Cellcom in Q1 2026: profit held, cash is still the test

Cellcom opened 2026 better than the headline revenue decline suggests, but not cleanly enough to close the cash test that began after the IBC sale. Net profit rose to NIS 72 million, operating profit rose to NIS 118 million and free cash flow rose to NIS 115 million, while adjusted EBITDA barely moved and stood at NIS 345 million. The quality issue is the run rate: cellular and fiber subscribers are growing, but cellular ARPU excluding interconnect fees declined both year over year and sequentially, and the roaming hit from Operation “Lion’s Roar” makes it harder to separate temporary noise from price erosion. The balance sheet looks stronger, with net financial debt down to NIS 1.018 billion and net debt to adjusted EBITDA down to 0.73. Still, free cash flow is not the same as cash available for distribution: cash declined by NIS 176 million during the quarter after debt repayments and interest, and the NIS 200 million dividend was paid only in April. The uncomfortable point is that after the IBC sale, IBC again became one of the main risk centers, with a temporary procedural arrangement, bank guarantees of up to NIS 50 million and an amended counterclaim that raises an alleged expected non-payment of about NIS 895 million. The coming quarters are therefore not a balance-sheet survival test, but a quality test: whether the core can hold ARPU and EBITDA, whether the dividend does not absorb flexibility, and whether IBC and electricity do not pull management back into commitments before real contribution appears.

Company Overview

Cellcom is no longer only a cellular company. It reports three engines: cellular communications, fixed-line communications and electricity supply through Cellcom Energy, which is held 50%. But the profit engine is still clear: cellular generates most of the EBITDA, fixed-line adds internet, TV and transmission, and electricity is still at the stage where it adds revenue before it adds profit.

The company’s economic machine this quarter is mainly a margin and cash machine, not a clean growth story. After the IBC sale and the dividend return, the question is no longer whether the company can lower leverage, but whether operating activity generates enough cash after CAPEX, leases, debt repayments and distributions. This continues the test set in the previous annual analysis: moving from accounting profit helped by IBC to recurring profit and cash from the core.

The first-quarter business map is concise: the cellular segment generated NIS 228 million of adjusted EBITDA, fixed-line generated NIS 117 million, electricity reached NIS 49 million of revenue but remained at zero EBITDA, and net financial debt fell to NIS 1.018 billion. This is a more comfortable map than a year ago, but it still depends on whether subscriber pricing, cash after distribution and IBC do not weaken it.

The Core Held, But ARPU and Cash Still Do Not Close 2026

Subscribers Grew, Revenue Per Customer Declined

Group revenue declined to NIS 1.013 billion, down 8.9%, but a large part of the drop came from the reduction in interconnect fees from June 2025 and lower handset revenue. Excluding interconnect fees, revenue declined by only 4.9%, but this is still not growth. The positive surprise is in profit: gross profit rose to NIS 373 million, operating profit rose to NIS 118 million and net profit rose to NIS 72 million.

The problem is that the quarter does not fully confirm pricing power. Cellular subscribers rose to 3.679 million, up 2.1% year over year, and churn fell to 7.7% from 8.3% in the comparable quarter. But ARPU, average monthly revenue per user, excluding interconnect fees fell to NIS 37.2, from NIS 37.8 in the comparable quarter and NIS 38.4 in the fourth quarter. In other words, the company gained and retained more subscribers, but average revenue per customer did not rise with them.

Operation “Lion’s Roar” explains part of the weakness, and not a small part. The company estimates that the total pre-tax profit hit in the first quarter was about NIS 10 million, mainly from roaming services, with additional impact on handset sales and call centers. So it would be wrong to read the ARPU decline as a full operating failure. It would also be wrong to erase it. If roaming recovers in the coming quarters but ARPU remains around NIS 37, the message will be that subscriber growth is not translating into price.

The fixed-line segment looks similar, but less comfortable. Service revenue declined to NIS 332 million, adjusted EBITDA fell to NIS 117 million, and internet ARPU declined to NIS 99.6 from NIS 101.5 in the fourth quarter. Fiber continues to grow and reached 357 thousand subscribers, 92% of infrastructure internet subscribers, but the high penetration rate now asks more from the company: not only moving customers to fiber, but preserving revenue and profitability as the market matures.

Positive Free Cash Flow Is Not the Whole Cash Picture

The number the market may like is free cash flow of NIS 115 million, compared with NIS 94 million in the comparable quarter. That is a real improvement. It came from operating cash flow of NIS 333 million, less NIS 150 million used in investing activity and NIS 68 million of lease cash, principal and interest. This is the business cash generation picture for the quarter after investments and leases.

But under an all-in cash flexibility view, meaning cash left after the period’s actual cash uses, the quarter is tighter. The company paid NIS 249 million for bond repayments and another NIS 42 million of interest on bonds and short-term credit. Cash therefore fell from NIS 476 million at the start of the quarter to NIS 300 million at the end, before the NIS 200 million dividend was paid in April.

This does not mean there is a liquidity problem. Net debt to adjusted EBITDA fell to 0.73, and the company reports unused credit facilities of about NIS 600 million. The board also determined that there are no warning signs, despite a consolidated working-capital deficit of about NIS 745 million and a solo working-capital deficit of about NIS 1.078 billion. But this is exactly the important distinction: the balance sheet is more comfortable, yet the dividend brings the discussion back to daily cash. After the IBC sale, the company is measured not only by lower net debt, but by how much cash remains after debt, investments, leases and distributions.

IBC and Electricity Put Commitments Back at the Center

IBC Returned From the Note to the Center of Risk

The central point in the IBC analysis was that the sale reduced leverage, but did not disconnect the economic relationship between Cellcom and IBC. The first quarter reinforces that conclusion. On March 23, 2026, the court approved a procedural arrangement between the parties, which settles the covered disputes only for the duration of the proceeding and until a final judgment.

The arrangement reduces immediate operating risk: the company will complete bank guarantees under the IRU mechanism, up to NIS 50 million, provided IBC does not draw amounts under interpretive dispute. IBC, in turn, agreed not to send invoices that include disputed payments. The company also committed to pay current payments for the line package based on an updated commitment rate of 15% out of up to about 2 million customer households. Any additional line will be purchased at the IRU line price, without a commitment to any rate out of IBC’s actual deployment.

The other side of the arrangement matters more than the temporary quiet. In April 2026, IBC filed an amended counterclaim seeking monetary relief of about NIS 16.5 million and declaratory relief. In addition, IBC claims, based on information it holds and as a rough non-binding estimate, expected non-payment of about NIS 895 million through the end of the IRU agreement, beyond the amount claimed in the original claim. The company cannot currently estimate the outcome of the proceeding.

IBC is therefore not a legal footnote. It is a test of balance-sheet flexibility exactly when the company has resumed dividend payments. The interim arrangement reduces near-term risk of guarantee draws and disputed invoices, but it does not close the size of the economic exposure, it does not eliminate dependence on fiber infrastructure, and it does not give the market a final answer on how much post-sale cash is truly available to shareholders.

Electricity Grew in Revenue, Still Not in Profit

Cellcom Energy received more volume this quarter, not more profit. Electricity segment revenue, according to the company’s share, rose to NIS 49 million from NIS 39 million in the comparable quarter, up 25.6%. Gross profit was NIS 2 million, operating profit was zero, and segment adjusted EBITDA was zero. This is commercial progress, but not yet economic proof.

This is the natural follow-up to the Cellcom Energy analysis. The question there was whether accumulated agreements and commitments would move from volume to EBITDA. The first quarter still does not answer that question. In the separate financial information, the investment in Cellcom Energy is shown at negative NIS 9 million, similar to the end of 2025, so there is no sign here of a quick balance-sheet turnaround in the activity.

That does not mean electricity has no value. Electricity supply can become another engine if the customer base and procurement scale begin to generate margin. But in a quarter in which the dividend returned and IBC moved back to the center, electricity still has to prove that it adds EBITDA, not only revenue, without requiring another layer of support from the parent.

Conclusions

The quarter’s conclusion is cautiously positive: Cellcom shows a core that can hold profit and cash even in a noisy quarter, but it still does not prove that the post-IBC improvement has become recurring, accessible free cash. The best operating data points are the ability to keep adjusted EBITDA almost stable despite a roaming hit and revenue decline, and the continued decline in net debt. The main blocker is elsewhere: lower cellular ARPU, cash erosion after debt service, a dividend paid after the balance-sheet date, and the IBC dispute, which may shift the question from low leverage to contractual exposure.

The next quarters need to provide three confirmations. First, roaming and ARPU recovery, so subscriber growth does not remain only quantitative. Second, the cash picture after dividend, debt and CAPEX, not only free cash flow under the company’s definition. Third, quiet progress with IBC and a clearer initial contribution from electricity. If all three move together, 2026 will look like a stabilization year proving that the IBC sale improved the company beyond the balance sheet. If one breaks, especially IBC or ARPU, the market may return to measuring the company by risk rather than distribution.