Credit losses | 7 | 18 | 23 | 9 | 3 | ||||||||||
Other income, net | 23 | 28 | 30 | 28 | 9 | ||||||||||
Operating profit | 87 | 96 | 163 | 53 | |||||||||||
Finance income | 7 | 8 | 4 | 1 | |||||||||||
Finance expenses | 24 | 75 | 77 | 68 | 22 | ||||||||||
Finance costs, net | 68 | 69 | 64 | 21 | |||||||||||
Profit before income tax | 19 | 27 | 99 | 32 | |||||||||||
Income tax income (expense) | 25 | 0* | (10 | ) | 16 | 5 | |||||||||
Profit for the year | 19 | 17 | 115 | 37 | |||||||||||
| |||||||||||||||
Earnings per share | |||||||||||||||
Basic | 27 | 0.12 | 0.09 | 0.63 | 0.20 | ||||||||||
Diluted | 27 | 0.12 | 0.09 | 0.62 | 0.20 |
* | Representing an amount of less than 1 million. |
The accompanying notes are an integral part of the financial statements.
F - 7
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
New Israeli Shekels | Convenience translation into U.S. dollars (note 2b3) | ||||||||||||||
Year ended December 31, | |||||||||||||||
2019 | 2020 | 2021 | 2021 | ||||||||||||
Note | In millions | ||||||||||||||
Profit for the year | 19 | 17 | 115 | 37 | |||||||||||
Other comprehensive income, items that will not be reclassified to profit or loss | |||||||||||||||
Remeasurements of post-employment benefit obligations | 16 | (2 | ) | 1 | 8 | 3 | |||||||||
Income taxes relating to remeasurements of post-employment benefit obligations | 25 | 0* | 0* | (2 | ) | (1 | ) | ||||||||
Other comprehensive income (loss) for the year, net of income taxes | (2 | ) | 1 | 6 | 2 | ||||||||||
| |||||||||||||||
TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 17 | 18 | 121 | 39 |
* | Representing an amount of less than 1 million. |
The accompanying notes are an integral part of the financial statements.
F - 8
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share capital |
| |||||||||||||||||||||||
Number of | Capital | Accumulated | Treasury | Total |
| |||||||||||||||||||
Shares** | Amount | surplus | earnings | shares | equity |
| ||||||||||||||||||
| NIS In millions | |||||||||||||||||||||||
New Israeli Shekels: |
| |||||||||||||||||||||||
BALANCE AT JANUARY 1, 2019 | 162,628,397 | 2 | 1,102 | 542 | (261 | ) | 1,385 |
| ||||||||||||||||
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2019 |
| |||||||||||||||||||||||
Profit for the year | 19 | 19 |
| |||||||||||||||||||||
Other comprehensive loss for the year, net of income taxes | (2 | ) | (2 | ) | ||||||||||||||||||||
Total comprehensive income for the year | 17 | 17 |
| |||||||||||||||||||||
Exercise of options and vesting of restricted shares granted to employees | 287,593 | (23 | ) | 23 |
| |||||||||||||||||||
Employee share-based compensation expenses | 17 | 17 |
| |||||||||||||||||||||
Transactions with non-controlling interests | (2 | ) | (2 | ) | ||||||||||||||||||||
BALANCE AT DECEMBER 31, 2019 | 162,915,990 | 2 | 1,077 | 576 | (238 | ) | 1,417 |
| ||||||||||||||||
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2020 |
| |||||||||||||||||||||||
Profit for the year | 17 | 17 |
| |||||||||||||||||||||
Other comprehensive income for the year, net of income taxes | 1 | 1 |
| |||||||||||||||||||||
Total comprehensive income for the year | 18 | 18 |
| |||||||||||||||||||||
Issuance of shares to shareholders (see note 21) | 19,330,183 | * | 276 | *** | 276 |
| ||||||||||||||||||
Exercise of options and vesting of restricted shares granted to employees | 580,800 | (42 | ) | 42 |
| |||||||||||||||||||
Employee share-based compensation expenses | 12 | 12 |
| |||||||||||||||||||||
BALANCE AT DECEMBER 31, 2020 | 182,826,973 | 2 | 1,311 | 606 | (196 | ) | 1,723 |
| ||||||||||||||||
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2021 |
| |||||||||||||||||||||||
Profit for the year | 115 | 115 |
| |||||||||||||||||||||
Other comprehensive income for the year, net of income taxes | 6 | 6 |
| |||||||||||||||||||||
Total comprehensive income for the year | 121 | 121 |
| |||||||||||||||||||||
Exercise of options and vesting of restricted shares granted to employees | 851,247 | (32 | ) | 32 |
| |||||||||||||||||||
Employee share-based compensation expenses | 15 | 15 |
| |||||||||||||||||||||
BALANCE AT DECEMBER 31, 2021 | 183,678,220 | 2 | 1,279 | 742 | (164 | ) | 1,859 |
| ||||||||||||||||
Convenience translation into U.S. Dollars (note 2b3): |
| |||||||||||||||||||||||
BALANCE AT JANUARY 1, 2021 | 182,826,973 | 1 | 421 | 195 | (63 | ) | 554 |
| ||||||||||||||||
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2021 |
| |||||||||||||||||||||||
Profit for the year | 37 | 37 |
| |||||||||||||||||||||
Other comprehensive income for the year, net of income taxes | 2 | 2 |
| |||||||||||||||||||||
Total comprehensive income for the year | 39 | 39 |
| |||||||||||||||||||||
Exercise of options and vesting of restricted shares granted to employees | 851,247 | (10 | ) | 10 |
| |||||||||||||||||||
Employee share-based compensation expenses | 5 | 5 |
| |||||||||||||||||||||
BALANCE AT DECEMBER 31, 2021 | 183,678,220 | 1 | 411 | 239 | (53 | ) | 598 |
|
* | Representing an amount of less than 1 million. |
** | Net of treasury shares. |
*** | Net of issuance costs. |
The accompanying notes are an integral part of the financial statements.
F - 9
(Continued)– 1
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
New Israeli Shekels | Convenience translation into U.S. dollars (note 2b3) | ||||||||||||||
Year ended December 31, | |||||||||||||||
2019 | 2020 | 2021 | 2021 | ||||||||||||
Note | In millions | ||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||
Cash generated from operations (Appendix) | 838 | 787 | 791 | 254 | |||||||||||
Income tax paid | 25 | (1 | ) | (1 | ) | (17 | ) | (5 | ) | ||||||
Net cash provided by operating activities | 837 | 786 | 774 | 249 | |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||
Acquisition of property and equipment | (462 | ) | (409 | ) | (519 | ) | (167 | ) | |||||||
Acquisition of intangible and other assets | (167 | ) | (164 | ) | (153 | ) | (49 | ) | |||||||
Acquisition of a business, net of cash acquired | (3 | ) | |||||||||||||
Investment in deposits, net | (552 | ) | (14 | ) | (58 | ) | (19 | ) | |||||||
Interest received | 1 | 6 | 3 | 1 | |||||||||||
Consideration received from sales of property and equipment | 23 | 2 | 0* | 0* | 0* | ||||||||||
Net cash used in investing activities | (1,181 | ) | (581 | ) | (727 | ) | (234 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||
Lease principal payments | 19 | (139 | ) | (129 | ) | (130 | ) | (42 | ) | ||||||
Lease interest payments | 19 | (20 | ) | (18 | ) | (18 | ) | (6 | ) | ||||||
Share issuance, net of issuance costs | 21 | 276 | |||||||||||||
Proceeds from issuance of notes payable, net of issuance costs | 6,15 | 562 | 466 | 220 | 71 | ||||||||||
Proceeds from issuance of option warrants exercisable for notes payables | 15 | 37 | |||||||||||||
Interest paid | 24 | (37 | ) | (49 | ) | (48 | ) | (15 | ) | ||||||
Proceeds from non-current bank borrowing received | 6,15 | 150 | 48 | ||||||||||||
Repayment of borrowings | 15 | (65 | ) | (52 | ) | (52 | ) | (17 | ) | ||||||
Repayment of notes payable | 15 | (109 | ) | (620 | ) | (237 | ) | (76 | ) | ||||||
Settlement of contingent consideration | (2 | ) | |||||||||||||
Transactions with non-controlling interests | (2 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 227 | (128 | ) | (115 | ) | (37 | ) | ||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (117 | ) | 77 | (68 | ) | (22 | ) | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 416 | 299 | 376 | 121 | |||||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | 299 | 376 | 308 | 99 |
* | Representing an amount of less than 1 million. |
The accompanying notes are an integral part of the financial statements.
F - 10
(Concluded)– 2
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Appendix – Cash generated from operations and supplementary information
New Israeli Shekels | Convenience translation into U.S. dollars (note 2b3) | ||||||||||||||
Year ended December 31, | |||||||||||||||
2019 | 2020 | 2021 | 2021 | ||||||||||||
Note | In millions | ||||||||||||||
| |||||||||||||||
Cash generated from operations: | |||||||||||||||
Profit for the year | 19 | 17 | 115 | 37 | |||||||||||
| |||||||||||||||
Adjustments for: | |||||||||||||||
Depreciation and amortization | 10,11 | 723 | 683 | 713 | 229 | ||||||||||
Amortization of deferred expenses - Right of use | 12 | 28 | 31 | 31 | 10 | ||||||||||
Employee share based compensation expenses | 21 | 17 | 12 | 15 | 5 | ||||||||||
Liability for employee rights upon retirement, net | 16 | 1 | (1 | ) | 2 | 1 | |||||||||
Finance costs, net | 24 | 5 | (2 | ) | (4 | ) | (1 | ) | |||||||
Lease interest payments | 19 | 20 | 18 | 18 | 6 | ||||||||||
Interest paid | 24 | 37 | 49 | 48 | 15 | ||||||||||
Interest received | 24 | (1 | ) | (6 | ) | (3 | ) | (1 | ) | ||||||
Deferred income taxes | 25 | 4 | 12 | (7 | ) | (2 | ) | ||||||||
Income tax paid | 25 | 1 | 1 | 17 | 5 | ||||||||||
Capital loss from property and equipment | (2 | ) | 0* | 0* | 0* | ||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Decrease (increase) in accounts receivable: | |||||||||||||||
Trade | 7 | 42 | 82 | (24 | ) | (8 | ) | ||||||||
Other | (1 | ) | (6 | ) | (70 | ) | (23 | ) | |||||||
Increase (decrease) in accounts payable and accruals: | |||||||||||||||
Trade | 63 | (57 | ) | 3 | 1 | ||||||||||
Other payables and provisions | 14,25 | (14 | ) | (70 | ) | 27 | 8 | ||||||||
Deferred revenues and other | 9 | (27 | ) | 24 | (24 | ) | (7 | ) | |||||||
Increase in deferred expenses - Right of use | 12 | (51 | ) | (47 | ) | (56 | ) | (18 | ) | ||||||
Decrease (increase) in inventories | 8 | (26 | ) | 47 | (10 | ) | (3 | ) | |||||||
Cash generated from operations: | 838 | 787 | 791 | 254 |
* | Representing an amount of less than 1 million. |
Supplementary information
At December 31, 2019, 2020 and 2021, trade and other payables, net include NIS 115 million, NIS 139 million and NIS 157 million (US$ 50 million), respectively, in respect of acquisition of intangible assets and property and equipment; payments in respect thereof are presented in cash flows from investing activities.
These balances are recognized in the cash flow statements upon payment. For non-cash movements in lease liabilities and lease right of use assets see note 19. Cost of inventory used as fixed assets during 2020 and 2021 were NIS 8 million and NIS 33 million (US$ 11 million), respectively.
The accompanying notes are an integral part of the financial statements.
F - 11
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 1 -GENERAL
a.Reporting entity
Partner Communications Company Ltd. ("the Company", "Partner") is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony, internet and television services) under the Partner brand, and cellular services also under the 012 Mobile brand. The Company is incorporated and domiciled in Israel and its principal executive office’s address is 8 Amal Street, Afeq Industrial Park, Rosh-Ha'ayin 48103, Israel. The Company's business and non-current assets are concentrated in Israel.
The Company's share capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange Ltd. ("TASE") under the symbol "PTNR". American Depositary Shares ("ADSs"), each representing one of the Company’s ordinary shares, are quoted on the NASDAQ Global Select Market™, under the symbol "PTNR". See also note 21(a).
Regarding the Company's principal shareholder and holdings of approved Israeli shareholders in the Company, see note 26.
These consolidated financial statements of the Company as of December 31, 2021, are comprised of the Company and its subsidiaries and consolidated partnerships (the "Group"). See the list of subsidiaries and consolidated partnerships and principles of consolidation in note 2(c)(1). See also 2(c)(2) with respect to investment in PHI.
The coronavirus ("COVID-19") pandemic began to have a harmful effect on the Company's business from the beginning of March 2020, due in particular to the significant fall in the volume of international travel by the Company's customers which caused a very significant decrease in revenues from roaming services. In addition the closure of shopping malls for limited periods during 2020 and changes in general consumer behavior negatively affected the volume of sales of equipment.
Beginning in the second quarter of 2021, shopping malls reopened and the extent of general domestic economic activity largely returned to levels experienced prior to the COVID-19 pandemic. Regarding roaming services, revenues from roaming services began to increase moderately in the second half of 2021 as a result of a moderate increase in the volume of international travel by the Company’s customers. However, as of the date of approval of these financial statements, revenues from roaming services continue to be significantly restrained, largely related to the impact of the Omicron variant on international travel, and remain significantly below pre-COVID-19 pandemic levels.
The Company reviewed the effects of the COVID-19 pandemic on its critical accounting estimates and judgments as of December 31, 2021, and determined that no material change was required.
F - 12
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 1 -GENERAL (continued)
b.Operating segments
The operating segments were determined based on the reports reviewed by the Chief Executive Officer (CEO) who is responsible for allocating resources and assessing performance of the operating segments, and therefore is the Chief Operating Decision Maker ("CODM"), and supported by budget and business plans structure, different regulations and licenses (see (c) below). The CEO considers the business from two operating segments, as follows (see also note 5):
(1)Cellular segment:
Services in the cellular segment include basic cellular telephony services, text messaging, internet browsing and data transfer, content services, roaming services, M2M (Machine to Machine) and IOT (Internet of Things) services, handset repair services, cellular content and value-added services, and services provided to other operators that use the Company's cellular network. The two payment methods offered to our customers are pre-paid and post-paid. Pre-paid services are offered to customers that purchase credit in advance of service use. Post-paid services are offered to customers with bank and credit arrangements. Most of the cellular tariff plans are bundles which include unlimited volumes of calls time and text messaging (with fair use limits), as well as limited data packages. Cellular content and value-added services offered include multimedia messaging, cyber protection, cloud backup, ringtones, and a range of advanced business services. International roaming services abroad for the Company’s customers include airtime calls, text messaging and data services on networks with which the Company has a commercial roaming relationship. Partner also provides inbound roaming services to the customers of foreign operators with which the Company has a commercial roaming relationship. In addition, the cellular segment includes wholesale cellular services provided to virtual operators who use the Partner cellular network to provide services to their customers.
Optional services such as equipment extended warranty plans and international calling plans are also provided for an additional monthly charge or included in specific tariff plans. The Company also provides warranty repair plans and services for cellular phone and electronic devices to both retail customers and independent merchants and parallel importers.
(2)Fixed-line segment:
Services in the fixed-line segment include: (a) Internet services that provide access to the internet through both fiber-optics and wholesale broadband access, internet services provider (“ISP”) services; internet Value Added Services (“VAS”) such as cyber protection, anti-virus and anti-spam filtering; and fixed-line voice communication services provided through Voice Over Broadband (“VOB”); (b) Business solutions including Session Initiation Protocol (“SIP”) voice trunks and Network Termination Point Services (“NTP”) – under which the Group supplies, installs, operates and maintains endpoint network equipment and solutions, including providing and installing equipment and cabling within a subscriber's place of business or premises, hosting services, transmission services, Primary Rate Interface (“PRI”) and other fixed-line communications solution services; (c) International Long Distance services (“ILD”): outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services; (d) Television services over the Internet (“TV”); (e) Connections and data transfer services provided to international telecommunications operators over the fiber-optic infrastructure.
The cellular segment and the fixed-line segment also include sales and leasing of telecommunications, audio visual and related devices: mainly cellular handsets, tablets (handheld computers), laptops, landline phones, modems, datacards, domestic routers, servers and related equipment, integration project hardware and a variety of digital audio visual devices and small household appliances including smart watches, car dashboard cameras, televisions, digital cameras, games consoles, audio accessories and other devices.
Each segment is divided into services and equipment revenues, and the related cost of revenues. The operating segments include the following measures: revenues, cost of revenues, operating profit (see note 5(2)). The CODM does not examine assets or liabilities for the segments separately for the purposes of allocating resources and assessing performance of the operating segments and they are not therefore presented in note 5 segment information.
F - 13
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 1 -GENERAL (continued)
c.Group licenses
The Group operates under the following licenses that were received from the Israeli Ministry of Communications ("MOC"), the Israeli Civil Administration ("CA") and the Israeli Electricity Authority ("EA"):
Type of services | Area of service | License owner | Granted by | License valid through | Guarantees made Dec 31, 2021 (NIS millions) | |
(1) | Cellular | Israel | Partner Communications Company Ltd. | MOC | Feb, 2032 | 21** |
(2) | Cellular | West Bank | Partner Communications Company Ltd. | CA | Feb, 2032 | 4 |
(3) | Cellular infrastructure | Israel | P.H.I Networks (2015) Lp. | MOC | Aug, 2025 | |
(4) | ISP | Israel | Partner Communications Company Ltd. | MOC | Mar, 2023 | |
(5) | ISP | West Bank | Partner Communications Company Ltd. | CA | Mar, 2023 | |
(6) | Fixed (incl. ISP, ILD, NTP) | Israel | Partner Land-line Communication Solutions - Limited Partnership | MOC | Jan, 2027 | 2 |
(7) | Fixed (incl. ISP, ILD, NTP) | West Bank | Partner Land-line Communication Solutions - Limited Partnership | CA | Jan, 2027 | * |
(8) | Electric Energy | Israel | Partner Communications Company Ltd. | EA | Oct, 2026 | 2 |
* | Representing an amount of less than 1 million. |
** | Including guarantees of NIS 16 million with respect to the frequencies tender, see note 17(1). |
The Group also has a trade license that regulates issues of servicing and trading of equipment, and a number of encryption licenses that permits dealing with means of encryption within the framework of providing radio telephone services to the public.
On October 18, 2021, the Minister of Energy granted Partner a license to supply electricity without means of production (the "License"). The License will allow the Company to purchase electricity for sale to consumers that have online meters. The License is granted to Partner for a period of 5 years.
With respect to license (1): On November 2021 the cellular license was extended by the MOC for an additional 10 year period until February 1, 2032. See also note 2(f) with respect to changes in accounting estimate made to the estimated useful life of the 2G and 3G frequencies. License (2) follows license (1).
The other licenses may be extended for various periods, at the discretion of the MOC, CA or EA, respectively.
See also note 17(5) as to additional guarantees made to third parties.
F - 14
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES
a.Basis of preparation of the financial statements
(1)Basis of preparation
The consolidated financial statements of the Company ("the financial statements") have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).
The principal accounting policies set out below have been consistently applied to all periods presented unless otherwise stated.
(2)Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates, and requires management to exercise its judgment in the process of applying the Group's accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.
F - 15
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
b.Foreign currency translations
(1)Functional and presentation currency
The consolidated financial statements are measured and presented in New Israeli Shekels ("NIS"), which is the Group's functional and presentation currency as it is the currency of the primary economic environment in which the Group operates. The amounts presented in NIS millions are rounded to the nearest NIS million.
(2)Transactions and balances
Foreign currency transactions are translated into NIS using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement in finance costs, net.
(3)Convenience translation into U.S. Dollars (USD or $ or dollar)
The NIS figures at December 31, 2021 and for the period then ended have been translated into dollars using the representative exchange rate of the dollar at December 31, 2021 (USD 1 = NIS 3.110). The translation was made solely for convenience, is supplementary information, and is distinguished from the financial statements. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars.
c.Interests in other entities
(1)Subsidiaries
The consolidated financial statements include the accounts of the Company and entities controlled by the Company. Control exists when the Company has the power over the investee; has exposure, or rights, to variable returns from involvement in the investee; and has the ability to use its power over the investee to affect its returns. Subsidiaries and partnerships are fully consolidated from the date on which control is transferred to the Company.
Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated in preparing the consolidated financial statements.
Non-controlling interests in the results and equity of a subsidiary are shown separately in the consolidated statements of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively.
List of wholly owned Subsidiaries and partnerships:
■
012 Smile Telecom Ltd.
■
012 Telecom Ltd.
■
Partner Land-Line Communication Solutions - Limited Partnership
■
Partner Future Communications 2000 Ltd. ("PFC")
■
Get Cell Communication Products Limited Partnership
■
Partner Business Communications Solution - Limited Partnership – not active
F - 16
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
c.Interests in other entities (continued)
(2)Investment in PHI
In November 2013, the Company and Hot Mobile Ltd. entered into a network sharing agreement ("NSA") and a right of use agreement. Pursuant to the NSA, the parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership ("PHI"), which operates and develops a radio access network shared by both parties, starting with a pooling of both parties' radio access network infrastructures creating a single shared pooled radio access network. PHI began its operations in July 2015, managing the networks.
The control over PHI is borne 50-50 by the Company and Hot Mobile, each nominates an equal number of directors (3 directors). Decisions about the relevant activities of PHI require the unanimous consent of the Parties, PHI is considered a joint arrangement controlled by the Company and Hot Mobile (joint control). The activities of the joint arrangement are primarily designed for the provision of output to the Parties. The joint arrangement terms give the Parties rights to the assets, and obligations for the liabilities and expenses of PHI. Furthermore the Parties have rights to substantially all of the economic benefits of PHI's assets. PHI's liabilities are in substance satisfied by the cash flows received from the Parties, as the Parties are substantially the source of cash flows contributing to the continuity of the operations of PHI. The Company accounts for its rights in the assets of PHI and obligations for the liabilities and expenses of PHI as a joint operation, recognizing its share in the assets, liabilities, and expenses of PHI. See also note 9.
d.Inventories
Inventories of equipment: cellular handsets and fixed telephones, tablets, laptops, datacards, servers, spare parts, ISP modems, related equipment, accessories and other inventories are stated at the lower of cost or net realizable value. Cost is determined on the "first-in, first-out" basis. The Group determines its allowance for inventory obsolescence and slow moving inventory based upon past experience, expected inventory turnover, inventory ageing and current and future expectations with respect to product offerings.
e.Property and equipment
Property and equipment are initially stated at cost.
Costs are included in the assets' carrying amounts or recognized as separate assets, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance that do not meet the above criteria are charged to the statement of income during the financial period in which they are incurred.
Costs include expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
Property and equipment are presented less accumulated depreciation, and accumulated impairment losses. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see note 2(i)). The useful economic lives of the Group's non-financial assets are reviewed annually, see note 4(1).
F - 17
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
e.Property and equipment (continued)
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows:
years | ||
Communications network: | ||
Physical layer and infrastructure | 10 - 25 (mainly 15, 10) | |
Other Communication network | 3 - 15 (mainly 5, 10, 15) | |
Computers, software and hardware for information systems | 3-10 (mainly 3-5) | |
Office furniture and equipment | 7-15 | |
Optic fibers and related assets | 7-25 (mainly 25) | |
Subscribers equipment and installations | 2 - 5 | |
Property | 25 |
Leasehold improvements are depreciated by the straight-line method over the term of the lease (including reasonably assured option periods), or the estimated useful life (between 5 to 10 years) of the improvements, whichever is shorter.
f.Licenses and other intangible assets
(1)Licenses costs and amortization (see also note 1(c)):
(a)The licenses to operate cellular communication services (and related frequencies purchase costs) were recognized at cost (mainly the costs of frequencies allocated to to the Company). Borrowing costs which served to finance the license fee - incurred until the commencement of utilization of the license - were capitalized to cost of the license.
The costs of the 2G and 3G frequencies allocated to the Company are depreciated up to Dec 31, 2030; see also change in estimate below. The costs of certain 4G frequencies allocated to the Company are depreciated up to Aug 9, 2025. The costs of the other frequencies allocated to the Company following the 5G frequencies tender (see note 17(1)) are depreciated up to Sep 29, 2035 and Sep 29, 2030.
(b)Partner Land-line Communication solutions – limited partnership's license for providing fixed-line communication services is stated at cost.
The other licenses of the Group were received with no significant costs.
F - 18
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
f.Licenses and other intangible assets (continued)
Changes in an accounting estimate:
Management has updated an accounting estimate in 2019 as follows: The estimated useful life of the cellular license was determined in the past to end by February 1, 2022. According to applicable law existed in 2019, the Company's cellular license could be extended for additional 6-year periods, subject to the requirements set in the license.
The MOC published a tender during 2019 for the award of frequencies, including frequencies for 5G services. Following the tender published, Management made an annual examination of the estimated useful life of the license in the fourth quarter of 2019 with the expectation that conditions necessary to obtain renewal of the license will be satisfied and that the cost of renewal will not be significant. The tender includes 2x30 MHz in the 700 MHz Band, 2x60 MHz in the 2,600MHz band and 300 MHz in the 3,500-3,800 MHz band. The frequencies in the 700 MHz band were offered for a period of 15 years and the rest of the frequencies offered in the tender were offered for a period of 10 years. See also note 17(1) for the results of the frequencies tender.
Based on Company's judgment described above, the Company expected in 2019 that the license would be renewed at a high level of certainty: the Company estimated in 2019 that based on its experience and acquaintance with the communications market in Israel, if current conditions continue, there is a high probability that the license will be extended for the additional term of 6 years. Following this examination, the estimated useful life of the 2G and 3G frequencies was re-evaluated for an additional period of 6 years, thereby ending on February 1, 2028. The effect of these changes on the consolidated financial statements were as follows: the amortization expenses of the cellular license were reduced by NIS 15 million in the fourth quarter of 2019, by NIS 60 million in 2020, and by approximately NIS 60 million in 2021.
On September 29, 2020 the Company's cellular license was amended (amendment number 107), whereby the Company is entitled to request an extension of the license for additional periods of ten years instead of six years, at the discretion of the MOC and CA. See information with respect to the extension provisions in note 1(c). On receipt of the license amendment, and with respect to the high probability judgment that remained the same, the estimated life of the 2G and 3G frequencies were re-valuated for an additional period of 4 years, thereby ending on February 1, 2032. The effect of these changes on the consolidated financial statements (in addition to the 2019 abovementioned change in estimate) were as follows: the amortization expenses of the cellular license were reduced in the fourth quarter of 2020 by NIS 2 million, and were reduced by an annual amount of approximately NIS 8 million 2021. See also note 4(1).
F - 19
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
f.Licenses and other intangible assets (continued)
Changes in an accounting estimate (continued)
In June 2021 the Company received a decision of the MOC setting the frequencies allotments that were allocated at the time for the 2G and 3G networks (in the 900, 1800 and 2100 Mhz bands) for usage that will also be allowed with more advanced technologies, until December 31, 2030. Following the decision the Company revised the useful life of the 2G and 3G frequencies to end by December 31, 2030. The change in estimate did not have a material effect on the amortization expenses. The decision also included the termination of the 2G and 3G networks by December 31, 2025. The decision to terminate the 2G and 3G networks by the end of December 31, 2025 did not have a material effect on depreciation expenses.
The other licenses are amortized by the straight-line method over their useful lives (see note 1(c)) which exclude any ungranted possible future extensions that are not under the Group's control.
The amortization expenses are included in the cost of revenues.
(2)Computer software:
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and to bring to use the specified software.
Development costs, including employee costs, that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the capitalization criteria under IAS 38 are met. Other development expenditures that do not meet the capitalization criteria, such as software maintenance, are recognized as expenses as incurred.
Computer software costs are amortized over their estimated useful lives (3 to 10 years, mainly 3 years) using the straight-line method, see also note 11.
(3)Capitalization of costs to obtaining customers contracts:
Costs of obtaining contracts with customers are recognized as assets when the costs are incremental to obtaining the contracts, and it is probable that the Group will recover these costs. The assets are amortized to selling and marketing expenses in accordance with the expected service period (mainly over 2-3 years), using the portfolio approach, see also notes 4(1) and 11. Other costs incurred that would arise regardless of whether a contract with a customer was obtained are recognized as an expense when incurred.
F - 20
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
g.Deferred expenses - Right Of Use (ROU)
Right of use (ROU) of capacity over international fiber optic cables was acquired in a business combination, subsequent additions and right of use in PHI's assets are recognized at cost. The ROU is presented as deferred expenses (current and non-current) and is amortized to cost of revenues on a straight line basis over a period beginning each acquisition of additional ROU in this framework and until 2030 (including expected contractual extension periods). See also notes 12 and 17(4).
h.Goodwill
Goodwill acquired in a business combination represents the excess of the consideration transferred over the net fair value of the identifiable assets acquired, and identifiable liabilities and contingent liabilities assumed. The goodwill has an indefinite useful economic life and is not subject to amortization; rather is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to a group of cash-generating units (CGUs) under the fixed line segment that is expected to benefit from the synergies of the combination. The group of CGUs represents the lowest level within the entity which the goodwill is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Any impairment loss would be recognized for the amount by which the carrying amount of goodwill exceeded its recoverable amount. The recoverable amount is the higher of value-in-use and the fair value less costs of disposal. Value-in-use is determined by discounting expected future cash flows using a pre-tax discount rate. Any impairment is recognized immediately as an expense and is not subsequently reversed. See also note 13(1) with respect to impairment tests.
F - 21
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
i.Impairment tests of non-financial assets with finite useful economic lives
Assets that are subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If such indications exist an impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs. The recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. Value-in-use is determined by discounting expected future cash flows using a pre-tax discount rate.
An impairment loss recognized for an asset (or CGU) other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset's (or CGU's) recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset (or CGU) shall be increased to its recoverable amount. The increased carrying amount of an asset (or CGU) other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in the statement of income.
j.Financial instruments
The Group applies IFRS 9 and classifies its financial instruments in the following categories: (1) amortized cost (AC), (2) at fair value through profit or loss (FVTPL: Financial liability at fair value (see note 15) and embedded derivatives). The classification depends on the business model for managing the financial instruments and the contractual terms of the cash flows. See note 6(c) as to classification of financial instruments to the categories.
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Financial assets are classified as current if they are expected to mature within 12 months after the end of the reporting period; otherwise they are classified as non-current.
Financial liabilities are included in current liabilities, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current liabilities. See also note 15.
F - 22
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
j.Financial instruments (continued)
(1)FVTPL category:
Gains or losses arising from changes in the fair value of embedded derivative financial instruments and financial liability at fair value are presented in the income statement within "finance costs, net" in the period in which they arise. These financial instruments are classified into 3 levels based on their valuation method (see also notes 6(c), 6(a)(2)(c)):
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly (as prices) or indirectly (derived from prices).
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for financial liability at fair value.
(2)Amortized cost category:
The Group classifies its financial assets, such as trade receivables, at amortized cost only if both of the following criteria are met: (1) the asset is held within a business model whose objective is to collect the contractual cash flows, and (2) the contractual terms give rise to cash flows that are solely payments of principal and interest. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from trade receivables is included in the income statement under other income, net (see note 23) using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented in finance income/expense together with foreign exchange gains and losses. Impairment expenses (credit losses) are presented as separate line item in the statement of profit or loss.
Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal or use.
Short term deposits, are deposits in commercial banks for periods of more than 3 months from date of deposit and less than 12 months from the reporting date.
Long term deposits, are deposits in commercial banks for periods of more than 12 months from the reporting date.
F - 23
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
j.Financial instruments (continued)
Financial assets at amortized cost are presented net of impairment losses:
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired based on the expected credit loss model. The assets that are subject to the expected credit loss model are mainly the trade receivables. While cash and cash equivalents, short-term and long-term deposits and contract assets are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables and contract assets the Group applies IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and period of payments and period past due. The expected loss rates are based on the payment profiles of sales, and the corresponding historical credit losses experienced. The historical loss rates are adjusted to reflect current and forward-looking information on factors affecting the ability of the customers to settle the receivables.
Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan, and results of legal proceedings.
Financial liabilities, such as borrowings and notes payable, are initially recognized at fair value, net of transaction costs incurred, and subsequently measured at amortized cost. Any difference between the fair value (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method.
Offsetting:
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when the Group has currently a legal enforceable right to offset the recognized amounts and has an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legal enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.
F - 24
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
k.Employee benefits
(i)Post-employment benefits
1.Defined contribution plan
According to Section 14 of the Israeli Severance Pay Law the Group's liability for some of the employee rights upon retirement is covered by regular contributions to various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds. These plans are defined contribution plans, since the Group pays fixed contributions into a separate and independent entity. The Group has no legal or constructive obligations to pay further contribution if the fund does not hold sufficient assets to pay all employees the benefit relating to employee service in the current or prior periods. The amounts funded as above are not reflected in the statement of financial position. Obligations for contributions to defined contribution pension plans are recognized as an expense in the statement of income when they are due.
2.Defined benefit plan
Labor laws, agreements and the practice of the Group, require paying retirement benefits to employees dismissed or retiring in certain other circumstances (except for those described in 1 above), measured by multiplying the years of employment by the last monthly salary of the employee (i.e. one monthly salary for each year of tenure), the obligation of the Group to pay retirement benefits is treated as a defined benefit plan.
The liability recognized in the statement of financial position in respect of the defined benefit plan is the present value of the defined benefit obligation at end of the reporting period less the fair values of plan assets.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. According to IAS 19 employee benefits, the present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of deep market for high-quality corporate bonds.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Interest costs in respect of the defined benefit plan are charged or credited to finance costs. See also note 16.
F - 25
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
k.Employee benefits (continued)
(ii)Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably legally or constructively committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
(iii)Short term employee benefits
1.Vacation and recreation benefits
The employees are legally entitled to vacation and recreation benefits, both computed on an annual basis. This entitlement is based on the term of employment. This obligation is treated as a short term benefit under IAS 19. The Group charges a liability and expense due to vacation and recreation pay, based on the benefits that have been accumulated for each employee, on an undiscounted basis.
2.Profit-sharing and bonus plans
The Group recognizes a liability and an expense for bonuses based on consideration of individual performance and the Group's overall performance. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
3.Other short term benefits
The Group recognized expenses for other short term benefits provided by the collective employment agreement (see also note 22(e)).
l.Share based payments
The Group operates an equity-settled share-based compensation plan to its employees, under which the Group receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the equity instruments is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the equity instruments granted, at the grant date. Non-market vesting conditions (performance conditions) are included among the assumptions used to estimate the number of options expected to vest. The total expense is recognized during the vesting period, which is the period over which all of the specified vesting conditions of the share-based payment are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of equity instruments that are expected to vest based on the vesting conditions, and recognizes the impact of the revision of original estimates, if any, in the statement of income, with corresponding adjustment to accumulated earnings. See also note 21.
F - 26
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
m.Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will require settling the obligation, and the amount has been reliably estimated. See note 14.
(1)In the ordinary course of business, the Group is involved in a number of lawsuits and litigations. The costs that may result from these lawsuits are only accrued for when it is probable that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, and events arising during the course of legal proceedings that may require a reassessment of this risk, and where applicable discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The Group's assessment of risk is based both on the advice of legal counsel and on the Group's estimate of the probable settlements amount that are expected to be incurred, if any. See also note 20.
(2)The Company is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. The dismantling costs are calculated according to best estimate of future expected payments discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as finance costs.
(3)Provisions for equipment warranties include obligations to customers in respect of equipment sold and maintenance contracts. Where there are a number of similar obligations, the likelihood that an outflow will be required in a settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same class of obligations may be small.
F - 27
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
n.Revenues
The revenue recognition standard IFRS 15, Revenue from Contracts with Customers, and its clarifications ("IFRS 15", "The Standard") outlines a single comprehensive model of accounting for revenue arising from contracts with customers. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount:
1)
Identifying the contract with the customer.
2)
Identifying separate performance obligations in the contract.
3)
Determining the transaction price.
4)
Allocating the transaction price to separate performance obligations.
5)
Recognizing revenue when the performance obligations are satisfied.
(1) Identifying the contract with the customer
Two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) are accounted for as a single contract if one or more of the following criteria are met:
a.
The contracts are negotiated as a package with a single commercial objective;
b.
The amount of consideration to be paid in one contract depends on the price or performance of the other contract;
c.
The goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation.
Additions of distinct goods or services at their stand-alone sale price are treated as separate contracts.
(2) Identifying performance obligations
The Group assesses the goods or services promised in the contract with the customer and identifies as performance obligation any promise to transfer to the customer one of the following:
(a)
Goods or services (or a bundle of goods or services) that are distinct; or
(b)
A series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer.
Goods or services are identified as being distinct when the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and the Group’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. An option that grants the customer the right to purchase additional goods or services constitutes a separate performance obligation in the contract only if the options grant the customer a material right it would not have received without the original contract.
The performance obligations are mainly services, equipment and options to purchase additional goods or services that provide a material right to the customer.
F - 28
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
n.Revenues (continued)
(3) Determining the transaction price
The transaction price is the amount of consideration that the Group expects to receive for the transfer of the goods or services specified in a contract with the customer, taking into account rebates and discounts, excluding amounts collected on behalf of third parties, such as value added taxes.
The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component (such as sales of equipment with non-current credit arrangements, mainly in 36 monthly installments). The Group applies a practical expedient in the standard and does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the Group expects the period between customer payment and the transfer of goods or services to be one year or less. The financing component is recognized in other income-net over the period which is calculated according to the effective interest method. See also note 23 – unwinding of trade receivables and note 7(a).
(4) Allocating the transaction price to separate performance obligations
In a transaction that constitutes a revenue arrangement with multiple performance obligations, the transaction price is allocated to separate performance obligations based of their relative stand-alone selling prices.
A discount is allocated to one or more, but not all, performance obligations in the contract if (a) the Group regularly sells each distinct good or service (or each bundle of distinct goods or services) in the contract on a stand-alone basis, (b) the Group also regularly sells on a stand-alone basis a bundle (or bundles) of some of those distinct goods or services at a discount to the stand-alone selling prices of the goods or services in each bundle; and (c) the discount attributable to each bundle in 'b' above is substantially the same as the discount in the contract and an analysis of the goods or services in each bundle provides observable evidence of the performance obligation (or performance obligations) to which the entire discount in the contract belongs.
(5) Satisfaction of performance obligations
The Group recognizes revenue when it satisfies performance obligations by transferring control over the goods or services to the customers.
Revenues from services and from providing rights to use the Group's assets, (see note 1(b)) (either month-by-month or long term arrangements) are recognized over time, as the services are rendered to the customers, since the customer receives and uses the benefits simultaneously, and provided that all other revenue recognition criteria are met.
Revenue from sale of equipment (see note 1(b)) is recognized at a point of time when the control over the equipment is transferred to the customer (mainly upon delivery) and all other revenue recognition criteria are met.
F - 29
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
n.Revenues (continued)
(6) Principal – Agent consideration
The Group determines whether it is acting as a principal or as an agent for each performance obligation. The Group is acting as a principal if it controls a promised good or service before they are transferred to a customer. Indicators for acting as a principal include: (1) the Group is primarily responsible for fulfilling the promise to provide the specified good or service, (2) the Group has inventory risk in the specified good or service and (3) the Group has discretion in establishing the price for the specified good or service. On the other hand, the Group is acting as an agent or an intermediary, if these criteria are not met. When the Group is acting as an agent, revenue is recognized in the amount of any fee or commission to which the Group expects to be entitled in exchange for arranging for the other party to provide its goods or services. A Group’s fee or commission might be the net amount of consideration that the Group retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party. The Group determined that it is acting as an agent in respect of certain content services provided by third parties to customers; therefore the revenues recognized from these services are presented on a net basis in the statement of income.
(7) Recognition of receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are recognized when the control over the goods or services is transferred to the customer, and at the amount that is unconditional because only the passage of time is required before the payment is due. The Group holds the trade receivables with the objective to collect the contractual cash flows, and the contractual terms give rise to cash flows that are solely payments of principal and interest. Therefore they are subsequently measured at amortized cost using the effective interest method. See also note 7 and also note 6(a)(3) regarding trade receivables credit risk.
(8) Recognition of contract assets and contract liabilities
A contract asset is a Group’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the Group’s future performance).
A contract liability is a Group’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer; therefore the Group records contract liabilities for payments received in advance for services, such as transmission services and pre-paid calling cards, as deferred revenues until such related services are provided.
Contract assets and contract liabilities arising from the same contract are offset and presented as a single asset or liability.
F - 30
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
n.Revenues (continued)
(9) Other practical expedients implemented:
The Group applies IFRS 15 practical expedient to the revenue model to a portfolio of contracts with similar characteristics if the Group reasonably expects that the financial statement effects of applying the model to the individual contracts within the portfolio would not differ materially.
The Group applies a practical expedient in the standard and measures progress toward completing satisfaction of a performance obligation and recognizes revenue based on billed amounts if the Group has a right to invoice a customer at an amount that corresponds directly with its performance to date; for which, or where the original expected duration of the contract is one year or less, the Group also applies the practical expedient in the standard and does not disclose the transaction price allocated to unsatisfied, or partially unsatisfied, performance obligations, such as constrained variable consideration.
The Group applies in certain circumstances where the customer has a material right to acquire future goods or services and those goods or services are similar to the original goods or services in the contract and are provided in accordance with the same terms of the original contract, a practical alternative to estimating the stand-alone selling price of the customer option, and instead allocates the transaction price to the optional goods or services by reference to the goods or services expected to be provided and the corresponding expected consideration.
(10) Capitalization of contract costs
The main effect of the Group’s application of IFRS 15 is the accounting treatment for the incremental costs of obtaining contracts with customers, which in accordance with IFRS 15, are recognized as assets under certain conditions, see notes 2(f)(3) and 11. Contract costs that were recognized as assets are presented in the statements of cash flows as part of cash flows used in investing activities.
See additional information with respect to revenues in note 22(a).
F - 31
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
o.Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Group as lessee:
According to IFRS 16 Leases, the Group applies a single recognition and measurement approach for all leases, except for low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
The Group applied the following practical expedients:
Non-lease components: practical expedient by class of underlying asset not to separate non-lease components (services) from lease components and, instead, account for each lease component and any associated non lease components as a single lease component.
Discount rate: The lease payments are discounted using the lessee’s incremental borrowing rate, since the interest rate implicit in the lease cannot be readily determined. The lessee’s incremental borrowing rate is the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. However, the Group is using the practical expedient of accounting together a portfolio of leases with similar characteristics provided that it is reasonably expected that the effects on the financial statements of applying this standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio. And using a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment). The discount rates were estimated by management with the assistance of an independent external expert.
Low-value leases: The low-value leases practical expedient is applied and these leases are recognized on a straight-line basis as expense in profit or loss.
The practical expedient for short-term leases is not applied.
F - 32
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
o.Leases (continued)
Group as lessee (continued):Lease liabilities measurement:
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include: fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payment that are based on an index or a rate (such as CPI), amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option, and lease payments (principal and interest) to be made under reasonably certain extension options.
The lease liability is subsequently measured according to the effective interest method, with interest costs recognized in the statement of income as incurred. The amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset. The Group is exposed to potential future changes in lease payments based on linkage to the CPI index, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are presented in the statement of cash flows under the cash used in financing activities. Lease payments are allocated between principal and finance cost. The finance cost is charged to the statement of income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets measurement:
The Group recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date, estimated dismantling and restoring costs, less any lease incentives received.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term (including reasonably certain extension periods) on a straight-line basis, and adjusted for any remeasurements of lease liabilities. As follows:
Buildings 2 – 15 years
Cell sites 2 – 10 years
Vehicles 1 – 3 years
F - 33
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
o.Leases (continued)
Group as lessor:
The cellular segment and the fixed-line segment also include leasing of telecommunications, audio visual and related devices (see note 1(b)). Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Lease income from operating leases where the Group is a lessor is recognized in income on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature. See note 22(a).
p.Tax expenses
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted as of the end of the reporting period. Management periodically evaluates positions taken with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized on temporary differences arising between that tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognized if they arise from initial recognition of goodwill. Deferred income tax is determined using the tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets are presented as non-current, see also note 25. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity where there is an intention to settle the balances on a net basis.
F - 34
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)
q.Share capital
Ordinary shares are classified as equity.
Company's shares acquired by the Company (treasury shares) are presented as a reduction of equity, at the consideration paid, including any incremental attributable costs, net of tax. Treasury shares do not have a right to receive dividends or to vote. See also note 21(a).
r.Earnings Per Share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume exercise of all dilutive potential ordinary shares. The instruments that are potential dilutive ordinary shares are equity instruments granted to employees, see note 21(b). A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options (see also note 27).
s.Government grants
Government grants relating to the purchase of assets (see note 17, in respect of the frequencies tender) are presented in the statement of financial position as a deduction to the carrying amount of the asset and they are credited to profit or loss on a straight-line basis over the expected lives of the related assets.
F - 35
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 3 -RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
(1)The following relevant new standards, amendments to standards or interpretations have been issued, and were effective for the first time for financial periods beginning on or after January 1, 2021:
Covid-19-Related Rent Concessions – amendments to IFRS 16
In May 2020, the IASB amended IFRS 16 Leases which provides lessees with an option to treat qualifying rent concessions in the same way as they would if they were not lease modifications. The expedient initially only applied to reductions in lease payments due on or before June 30, 2021, but that date was subsequently extended to June 30, 2022 through further amendments made in March 2021. This resulted in accounting for concessions received in an immaterial amount as variable lease payments in the period in which they are granted. The expedient was applied to all qualifying rent concessions.
(2)The following new standards and amendments to standards are not effective in 2021
Classifying liabilities as current or non-current
In January 2020, the IASB issued amendment to IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: the definition of a right to defer a settlement, that a right to defer must exist at the end of the reporting period, that classification is unaffected by the likelihood that an entity will exercise its deferral right, that only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification. The amendment is effective for annual periods beginning on or after January 1, 2023. At this stage the Company cannot evaluate the effect of the amendment on the financial statements.
Disclosure of Accounting Policies
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgments, in which it provides guidance to help entities apply materiality judgments to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures. The amendments to IAS 1 are applicable for annual periods beginning on or after January 1, 2023 with earlier application permitted. The Group is currently assessing the impact of the amendments to determine the impact they will have on the Group’s accounting policy disclosures.
Assessing contingent liabilities
In May 2020, the IASB issued amendments to IAS 37, ‘Provisions, contingent liabilities and contingent assets’ specify which costs a company includes when assessing whether a contract will be loss-making. The amendment is effective for annual periods beginning on or after January 1, 2022. The amendment is not expected to have a material effect on the financial statements.
Deferred tax assets and liabilities
In May 2020, the IASB issued Amendment to IAS 12 – deferred tax related to assets and liabilities arising from a single transaction. These amendments require companies to recognize deferred tax on transactions that, on initial recognition give rise to equal amounts of taxable and deductible temporary differences. The amendment is effective for annual periods beginning on or after January 1, 2023. The amendment is not expected to have a material effect on the financial statements.
F - 36
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 4 -CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
(1)Assessing the useful lives of non-financial assets:
The useful economic lives of the Group's property and equipment are an estimate determined by management. The Group defines useful economic life of its assets in terms of the assets' expected utility to the Group. This estimation is based on assumptions of future changes in technology or changes in the Group's intended use of these assets, experience of the Group with similar assets, and legal or contract periods where relevant.
The useful economic lives of the Group's intangible assets are an estimate determined by management based on assumptions of future changes in technology, legal rights, experience of customer's behavior, and experience of the Group with similar assets where relevant. The assets estimated economic useful lives are reviewed, and adjusted if appropriate, at least annually. See also note 2(f).
(2)Assessing the recoverable amount for impairment tests of non-financial assets :
The Group is required to determine at the end of each reporting period whether there is any indication that an asset may be impaired. If indicators for impairment are identified the Group estimates the assets' recoverable amount, which is the higher of an asset's fair value less costs to sell and value in use. The value-in-use calculations require management to make estimates of the projected future cash flows. Determining the estimates of the future cash flows is based on management past experience and best estimate for the economic conditions that will exist over the remaining useful economic life of the Cash Generating Unit (CGU). See also notes 2(i), and 13.
Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts in future periods. See also note 2(i).
Continued increases in the level of competition for cellular and fixed-line services may bring further downward pressure on prices which may require us to perform further impairment tests of our assets. Such impairment tests may lead to recording additional significant impairment charges, which could have a material negative impact on our operating and profit.
F - 37
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 4 -CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(3)Assessing the recoverable amount for impairment tests of goodwill:
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. The recoverable amount of the fixed-line segment to which goodwill has been allocated has been determined based on value-in-use calculations. For the purpose of the goodwill impairment tests as of December 31, 2019, 2020 and 2021 the recoverable amount was assessed by management with the assistance of external independent experts (BDO Ziv Haft Consulting & Management Ltd.) based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The terminal growth rate represents the long-term average growth rate of the fixed-line communications services business.
The key assumptions used in the December 31, 2021 test were as follows:
Terminal growth rate | 1 | % |
After-tax discount rate | 7 | % |
Pre-tax discount rate | 8.5 | % |
The impairment test as of December 31, 2021 was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts. See also note 13(1) and note 2(h). No impairment charges were recognized with respect to goodwill in 2019, 2020 and 2021.
Sensitivity Analysis:
The headroom of the fixed line segment recoverable amount over the carrying amount as of December 31, 2019, 2020 and 2021 was approximately 42%, 37% and 52% respectively.
Sensitivity analysis was performed for the recoverable amount as of December 31, 2021 for a change of the after-tax discount rate within the range of ± 10% multiplied by the variable 7% (6.3% to 7.7%), assuming all other variables constant. Sensitivity analysis was also performed for a change of the terminal growth rate within the range of ± 1% of the variable 1.0% (0% to 2%), assuming all other variables constant. Results showed that no impairment charge is required for both analyses.
F - 38
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 4 -CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(4)Assessing impairment of financial assets:
The allowance for credit losses for financial assets is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. Individual receivables which are known to be uncollectable are written off by reducing the carrying amount directly. The other receivables are assessed collectively, grouped based on shared credit risk characteristics and the days past due.
The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables and contract assets with and without significant financing components, the Group applies IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and period past due. The expected loss rates are based on the payment profiles of sales, and the corresponding historical credit losses experienced. The historical loss rates are adjusted to reflect current and forward-looking information on factors affecting the ability of the customers to settle the receivables. See notes 7, 6(a)(3), 2(j).
(5)Considering the likelihood of contingent losses and quantifying possible legal settlements:
Provisions are recorded when a loss is considered probable and can be reasonably estimated. Judgment is necessary in assessing the likelihood that a pending claim or litigation against the Group will succeed, or a liability will arise, quantifying the best estimate of final settlement. These judgments are made by management with the support of internal specialists, or with the support of outside consultants such as legal counsel. Because of the inherent uncertainties in this evaluation process, actual results may be different from these estimates. See notes 2(m), 14 and 20.
F - 39
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 5 -SEGMENT INFORMATION
New Israeli Shekels | ||||||||||||||||
Year ended December 31, 2021 | ||||||||||||||||
In millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue - Services | 1,687 | 948 | 2,635 | |||||||||||||
Inter-segment revenue - Services | 12 | 118 | (130 | ) | ||||||||||||
Segment revenue - Equipment | 602 | 126 | 728 | |||||||||||||
Total revenues | 2,301 | 1,192 | (130 | ) | 3,363 | |||||||||||
| ||||||||||||||||
Segment cost of revenues - Services | 1,204 | 952 | 2,156 | |||||||||||||
Inter-segment cost of revenues- Services | 117 | 13 | (130 | ) | ||||||||||||
Segment cost of revenues - Equipment | 498 | 78 | 576 | |||||||||||||
Cost of revenues | 1,819 | 1,043 | (130 | ) | 2,732 | |||||||||||
Gross profit | 482 | 149 | 631 | |||||||||||||
| ||||||||||||||||
Operating expenses (1) | 302 | 194 | 496 | |||||||||||||
Other income, net | 17 | 11 | 28 | |||||||||||||
Operating profit (loss) | 197 | (34 | ) | 163 | ||||||||||||
| ||||||||||||||||
Reconciliation to profit for the year: | ||||||||||||||||
Finance costs, net | (64 | ) | ||||||||||||||
Income tax income | 16 | |||||||||||||||
Profit for the year | 115 | |||||||||||||||
| ||||||||||||||||
Depreciation and amortization included in the segment's operating profit | 410 | 334 | 744 |
(1) | Operating expenses include selling and marketing expenses, general and administrative expenses and credit losses. |
F - 40
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 5 -SEGMENT INFORMATION (continued)
New Israeli Shekels | ||||||||||||||||
Year ended December 31, 2020 | ||||||||||||||||
In millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue - Services | 1,647 | 861 | 2,508 | |||||||||||||
Inter-segment revenue - Services | 16 | 132 | (148 | ) | ||||||||||||
Segment revenue - Equipment | 545 | 136 | 681 | |||||||||||||
Total revenues | 2,208 | 1,129 | (148 | ) | 3,189 | |||||||||||
| ||||||||||||||||
Segment cost of revenues - Services | 1,272 | 856 | 2,128 | |||||||||||||
Inter-segment cost of revenues- Services | 131 | 17 | (148 | ) | ||||||||||||
Segment cost of revenues - Equipment | 451 | 85 | 536 | |||||||||||||
Cost of revenues | 1,854 | 958 | (148 | ) | 2,664 | |||||||||||
Gross profit | 354 | 171 | 525 | |||||||||||||
| ||||||||||||||||
Operating expenses (1) | 300 | 159 | 459 | |||||||||||||
Other income, net | 19 | 11 | 30 | |||||||||||||
Operating profit | 73 | 23 | 96 | |||||||||||||
| ||||||||||||||||
Reconciliation to profit for the year: | ||||||||||||||||
Finance costs, net | (69 | ) | ||||||||||||||
Income tax expenses | (10 | ) | ||||||||||||||
Profit for the year | 17 | |||||||||||||||
| ||||||||||||||||
Depreciation and amortization included in the segment's operating profit | 450 | 264 | 714 |
(1) | Operating expenses include selling and marketing expenses, general and administrative expenses and credit losses. |
F - 41
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 5 -SEGMENT INFORMATION (continued)
New Israeli Shekels | ||||||||||||||||
Year ended December 31, 2019 | ||||||||||||||||
In millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue - Services | 1,783 | 777 | 2,560 | |||||||||||||
Inter-segment revenue - Services | 15 | 148 | (163 | ) | ||||||||||||
Segment revenue - Equipment | 571 | 103 | 674 | |||||||||||||
Total revenues | 2,369 | 1,028 | (163 | ) | 3,234 | |||||||||||
| ||||||||||||||||
Segment cost of revenues - Services | 1,367 | 810 | 2,177 | |||||||||||||
Inter-segment cost of revenues- Services | 147 | 16 | (163 | ) | ||||||||||||
Segment cost of revenues - Equipment | 464 | 66 | 530 | |||||||||||||
Cost of revenues | 1,978 | 892 | (163 | ) | 2,707 | |||||||||||
Gross profit | 391 | 136 | 527 | |||||||||||||
| ||||||||||||||||
Operating expenses (1) | 334 | 134 | 468 | |||||||||||||
Other income, net | 20 | 8 | 28 | |||||||||||||
Operating profit | 77 | 10 | 87 | |||||||||||||
| ||||||||||||||||
Reconciliation to profit for the year: | ||||||||||||||||
Finance costs, net | (68 | ) | ||||||||||||||
Income tax expense | 0* | |||||||||||||||
Profit for the year | 19 | |||||||||||||||
| ||||||||||||||||
Depreciation and amortization included in the segment's operating profit | 542 | 209 | 751 |
* | Representing an amount of less than NIS 1 million. |
(1) | Operating expenses include selling and marketing expenses, general and administrative expenses and credit losses. |
F - 42
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 6 -FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
a.Financial risk factors
The Group is exposed to a variety of financial risks: credit, liquidity and market risks as part of its normal course of business. The Group's risk management objective is to monitor risks and minimize the possible influence that results from this exposure, according to its evaluations and expectations of the parameters that affect the risks. The Group did not enter into hedging transactions in 2019, 2020 and 2021.
1.Risk Management
Risk management is carried out by the financial division under policies and/or directions resolved and approved by the audit and investment committee and the board of directors.
2.Market risks
(a) Description of market risks
Cash flow risk due to interest rate changes and CPI changes
The Group is exposed to fluctuations in the Israeli Consumer Price index (CPI) with respect to lease obligations, see also note 19.
Foreign exchange risk
The Group's operating profit and cash flows are exposed to currency risk, mainly due to trade receivables and trade payables denominated in USD.
F - 43
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 6 -FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a.Financial risk factors (continued)
2.Market risks (continued)
(a)Description of market risks (continued)
Data regarding the US Dollar and Euro exchange rate and the Israeli CPI:
Exchange | Exchange | |||||||||||
rate of one | rate of one | Israeli | ||||||||||
Dollar | Euro | CPI* | ||||||||||
At December 31: | ||||||||||||
2021 | NIS 3.110 | NIS 3.520 | 229.37 points | |||||||||
2020 | NIS 3.215 | NIS 3.944 | 223.11 points | |||||||||
2019 | NIS 3.456 | NIS 3.878 | 224.67 points | |||||||||
Increase (decrease) during the year: | ||||||||||||
2021 | (3.3)% | (10.8)% | 2.8% | |||||||||
2020 | (7.0)% | 1.7% | (0.7)% | |||||||||
2019 | (7.8)% | (9.6)% | 0.6% |
* Index for each reporting period's last month, on the basis of 1993 average = 100 points.
Sensitivity analysis:
An increase (decrease) of 2% in the CPI as at December 31, 2020, and 2021 would have decreased (increased) equity and profit by NIS 2 million, for each of the years ended December 31, 2020 and 2021, assuming all other variables remain constant.
An increase (decrease) of 5% in the USD exchange rate as at December 31, 2020 and 2021 would have decreased (increased) equity and profit by NIS 3 million, for each of the years ended December 31, 2020 and 2021, assuming that all other variables remain constant.
F - 44
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 6 -FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a.Financial risk factors (continued)
2.Market risks (continued)
(b)Analysis of linkage terms of financial instruments balances
December 31, 2021 | ||||||||||||||||||||
In or linked to USD | In or linked to other foreign currencies (mainly EURO) | NIS unlinked | Linked to the CPI | Total | ||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | 2 | 3 | 303 | 308 | ||||||||||||||||
Short term deposits | 14 | 330 | 344 | |||||||||||||||||
Trade receivables** | 35 | 3 | 533 | 571 | ||||||||||||||||
Other receivables | 46 | 46 | ||||||||||||||||||
| ||||||||||||||||||||
Non- current assets | ||||||||||||||||||||
Long term deposits | 280 | 280 | ||||||||||||||||||
Trade receivables | 245 | 245 | ||||||||||||||||||
Total assets | 51 | 6 | 1,737 | 0- | 1,794 | |||||||||||||||
| ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Current maturities of notes payable and borrowings | 268 | 268 | ||||||||||||||||||
Trade payables** | 127 | 13 | 565 | 705 | ||||||||||||||||
Other payables | 133 | 133 | ||||||||||||||||||
Current maturities of lease liabilities | 0* | 125 | 125 | |||||||||||||||||
| ||||||||||||||||||||
Non- current liabilities | ||||||||||||||||||||
Notes payable | 1,224 | 1,224 | ||||||||||||||||||
Borrowings from banks | 184 | 184 | ||||||||||||||||||
Lease liabilities | 2 | 593 | 595 | |||||||||||||||||
Total liabilities | 129 | 13 | 2,374 | 718 | 3,234 |
* | Representing an amount of less than 1 million |
In or linked to foreign currencies | ||||
New Israeli Shekels in millions | ||||
**Accounts that were set-off under enforceable netting arrangements | ||||
Trade receivables gross amounts | 111 | |||
Set-off | (73 | ) | ||
Trade receivables, net | 38 | |||
| ||||
Trade payables gross amounts | 213 | |||
Set-off | (73 | ) | ||
Trade payables, net | 140 |
F - 45
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 6 -FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a.Financial risk factors (continued)
2.Market risks (continued)
(b)Analysis of linkage terms of financial instruments balances (continued)
December 31, 2020 | ||||||||||||||||||||
In or linked to USD | In or linked to other foreign currencies (mainly EURO) | NIS unlinked | Linked to the CPI | Total | ||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | 2 | 4 | 370 | 376 | ||||||||||||||||
Short term deposits | 411 | 411 | ||||||||||||||||||
Trade receivables* | 29 | 7 | 524 | 560 | ||||||||||||||||
Other receivables | 7 | 7 | ||||||||||||||||||
| ||||||||||||||||||||
Non- current assets | ||||||||||||||||||||
Long term deposits | 155 | 155 | ||||||||||||||||||
Trade receivables | 232 | 232 | ||||||||||||||||||
Total assets | 31 | 11 | 1,699 | 0- | 1,741 | |||||||||||||||
| ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Current maturities of notes payable and borrowings | 290 | 290 | ||||||||||||||||||
Trade payables* | 92 | 11 | 534 | 29 | 666 | |||||||||||||||
Other payables | 70 | 70 | ||||||||||||||||||
Current maturities of lease liabilities | 1 | 119 | 120 | |||||||||||||||||
| ||||||||||||||||||||
Non- current liabilities | ||||||||||||||||||||
Notes payable | 1,219 | 1,219 | ||||||||||||||||||
Borrowings from banks | 86 | 86 | ||||||||||||||||||
Financial liability at fair value | 4 | 4 | ||||||||||||||||||
Other non-current liabilities | 30 | 30 | ||||||||||||||||||
Lease liabilities | 2 | 580 | 582 | |||||||||||||||||
Total liabilities | 95 | 11 | 2,233 | 728 | 3,067 |
In or linked to foreign currencies | ||||
New Israeli Shekels in millions | ||||
*Accounts that were set-off under enforceable netting arrangements | ||||
Trade receivables gross amounts | 104 | |||
Set-off | (68 | ) | ||
Trade receivables, net | 36 | |||
| ||||
Trade payables gross amounts | 171 | |||
Set-off | (68 | ) | ||
Trade payables, net | 103 |
F - 46
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 6 -FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a.Financial risk factors (continued)
2.Market risks (continued)
(c) Details regarding financial liability at fair value
As of December 31, 2021 there are no notional amounts of financial liability at fair value (see note 15(6)) with respect to Notes series G option. The following table describes the changes in the liability during 2020 and 2021:
New Israeli Shekels in millions |
| |||
|
| |||
Balance as at January 1, 2020 | 28 |
| ||
Finance costs | 3 |
| ||
Exercise | (27 | ) | ||
Balance as at December 31, 2020 | 4 |
| ||
Finance costs | 0* |
| ||
Exercise | (4 | ) | ||
Balance as at December 31, 2021 | 0- |
|
* | Representing an amount of less than NIS 1 million. |
3.Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's trade receivables, from cash and cash equivalents, short-term and long-term deposits and other receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group conducts credit evaluations on receivables of certain types over a certain amount, and requires collaterals against them. The impairment requirements are based on an expected credit loss model. Accordingly, the financial statements include appropriate allowances for expected credit losses. See also note 2(j)(2).
The face amount of financial assets represents the maximum credit exposure, see note 6(c).
The cash and cash equivalents and short-term and long-term deposits are held in leading Israeli commercial banks, rated by Standard & Poor's Maalot at ilAAA/stable.
Deposits at December 31, 2021 are deposited with remaining maturity of 3 to 18 months and bear annual unlinked fixed interest of between 0.25% and 0.52%.
The trade receivables are significantly widespread, and include individuals and businesses, and therefore have no representing credit rating.
See also note 7 as to the assessment by aging of the trade receivables and related allowance for credit losses.
F - 47
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 6 -FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a.Financial risk factors (continued)
4.Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation. The Group's policy is to ensure that it has sufficient cash and cash equivalents to meet expected operational expenses and financial obligations.
Maturities (undiscounted) of financial liabilities as of December 31, 2021:
2022 | 2023 | 2024 | 2025 to 2026 | 2027 and thereafter | Total | |||||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||||||
Principal payments of long term indebtedness: | ||||||||||||||||||||||||
Notes payable series F | 128 | 128 | 128 | 384 | ||||||||||||||||||||
Notes payable series G | 85 | 85 | 85 | 255 | 341 | 851 | ||||||||||||||||||
Notes payable series H | 60 | 138 | 198 | |||||||||||||||||||||
Borrowing P | 29 | 29 | ||||||||||||||||||||||
Borrowing Q | 23 | 23 | 11 | 57 | ||||||||||||||||||||
Borrowing R | 45 | 105 | 150 | |||||||||||||||||||||
Expected interest payments of long term borrowings and notes payables | 49 | 44 | 37 | 57 | 30 | 217 | ||||||||||||||||||
Lease liabilities | 139 | 120 | 96 | 151 | 278 | 784 | ||||||||||||||||||
Trade and other payables | 819 | 819 | ||||||||||||||||||||||
Total | 1,272 | 400 | 357 | 568 | 892 | 3,489 |
See note 15 in respect of borrowings and notes payable.
b.Capital risk management
Credit rating: According to Standard & Poor's Maalot ("S&P Maalot") credit rating, of August 11, 2021, the Company's ilA+/Stable credit rating was unchanged.
See note 15(7) regarding financial covenants.
F - 48
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 6 -FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
c.Fair values of financial instruments
As detailed in note 2(j) the financial instruments are categorized as following:
Fair Value through Profit or Loss (FVTPL); Amortized Cost (AC). See also note 15 in respect of borrowings and notes payable and note 7 with respect to trade receivables.
The financial instrument that is categorized as FVTPL is a financial liability at fair value. Its fair value is calculated by discounting estimated future cash flows based on the terms and maturity of each contract and using forward rates for a similar instrument at the measurement date. All significant inputs in this technique are observable market data and rely as little as possible on entity specific estimates, see also note 6(a)(2)(c).
There were no transfers between fair value levels during the year.
Carrying amounts and fair values of financial assets and liabilities, and their categories:
December 31, 2020 | December 31, 2021 | |||||||||||||||||||||||||
Category | Carrying amount | Fair value | Interest rate used (**) | Carrying amount | Fair value | Interest rate used (**) | ||||||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||
Cash and cash equivalents | AC | 376 | 376 | 308 | 308 | |||||||||||||||||||||
Short term deposits | AC | 411 | 411 | 344 | 344 | |||||||||||||||||||||
Long term deposits (***) | 155 | 155 | 0.46 | % | 280 | 280 | 0.49 | % | ||||||||||||||||||
Trade receivables | AC | 792 | 794 | 3.60 | % | 816 | 818 | 3.13 | % | |||||||||||||||||
Other receivables (*) | AC | 7 | 7 | 48 | 48 | |||||||||||||||||||||
Other non-current assets (*) | 10 | 10 | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||
Notes payable series D | AC | 109 | 110 | Market quote | ||||||||||||||||||||||
Notes payable series F | AC | 512 | 524 | Market quote | 384 | 392 | Market quote | |||||||||||||||||||
Notes payable series G | AC | 824 | 939 | Market quote | 851 | 952 | Market quote | |||||||||||||||||||
Notes payable series H | AC | 198 | 199 | Market quote | ||||||||||||||||||||||
Financial liability at fair value | FVTPL Level 3 | 4 | 4 | |||||||||||||||||||||||
Other non-current liabilities (*) | AC | 30 | 30 | |||||||||||||||||||||||
Trade and other payables (*) | AC | 719 | 719 | 819 | 819 | |||||||||||||||||||||
Borrowing P | AC | 59 | 60 | 0.84 | % | 29 | 30 | 0.41 | % | |||||||||||||||||
Borrowing Q | AC | 79 | 82 | 0.93 | % | 57 | 58 | 0.65 | % | |||||||||||||||||
Borrowing R | AC | 150 | 150 | 2.55 | % | |||||||||||||||||||||
Lease liabilities | AC | 702 | 702 | 2.04 | % | 720 | 709 | 2.07 | % |
(*) |
| The fair value of these financial instruments equals their carrying amounts, as the impact of discounting is not significant. |
(**) | The fair values of the notes payable quoted market prices at the end of the reporting period are within level 1 of the fair value hierarchy. The fair values of other instruments under AC categories were calculated based on observable weighted average of interest rates derived from quoted market prices of the Group's notes payable and bank quotes of rates of similar terms and nature, are within level 2 of the fair value hierarchy. | |
(***) | At December 31, 2021, long-term deposits are deposited for periods ending in March 2023 and June 2023. |
F - 49
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 7 -TRADE RECEIVABLES
(a) Composition:
New Israeli Shekels | ||||||||
December 31, | ||||||||
2020 | 2021 | |||||||
In millions | ||||||||
Trade (current and non-current) | 963 | 965 | ||||||
Deferred interest income (note 2(n)) | (23 | ) | (21 | ) | ||||
Allowance for credit loss | (148 | ) | (128 | ) | ||||
792 | 816 | |||||||
Current | 560 | 571 | ||||||
Non – current | 232 | 245 |
Non-current trade receivables bear no interest. These balances are in respect of equipment sold in installments (13-36 monthly payments (mainly 36)). The amount is computed on the basis of the interest rate relevant at the date of the transaction (2020: 2.97% - 5.07%) (2021: 2.68% - 3.85%).
See also note 2(j).
(b) Impairment of financial assets:
The changes in the allowance for credit losses for the years ended December 31, 2019, 2020 and 2021 are as follows:
New Israeli Shekels | ||||||||||||
Year ended | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Balance at beginning of year | 188 | 162 | 148 | |||||||||
Receivables written-off during the year as uncollectible | (44 | ) | (37 | ) | (29 | ) | ||||||
Credit losses | 18 | 23 | 9 | |||||||||
Balance at end of year | 162 | 148 | 128 |
See note 6(a)(3) regarding trade receivables credit risk.
The estimate for expected credit losses from customers was considered using forward-looking information (including macro-economic information). Forward-looking information included additional downside scenarios related to the spread of COVID-19: considering increased risk of credit to customers in certain industries most harmed by the slowdown. A general increased provision was recorded in respect of the population as a whole, and a second provision was recorded in the amount of the expected loss based on an average of the impact of the different scenarios assumed. As a result the company increased its provision for expected credit losses in an immaterial amount.
F - 50
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 7 -TRADE RECEIVABLES (continued)
(b) Impairment of financial assets (continued)
The aging of gross trade receivables and their respective allowance for credit losses as at December 31, 2020 and 2021 were as follows:
New Israeli Shekels | New Israeli Shekels | |||||||||||||||||||||||
December 31, 2020 | December 31, 2021 | |||||||||||||||||||||||
In millions | In millions | |||||||||||||||||||||||
Average expected loss rate | Gross | Allowance | Average expected loss rate | Gross | Allowance | |||||||||||||||||||
Not passed due | 5 | % | 831 | 45 | 5 | % | 861 | 46 | ||||||||||||||||
Less than one year | 59 | % | 60 | 36 | 62 | % | 53 | 33 | ||||||||||||||||
More than one year | 94 | % | 72 | 67 | 96 | % | 51 | 49 | ||||||||||||||||
963 | 148 | 965 | 128 |
NOTE 8 -INVENTORY
New Israeli Shekels | ||||||||
December 31, | ||||||||
2020 | 2021 | |||||||
In millions | ||||||||
Handsets and devices | 36 | 36 | ||||||
Accessories and other | 9 | 13 | ||||||
Spare parts | 20 | 22 | ||||||
ISP modems, routers, servers and related equipment | 12 | 16 | ||||||
77 | 87 | |||||||
| ||||||||
Write-downs recorded | 7 | 5 | ||||||
Cost of inventory recognized as expenses and included in cost of revenues for the year ended | 544 | 581 | ||||||
Cost of inventory used as fixed assets | 8 | 33 |
F - 51
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 9 -INVESTMENT IN PHI
Network sharing agreement
On November 8, 2013 the Company and Hot Mobile Ltd. ("Hot Mobile") (together: "the Parties") entered into a 15-year network sharing agreement (“NSA”), which was approved by the Antitrust Commissioner, subject to certain conditions, and by the Ministry of Communications. Pursuant to the NSA, the Parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership (hereinafter "PHI"), which operates and develops a radio access network shared by the Parties, starting with a pooling of the Parties radio access network infrastructures creating a single shared pooled radio access network (the "Shared Network"). The Parties also established a 50-50 company limited by shares under the name Net 4 P.H.I Ltd., to be the general partner of the limited partnership.
In February 2016, HOT Mobile exercised its option under the NSA to advance the payment date of a onetime amount of NIS 250 million ("Lump Sum"), which was received by the Group in 2016. Therefore in accordance the NSA from April 2016 onward (i) each party bears half of the expenditures relating to the Shared Network, and (ii) the bearing of the operating costs of the Shared Network is according to a pre-determined mechanism, according to which one half of the operating costs is shared equally by the Parties, and one half is divided between the Parties according to the relative volume of traffic consumption of each party in the Shared Network (the "Capex-Opex Mechanism"). The Lump Sum is treated by the Group as payments for rights of use of the Group's network and therefore recognized as deferred revenue which is amortized to revenues in the income statement over a period of eight years, which is determined to be the shorter of the expected period of the arrangement or the expected life of the related assets, see note 22(a).
The NSA term will be automatically extended for consecutive terms of five years each, unless either party provided the other party with prior notice of at least two years prior to the commencement of the respective extended term. At any time after the eighth anniversary of the NSA's effective date (i.e. following April 2023), either party may provide the other party with two years termination notice, and terminate the NSA, without cause, effective as of the end of the said two-year period. On the expiry of the NSA, other than following a material breach, the Parties shall divide the network between themselves according to a mechanism provided by the NSA, based on the Parties then-respective interests in PHI, with priority that each party shall first receive its own assets.
The Company provided a guarantee to PHI's debt in an amount of NIS 50 million.
See also note 2(c)(2).
F - 52
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 10 -PROPERTY AND EQUIPMENT
Communication network | Computers and information systems | Optic fibers and related assets | Subscribers equipment and installations | Property, leasehold improvements, furniture and equipment | Total | |||||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance at January 1, 2019 | 1,619 | 148 | 715 | 280 | 123 | 2,885 | ||||||||||||||||||
Share in PHI P&E included as of Jan 1, 2019 | 171 | 2 | 173 | |||||||||||||||||||||
Additions in 2019 | 91 | 3 | 146 | 172 | 6 | 418 | ||||||||||||||||||
Disposals in 2019 | 193 | 12 | 1 | 8 | 7 | 221 | ||||||||||||||||||
Balance at December 31, 2019 | 1,688 | 141 | 860 | 444 | 122 | 3,255 | ||||||||||||||||||
| ||||||||||||||||||||||||
Additions in 2020 | 83 | 7 | 168 | 138 | 5 | 401 | ||||||||||||||||||
Disposals in 2020 | 418 | 72 | 9 | 30 | 27 | 556 | ||||||||||||||||||
Balance at December 31, 2020 | 1,353 | 76 | 1,019 | 552 | 100 | 3,100 | ||||||||||||||||||
| ||||||||||||||||||||||||
Additions in 2021 | 79 | 26 | 259 | 151 | 11 | 526 | ||||||||||||||||||
Disposals in 2021 | 285 | 17 | 38 | 19 | 359 | |||||||||||||||||||
Balance at December 31, 2021 | 1,147 | 85 | 1,278 | 665 | 92 | 3,267 | ||||||||||||||||||
| ||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
Balance at January 1, 2019 | 1,116 | 104 | 281 | 94 | 79 | 1,674 | ||||||||||||||||||
Share in PHI P&E included as of Jan 1, 2019 | 33 | 1 | 34 | |||||||||||||||||||||
Depreciation in 2019 | 170 | 13 | 45 | 99 | 9 | 336 | ||||||||||||||||||
Disposals in 2019 | 192 | 11 | 1 | 8 | 7 | 219 | ||||||||||||||||||
Balance at December 31, 2019 | 1,127 | 107 | 325 | 185 | 81 | 1,825 | ||||||||||||||||||
| ||||||||||||||||||||||||
Depreciation in 2020 | 147 | 11 | 55 | 117 | 8 | 338 | ||||||||||||||||||
Disposals in 2020 | 421 | 71 | 10 | 28 | 28 | 558 | ||||||||||||||||||
Balance at December 31, 2020 | 853 | 47 | 370 | 274 | 61 | 1,605 | ||||||||||||||||||
| ||||||||||||||||||||||||
Depreciation in 2021 | 129 | 12 | 75 | 151 | 9 | 376 | ||||||||||||||||||
Disposals in 2021 | 285 | 17 | 37 | 19 | 358 | |||||||||||||||||||
Balance at December 31, 2021 | 697 | 42 | 445 | 388 | 51 | 1,623 | ||||||||||||||||||
| ||||||||||||||||||||||||
Carrying amounts, net | ||||||||||||||||||||||||
| ||||||||||||||||||||||||
At December 31, 2019 | 561 | 34 | 535 | 259 | 41 | 1,430 | ||||||||||||||||||
At December 31, 2020 | 500 | 29 | 649 | 278 | 39 | 1,495 | ||||||||||||||||||
At December 31, 2021 | 450 | 43 | 833 | 277 | 41 | 1,644 |
For depreciation and amortization presentation in the statement of income see note 22.
New Israeli Shekels in millions | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Cost additions include capitalization of salary and employee related expenses | 39 | 41 | 50 |
F - 53
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 11 -INTANGIBLE AND OTHER ASSETS
Intangible assets with finite economic useful lives:
Licenses | Costs of obtaining contracts with customers | Customer relationships and other | Computer software(1) | Total | ||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||||
Cost | ||||||||||||||||||||
At January 1, 2019 | 2,123 | 175 | 279 | 492 | 3,069 | |||||||||||||||
Share in PHI's accounts included as of Jan 1, 2019 | 5 | 5 | ||||||||||||||||||
Additions in 2019 | 95 | 6 | 59 | 160 | ||||||||||||||||
Disposals in 2019 | 61 | 61 | ||||||||||||||||||
At December 31, 2019 | 2,123 | 270 | 285 | 495 | 3,173 | |||||||||||||||
Additions in 2020 | 30 | 115 | 49 | 194 | ||||||||||||||||
Disposals in 2020 | 137 | 137 | ||||||||||||||||||
At December 31, 2020 | 2,153 | 385 | 285 | 407 | 3,230 | |||||||||||||||
Additions in 2021 | 99 | 55 | 154 | |||||||||||||||||
Disposals in 2021 | 3 | 277 | 82 | 362 | ||||||||||||||||
At December 31, 2021 | 2,150 | 484 | 8 | 380 | 3,022 | |||||||||||||||
| ||||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||
At January 1, 2019 | 1,852 | 62 | 273 | 265 | 2,452 | |||||||||||||||
Share in PHI's accounts included as of Jan 1, 2019 | 2 | 2 | ||||||||||||||||||
Amortization in 2019 | 73 | 79 | 2 | 87 | 241 | |||||||||||||||
Disposals in 2019 | 60 | 60 | ||||||||||||||||||
At December 31, 2019 | 1,925 | 141 | 275 | 294 | 2,635 | |||||||||||||||
Amortization in 2020 | 27 | 97 | 3 | 84 | 211 | |||||||||||||||
Disposals in 2020 | 137 | 137 | ||||||||||||||||||
At December 31, 2020 | 1,952 | 238 | 278 | 241 | 2,709 | |||||||||||||||
Amortization in 2021 | 18 | 103 | 1 | 81 | 203 | |||||||||||||||
Disposals in 2021 | 3 | 277 | 82 | 362 | ||||||||||||||||
At December 31, 2021 | 1,967 | 341 | 2 | 240 | 2,550 | |||||||||||||||
| ||||||||||||||||||||
Carrying amounts, net | ||||||||||||||||||||
At December 31, 2019 | 198 | 129 | 10 | 201 | 538 | |||||||||||||||
At December 31, 2020 | 201 | 147 | 7 | 166 | 521 | |||||||||||||||
At December 31, 2021 | 183 | 143 | 6 | 140 | 472 |
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
(1) Cost additions include capitalization of salary and employee related expenses | 57 | 44 | 41 |
See notes 2(f)(1) and 4(1) with respect to change in accounting estimate of the useful life of the cellular license. For depreciation and amortization in the statement of income see note 22.
F - 54
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 12 -DEFERRED EXPENSES – RIGHT OF USE
New Israeli Shekels in millions | ||||
Cost | ||||
Balance at January 1, 2019 | 736 | |||
Share in PHI's accounts included as of Jan 1, 2019 | (169 | ) | ||
Additional payments in 2019 | 51 | |||
Balance at December 31, 2019 | 618 | |||
Additional payments in 2020 | 47 | |||
Balance at December 31, 2020 | 665 | |||
Additional payments in 2021 | 56 | |||
Balance at December 31, 2021 | 721 | |||
| ||||
Accumulated amortization and impairment | ||||
Balance at January 1, 2019 | 500 | |||
Share in PHI's accounts included as of Jan 1, 2019 | (38 | ) | ||
Amortization in 2019 | 28 | |||
Balance at December 31, 2019 | 490 | |||
Amortization in 2020 | 31 | |||
Balance at December 31, 2020 | 521 | |||
Amortization in 2021 | 31 | |||
Balance at December 31, 2021 | 552 | |||
| ||||
Carrying amount, net at December 31, 2019 | 128 | |||
| ||||
Carrying amount, net at December 31, 2020 | 144 | |||
Current | 26 | |||
Non-current | 118 | |||
| ||||
Carrying amount, net at December 31, 2021 | 169 | |||
Current | 27 | |||
Non-current | 142 |
The amortization and impairment charges are charged to cost of revenues in the statement of income. See also note 2(g) and note 17(4).
F - 55
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 13 -IMPAIRMENT TESTS
(1)Annual goodwill impairment tests in the fixed-line segment
Goodwill in the fixed-line segment is allocated to a single group of CGUs which constitute all the operations of the fixed-line segment, in an amount of NIS 407 million.
For the purpose of the goodwill impairment tests in the fixed-line segment as of December 31, 2019, 2020 and 2021 the recoverable amount was assessed by management with the assistance of an external independent expert (BDO Ziv Haft Consulting & Management Ltd.) based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The terminal growth rate represents the long-term average growth rate of the fixed-line communications services business. The key assumptions used are as follows:
As of December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Terminal growth rate | 1.0% | 1.0% | 1.0% | |||||||||
After-tax discount rate | 8.0% | 7.5% | 7.0% | |||||||||
Pre-tax discount rate | 9.6% | 9.0% | 8.5% |
The impairment tests in the fixed-line segment as of December 31, 2019, 2020 and 2021 were based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts. As a result of the impairment tests, the Group determined that no goodwill impairment existed as of December 31, 2019, 2020 and 2021. See also note 4(3) and note 2(h).
(2)Interim impairment tests of non-financial assets in 2020
The economic slowdown in the markets triggered in March 2020 the identification of indicators for impairment of non-financial assets. In particular, the significant fall in the volume of international travel by the Company's customers has caused a significant decrease in revenues from roaming services, which affected the cellular segment. In addition, the temporary closures of shopping malls and changes in general consumer behavior adversely affected the volume of sales of equipment, which affected the cellular and the fixed-line segments.
The Company tested the recoverable amount of the fixed line segment as of March 31, 2020, based on value-in-use calculations. The recoverable amount was assessed by management with the assistance of an external independent expert (BDO Ziv Haft Consulting & Management Ltd.). The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The terminal growth rate represents the long-term average growth rate of the fixed-line communications services business. The key assumptions used are as follows:
March 31, 2020 | ||||
Terminal growth rate | 1.0% | |||
After-tax discount rate | 8.25% | |||
Pre-tax discount rate | 9.9% |
As a result of the impairment test, the Group determined that no impairment existed as of March 31, 2020.
F - 56
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 13 -IMPAIRMENT TESTS (continued)
(2)Interim impairment tests of non-financial assets (continued)
The Company tested as of March 2020 the impairment of the cellular segment assets with the assistance of an external independent expert (BDO Ziv Haft Consulting & Management Ltd.), using a reasonable approximation of its fair value less costs of selling as its recoverable amount, and determined that no impairment was required.
(3)Impairment of certain fixed-line assets in the third quarter of 2021
In addition, the Company recorded, in the third quarter of 2021, a provision for an impairment of fixed-line assets in an amount of NIS 10 million, following a business change in TV services which the Company estimated would likely lead to the churn of certain fixed-line service subscribers.
NOTE 14 -OTHER RECEIVABLES AND LIABILITIES
New Israeli Shekels | ||||||||
December 31, | ||||||||
2020 | 2021 | |||||||
In millions | ||||||||
Other receivables and prepaid expenses - current | ||||||||
Prepaid expenses | 38 | 103 | ||||||
Grant receivable with respect to frequencies tender | 36 | |||||||
Other current receivables | 8 | 13 | ||||||
46 | 152 | |||||||
| ||||||||
Deferred revenues and other | ||||||||
Deferred revenues from Hot mobile – current and non-current | 102 | 70 | ||||||
Deferred revenues – current | 56 | 58 | ||||||
Other – current | 44 | 50 | ||||||
202 | 178 | |||||||
The reduction in deferred revenues was mainly due to revenue recognized. | ||||||||
| ||||||||
| ||||||||
Other payables and provisions - current | ||||||||
Provisions (mainly legal claims) | 13 | 22 | ||||||
Income tax payable and institutions | 39 | 15 | ||||||
Payables in respect of employees | 58 | 99 | ||||||
Interest payable | 17 | 18 | ||||||
Liability for frequencies | 31 | |||||||
| 127 | 185 | ||||||
Liabilities and provisions – non-current | ||||||||
Non-current provisions for dismantling and restoring sites obligation | 21 | 22 | ||||||
Other non-current liabilities | 13 | 13 | ||||||
Liability for frequencies | 30 | |||||||
64 | 35 |
F - 57
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 15 -BORROWINGS AND NOTES PAYABLE
(1)Borrowings and Notes Payable
The Group's long term debt as of December 31, 2021 consists of borrowings from leading Israeli commercial banks and notes payable. The Group may, at its discretion, execute an early repayment of the borrowings, subject to certain conditions, including that the Group shall reimburse the lender for losses sustained by it as a result of the early repayment. The reimbursement is mainly based on the difference between the interest rate that the Group would otherwise pay and the current market interest rate on the early repayment date.
The notes payable are unsecured, non-convertible and listed for trade on the TASE.
The notes payable have been rated ilA+, on a local scale, by Standard & Poor’s Maalot.
Composition as of December 31, 2021:
Reference to notes | Annual interest rate | |||
Notes payable series F | 15(3) and 15(5) | 2.16% fixed | ||
Notes payable series G | 15(2) and 15(6) | 4% fixed | ||
Notes payable series H | 15(2) | 2.08% fixed | ||
Borrowing P (received in 2017) | 2.38% fixed | |||
Borrowing Q (received in 2017) | 2.5% fixed | |||
Borrowing R (received in 2021) | 15(4) | 2.55% fixed |
See note 6(a)(4) as to the balances and maturities of the borrowings and the notes payable.
See note 6(c) as to the fair value of the borrowings and the notes payable.
See note 15(7) regarding financial covenants.
As of December 31, 2021, and 2020 PHI had a short term credit facility with a leading Israeli commercial bank in the amount of NIS 100 million. The Group's share in this facility is 50%. The facility is restricted for use by PHI only. As of December 31, 2021 and 2020 no funds were drawn from this facility.
F - 58
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 15 -BORROWINGS AND NOTES PAYABLE (continued)
(1)Borrowings and Notes Payable (continued):
The following table details the changes in financial liabilities, including cash flows from financing activities:
Movements in 2021 | ||||||||||||||||||
As at December 31, 2020 | Cash flows used in financing activities, net | Non cash movements | ||||||||||||||||
CPI adjustments and other | Against lease ROU asset | As at December 31, 2021 | ||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||
Non-current borrowings* | 138 | 98 | 236 | |||||||||||||||
Notes payable* | 1,457 | (17) | 1,440 | |||||||||||||||
Financial liability at fair value | 4 | (4) | ||||||||||||||||
Interest payable | 17 | (48) | 49 | 18 | ||||||||||||||
Lease liability | 702 | (148) | 18 | 148 | 720 | |||||||||||||
2,318 | (115) | 63 | 148 | 2,414 |
* Including current maturities.
Movements in 2020 | ||||||||||||||||||
As at December 31, 2019 | Cash flows used in financing activities, net | Non cash movements | ||||||||||||||||
CPI adjustments and other | Against lease ROU asset | As at December 31, 2020 | ||||||||||||||||
New Israeli Shekels in millions | ||||||||||||||||||
Non-current borrowings* | 191 | (52) | (1) | 138 | ||||||||||||||
Notes payable* | 1,589 | (154) | 22 | 1,457 | ||||||||||||||
Financial liability at fair value | 28 |
| (24) | 4 | ||||||||||||||
Interest payable | 8 | (49) | 58 | 17 | ||||||||||||||
Lease liability | 617 | (147) | 18 | 214 | 702 | |||||||||||||
2,433 | (402) | 73 | 214 | 2,318 |
* Including current maturities.
F - 59
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 15 -BORROWINGS AND NOTES PAYABLE (continued)
(2)Notes payable issuance
In January 2019, the Company issued a new Series G Notes, in a principal amount of NIS 225 million, payable as follows: 4 annual installments of NIS 22.5 million each, payable in June of each of the years 2022 through 2025, NIS 45 million payable in June 2026 and NIS 90 million payable in June 2027. The principal bears fixed annual interest of 4%, payable annually on June 25 of each year.
In July 2020, the Company issued in a private placement additional Series G Notes in a principal amount of NIS 300 million, under the same conditions of the original series.
In December 2021, the Company issued Series H Notes, in a principal amount of NIS 198.4 million, payable as follows: 5 annual installments, NIS 39.7 million payable in June 2025, NIS 19.8 million payable in June 2026, NIS 39.7 million payable in June of each of the years 2028 through 2029 and NIS 59.5 million payable in June 2030. The principal bears fixed annual interest of 2.08%, payable annually on June 25 of each year.
Regarding exercise of option warrants which are exercisable for Series G Notes see note 15(6).
(3)Early redemption of Notes payable
In July 2020, the Company executed a partial early redemption of Series F Notes in a total principal amount of NIS 305 million. The total amount paid was NIS 313 million. The early redemption resulted in additional finance costs of NIS 7 million.
(4)New borrowings received
Borrowing R: In December 2021, the Company received a long-term loan from a commercial bank in the principal amount of NIS 150 million. The borrowing bears unlinked interest at the rate of 2.55% per annum and will be paid in 5 annual installments, NIS 30 million payable in June 2025, NIS 15 million payable in June 2026, NIS 30 million payable in June of each of the years 2028 through 2029 and NIS 45 million payable in June 2030. The principal bears fixed annual interest payable on June 30 and December 31 of each year.
(5)Notes payable issuance commitments
According to agreements the Company entered into in December 2017 and January 2018, the Company issued in December 2019, in a framework of a private placement, an aggregate principal amount of NIS 226.75 million of additional Series F Notes to certain Israeli institutional investors.
(6)Private placement of option warrants
In April 2019, the Company issued in a private placement two series of untradeable option warrants that were exercisable for the Company's Series G Notes. The exercise period of the first series was between July 1, 2019 and May 31, 2020 and of the second series was between July 1, 2020 and May 31, 2021. The exercise price was NIS 88 for each Series G notes principal amount of NIS 100. The Series G Notes that were allotted upon the exercise of an option warrant were identical in all their rights to the Company's Series G Notes immediately upon their allotment, and are entitled to any payment of interest or other benefit, the effective date of which is due after the allotment date.
F - 60
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 15 -BORROWINGS AND NOTES PAYABLE (continued)
(6)Private placement of option warrants (continued)
The Notes that were allotted as a result of the exercise of option warrants were registered on the TASE. The total amount received in 2019 by the Company for both series on the allotment date of the option warrants was NIS 37 million.
In 2019, 2020 and 2021, following partial exercises of option warrants which are exercisable for Series G Notes, the Company issued Series G Notes in a total principal amount of NIS 125 million, NIS 174.3 million and NIS 26.5 million, respectively.
As of December 31, 2021 no option warrants are outstanding.
(7)Financial covenants
Regarding Series F Notes, Series G Notes, Series H Notes and borrowing P, borrowing Q and borrowing R the Company is required to comply with a financial covenant that the ratio of Net Debt to Adjusted EBITDA shall not exceed 5. Compliance will be examined and reported on a quarterly basis. For the purpose of the covenant, Adjusted EBITDA is calculated as the sum total for the last 12 month period, excluding adjustable one-time items. As of December 31, 2021, the ratio of Net Debt to Adjusted EBITDA was 0.8.
Additional stipulations mainly include:
Shareholders' equity shall not decrease below NIS 400 million and no dividends will be declared if shareholders' equity will be below NIS 650 million regarding Series F notes, borrowing P and borrowing Q. Shareholders' equity shall not decrease below NIS 600 million and no dividends will be declared if shareholders' equity will be below NIS 750 million regarding Series G notes and borrowing R. Shareholders' equity shall not decrease below NIS 700 million and no dividends will be declared if shareholders' equity will be below NIS 850 million regarding Series H notes.
The Company shall not create floating liens subject to certain terms. The Company has the right for early redemption under certain conditions. With respect to notes payable series F, series G and series H: the Company shall pay additional annual interest of 0.5% in the case of a two- notch downgrade in the Notes rating and an additional annual interest of 0.25% for each further single-notch downgrade, up to a maximum additional interest of 1%; the Company shall pay additional annual interest of 0.25% during a period in which there is a breach of the financial covenant; debt rating will not decrease below BBB- for a certain period. In any case, the total maximum additional interest for Series F, Series G and Series H, shall not exceed 1.25%, 1% or 1.25%, respectively.
The Group was in compliance with the financial covenant and the additional stipulations for the year 2021.
F - 61
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 16 -LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. See also note 2(k).
(1)Defined contribution plan
The Group had contributed NIS 23 million, NIS 25 million and NIS 24 million for the years 2019, 2020 and 2021 respectively, in accordance with Section 14 of the Israeli Severance Pay Law. See also note 2(k)(i)(1).
(2)Defined benefit plan
Liability for employee rights upon retirement, net is presented as non-current liability.
The amounts recognized in the statement of financial position, in respect of a defined benefit plan (see note 2(k)(i)(2)) and changes during the year in the obligation recognized for post-employment defined benefit plans were as follows:
New Israeli Shekels in millions | ||||||||||||
Present value of obligation | Fair value of plan assets | Total | ||||||||||
At January 1, 2020 | 150 | (107 | ) | 43 | ||||||||
Current service cost | 10 | 10 | ||||||||||
Interest expense (income) | 4 | (2 | ) | 2 | ||||||||
Employer contributions | (8 | ) | (8 | ) | ||||||||
Benefits paid | (8 | ) | 4 | (4 | ) | |||||||
Remeasurements: | ||||||||||||
Experience changes | (2 | ) | (2 | ) | ||||||||
Return on plan assets | 1 | 1 | ||||||||||
At December 31, 2020 | 154 | (112 | ) | 42 | ||||||||
Current service cost | 14 | 14 | ||||||||||
Interest expense (income) | 3 | (2 | ) | 1 | ||||||||
Employer contributions | (8 | ) | (8 | ) | ||||||||
Benefits paid | (16 | ) | 10 | (6 | ) | |||||||
Remeasurements: | ||||||||||||
Experience changes | 8 | 8 | ||||||||||
Return on plan assets | (16 | ) | (16 | ) | ||||||||
At December 31, 2021 | 163 | (128 | ) | 35 |
Remeasurements are recognized in the statement of comprehensive income.
The expected contribution to the defined benefit plan during the year ending December 31, 2022 is approximately NIS 7 million.
F - 62
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 16 -LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT (continued)
(2)Defined benefit plan (continued)
The principal actuarial assumptions used were as follows:
December 31 | ||||||||
2020 | 2021 | |||||||
Interest rate weighted average | 2.12 | % | 3.21 | % | ||||
Inflation rate weighted average | 0.97 | % | 2.41 | % | ||||
Expected turnover rate | 9%-56 | % | 9%-70 | % | ||||
Future salary increases | 1%-6 | % | 1%-6 | % |
The sensitivity of the defined benefit obligation to changes in the principal assumptions is:
December 31, 2021 | ||||||||
NIS in millions | ||||||||
Increase of 10% of the assumption | Decrease of 10% of the assumption | |||||||
Interest rate | (0.3 | ) | 0.5 | |||||
Expected turnover rate | 0.1 | (0.2 | ) | |||||
Future salary increases | 0.4 | (0.4 | ) |
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognized within the statement of financial position. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.
The defined benefit plan exposes the Group to a number of risks, the most significant are asset volatility, and a risk that salary increases will be higher than expected in the actuarial calculations. The assets are invested in provident funds, managed by managing companies and are subject to laws and regulations, and supervision (including investment portfolio) of the Capital Markets, Insurance and Saving Division of the Israeli Ministry of Finance.
Expected maturity analysis of undiscounted defined benefits as at December 31, 2021:
NIS in millions | ||||
2022 | 25 | |||
2023 | 19 | |||
2024 | 16 | |||
2025 and 2026 | 19 | |||
2027 and thereafter | 96 | |||
175 |
F - 63
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 17 -COMMITMENTS AND TRANSACTIONS
(1)Results of Frequencies Tender and frequency fees
In August 2020, the Ministry of Communications ("MoC") informed the Company of the results of the frequencies tender published by the MoC and the award of 10 MHz in the 700 MHz frequency band, 20 MHz in the 2600 MHz frequency band and 100 MHz in the 3500 MHz frequency band to the Company and HOT Mobile Ltd. ("HOT Mobile"), at a total price of NIS 62.38 million which shall be paid equally by the Company and HOT Mobile in September 2022. The frequencies were received in September 2020, and as a result, the Company recognized in 2020 an intangible asset at a discounted amount of NIS 30 million against other non-current liabilities. As of December 31, 2021 the liability is presented in current liabilities.
The tender documents entitled the Company to a grant of NIS 37 million for deployment of its 5G network, subject to the approval of the MoC. In October 2021 the Company received a letter from the MOC confirming that the Company has met the criteria entitling it to the grant. The grant shall be received in accordance with the schedule set out in the license and after the Company has paid the 5G license fee, expected in 2022. Since the MOC has confirmed entitlement to the grant and the reception of the grant is subject only to the Company's payment of the 5G license fee, which is under the Company's control, the grant was recognized in its entirety under current receivables against a reduction in property and equipment in its present value amount of NIS 36 million.
Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. Following the above mentioned tender completion, the Telegraph Regulations were amended, reducing the frequency fees for existing frequencies, subject to certain conditions, and establishing fees for the new frequencies received. Under the above Regulations should the Company choose to return a frequency, such payment would no longer due.
For the years 2019, 2020 and 2021 the Company recorded frequency fee expenses in a total amount of approximately NIS 79 million, NIS 75 million and NIS 66 million, respectively. The total amount of frequency fees of both the Company and Hot Mobile under the regulations are divided between the Company and Hot Mobile, through PHI, according to the OPEX-CAPEX mechanism (see also note 9).
(2)At December 31, 2021, the Group is committed to acquire property and equipment and software elements for approximately NIS 117 million.
(3)The Company entered into a non-exclusive agreement with Apple Distribution International, effective April 1, 2021, for the purchase and resale of iPhone handsets in Israel and the purchase of a minimum quantity of iPhone handsets per year, for a period of three years at market prices. The Company also ordered inventories from other suppliers. In total, at December 31, 2021, the Group is committed to acquire inventories in an amount of approximately NIS 458 million over 3 years.
F - 64
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 17 -COMMITMENTS AND TRANSACTIONS (continued)
(4)Right of Use (ROU)
The Group signed long-term agreements with service providers to receive indefeasible Rights of Use (ROU) of international capacities through submarine infrastructures (see note 12), most extendable until 2030. As of December 31, 2021, the Group is committed to pay for capacities over the following years an amount of NIS 84 million (excluding maintenance fees) as follows:
New Israeli Shekels in millions | ||||
2022 | 60 | |||
2023 | 11 | |||
2024 | 11 | |||
2025 | 2 | |||
84 |
In addition, under the terms of the ROU agreements, as of December 31, 2021 the Group is committed to pay annual maintenance fees during the usage period. The total aggregated expected maintenance fee for the years 2022 to 2023 is approximately NIS 7 million. Some payments under the ROU agreements are linked to the USD.
(5)Liens and guarantees
As of December 31, 2021, the Group has provided bank guarantees in respect of licenses (see note 1(c)) in an amount of approximately NIS 30 million, in addition to bank guarantees in favor of other parties in an aggregate amount of approximately NIS 24 million. Therefore, the total bank guarantees provided by the Group as of December 31, 2021 is NIS 54 million. In addition, the Company provided a guarantee to PHI's credit facility in an amount of NIS 50 million. PHI's credit facility is not used as at December 31, 2021 (see also notes 9 and 15).
(6)Fiber optics infrastructure
The Company signed an agreement in January 2022 to deploy additional fiber-optic infrastructure within Israel to provide to an international telecommunications operator with connections and data transfer services between the Far East/Gulf countries and Europe.
(7)Covenants and negative pledge – see note 15(7).
(8)See note 9 with respect to network sharing and PHI's commitments.
NOTE 18 -COOPERATION AGREEMENT
On November 14, 2021, PHI, entered into a framework agreement with Pelephone Communications Ltd. and Cellcom Israel Ltd, to expand the cooperation between the parties in the field of passive infrastructure sharing for cellular sites, which will allow for the unification of existing and new passive infrastructures for cellular sites. A pre-condition for the agreement to enter into force is the receipt of the approvals required by law. There is no certainty that such approvals will be received.
F - 65
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 19 -LEASES
The Group leases the following assets (as a lessee) (see also notes 2(o) and 3):
(1)Buildings: The Group leases its headquarter facilities in Rosh Ha-ayin, Israel, with a total of approximately 51,177 gross square meters (including parking lots). The lease term was extended in October 2020 to end on December 31, 2029 and the Company expects to exercise its option to extend it until December 31, 2034. The rental payments are linked to the Israeli CPI.
The Group also leases call centers, retail stores and service centers. The leases for each site have different lengths and specific terms. The lease agreements are for periods of two to ten years. The Group has options to extend some lease contract periods for up to twenty years (including the original lease periods). Substantially all of the rental payments are linked to the Israeli CPI and a few are linked to the dollar. Some of the extension options include an increase of the lease payment in a range of 2%-10%.
(2)Cell sites: Lease agreements in respect of cell sites and switching stations throughout Israel are for periods of two to ten years. The Company has an option to extend some of the lease contract periods for up to ten years (including the original lease periods). Substantially all of the rental payments are linked to the Israeli CPI and a few are linked to the dollar. Some of the extension options include an increase of the lease payment mostly in a range of 2%-10%. Most of cell sites were assigned to PHI.
(3)Vehicles: The Group leases vehicles for periods of up to three years. The rental payments are linked to the Israeli CPI.
The extension options are negotiated by management to provide flexibility in managing the leased asset portfolio and align with the Group's business needs. Management exercised judgment and generally determined that the extension options are reasonably certain to be exercised. Generally, the Group's obligations under its leases are secured by the lessor's title to the leased assets. Set out below are the carrying amounts of right of use assets and lease liabilities recognized and the movements during the year:
New Israeli Shekels in millions | ||||||||||||||||
Lease right of use asset | Lease liability | |||||||||||||||
Buildings | Cell sites | Vehicles | ||||||||||||||
Balance as at January 1, 2020 | 222 | 330 | 30 | 617 | ||||||||||||
Amortization charges | (38 | ) | (71 | ) | (25 | ) | ||||||||||
Accretion of interest | 18 | |||||||||||||||
Non-cash movements | 114 | 65 | 36 | 214 | ||||||||||||
Lease payments (principal) cash outflow | (129 | ) | ||||||||||||||
Lease payments (interest) cash outflow | (18 | ) | ||||||||||||||
Balance as at December 31, 2020 | 298 | 324 | 41 | 702 | ||||||||||||
Amortization charges | (37 | ) | (68 | ) | (29 | ) | ||||||||||
Accretion of interest | 18 | |||||||||||||||
Non-cash movements | 52 | 63 | 35 | 148 | ||||||||||||
Lease payments (principal) cash outflow | (130 | ) | ||||||||||||||
Lease payments (interest) cash outflow | (18 | ) | ||||||||||||||
Balance as at December 31, 2021 | 313 | 319 | 47 | 720 | ||||||||||||
Current | 125 | |||||||||||||||
Non-Current | 313 | 319 | 47 | 595 | ||||||||||||
| ||||||||||||||||
Balance as at December 31, 2020 | 298 | 324 | 41 | 702 | ||||||||||||
Current | 120 | |||||||||||||||
Non-Current | 298 | 324 | 41 | 582 |
See note 6(a)(4) for maturity analysis of undiscounted lease liability.
F - 66
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 20 -LAWSUITS AND LITIGATIONS
A.Claims
Total provision recorded in the financial statements in respect of all lawsuits against the Group amounted to NIS 20 million at December 31, 2021. Provisions regarding the claims below were recognized when appropriate according to the Company's accounting policy (see note 2(m)(1)).
Described below are the main litigation and claims against the Group:
1.Consumer claims
This category includes class actions and motions for the recognition of these lawsuits as class actions with respect to, among others, alleged claims regarding charges and claims regarding alleged breach of the Consumer Protection Law, the Privacy Protection Law, the Communications Law (Telecommunications and Broadcasting), license provisions, other legal provisions and engagement agreements with customers.
Described hereunder are the outstanding consumer class actions and motions for the recognition of these lawsuits as class actions, detailed according to the amount claimed, as of the date of approval of these financial statements:
Claim amount | Number of claims | Total claims amount (NIS million) | ||||||
Up to NIS 100 million | 14 | 315 | ||||||
NIS 101 - 400 million | 5 | 937 | ||||||
NIS 401 million - NIS 1 billion | 1 | 1,000 | ||||||
Unquantified claims | 11 | 0- | ||||||
Total | 31 | 2,252 |
With respect to 5 claims mentioned above, the court approved these claims as class actions as follows:
1.On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner required their customers to purchase a Smartbox device which is terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 116 million. In February 2019, the Court approved the request to certify the claim as a class action with certain changes. In March 2019, Partner filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court and the proceedings have resumed. Partner estimates that the claim will not have a material effect on the Company's financial statements.
2.On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that 012 Smile required their customers to purchase a Smartbox device which is terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against 012 Smile is estimated by the plaintiff to be approximately NIS 64 million. In February 2019, the Court approved the request to certify the claim as a class action with certain changes. In March 2019, the Company filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court and the proceedings have resumed. The Company estimates that the claim will not have a material effect on the Company's financial statements.
F - 67
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 20 -LAWSUITS AND LITIGATIONS (continued)
A.Claims (continued)
1.Consumer claims (continued)
3.On April 21, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that the infrastructure included in the 012 Smile's plans does not support data speeds that the Company publishes to its customers. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiffs. In January 2021, the Court approved the motion and recognized the lawsuit as a class action. The Company estimates that the claim will not have a material effect on the Company's financial statements.
4.On November 13, 2017, a claim and a motion to certify the claim as a class action were filed against 012 Smile (initially the motion was filed against Partner and 012 Smile). The claim alleges that Partner and 012 Smile charged their customers for incoming calls while they are abroad, without the calls for which they were charged being made, and without them having given a call forwarding provision. The total amount claimed is estimated by the plaintiff to be approximately NIS 53 million against Partner and approximately NIS 10 million against 012 Smile. In January 2021, the District Court approved the motion against Partner and recognized the lawsuit as a class action and dismissed the motion against 012 Smile. The Company estimates that the claim will not have a material effect on the Company's financial statements.
5.On February 28, 2017, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company charged its cellular service customers who entered into agreements for fixed periods, a higher rate than agreed without receiving prior written notice. The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 4.176 million. In March 2021, the Court approved the motion and recognized the lawsuit as a class action. In June 2021, the Company filed an appeal of this decision. The Company estimates that the claim will not have a material effect on the Company's financial statements.
In addition to all the above mentioned claims the Group is a party to various claims arising in the ordinary course of its operations.
F - 68
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 20 -LAWSUITS AND LITIGATIONS (continued)
B.Contingencies in respect of building and planning procedures
Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan.
In January 2006, the Non-ionizing Radiation Law was published, amending the Planning and Building Law so that local Planning and Building committees must require indemnification letters against reduction in property value from the cellular operators requesting building permits.
Accordingly, on January 3, 2006, the National Council for Planning and Building published an interim decision conditioning the issuance of building permits for cell site permits by local planning and building councils upon provision of a 100% indemnification undertaking by the cellular operators. This decision shall remain in effect until it is replaced with an amendment to the National Zoning Plan 36. Between January 3, 2006 and December 31, 2021 the Company provided the local authorities with 423 indemnification letters as a pre-condition for obtaining building permits.
In case the Company shall be required to make substantial payments under the indemnity letters, it could have an adverse effect on the Company's financial results.
According to the company’s management estimation and based on its legal counsel, a provision in the financial statement was not included.
The Company assumes that the requirement to provide indemnification letters might require it to change locations of sites to different, less suitable locations and to dismantle some of its sites. These changes in the deployment of the sites might have an adverse effect on the extent, quality and capacity of the network coverage.
C.Investigation by the Israeli Tax Authority
The Israeli Tax Authority is conducting an investigation that involves document collection and the questioning of among others, several Company employees, both past and current. The investigation is seeking to determine whether there have been violations of the Eilat Free Trade Zone (Tax Exemptions and Reductions) - 1985 Law regarding the sale of cellular phones in the city of Eilat. The Company is fully cooperating with the Israeli Tax Authority. At this stage, the Company is unable to estimate the impact of the investigation on the Company, its results and its condition, if any.
F - 69
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 21 -EQUITY AND SHARE BASED PAYMENTS
a.Share capital:
The Company's share capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange Ltd. under the symbol "PTNR", and are quoted on the NASDAQ Global Select Market™, in the form of American Depositary Shares ("ADSs"), each representing one of the Company’s ordinary shares, under the symbol "PTNR", according to the dual listing regulations. The ADSs are evidenced by American Depositary Receipts ("ADRs"). Citibank, N.A. serves as the Company's depository for ADSs. The holders of ordinary shares are entitled vote in the general meetings of shareholders and to receive dividends as declared.
Under the provisions of the Company's licenses (note 1(c)), restrictions are placed on transfer of the Company's shares and placing liens thereon. The restrictions include the requirement of advance written consent of the Minister of Communications be received prior to transfer of 10% or more of the Company's shares to a third party. Nevertheless, under certain licenses granted, directly or indirectly, to the Company, a notice to, the Minister of Communications may be required for holding any means of control in the Company. The Company's license also restricts cross-ownership and cross-control among competing mobile telephone operators, including the ownership of 5% or more of the means of control of both the Company and a competing operator, without the consent of the Minister of Communications, which may limit certain persons from acquiring our shares. See also note 26 (d) with respect of holdings of approved Israeli shareholders in the Company.
Through December 31, 2008 the Company purchased its own 4,467,990 shares at the cost of NIS 351 million, and during 2018 the Company purchased its own 6,501,588 shares at the cost of NIS 100 million (upon repurchase were recorded as "treasury shares"). In accordance with the Israeli Companies Law, the treasury shares are considered dormant shares as long as they are held by the Company, and as such they do not bear any rights (including the right to vote in general meetings of shareholders and to receive dividends) until they are transferred to a third party. Some of the treasury shares were offered to employees under a share based compensation plan: Company's Equity Incentive Plan as restricted shares awards ("RSAs") (see (b) below).
As of December 31, 2021 a total of 7,337,759 treasury shares remained, of which 1,349,119 were allocated to a trustee on behalf of the employees under the plan. The RSAs offered under the plan are under the control of the Company until vested under the plan and therefore are not presented in the financial statements as outstanding shares until vested.
In January 2020, the Company issued 19,330,183 shares of the Company to institutional investors, following a tender under a shelf offering, and by way of a private placement. The total net consideration received was approximately NIS 276 million. The offering expenses totaled NIS 10 million.
F - 70
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 21 -EQUITY AND SHARE BASED PAYMENTS (continued)
b.Share based compensation to employees
(1)Description of the Equity Incentive Plan
Share options and restricted shares were granted to employees in accordance with Company's 2004 Amended and Restated Equity Incentive Plan (the "Plan"). It includes allocation of restricted shares ("RSAs") to the Company's employees and officers and determines the right to vote at the general meetings of shareholders and the right to receive dividends distributed with respect to the restricted shares. The vesting of the options and the earning of the restricted shares are subject to vesting/restriction periods as well as performance conditions set by the Company's management bodies (The Compensation Committee and The Board of Directors; and in addition, regarding the CEO - The General Assembly of Shareholders). The Company expects that the performance conditions will be met. In accordance with the Plan, under certain conditions, the share options and the restricted shares are entitled to vesting acceleration upon a change in control event. As of December 31, 2021 the company estimated that a future change of control event was probable as a result of the possible transaction referred to in note 26(c). The transaction is subject to MOC approval. The effect of this accounting estimate on the statement of operation was immaterial. The Plan's principal terms of the options include:
-Exercise price adjustment: The exercise price of options shall be reduced in the following events: (1) dividend distribution other than in the ordinary course: by the gross dividend amount so distributed per share, and (2) dividend distribution in the ordinary course: the exercise price shall be reduced the gross dividend amount so distributed per share ("Full Dividend Mechanism"), depending on the date of granting of the options.
-Cashless exercise: Most of the options may be exercised only through a cashless exercise procedure, while holders of other options may choose between cashless exercise and the regular option exercise procedure. In accordance with such cashless exercise, the option holder would receive from the Company, without payment of the exercise price, only the number of shares whose aggregate market value equals the economic gain which the option holder would have realized by selling all the shares purchased at their market price, net of the option exercise price.
(2)Information in respect of options and restricted shares granted under the Plan:
Through December 31, 2021 | ||||||||
Number of options | Number of RSAs | |||||||
Granted | 39,936,212 | 6,727,668 | ||||||
Shares issued upon exercises and vesting | (7,022,000 | ) | (3,633,131 | ) | ||||
Cancelled upon net exercises, expiration and forfeitures | (25,979,213 | ) | (1,746,720 | ) | ||||
Outstanding | 6,934,999 | 1,347,817 | ||||||
Of which(*): | ||||||||
Exercisable | 2,189,520 | 201,225 | ||||||
Vest in 2022 | 2,540,988 | 640,912 | ||||||
Vest in 2023 | 1,852,136 | 424,467 | ||||||
Vest in 2024 | 352,355 | 81,213 |
(*) | The vesting schedule takes into account the acceleration of the vesting of certain grants based on a probable future change of control event, see note 21(b)(1) above. |
As of December 31, 2021 the Company expects to record a total amount of compensation expenses of approximately NIS 20 million during the next three years with respect to options and restricted shares granted through December 31, 2021.
F - 71
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 21 -EQUITY AND SHARE BASED PAYMENTS (continued)
b.Share based compensation to employees (continued)
(3)Options and RSAs status summary as of December 31, 2019, 2020 and 2021 and the changes therein during the years ended on those dates:
Year ended December 31, | ||||||||||||||||||||||||
2019 | 2020 | 2021 | ||||||||||||||||||||||
Number | Weighted average exercise price | Number | Weighted average exercise price | Number | Weighted average exercise price | |||||||||||||||||||
Share Options: | NIS | NIS | ||||||||||||||||||||||
Outstanding at the beginning of the year | 9,697,266 | 28.19 | 9,020,689 | 23.62 | 7,029,423 | 18.64 | ||||||||||||||||||
Granted during the year | 1,232,226 | 16.21 | 1,035,635 | 14.24 | 3,827,782 | 15.60 | ||||||||||||||||||
Exercised during the year | (70,824 | ) | 16.62 | (296,450 | ) | 14.71 | (3,048,724 | ) | 17.98 | |||||||||||||||
Forfeited during the year | (235,150 | ) | 18.74 | (252,547 | ) | 18.42 | (196,000 | ) | 13.97 | |||||||||||||||
Expired during the year | (1,602,829 | ) | 46.64 | (2,477,904 | ) | 34.10 | (677,482 | ) | 24.29 | |||||||||||||||
Outstanding at the end of the year | 9,020,689 | 23.62 | 7,029,423 | 18.64 | 6,934,999 | 16.83 | ||||||||||||||||||
Exercisable at the end of the year | 5,623,921 | 27.11 | 4,071,714 | 20.04 | 2,189,520 | 19.46 | ||||||||||||||||||
Shares issued during the year due exercises | 3,166 | 46,747 | 447,222 | |||||||||||||||||||||
| ||||||||||||||||||||||||
RSAs: | ||||||||||||||||||||||||
Outstanding at the beginning of the year | 1,209,521 | 1,230,464 | 1,007,423 | |||||||||||||||||||||
Granted during the year | 397,476 | 398,055 | 820,059 | |||||||||||||||||||||
Vested during the year | (284,427 | ) | (534,053 | ) | (404,025 | ) | ||||||||||||||||||
Forfeited during the year | (92,106 | ) | (87,043 | ) | (75,640 | ) | ||||||||||||||||||
Outstanding at the end of the year | 1,230,464 | 1,007,423 | 1,347,817 |
Options granted in 2019 | Options granted in 2020 | Options granted in 2021 | ||||||||||
Weighted average fair value of options granted using the Black & Scholes option-pricing model – per option (NIS) | 3.34 | 3.71 | 4.41 | |||||||||
The above fair value is estimated on the grant date based on the following weighted average assumptions: | ||||||||||||
Expected volatility | 33.52 | % | 37.24 | % | 42.31 | % | ||||||
Risk-free interest rate | 0.57 | % | 0.21 | % | 0.18 | % | ||||||
Expected life (years) | 3 | 3 | 2 | |||||||||
Dividend yield | 0* | 0* | 0* |
* | Due to the Full Dividend Mechanism the expected dividend yield used in the fair value determination of such options was 0% for the purpose of using the Black & Scholes option-pricing model. |
The expected volatility is based on a historical volatility, by statistical analysis of the daily share price for periods corresponding the option's expected life. The expected life is expected length of time until expected date of exercising the options, based on historical data on employees' exercise behavior and anticipated future condition. The fair value of RSAs was evaluated based on the stock price on grant date.
F - 72
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 21 -EQUITY AND SHARE BASED PAYMENTS (continued)
b.Share based compensation to employees (continued)
(4)Information about outstanding options by expiry dates:
Share options outstanding as of December 31, 2021 have the following expiry dates and exercise prices:
Expire in | Number of share options | Weighted average exercise price in NIS | ||||||
2022 | 1,789,042 | 19.03 | ||||||
2023 | 2,366,252 | 15.44 | ||||||
2024 | 879,343 | 18.68 | ||||||
2025 | 202,124 | 16.34 | ||||||
2026 | 641,178 | 14.36 | ||||||
2027 | 1,057,060 | 16.26 | ||||||
6,934,999 | 16.83 |
The expiry schedule takes into account the acceleration of the vesting of certain grants based on a probable future change of control event, see note 21(b)(1) above
F - 73
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 22 -INCOME STATEMENT DETAILS
(a)Revenues:
The aggregate amount of transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of December 31, 2021, in addition to deferred revenues(see note 14), is approximately NIS 204 million (mainly services). Of which the Group expects that approximately 50% will be recognized as revenue during 2022, approximately 20% will be recognized as revenue during 2023, and the rest in later years. The above excludes contracts that are for periods of one year or less or are billed based on time incurred, as permitted under IFRS 15 the transaction price allocated to these unsatisfied contracts is not disclosed.
Disaggregation of revenues:
Year ended December 31, 2021 New Israeli Shekels in millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue - Services to private customers | 933 | 680 | (72 | ) | 1,541 | |||||||||||
Segment revenue - Services to business customers | 766 | 386 | (58 | ) | 1,094 | |||||||||||
Segment revenue - Services revenue total | 1,699 | 1,066 | (130 | ) | 2,635 | |||||||||||
Segment revenue - Equipment | 602 | 126 | 728 | |||||||||||||
Total Revenues | 2,301 | 1,192 | (130 | ) | 3,363 |
Year ended December 31, 2020 New Israeli Shekels in millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue - Services to private customers | 942 | 604 | (83 | ) | 1,463 | |||||||||||
Segment revenue - Services to business customers | 721 | 389 | (65 | ) | 1,045 | |||||||||||
Segment revenue - Services revenue total | 1,663 | 993 | (148 | ) | 2,508 | |||||||||||
Segment revenue - Equipment | 545 | 136 | 681 | |||||||||||||
Total Revenues | 2,208 | 1,129 | (148 | ) | 3,189 |
F - 74
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 22 -INCOME STATEMENT DETAILS (continued)
Year ended December 31, 2019 New Israeli Shekels in millions | ||||||||||||||||
Cellular segment | Fixed-line segment | Elimination | Consolidated | |||||||||||||
Segment revenue - Services to private customers | 990 | 513 | (87 | ) | 1,416 | |||||||||||
Segment revenue - Services to business customers | 808 | 412 | (76 | ) | 1,144 | |||||||||||
Segment revenue - Services revenue total | 1,798 | 925 | (163 | ) | 2,560 | |||||||||||
Segment revenue - Equipment | 571 | 103 | 674 | |||||||||||||
Total Revenues | 2,369 | 1,028 | (163 | ) | 3,234 |
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Revenues from services are recognized over time. | ||||||||||||
| ||||||||||||
Revenues from equipment are recognized at a point of time, except for revenues from equipment that were recognized over time: revenues from operating leases according to IFRS 16 | 17 | 10 | 8 | |||||||||
| ||||||||||||
Revenues from services include revenues from operating leases according to IFRS 16 | 57 | 73 | 78 |
(b)Cost of revenues
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Transmission, communication and content providers | 746 | 786 | 800 | |||||||||
Cost of equipment and accessories | 500 | 510 | 550 | |||||||||
Depreciation and amortization | 603 | 546 | 565 | |||||||||
Wages, employee benefits expenses and car maintenance | 312 | 282 | 292 | |||||||||
Costs of handling, replacing or repairing equipment | 71 | 66 | 61 | |||||||||
Operating lease, rent and overhead expenses | 73 | 75 | 75 | |||||||||
Network and cable maintenance | 99 | 97 | 88 | |||||||||
Internet infrastructure and service providers | 173 | 157 | 136 | |||||||||
IT support and other operating expenses | 57 | 56 | 58 | |||||||||
Amortization of deferred expenses - rights of use | 28 | 31 | 31 | |||||||||
Other | 45 | 58 | 76 | |||||||||
Total cost of revenues | 2,707 | 2,664 | 2,732 |
F - 75
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 22 -INCOME STATEMENT DETAILS (continued)
(c)Selling and marketing expenses
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Wages, employee benefits expenses and car maintenance | 102 | 81 | 103 | |||||||||
Advertising and marketing | 44 | 42 | 41 | |||||||||
Selling commissions, net | 28 | 31 | 32 | |||||||||
Depreciation and amortization | 106 | 123 | 132 | |||||||||
Operating lease, rent and overhead expenses | 4 | 2 | 2 | |||||||||
Other | 17 | 12 | 13 | |||||||||
Total selling and marketing expenses | 301 | 291 | 323 |
(d)General and administrative expenses
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Wages, employee benefits expenses and car maintenance | 85 | 81 | 93 | |||||||||
Professional fees | 21 | 21 | 23 | |||||||||
Credit card and other commissions | 13 | 13 | 13 | |||||||||
Depreciation | 14 | 14 | 16 | |||||||||
Other | 16 | 16 | 19 | |||||||||
Total general and administrative expenses | 149 | 145 | 164 |
(e)Employee benefit expenses
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Wages, employee benefits expenses and car maintenance, before capitalization | 543 | 482 | 526 | |||||||||
Less: expenses capitalized (notes 10, 11) | (96 | ) | (85 | ) | (91 | ) | ||||||
Service costs: defined benefit plan (note 16(2)) | 12 | 10 | 14 | |||||||||
Service costs: defined contribution plan (note 16(1)) | 23 | 25 | 24 | |||||||||
Employee share based compensation expenses (note 21(b)) | 17 | 12 | 15 | |||||||||
499 | 444 | 488 |
In December 2021 the Company signed a renewal of collective employment agreement with the employees' representatives and the Histadrut New General Labor Organization (hereinafter - the "Parties") for an additional period of three years, with certain changes, at a cost that is immaterial for the Company. Under the Collective Employment Agreement it was agreed, among others things, on a salary increase budget for 2022, in the amount of 3%, to be differentially allocated. In addition, the Parties agreed to negotiate at a later time a salary increase and participation in the Company's profits mechanism for the years 2023- 2024.
In January 2022, a letter from the labor union and the employees' representatives stating various claims was presented to the Company, in light of the possible Transaction by the Offerer (see note 26(c)). The Company responded that the claims presented are only relevant in light of a change of control, which has not yet occurred.
F - 76
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 23 -OTHER INCOME, NET
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Unwinding of trade receivables | 23 | 21 | 20 | |||||||||
Other income, net | 5 | 9 | 8 | |||||||||
28 | 30 | 28 |
NOTE 24 -FINANCE EXPENSES
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Interest expense and other finance expenses | 55 | 59 | 50 | |||||||||
Interest for lease liabilities | 20 | 18 | 18 | |||||||||
Finance expenses | 75 | 77 | 68 |
NOTE 25 -INCOME TAX EXPENSES
a.Corporate income tax rates applicable to the Group
The Group is taxed according to the regular corporate income tax in Israel.
The corporate tax rate in Israel is 23% for the year 2018 and thereafter.
F - 77
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 25 -INCOME TAX EXPENSES (continued)
b.Deferred income taxes
Balances of deferred tax asset (liability) in NIS millions are attributable to the following items:
Balance of deferred tax asset (liability) in respect of | As at January 1, 2019 | Charged to the income statement | Charged to retained earnings upon implementation of IFRS 16 | As at December 31, 2019 | Charged to the income statement | As at December 31, 2020 | Charged to the income statement | Charged to the comprehensive income statement | As at December 31, 2021 | |||||||||||||||||||||||||||
Allowance for credit losses | 43 | (4 | ) | 39 |
| (5 | ) | 34 |
| (5 | ) | 29 |
| |||||||||||||||||||||||
Provisions for employee rights | 17 | 1 | 18 |
| (5 | ) | 13 |
| 3 | (2 | ) | 14 |
| |||||||||||||||||||||||
Depreciable fixed assets and software | (19 | ) | 8 | (11 | ) | 12 | 1 |
| 14 | 15 |
| |||||||||||||||||||||||||
Lease - Right-of-use assets | 0- | 17 | (151 | ) | (134 | ) | (18 | ) | (152 | ) | (4 | ) | (156 | ) | ||||||||||||||||||||||
Leases liabilities | 0- | (15 | ) | 157 | 142 |
| 19 | 161 |
| 5 | 166 |
| ||||||||||||||||||||||||
Intangibles and deferred expenses | (19 | ) | (21 | ) | (40 | ) | (13 | ) | (53 | ) | 2 | (51 | ) | |||||||||||||||||||||||
Carry forward losses | 11 | 10 | 21 |
| (1 | ) | 20 |
| (7 | ) | 13 |
| ||||||||||||||||||||||||
Options granted to employees and other | 5 | 1 | 6 |
| (1 | ) | 5 |
| (1 | ) | 4 |
| ||||||||||||||||||||||||
Total | 38 | (3 | ) | 6 | 41 |
| (12 | ) | 29 |
| 7 | (2 | ) | 34 |
|
F - 78
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 25 -INCOME TAX EXPENSES (continued)
b.Deferred income taxes (continued)
New Israeli Shekels | ||||||||
December 31, | ||||||||
2020 | 2021 | |||||||
In millions | ||||||||
Deferred tax assets | ||||||||
Deferred tax assets to be recovered after more than 12 months | 188 | 200 | ||||||
Deferred tax assets to be recovered within 12 months | 76 | 69 | ||||||
| 264 | 269 | ||||||
Deferred tax liabilities | ||||||||
Deferred tax liabilities to be recovered after more than 12 months | 184 | 184 | ||||||
Deferred tax liabilities to be recovered within 12 months | 51 | 51 | ||||||
| 235 | 235 | ||||||
Deferred tax assets, net | 29 | 34 |
c.Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see (a) above), and the actual tax expense:
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
Profit before taxes on income, as reported in the income statements | 19 | 27 | 99 | |||||||||
Theoretical tax expense | 4 | 6 | 23 | |||||||||
Increase in tax resulting from disallowable deductions | 5 | 4 | 4 | |||||||||
Negative taxes (taxes on income) in respect of previous years | (7 | ) | 3 | (34 | )** | |||||||
Temporary differences and utilization of tax losses for which no deferred income tax asset was recognized | (2 | ) | (3 | ) | (9 | )** | ||||||
Income tax expenses (income) | 0* | 10 | (16 | ) |
* | Representing an amount of less than NIS 1 million. |
** | See also note 25(e)(1) |
F - 79
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 25 -INCOME TAX EXPENSES (continued)
d.Taxes on income included in the income statements:
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
In millions | ||||||||||||
For the reported year: | ||||||||||||
Current | 3 | 2 | 12 | |||||||||
Deferred, see (c) above | 4 | 5 | 15 | |||||||||
In respect of previous years: | ||||||||||||
Current | (7 | ) | (4 | ) | (21 | )** | ||||||
Deferred, see (c) above | 7 | (22 | )** | |||||||||
0* | 10 | (16 | ) |
* | Representing an amount of less than NIS 1 million. |
** | See also note 25(e)(1) |
e.Tax assessments:
1)On December 31,2021 the Company signed a settlement agreement with the Israel tax authority ("ITA") in relation to a tax audit for the income tax years 2016-2019. According to the agreement, the Company paid an amount of NIS 2.5 million as a settlement in respect of the abovementioned years, in addition to advances already paid in past. Following the agreement, the Company reduced income tax provisions and recognized deferred taxes, in respect of amounts, which according to the agreement will be deductible in future years. The impact on the Company income taxes was a net income of NIS 43 million.
2)A Group's subsidiary received final income tax assessments through the year ended December 31, 2016.
3)As a general rule, income tax self-assessments filed by two other subsidiaries through the year ended December 31,
2016 are, by law, now regarded as final.
f.Tax losses carried forward to future years:
At December 31, 2020, the Company had carry forward tax losses of approximately NIS 51 million which fully utilized during 2021. As of December 31, 2020 The Company recognized deferred tax asset in respect of the tax losses.
F - 80
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 26 -TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a.Key management compensation
Key management personnel are the senior management of the Company and the members of the Company's Board of Directors.
New Israeli Shekels | ||||||||||||
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Key management compensation expenses comprised | In millions | |||||||||||
Salaries and short-term employee benefits | 27 | 21 | 25 | |||||||||
Long term employment benefits | 3 | 3 | 6 | |||||||||
Employee share-based compensation expenses | 12 | 7 | 11 | |||||||||
42 | 31 | 42 |
New Israeli Shekels | ||||||||
December 31, | ||||||||
2020 | 2021 | |||||||
Statement of financial position items - key management | In millions | |||||||
Current liabilities: | 9 | 15 | ||||||
Non-current liabilities: | 10 | 9 |
b.In the ordinary course of business, key management or their relatives may have engaged with the Company with immaterial transactions that are under normal market conditions.
F - 81
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 26 -TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued)
c.Principal shareholder:
Approximately 27% of the Company issued and outstanding shares and voting rights are held by a receiver (under Israeli law).
On November 12, 2019, the District Court of Tel Aviv the (“Court”) issued a court order the (“Court Order”) under which attorney Ehud Sol (the “Receiver”) was appointed as receiver for 49,862,800 of the Company's shares, representing as of February 1, 2022, approximately 27% of the Company's issued and outstanding share capital and the largest block of shares held by a single shareholder. The shares (the “Pledged Shares”) had been purchased by S.B. Israel Telecom Ltd. (“S.B. Israel Telecom“) from Advent Investments Pte Ltd (“Advent”) in 2013; in connection with the purchase, S.B. Israel Telecom assumed certain debt owed to Advent, and agreed that such debt would be secured by, among other things, the Pledged Shares. S.B. Israel Telecom defaulted on the payment, and on November 11, 2019, consented to enforcement and foreclosure proceedings with respect to the Pledged Shares.
The Court Order was issued due to an application filed by Advent (“Advent's Application”) and granted the Receiver substantial rights related to the Pledged Shares, including the right to participate in our shareholders’ meetings, to vote the Pledged Shares, to receive dividends, and any contractual right related to the Pledged Shares, although as noted below, the Receiver may not sell or transfer the Pledged Shares without the Court’s approval. Without derogating from those rights of the Receiver, S.B. Israel Telecom remains the holder of legal title to the Pledged Shares. On December 9, 2019, the Ministry of Communications granted, within its powers, a permit to the Receiver to exercise means of control of the Company by himself. As a result, the Receiver has the power to substantially influence the nomination of the Company’s Board of Directors and to play a preponderant if not decisive role in other decisions taken at meetings of the Company's shareholders. The Receiver is expected to hold such rights until the Pledged Shares are sold or transferred to Advent, actions that would require the Court’s approval according to the Court Order and Advent's Application.
On December 14, 2021, the Court granted an approval in principle, effective as of December 15, 2021, for the purchase of the Pledged Shares by a group of parties led by the Phoenix group, Mr. Avi Gabbay and Mr. Shlomo Rodav (jointly, the “Offeror”), on an “as is” basis, in consideration for US $ 300,000,000 (the “Transaction”), as proposed by the Offeror. On January 9, 2022, the Competition Authority granted its approval. The Transaction is still subject to the approval of the Ministry of Communications”.
F - 82
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 26 -TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued)
d.Holdings of approved Israeli shareholders in the Company: The provisions of the Company's cellular license require, among others, that the “founding shareholders or their approved substitutes”, as defined in the cellular license, hold at least 26% of the means of control in the Company, including 5% which must be held by Israeli shareholders (Israeli citizens and residents), who were approved as such by the Minister of Communications. Notwithstanding the aforesaid, the controlling stake of the Phoenix Group (one of the Company’s approved Israeli shareholders) has been sold to foreign entities. On November 12, 2019, the Israeli Ministry of Communications issued a temporary order (which ended on November 1, 2020) (the “Temporary Order”) amending the Company’s cellular license and reducing the percentage that the approved Israeli entities are required to hold (from 5% to 3.82% of the means of control in the Company). On July 7, 2020, the MoC published an amendment to the Company's cellular license which provides that the license terms applicable to Israeli shareholders may be replaced by an order issued by virtue of the Communications Law (Telecommunications and Broadcasting), 1982. Since the regulatory procedure allowing the above-mentioned license amendment to take place was still ongoing at the time, on October 26, 2020, the Israeli Ministry of Communications extended the term of the Temporary Order (ending on March 1, 2021). This temporary order allowed the Ministry and the Company sufficient time in which to resolve the issue of holdings of approved Israeli shareholders in the Company. During February 2021, the regulatory procedure allowing the above-mentioned license amendment to take place has been completed. There was no material impact on the financial statements.
F - 83
PARTNER COMMUNICATIONS COMPANY LTD. |
(An Israeli Corporation) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
NOTE 27 -EARNINGS PER SHARE
Following are data relating to the profit and the weighted average number of shares that were taken into account in computing the basic and diluted EPS:
Year ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Profit used for the computation of basic and diluted EPS attributable to the owners of the Company (NIS in millions) | 19 | 17 | 115 | |||||||||
| ||||||||||||
Weighted average number of shares used in computation of basic EPS (in thousands) | 162,831 | 182,331 | 183,203 | |||||||||
| ||||||||||||
Add - net additional shares from assumed exercise of employee stock options and restricted shared (in thousands) | 777 | 857 | 1,131 | |||||||||
| ||||||||||||
Weighted average number of shares used in computation of diluted EPS (in thousands) | 163,608 | 183,188 | 184,334 | |||||||||
| ||||||||||||
Number of options and restricted shares not taken into account in computation of diluted earnings per share, because of their anti-dilutive effect (in thousands) | 8,952 | 6,466 | 4,470 |
F - 84