Cellcom recorded its most profitable quarter in 11 years
Cellcom presented its strongest quarter in 11 years, with a 44% jump in net profit to 92 million shekels and a 26% increase in operating profit. The main improvement stemmed from a sharp increase in equipment sales and continued debt reduction, while service revenues continued to erode and the stock responded with a rise of about 5% in trading.
The cellular company Cellcom, managed by Eli Adadi and owned by Yuval Cohen's Fortissimo Capital, recorded a 44% jump in net profit in the second quarter to 92 million shekels. This is the company's most profitable quarter in 11 years. In the first half of the year, net profit totaled 164 million shekels, an increase of 32% compared to 124 million shekels last year. The company's stock is jumping by 5% at the opening of trading on the stock exchange.
Total reported revenue for the quarter stood at 1.1 billion shekels, a moderate increase of only 1.7%. The 5.5% growth highlighted by the company is calculated excluding revenues from interconnection fees, a component that decreased significantly after the tariff reduction. Revenues from services fell to 726 million shekels, compared to 758 million shekels last year.
Sources that led to the improvement
Most of the improvement in the bottom line came from two sources. The first is from the sale of terminal equipment. Revenues from terminal equipment grew by 17% to 339 million shekels, and the gross profit from them jumped by 40% to 63 million shekels — the highest in seven years. The growth was particularly prominent in the fixed-line sector, where equipment revenues jumped by 54% to 60 million shekels. The second improvement stemmed from net financing expenses, which fell to 17 million shekels compared to 27 million shekels, against the backdrop of debt reduction. We note that in the last two years, Cellcom has reduced its gross financial debt by about a billion shekels, distributed dividends of about 400 million shekels, and its net financing expenses have decreased by about 50%.
Operating profit rose by 26% to 148 million shekels. The free cash flow for the quarter stood at 136 million shekels, compared to 103 million shekels last year, and in the first half of the year it totaled 251 million shekels, another record in results, this time for a decade.
In core operations, more moderate growth was recorded: revenues from cellular services rose by about 3% to 425 million shekels, as the growth in current revenues from cellular packages was partially offset by a decrease in roaming service revenues following the "Roar of the Lion" operation and its implications for aviation from Israel. The average revenue per user (ARPU) in the mobile sector rose to 38.6 shekels. Over the past year, the company added about 70,000 cellular subscribers and about 22,000 fiber subscribers.
CEO Adadi noted:
"These are particularly strong results, even in a quarter where the effects of the security situation are evident."
He highlighted the Nevios deal to supply communication infrastructure for Mega DC server farms, as well as a Cellcom Energy deal to integrate storage facilities from Nofar Energy.
The reports are published against the backdrop of a possible intention by the Fortissimo fund, managed by Yuval Cohen, who also serves as chairman of Cellcom, to realize holdings. The fund, which leads a group that acquired control of Cellcom from DIC in May 2024 for 936 million shekels and at a valuation of 2.6 billion shekels, currently holds about 33% of the shares and has hired the investment bank Citi to locate foreign investors. Cellcom's stock has risen by 15% in the last year and it is trading at a market value of 5.7 billion shekels.
