Cellcom Israel Announces First Quarter 2010 Results

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Cellcom Israel Announces First Quarter 2010 Results

NETANYA, Israel, May 17, 2010--

    - Cellcom Israel Continues to Present an Increase in Service
Revenues, Operating Income, EBITDA and EBITDA Margin, Despite the Ongoing
Price Erosions and Growing Competition;

    - EBITDA Margin Reached 40.4%; EBITDA[1] up by 1.8%

    - Cellcom Israel Declares a First Quarter Dividend of NIS 3.64
per Share (Totals Approx. NIS 360 Million)

    First Quarter 2010 Highlights (compared to the first quarter 2009[2]):

   
    - Total Revenues from services increased 3% to NIS 1,414
    million ($381 million)
   
        - Revenues from content and value added services (including
    SMS) increased 24.3%, reaching 17.8% of services revenues
   
    - Total Revenues (including revenues from end-user equipment)
    increased 1.2% to NIS 1,580 million ($426 million)
   
    - EBITDA increased 1.8% to NIS 638 million ($172 million);
    EBITDA margin 40.4%, up from 40.2%
   
    - Operating income increased 4.6% to NIS 457 million ($123
    million)
   
    - Net income totaled NIS 314 million ($85 million), a 9%
    decrease, attributed to the increase in financing expenses, net
   
    - Subscriber base increased approx. 21,000 during the first
    quarter, all post-paid subscribers; reaching approx. 3.313 million at the
    end of March 2010
   
    - 3G subscribers reached approx. 1.037 million at the end of
    March 2010, net addition of approx. 40,000 in the first quarter 2010
   
    - The Company Declared first quarter dividend of NIS 3.64 per
    share

    Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel",
the "Company"), announced today its financial results for the first quarter
of 2010. Revenues for the first quarter 2010 totaled NIS 1,580 million ($426
million); EBITDA for the first quarter 2010 totaled NIS 638 million ($172
million), or 40.4% of total revenues; and net income for the first quarter
2010 totaled NIS 314 million ($85 million). Basic earnings per share for the
first quarter 2010 totaled NIS 3.18 ($0.86).

    Commenting on the results, Amos Shapira, Chief Executive
Officer said, "Cellcom Israel continues its strong performance in the first
quarter of 2010 with sustained growth in service revenues, EBITDA, EBITDA
margin, operating income and subscriber base.

    While the cellular market in Israel is evolving, we have
maintained our position as the cellular operator with the best financial
performance in Israel and as market leader in terms of subscriber base as
well as in total revenues. I believe this is a result of our strategy of
focusing on cellular communications while being committed to delivering
quality customer service. Likewise, our ability to leverage our core business
through new synergetic and growth opportunities while prudently managing
expenses, further solidifies and supports our leading position and strong
financial performance.

    We are satisfied with the improvement in the growth rate of
airtime minutes, which totaled 4.8% in the first quarter this year compared
to 2.5% in the first quarter last year, as well as the service revenues
growth, totaled 3% this quarter compared to 1.1% in the first quarter last
year. Furthermore, in the first quarter 2010, we continued to expand our 3G
subscriber base, reaching 1.037 million at the end of March 2010,
representing 31.3% of our total subscriber base.

    We operate in a heavily regulated industry and face an
increasing number of proposed regulatory changes. The Israeli Ministry of
Communications recently announced that it is considering a substantial
decrease of interconnect tariffs among Israeli operators[3]. This proposed
decrease follows other regulatory changes that are currently under its
consideration. We intend to object to the decrease of interconnect tariffs as
suggested, especially to the way it is implemented, which may have an adverse
effect on the Company's results, and we plan to take measures to mitigate its
impact.

    We recently finalized the acquisition of the assets and
operation of Dynamica, one of our major dealers, whose communications chain
store will continue its operation as our wholly owned subsidiary while
benefiting from the synergies between Dynamica's operations and Cellcom
Israel's. I want to take this opportunity to welcome all Dynamica's managers
and employees to Cellcom Israel's family. I look forward to working together
in the future so that we can continue to provide our customers with quality
service and advanced products and handsets."

    Commenting on the change in the Company's VP of business
customers, Mr. Shapira thanked the outgoing Mr. Poran on behalf of the
Company's employees, management and shareholders for his term of office and
loyal partnership and wished him success. With regard to the new VP, Mr.
Shapira said: "Moty Caspy, one of the Company's top managers, has contributed
greatly to the Company's success. We take great pride in appointing one of
our own managers, who grew in the company, to the VP business customers
position and wish Moty success in his new position."

    Yaacov Heen, Chief Financial Officer, commented: "We are very
pleased with our results. Despite the ongoing airtime price erosion resulting
from the high market competition, we have seen a 3% rise in revenues from
services. Likewise, we have shown quarter over quarter growth in other key
areas including a 4.6% increase in operating income, a 1.2% increase in total
revenues, a 24.3% increase in content and value added services revenues and a
1.8% increase in EBITDA with EBITDA margin of 40.4%. In spite of the growth
in these key performance indicators, we presented a 9% decrease in net
income, which is fully attributed to the increase in our financing expenses,
net. This quarter, we also continued to present a strong free cash flow,
totaling NIS 387 million, which enable us to distribute a dividend of
approximately NIS 360 million, representing approximately 115% of net income
for the first quarter, to our shareholders."

    Main Financial and Performance Indicators*:

   
                               Q1/2010 Q1/2009 % Change   Q1/2010    Q1/2009
                                     million NIS             million US$
                                                             (convenience
                                                             translation)
    Total Services revenues      1,414   1,373      3.0%    380.8      369.8
    Revenues from content and      251     202     24.3%     67.6       54.4
    value added services
    Handset and accessories        166     188    (11.7%)    44.7       50.6
    revenues
    Total revenues               1,580   1,561      1.2%    425.5      420.4
    Operating Income               457     437      4.6%    123.1      117.7
    Net Income                     314     345     (9.0%)    84.6       92.9
    Free cash flow1                387     393     (1.5%)   104.2      105.8
    EBITDA                         638     627      1.8%    171.8      168.9
    EBITDA, as percent of
    Revenues                      40.4%   40.2%     0.5%
    Subscribers end of period
    (in thousands)               3,313   3,208      3.3%
    Monthly ARPU                 139.1   139.9     (0.6%)    37.5       37.7
    Average Monthly MOU            328     323      1.6%

    * Following the change in accounting policy in the second
quarter of 2009 regarding recognition of certain subscriber acquisition and
retention costs for capitalization, comparison data for the first quarter
2009 was changed to reflect the retrospective application of that change.

    Financial Review

    Revenues for the first quarter of 2010 totaled NIS 1,580
million ($426 million), a 1.2% increase compared to NIS 1,561 million ($420
million) in the first quarter last year. The increase in revenues resulted
from an increase in revenues from services, reaching NIS 1,414 million ($381
million) in the first quarter of 2010, up from NIS 1,373 million ($370
million) in the first quarter last year. The higher service revenues resulted
mainly from an increase of approximately 24% in content and value added
services (including SMS) revenues in the first quarter 2010, compared to the
first quarter last year. Revenues from content and value added services
reached NIS 251 million ($68 million), or 17.8% of service revenues.
Furthermore, the increase in landline services revenues during the quarter
also contributed to the higher service revenues. These increases were
partially offset by the ongoing airtime price erosion. The increase in
service revenues was partially offset by a 11.7% decrease in handset and
accessories' revenues, from NIS 188 million ($51 million) in the first
quarter last year, to NIS 166 million ($45 million) in the first quarter
2010, due to a decrease in the average handset sale price and in the number
of handsets sold in the first quarter 2010 compared to the first quarter last
year, resulted from a different mix of marketing activities in these two
quarters.

    Cost of revenues for the first quarter of 2010 totaled NIS 801
million ($216 million), a 1.2% decrease from NIS 811 million ($218 million)
in the first quarter last year. This decline primarily follows the lower
handset costs resulting from a decrease in the number of handsets sold during
the first quarter of 2010 compared to the first quarter last year, due to a
different mix of marketing activities in these two quarters. The decline in
cost of revenues also resulted from an increased efficiency in the cost of
content and value added services, lower depreciation expenses, as well as a
decrease in royalties to the Ministry of Communications resulting from a
decline in the royalties' rate. These decreases were partially offset by an
increase in total interconnect fees due to a quantitative increase in the
number of outgoing calls completed in other operators' networks.

    Gross profit for the first quarter of 2010 increased 3.9%
reaching NIS 779 million ($210 million), compared to NIS 750 million ($202
million) in the first quarter of 2009. Gross profit margin for the first
quarter 2010 increased to 49.3% from 48% in the first quarter last year.

    Selling, Marketing, General and
Administrative Expenses ("SG&A Expenses") for the first quarter of 2010
totaled NIS 322 million ($87 million), compared to NIS 311 million ($84
million) in the first quarter last year. The increase in SG&A Expenses
resulted mainly from an increase in payroll expenses primarily attributed to
an increase in the Company's sales and customer service force.

    Operating income for the first quarter 2010 increased 4.6%,
reaching NIS 457 million ($123 million), compared to NIS 437 million ($118
million) in the first quarter last year.

    EBITDA for the first quarter 2010 increased 1.8%, reaching NIS
638 million ($172 million), compared to NIS 627 million ($169 million) in the
first quarter of 2009. EBITDA as a percent of total revenues, reached 40.4%
compared to 40.2% in the first quarter last year.

    Financing expenses, net for the first quarter 2010 totaled NIS
36 million ($10 million), compared to financing income net of NIS 28 million
($8 million) in the first quarter last year. This change resulted from three
main elements: (1) a loss from currency hedging transactions due to an
appreciation of 1.6% of the NIS against the US dollar in the first quarter of
2010, compared to a gain from currency hedging transactions in the first
quarter last year due to a depreciation of 10.2% of the NIS against the US
dollar in the first quarter last year; (2) a loss from the Israeli Consumer
Price Index (CPI) hedging transactions in the first quarter 2010 resulting
mainly from a deflation of 0.9% in the first quarter this year, compared to a
gain from CPI hedging transactions in the first quarter last year; and (3)
increased interest expenses, associated with the Company's debentures, due to
the increased debt level. These three impacts were partially offset by an
increased income from linkage to the CPI, associated with the Company's
debentures, due to the higher deflation in the first quarter of 2010 compared
to the first quarter last year, as well as from income from foreign currency
differences relating to trade payables balances in the first quarter 2010,
compared to expenses from foreign currency differences in the first quarter
last year, following the changes in the NIS/US dollar exchange rate.

    Net Income for the first quarter 2010 totaled NIS 314 million
($85 million), compared to NIS 345 million ($93 million) in the first quarter
last year. This decrease resulted from the higher financing expenses. Basic
earnings per share for the first quarter 2010 totaled NIS 3.18 ($0.86),
compared to NIS 3.51 ($0.95) in the first quarter 2009.

    Operating Review

    New Subscribers - at the end of March 2010 the Company had
approximately 3.313 million subscribers. During the first quarter of 2010 the
Company added approximately 21,000 net new subscribers, all of them post-paid
subscribers.

    In the first quarter of 2010, the Company added approximately
40,000 net new 3G subscribers to its 3G subscriber base, reaching
approximately 1.037 million 3G subscribers at the end of March 2010,
representing 31.3% of the Company's total subscriber base, an increase from
the 26% 3G subscribers represented of total subscribers at the end of March
2009.

    The Churn Rate in the first quarter 2010 was 5.4%, compared to
5.0% in the first quarter last year. The churn for both quarters was
primarily impacted by the churn of pre-paid subscribers, characterized by
lower contribution, and subscribers with collection problems.

    Average monthly subscriber Minutes of Use ("MOU") in the first
quarter 2010 totaled 328 minutes, compared to 323 minutes in the first
quarter 2009, an increase of 1.6%.

    The monthly Average Revenue per User (ARPU) for the first
quarter 2010 decreased 0.6% and totaled NIS 139.1 ($37.5), compared to NIS
139.9 ($37.7) in the first quarter last year.

    Financing and Investment Review

    Cash Flow

    Free cash flow for the first quarter of 2010 totaled NIS 387
million ($104 million), compared to NIS 393 million ($106 million) generated
in the first quarter of 2009. The decrease in free cash flow resulted mainly
from payments for derivative hedging transactions and other derivative
transactions in the first quarter of 2010, compared to proceeds received from
such transactions in the first quarter last year.

    Shareholders' Equity

    Shareholders' Equity as of March 31, 2010 amounted to NIS 430
million ($116 million), primarily consisting of accumulated undistributed
retained earnings.

    Investment in Fixed Assets and Intangible Assets

    During the first quarter 2010, the Company invested NIS 137
million ($37 million) in fixed assets and intangible assets (including, among
others, deferred sales commissions and handsets subsidies and investments in
information systems and software), compared to NIS 114 million ($31 million)
in the first quarter 2009.

    Dividend

    On May 16, 2010, the Company's board of directors declared a
cash dividend in the amount of NIS 3.64 per share, and in the aggregate
amount of approximately NIS 360 million (the equivalent of approximately
$0.97 per share and approximately $96 million in the aggregate, based on the
representative rate of exchange on May 13, 2010; The actual US$ amount for
dividend paid in US$ will be converted from NIS based upon the representative
rate of exchange published by the Bank of Israel on June 7, 2010), subject to
withholding tax described below. The dividend will be payable to all of the
Company's shareholders of record at the end of the trading day in the NYSE on
May 27, 2010. The payment date will be June 9, 2010. According to the Israeli
tax law, the Company will deduct at source 20% of the dividend amount payable
to each shareholder, as aforesaid, subject to applicable exemptions. The
dividend per share that the Company will pay for the first quarter of 2010
does not reflect the level of dividends that will be paid for future
quarterly periods, which can change at any time in accordance with the
Company's dividend policy. A dividend declaration is not guaranteed and is
subject to the Company's board of directors' sole discretion, as detailed in
the Company's annual report for the year ended December 31, 2009 on Form
20-F, under "Item 8 - Financial Information - Dividend Policy".

    Other developments during the first quarter of 2010 and
subsequent to the end of the reporting period

    Regulation - Tariff Supervision

    In May 2010, following the previously reported examination
conducted by the Israeli Ministry of Communications, or MOC, regarding
interconnect tariffs payable by cellular operators, the MOC announced it is
considering changes to the Israeli regulations which set interconnect tariffs
among Israeli operators, as follows:

   
    - to reduce the maximum interconnect tariff payable by a
    landline operator or a cellular operator for the completion of a call on
    another cellular network from the current tariff of NIS 0.251 per minute
    to NIS 0.0414 per minute from August 1, 2010; to NIS 0.0354 per minute
    from January 1, 2011; to 0.0311 per minute from January 1, 2012; to NIS
    0.0280 per minute from January 1, 2013; and to NIS 0.0257 as of January
    1, 2014.

    - to reduce the maximum interconnect tariff payable by a cellular
    operator for sending an SMS message to another cellular network from the
    current tariff of NIS 0.0285 to NIS 0.0019 from August 1, 2010; to NIS
    0.0017 from January 1, 2011; to NIS 0.0016 from January 1, 2012; to NIS
    0.0014 from January 1, 2013; and to NIS 0.0013 from January 1, 2014.

    - the tariffs do not include VAT will be updated annually from
    January 1, 2011, based on the change in the Israeli CPI published in
    November of the preceding year against the Israeli CPI published in
    January 2010.

    The Company and the other cellular operators may respond to
the proposed changes within 30 days, at which time the MOC is expected to
make a final determination. The Company can not assess at this stage the
ultimate outcome of the hearing and what the final maximum tariffs will be,
but it is reviewing its possible effect on its results of operations. If the
changes as currently proposed are adopted, then, absent any efforts to
mitigate the expected loss of revenues, the currently proposed changes are
expected to have a monthly adverse effect estimated at this stage to amount
to approximately NIS 35 million on the Company's EBITDA and approximately NIS
25 million on the Company's net income, from August 2010. Additionally, such
proposed changes may have additional effects, such as on the volumes of
outgoing and incoming calls to cellular networks, and facilitation of MVNOs'
entry to the market, all of which may have a material adverse affect on the
Company's results of operations. The Company intends to take measures to
mitigate as much as possible expected adverse effects of such proposed
changes, through revenue enhancement as well as cost reduction. The Company
cannot estimate at this stage the actual effects of the changes, if adopted.
The Company intends to object strongly to the proposed changes but cannot
predict the ultimate outcome of such objections.

    For additional details see the Company's most recent annual
report for the year ended December 31, 2009 on Form 20-F under "Item 3. Key
Information - D. Risk Factors - Risks related to our business - We operate in
a heavily regulated industry, which can harm our results of operations" and "
We face intense competition in all aspects of our business", as well as under
"Item 4. Information on the Company - B. Business Overview - Competition",
"Government Regulations -Tariff Supervision" and "Mobile Virtual Network
Operator".

    Forward Looking Statement - The information above contains, or
may be deemed to contain, forward-looking statements (as defined in the U.S.
Private Securities Litigation Reform Act of 1995 and the Israeli Securities
Law, 1968). Said forward-looking statements, relating to the reduction of
interconnect tariffs and its influence on the Company's results of
operations, are subject to uncertainties and assumptions about the outcome of
the aforesaid hearing and the Company's ability to mitigate the expected lost
revenues. The Company's ability to mitigate the expected lost revenues could
lead to materially different outcome than that set forth above.

    Cell sites

    Following the previously reported opinion of the Israeli
Attorney General, on March 2010 the Israeli Ministry of Interior Affairs
submitted drat regulations, setting the conditions for the application of the
exemption from the requirement to obtain a building permit for radio access
devices, for the approval of the Economy Committee of the Israeli Parliament.
The draft regulations include substantial limitations on the ability to
construct radio access devices based on such exemption, including a
limitation of the number of such radio access devices to 5% of the total
number of cell sites constructed or to be constructed with a building permit
in a certain area during a certain period, and to circumstances in which a
request for a building permit for the radio access device was filed and no
resolution has been granted within the timeframe set in the regulations. For
additional details see the Company's most recent annual report for the year
ended December 31,2009 on Form 20-F, under "Item 3. Key Information - D. Risk
Factors - Risks related to our business - We may not be able to obtain
permits to construct cell sites" as well as under "Item 4. Information on the
Company - B. Business Overview - Government Regulations - Permits for Cell
site Construction -Site Licensing".

    Change of VP business customers

    In April 2010, the Company announced on change of VP business
customers. Mr. Refael Poran, will be leaving his office as the Company's vice
president of business customers. Mr. Moty Caspy was appointed by the
Company's board of directors as the Company's vice president of business
customers, effective May 1, 2010. Mr. Poran will continue to serve in office
until Mr. Caspy assumes his responsibilities. For additional details see the
Company's immediate reports (on Form 6-K) dated April 15, 2010 and April 29,
2010.

    Conference Call Details

    The Company will be hosting a conference call on Monday, May
17, 2010 at 9:00 am ET, 6:00 am PT, 14:00 UK time, 16:00 Israel time. On the
call, management will review and discuss the results, and will be available
to answer questions. To participate, please either access the live webcast on
the Company's website, or call one of the following teleconferencing numbers
below. Please begin placing your calls at least 10 minutes before the
conference call commences. If you are unable to connect using the toll-free
numbers, please try the international dial-in number.

    US Dial-in Number: 1-888-281-1167 UK Dial-in Number: 0-800-917-9141

    Israel Dial-in Number: 03-918-0685 International Dial-in Number:
+972-3-918-0685

    at: 09:00 am ET; 06:00 am PT; 14:00 UK Time; 16:00 Israel Time

    To access the live webcast of the conference call, please
access the investor relations section of Cellcom Israel's website:
http://www.cellcom.co.il. After the call, a replay of the call will be
available under the same investor relations section.

    About Cellcom Israel

    Cellcom Israel Ltd., established in 1994, is the leading
Israeli cellular provider; Cellcom Israel provides its approximately 3.313
million subscribers (as at March 31, 2010) with a broad range of value added
services including cellular and landline telephony, roaming services for
tourists in Israel and for its subscribers abroad and additional services in
the areas of music, video, mobile office etc., based on Cellcom Israel's
technologically advanced infrastructure. The Company operates an HSPA 3.5
Generation network enabling advanced high speed broadband multimedia
services, in addition to GSM/GPRS/EDGE and TDMA networks. Cellcom Israel
offers Israel's broadest and largest customer service infrastructure
including telephone customer service centers, retail stores, and service and
sale centers, distributed nationwide. Through its broad customer service
network Cellcom Israel offers its customers technical support, account
information, direct to the door parcel services, internet and fax services,
dedicated centers for the hearing impaired, etc. As of 2006, Cellcom Israel,
through its wholly owned subsidiary Cellcom Fixed Line Communications L.P.,
provides landline telephone communication services in Israel, in addition to
data communication services. Cellcom Israel's shares are traded both on the
New York Stock Exchange (CEL) and the Tel Aviv Stock Exchange (CEL). For
additional information please visit the Company's website
http://www.cellcom.co.il

    Forward-Looking Statements

    The following information contains, or may be deemed to
contain forward-looking statements (as defined in the U.S. Private Securities
Litigation Reform Act of 1995 and the Israeli Securities Law, 1968). In some
cases, you can identify these statements by forward-looking words such as
"may," "might," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements, which are
subject to risks, uncertainties and assumptions about us, may include
projections of our future financial results, our anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. There are important factors that could cause our actual results,
level of activity, performance or achievements to differ materially from the
results, level of activity, performance or achievements expressed or implied
by the forward-looking statements. Factors that could cause such differences
include, but are not limited to: changes to the terms of our license, new
legislation or decisions by the regulator affecting our operations, the
outcome of legal proceedings to which we are a party, particularly class
action lawsuits, our ability to maintain or obtain permits to construct and
operate cell sites, and other risks and uncertainties detailed from time to
time in our filings with the U.S. Securities and Exchange Commission,
including under the caption "Risk Factors" in our Annual Report for the year
ended December 31, 2009.

    Although we believe the expectations reflected in the
forward-looking statements contained herein are reasonable, we cannot
guarantee future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of any of these forward-looking statements. We
assume no duty to update any of these forward-looking statements after the
date hereof to conform our prior statements to actual results or revised
expectations, except as otherwise required by law.

    The Company prepares its financial statements in accordance
with International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB). Unless noted specifically
otherwise, the dollar denominated figures were converted to US$ using a
convenience translation based on the US$\New Israeli Shekel (NIS) conversion
rate of NIS 3.713 = US$ 1 as published by the Bank of Israel on March 31,
2010.

    Use of non-GAAP financial measures

    EBITDA is a non-GAAP measure and is defined as income before
financing income (expenses), net; other income (expenses), net; income tax;
depreciation and amortization. This is an accepted measure in the
communications industry. The Company presents this measure as an additional
performance measure as the Company believes that it enables us to compare
operating performance between periods and companies, net of any potential
differences which may result from differences in capital structure, taxes,
age of fixed assets and related depreciation expenses. EBITDA should not be
considered in isolation, or as a substitute for operating income, any other
performance measures, or cash flow data, which were prepared in accordance
with Generally Accepted Accounting Principles as measures of profitability or
liquidity. EBITDA does not take into account debt service requirements, or
other commitments, including capital expenditures, and therefore, does not
necessarily indicate the amounts that may be available for the Company's use.
In addition, EBITDA may not be comparable to similarly titled measures
reported by other companies, due to differences in the way these measures are
calculated. See the reconciliation between the net income and the EBITDA
presented at the end of this Press Release.

    Free cash flow is a non-GAAP measure and is defined as the net cash
provided by operating activities minus the net cash used in investing
activities plus short-term investment in marketable debentures. See the
reconciliation note at the end of this Press Release.

   
                             Financial Tables Follow
                               Cellcom Israel Ltd.
                            (An Israeli Corporation)
    Condensed Consolidated Statements of Financial position

                                           Convenience
                                           translation
                                          into US dollar
                          March 31,     March 31,     March 31,  December 31,
                              2010          2010        * 2009      2009
                          NIS millions  US$ millions      NIS        NIS
                                                          millions   millions
                           (Unaudited)   (Unaudited)   (Unaudited) (Audited)
     Assets
     Cash and cash               618            166         152       903
     equivalents
     Current investments,        383            103          72       272
     including derivatives
     Trade receivables         1,554            419       1,518     1,579
     Other receivables            71             19          66        63
     Inventory                   134             36         128       149

     Total current assets      2,760            743       1,936     2,966

     Trade and other             584            157         612       606
     receivables
     Property, plant and       2,060            555       2,100     2,096
     equipment, net
     Intangible assets, net      704            190         728       711

     Total non- current        3,348            902       3,440     3,413
     assets

     Total assets              6,108          1,645       5,376     6,379

     Liabilities
     Debentures current          344             93         327       350
     maturities
     Trade payables and          718            193         686       806
     accrued expenses
     Current tax liabilities      83             22         120        67
     Provisions                   87             24          52        84
     Other current               364             98         318       405
     liabilities, including
     derivatives

     Total current             1,596            430       1,503     1,712
     liabilities

     Debentures                3,983          1,073       3,213     4,185
     Provisions                   17              4          18        16
     Other long-term               1              -           -         1
     liabilities
     Deferred taxes               81             22         158        91

     Total non- current        4,082          1,099       3,389     4,293
     liabilities

     Total liabilities         5,678          1,529       4,892     6,005

     Shareholders' equity
     Share capital                 1              -           1         1
     Cash flow hedge reserve     (24)            (6)          8       (23)
     Retained earnings           453            122         475       396

     Total shareholders'         430            116         484       374
     equity

     Total liabilities and     6,108          1,645       5,376     6,379
     shareholders' equity

    (*) Retrospective application due to accounting policy
change regarding "Subscriber Acquisition and Retention Costs"

   
                               Cellcom Israel Ltd.
                            (An Israeli Corporation)
    Condensed Consolidated Statements of Income

                                    Three- month period ended    Year ended
                                            March 31,           December 31,
                                           Convenience
                                           translation
                                             into US
                                             dollar
                                 2010         2010         * 2009      2009
                             NIS millions US$ millions  NIS millions    NIS
                                                                     millions
                             (Unaudited) (Unaudited)  (Unaudited)  (Audited)

    Revenues                    1,580           426        1,561     6,483
    Cost of revenues              801           216          811     3,333

    Gross profit                  779           210          750     3,150

    Selling and marketing
    expenses                      163            44          157       716
    General and
    administrative expenses       159            43          154       660
    Other (income) expenses,
    net                             -             -            2         6

    Operating income              457           123          437     1,768

    Financing income               23             6           60       151
    Financing expenses            (59)          (16)         (32)     (370)
    Financing costs, net          (36)          (10)          28      (219)

    Income before income tax      421           113          465     1,549
    Income tax                    107            28          120       367

    Net income                    314            85          345     1,182

    Earnings per share
    Basic earnings per share
    in NIS                       3.18          0.86         3.51     12.01

    Diluted earnings per
    share in NIS                 3.16          0.85         3.48     11.90

    (*) Retrospective application due to accounting policy change regarding
"Subscriber Acquisition and Retention Costs"

   
                               Cellcom Israel Ltd.
                           (An Israeli Corporation)

    Condensed Consolidated Statements of Cash Flows

                                      Three- month period ended    Year ended
                                              March 31,          December 31,
                                             Convenience
                                             translation
                                               into US
                                               dollar
                                    2010        2010       * 2009      2009
                                     NIS         US$         NIS        NIS
                                  millions    millions    millions   millions
                                (Unaudited) (Unaudited) (Unaudited) (Audited)

    Cash flows from operating
    activities
    Net income for the period         314          85         345     1,182
    Adjustments for:
    Depreciation and
    Amortization                      181          49         188       755
    Share based payments                -           -           -         1
    Loss (gain) on sale of
    assets                              -           -           2         6
    Income tax expense                107          28         120       367
    Financial (income) expenses,
    net                                36          10        (28)       219

    Changes in operating assets
    and liabilities:
    Changes in inventories             (5)         (1)       (25)      (105)
    Changes in trade receivables
    (including long- term
    amounts)                           76          20        (39)       (69)
    Changes in other receivables
    (including long- term
    amounts)                          (25)         (7)       (25)         2
    Changes in trade payables
    and accrued expenses              (34)         (9)        66        152
    Changes in other liabilities
    (including long-term
    amounts)                            6           1          9        (4)
    Proceeds (Payments) for
    derivative hedging
    contracts, net                     (5)         (1)         5         21
    Income tax paid                  (100)        (27)       (90)      (447)
    Net cash from operating
    activities                        551         148        528      2,080

    Cash flows from investing
    activities
    Acquisition of property,
    plant, and equipment             (105)        (28)      (112)      (404)
    Acquisition of intangible
    assets                            (58)        (16)       (47)      (173)
    Change in current
    investments, net                 (138)        (37)         -       (212)
    Proceeds (payments) for
    other derivative contracts,
    net                                (5)         (1)     ** 24       ** 8
    Proceeds from sales of
    property, plant and
    equipment                           1           -          -          2
    Interest received                   3           1          -          5
    Net cash used in investing
    activities                       (302)        (81)       (135)     (774)

    (*) Retrospective application due to accounting policy
change regarding "Subscriber Acquisition and Retention Costs"

    (**) Reclassified

   
                               Cellcom Israel Ltd.
                            (An Israeli Corporation)
    Condensed Consolidated Statements of Cash Flows (cont'd)

                                      Three- month period ended    Year ended
                                              March 31,          December 31,
                                             Convenience
                                             translation
                                               into US
                                               dollar
                                    2010        2010        2009       2009
                                     NIS         US$         NIS        NIS
                                  millions    millions    millions   millions
                                (Unaudited) (Unaudited) (Unaudited) (Audited)

    Cash flows from financing
    activities
    Proceeds from derivative
    contracts, net                    13           3           4        33
    Proceeds (Payments) for
    short term borrowings             (3)         (1)          -         8
    Repayment of debentures         (171)        (46)       (164)     (332)
    Proceeds from issuance of
    debentures, net of issuance
    costs                              -           -           -       989
    Dividend paid                   (256)        (69)       (270)   (1,186)
    Interest paid                   (117)        (31)        (86)     (190)

    Net cash used in financing
    activities                      (534)       (144)       (516)     (678)

    Changes in cash and cash
    equivalents                     (285)        (77)       (123)      628

    Balance of cash and cash
    equivalents at beginning of
    the period                       903         243         275       275
    Balance of cash and cash
    equivalents at end of
    the period                       618         166         152       903

   
                           Cellcom Israel Ltd.
                         (An Israeli Corporation)
    Reconciliation for Non-GAAP Measures
    EBITDA
    The following is a reconciliation of net income to EBITDA:
                                                                   
                       Three-month period ended                Year ended
                             March 31,                           December 31,
                          Convenience
                          translation
                        into US dollar
                   2010            2010               2009             2009
              NIS millions     US$ millions        NIS millions   
                                                               NIS millions
               (Unaudited)      (Unaudited)        (Unaudited)     (Audited)

                                                                         
    Net income.       314            85            345              1,182
    Income taxes..... 107            28            120                367
    Financing income. (23)           (6)           (60)              (151)
    Financing expenses.59            16             32                370
    Other expenses
    (income).....       -             -              2                  6
    Depreciation and
    amortization..    181            49            188                755
    EBITDA...         638           172            627              2,529

    Free Cash Flow

    The following table shows the calculation of free cash flow:

   
                       Three-month period ended                Year ended
                             March 31,                           December 31,
                          Convenience
                          translation
                        into US dollar
                   2010            2010               2009             2009
              NIS millions     US$ millions        NIS millions   
                                                               NIS millions
               (Unaudited)      (Unaudited)        (Unaudited)     (Audited)
    Cash flows
    from operating
    activities.       551           148                  528           2,080
    Cash flows from investing
    activities...    (302)          (81)                (135)           (774)
    short-term Investment in marketable
    debentures..      138            37                    -             212
    Free Cash Flow..  387           104                   393          1,518

    ---------------------------------

    [1] Please see "Use of Non-GAAP financial measures" section at the end of
this press release.

    [2] Following the change in accounting policy in the second
quarter of 2009 regarding recognition of certain subscriber acquisition and
retention costs for capitalization, comparison data for the first quarter
2009 was changed to reflect the retrospective application of that change.

    [3] See "Other developments during the first quarter of 2010 and
subsequent to the end of the reporting period", under "Regulation - Tariff
Supervision", below, for additional details.

   
    Company Contact
    Yaacov Heen
    Chief Financial Officer
    investors@cellcom.co.il
    Tel: +972-52-998-9755
    IR Contacts
    Porat Saar & Kristin Knies
    CCG Investor Relations Israel & US
    cellcom@ccgisrael.com
    Tel: +1-646-233-2161

Source: Cellcom Israel Ltd.

Company Contact: Yaacov Heen, Chief Financial Officer, investors@cellcom.co.il, Tel: +972-52-998-9755; IR Contacts: Porat Saar & Kristin Knies, CCG Investor Relations Israel & US, cellcom@ccgisrael.com, Tel: +1-646-233-2161

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