B Communications Reports Financial Results For The Second Quarter of 2012

August 2, 2012

B Communications Reports Financial Results For The Second Quarter of 2012

 

–          Continued On-Track Progress Driven By Bezeq’s Strong Cash Flow – 

 

Ramat Gan, Israel – August 2, 2012 – B Communications Ltd. (NASDAQ Global Market and TASE: BCOM) today reported its financial results for the quarter ended June 30, 2012.

Bezeq – On-Track Performance: The Bezeq Group reported another stable quarter, delivering revenues of NIS 2.6 billion ($ 661 million) and operating profit of NIS 746 million ($ 190 million) for the period. Bezeq’s EBITDA for the second quarter totaled NIS 1.1 billion ($ 281 million), representing an EBITDA margin of 42.5%. Net income for the period attributable to the shareholders of the Company totaled NIS 415 million ($ 106 million). Bezeq’s cash flow from operating activities totaled NIS 990 million ($ 252 million) during the quarter ended June 30, 2012.

Dividend from Bezeq: On May 22, 2012, B Communications received two dividend payments from Bezeq totaling NIS 489 million ($ 125 million), consisting of a current dividend of NIS 334 million ($ 85 million), representing B Communications’ share of Bezeq’s net profit for the second half of 2011, and a special dividend of NIS 155 million ($ 40 million), representing the third installment of the six special dividend payments declared by Bezeq and approved by its shareholders last year.

B Communications used the dividend proceeds for three purposes: (1) payment of NIS 254 million ($ 65 million) of its current loan repayment commitment, in-line with the original debt repayment schedule; (2) pre-payment of an additional NIS 188 million ($ 48 million) of its bank debt, consisting of a NIS 82 million ($ 21 million) pre-payment of short term debt originally scheduled for payment in November 2012 and a NIS 106 million ($ 27 million) pre-payment of a “bullet” principal payment due in November 2016, thereby reducing the size of the original NIS 700 million ($ 178 million) “bullet” loan to NIS 32 million ($ 8 million); and  (3) increasing current cash balances with the remaining NIS 47 million ($ 12 million).

Cash Position: As of June 30, 2012, B Communications’ unconsolidated cash and cash equivalents totaled NIS 400 million ($ 102 million), its unconsolidated total debt was NIS 4.1 billion ($ 1.1 billion) and its unconsolidated net debt totaled NIS 3.7 billion ($ 948 million).

B Communications’ Unconsolidated Balance Sheet Data*

 

  June 30, December 31, June 30, December 31,
  2012 2011 2012 2011
  (NIS millions) (US$ millions)
Short term liabilities 431 526 110 134
Long term liabilities 3,689 3,874 940 988
Total liabilities 4,120 4,400 1,050 1,122
Cash and cash equivalents 400 354 102 91
Total net debt 3,720 4,046 948 1,031
         

 

* Does not include the balance sheet of Bezeq


 

B Communications’ Second Quarter Consolidated Financial Results

 

B Communications’ revenues for the second quarter were NIS 2,595 million ($ 661 million), a 10% decrease compared with NIS 2,893 million ($ 737 million) reported in the second quarter of 2011. For both the current and the prior-year periods, B Communications’ revenues consisted entirely of its share of Bezeq’s revenues.

B Communications’ net loss attributable to shareholders for the second quarter totaled NIS 66 million ($ 17 million), compared to a net loss attributable to shareholders of NIS 12 million ($ 3 million) reported in the second quarter of 2011. This net loss reflects the impact of two significant expenses:

  • Amortization of tangible and identifiable intangible assets resulting from the Bezeq acquisition: According to the rules of business combination accounting, the total purchase price of the Bezeq acquisition was allocated to Bezeq’s tangible and identifiable intangible assets based on their estimated fair values as determined by an analysis performed by an independent valuation firm. B Communications is amortizing certain of the acquired identifiable intangible assets in accordance with the economic benefit expected from such assets using an accelerated method of amortization. 

 

During the second quarter of 2012, B Communications recorded amortization expenses related to the Bezeq purchase price allocation (“Bezeq PPA”) of NIS 305 million ($ 78 million), net. From the Bezeq acquisition date (April 14, 2010) until the end of the reporting quarter, B Communications amortized approximately 48% of the total Bezeq PPA. It expects to amortize an additional 9% in the last two quarters of 2012.

 

The Company’s Bezeq PPA amortization expense is a non-cash expense that is subject to adjustment. If, for any reason, the Company finds it necessary or appropriate to make adjustments to amounts already expensed, it may result in significant changes to future financial statements.

  • Financial expenses: B Communications’ unconsolidated financial expenses for the second quarter totaled NIS 100 million ($ 25 million). These expenses consisted primarily of NIS 82 million ($ 21 million) interest and CPI linkage expense on the long-term loans incurred to finance the Bezeq acquisition and NIS 15 million ($ 4 million) of expenses related to the Company’s debentures. The significant financial expenses recorded in the second quarter were due primarily to high CPI linkage expenses attributed to the 1.25% increase in the Israeli CPI, to which approximately half of B Communications’ total debt is linked.

 

B Communications’ Unconsolidated Financial Results 

 

  Quarter ended June 30, Quarter ended June 30,
  2012 2011 2012 2011
  (NIS millions) (US$ millions)
Revenues
Financial expenses (100) (98) (25) (25)
Tax and other expenses (1)
PPA amortization, net (95) (96) (24) (24)
Interest in Bezeq’s net income 129  183  32 46
Net loss (66) (12) (17) (3)


 

Comments of Management

Commenting on the results, Doron Turgeman, the CEO of B Communications, said, “Our significant progress over the past two years demonstrates the soundness in the structure of our work plan and of the capital structure that we negotiated with our lending banks. We are proud to have been able to accelerate the repayment plan, retiring over NIS 2 billion of our debt in just two years while continuing to build our cash reserves to their current level of approximately NIS 400 million. We plan to continue to improve our financial stability and liquidity in the quarters to come. We believe that our loan agreements, which do not have any loan to value covenants, have been advantageous to our Company. We are obviously well aware of the unfavorable state of the financial and capital markets in Israel, as well of the recent decline in Bezeq’s share price – a decline that we believe is temporary. Despite this environment, as a long term communications player, we will continue to manage our business according to plan and with our reliable strong cash flow we are confident that we will be able to fulfill all our loan commitments. 

 

Bezeq Group Results (Consolidated)

   

To provide further insight into its results, the Company has provided the following summary of the Bezeq Group’s consolidated financial report for the quarter ended June 30, 2012. For a full discussion of Bezeq’s results for the quarter, please refer to http://ir.bezeq.co.il.

Revenues of the Bezeq Group in the second quarter of 2012 amounted to NIS 2.60 billion compared with NIS 2.89 billion in the corresponding quarter of 2011, a decrease of 10.3 %. Most of the decrease in the Bezeq Group’s revenues is due to the decrease in revenues from the sale of cellular handsets and the erosion of revenues from cellular services.

Operating profit of the Bezeq Group in the second quarter of 2012 amounted to NIS 746 million, compared with NIS 935 million in the corresponding quarter of 2011, a decrease of 20.2%.  EBITDA in the second quarter of 2012 amounted to NIS 1.10 billion (EBITDA margin of 42.5%), compared with NIS 1.28 billion (EBITDA margin of 44.3%) in the corresponding quarter of 2011, a decrease of 14.0%. Net profit attributable to Bezeq shareholders in the second quarter of 2012 amounted to NIS 415 million compared with NIS 585 million in the corresponding quarter of 2011, a decrease of 29.1%. The decrease in operating profit, EBITDA and net profit is primarily attributable to a decrease in profitability in the cellular segment.

Cash flow from operating activities in the second quarter of 2012 amounted to NIS 990 million compared with NIS 670 million in the corresponding quarter of 2011, an increase of 47.8% due to improved working capital in the cellular segment. As a result of the increased cash flow from operating activities as well as the completion of large infrastructure projects, free cash flow in the second quarter of 2012 amounted to NIS 630 million compared with NIS 264 million in the corresponding quarter of 2011, an increase of 138.6%.

Gross capital expenditures (CAPEX), in the second quarter of 2012 amounted to NIS 382 million compared with NIS 495 million in the corresponding quarter of 2011, a decrease of 22.8%. The Bezeq Group’s CAPEX to consolidated revenues ratio in the second quarter of 2012 was 14.7%, compared with 17.1% in the corresponding quarter of 2011.

As of June 30, 2012, gross financial debt of the Bezeq Group was NIS 9.13 billion, compared with NIS 6.98 billion as of June 30, 2011. The net financial debt of the Bezeq Group was NIS 7.90 billion compared with NIS 6.50 billion as of June 30, 2011. At the end of June 2012, the Bezeq Group’s net financial debt to EBITDA ratio was 1.69, compared with 1.33 at the end of June 2011.

Notes:

 

  1. A.     Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of June 30, 2012 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of June 30, 2012 (NIS 3.923 = U.S. Dollar 1.00). The U.S. Dollar ($) amounts presented should not be construed as representing amounts receivable or payable in U.S. Dollars or convertible into U.S. Dollars, unless otherwise indicated.  

 

B.     Use of non-IFRS Measurements: We and the Bezeq Group’s management regularly use supplemental non-IFRS financial measures internally to understand, manage and evaluate its business and make operating decisions. We believe these non-IFRS financial measures provide consistent and comparable measures to help investors understand the Bezeq Group’s current and future operating cash flow performance.

 

These non-IFRS financial measures may differ materially from the non-IFRS financial measures used by other companies.

 

EBITDA is a non-IFRS financial measure generally defined as earnings before interest, taxes, depreciation and amortization. The Bezeq Group defines EBITDA as net income before financial income (expenses), net, impairment and other charges, expenses recorded for stock compensation in accordance with IFRS 2, income tax expenses and depreciation and amortization. We present the Bezeq Group’s EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure, tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense).

 

EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this press release, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

 

 

Reconciliation between the Bezeq Group’s results on an IFRS and non-IFRS basis is provided in a table immediately following the Bezeq Group’s consolidated results. Non-IFRS financial measures consist of IFRS financial measures adjusted to exclude amortization of acquired intangible assets, as well as certain business combination accounting entries. The purpose of such adjustments is to give an indication of the Bezeq Group’s performance exclusive of non-cash charges and other items that are considered by management to be outside of its core operating results. The Bezeq Group’s non-IFRS financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with its consolidated financial statements prepared in accordance with IFRS.

 

About B Communications Ltd.

B Communications is a telecommunications-oriented holding company and its primary holding is its controlling interest in Bezeq, The Israel Telecommunication Corp., Israel’s largest telecommunications provider (TASE: BZEQ). B Communications shares are traded on NASDAQ and the TASE under the symbol BCOM. For more information, please visit the following Internet sites:

www.igld.com

www.bcommunications.co.il

www.ir.bezeq.co.il

 

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties.  Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, general business conditions in the industry, changes in the regulatory and legal compliance environments, the failure to manage growth and other risks detailed from time to time in B Communications’ filings with the Securities Exchange Commission.  These documents contain and identify other important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.  Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.  We undertake no obligation to update publicly or revise any forward-looking statement.

For further information, please contact:

Idit Cohen – IR Manager

idit@igld.com / Tel: +972-3-924-0000

 

Investor relations contacts:

Mor Dagan – Investor Relations

mor@km-ir.co.il / Tel: +972-3-516-7620

B Communications Ltd.

Consolidated Statement of Financial Position

    Convenience    
    translation into    
    U.S. dollars    
  June 30 June 30 June 30 December 31
  2012 2012 2011 2011
  (Unaudited) (Unaudited) (Unaudited) (Audited)
  NIS millions US$ millions NIS millions NIS millions

 

Assets        
Cash and cash equivalents        634  162  496  1,369
Investments including derivatives        996  254  385  1,284
Trade receivables     3,115  794  2,855  3,059
Other receivables        347  88  239  295
Inventory        206  52  277  204
Assets classified as held-for-sale        163  42  137  158
         
Total current assets 5,461 1,392  4,389  6,369
         
Investments including derivatives  95  24 112  119
Long-term trade and other receivables  1,324  337  1,474  1,499
Property, plant and equipment  6,966  1,776  7,487  7,143
Intangible assets  7,487  1,909  8,643  8,085
Deferred and other expenses  409  104  396  412
Investments in equity-accounted investee        
 (mainly loans)  1,019 260  1,050  1,059
Deferred tax assets  169 43  259  223
         
Total non-current assets 17,469 4,453  19,421  18,540
         
Total assets 22,930 5,845  23,810  24,909

 

B Communications Ltd.

 

Consolidated Statement of Financial Position (cont’d)

 

 

 

 

 

Convenience

 

 

 

 

translation into

 

 

 

 

U.S. dollars

 

 

 

June 30

June 30

June 30

December 31

 

2012

2012

2011

2011

 

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

 

NIS millions

US$ millions

NIS millions

NIS millions

 

Liabilities

 

 

 

 

Short-term bank credit, current maturities of

 

 

 

 

 long-term liabilities and debentures

 1,060

 270

 1,666 

1,185

Trade payables

 901

 230

 1,005 

892

Other payables  including derivatives

 660

 168

 891 

784

Dividend payable

 669

 171

668 

669

Current tax liabilities

 572

 146

398 

499

Deferred income

 59

 15

 39 

56

Provisions

 174

 44

 253 

186

Employee benefits

 325

 83

 488 

389

Total current liabilities

4,420

1,127

 5,408 

4,660

 

 

 

 

 

Debentures

 5,105

 1,301

2,770 

5,403

Bank loans

 6,515

 1,661

 6,651 

6,753

Loans from institutions and others

 545

 139

546 

544

Dividend payable

 322

 82

 941 

636

Employee benefits

 228

 58

 267 

229

Other liabilities

 83

 21

 155 

186

Provisions

 70

 18

 70 

69

Deferred tax liabilities

 1,210

 308

 1,361 

1,426

Total non-current liabilities

14,078

3,588

 12,761 

15,246

 

 

 

 

 

Total liabilities

18,498

4,715

 18,169 

19,906

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Total equity attributable to equity holders

 

 

 

 

 of the Company

888

226

 945 

 936 

Non-controlling interests

3,544

904

 4,696 

 4,067 

Total equity

4,432

1,130

 5,641 

5,003 

 

 

 

 

 

Total liabilities and equity

22,930

5,845

 23,810 

 24,909 

 

 

 

B Communications Ltd.

 

Consolidated Statements of Income

 

(In millions, except per share data)

 

 

Six months period ended

Three months period ended

Year ended

 

June 30

June 30

December 31

 

 

Convenience

 

 

Convenience

 

 

 

 

translation

 

 

translation

 

 

 

 

into

 

 

into

 

 

 

 

U.S. dollars

 

 

U.S. dollars

 

 

 

2012

2012

2011

2012

2012

2011

2011

 

NIS millions

US$ millions

NIS millions

NIS millions

US$ millions

NIS millions

NIS millions

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

 

Revenues

5,335

1,360

 5,806 

2,595

661

 

 2,893 

11,373

 

 

 

 

 

 

 

 

Cost and expenses

 

 

 

 

 

 

 

Depreciation and amortization

1,510

385

 1,398 

755

192

 698 

2,984

Salaries

1,017

259

 1,073 

505

129

 540 

2,114

General and operating expenses

2,051

523

 2,264 

969

247

 1,132 

4,462

Other operating expenses, net

33

8

 282 

33

8

 32 

326

 

 

 

 

 

 

 

 

 

4,611

1,175

5,017 

2,262

576

2,402 

9,886

 

 

 

 

 

 

 

 

Operating income

724

185

 789 

333

85

 491 

1,487

 

 

 

 

 

 

 

 

Finance expenses, net

180

46

 239 

170

43

 127 

498

 

 

 

 

 

 

 

 

Income after financing

 

 

 

 

 

 

 

 expenses, net

544

139

 550 

163

42

 364 

989

 

 

 

 

 

 

 

 

Share in losses of

 

 

 

 

 

 

 

equity-accounted investee

141

36

 137 

83

21

 72 

216

 

 

 

 

 

 

 

 

Income before income tax

403

103

 413 

80

21

 292 

773

 

 

 

 

 

 

 

 

Income tax

204

52

 204 

73

19

 116 

653

 

 

 

 

 

 

 

 

Net income

199

51

 209 

7

2

 176 

120

 

 

 

 

 

 

 

 

Income (loss) attributable to:

 

 

 

 

 

 

 

  Owners of the Company

(50)

(12)

(67)

(66)

(17)

(12)

(219)

  Non-controlling interests

249

63

 276 

73

19

 188 

339

 

 

 

 

 

 

 

 

Net income

199

51

 209 

7

2

 176 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic

(1.69)

(0.43)

(2.29)

(2.24)

(0.57)

(0.45)

(7.34)

 

 

 

 

 

 

 

 

Net loss per share, diluted

(1.70)

(0.43)

(2.33)

(2.24)

(0.57)

(0.48)

(7.38)