B Communications Reports Financial Results For the Second Quarter of 2015

August 31, 2015

B Communications Reports Financial Results

For the Second Quarter of 2015

 

Second Consecutive Quarter of Dividend Announcement, Board of Directors Approves Company’s Dividend of NIS 0.73 per Share –

 

 

Ramat Gan, Israel – August 31, 2015 – ( B Communications Ltd. (NASDAQ Global Select Market and TASE: BCOM), a holding company with a controlling interest in Israel’s largest telecommunications provider, Bezeq, The Israel Telecommunication Corp. (TASE: BEZQ), today reported its financial results for the second quarter of 2015.

 

“During the quarter, we continued to execute our business plan, declaring a dividend for the second consecutive quarter while reducing our leverage,” said Doron Turgeman, CEO of B Communications. “The Board’s decision to distribute a dividend of NIS 22 million ($6 million(, as well as the decisions by the rating agencies to affirm our credit rating, reflects the significant improvements we have made to our capital structure. With our balance sheet in good shape, we believe now is the right time to return capital to our shareholders, while continuing to maintain sufficient resources to service our debt. In May 2015, the Company’s board of directors declared a cash dividend of NIS 67 million ($18 million), or NIS 2.24 ($0.59) per share, that was paid on June 16, 2015. Looking ahead, we intend to continue to take advantage of Bezeq’s cash generation power to further strengthen our financial position and liquidity.”

 

Dividend Distribution: On August 31, 2015, the Company’s board of directors declared a cash dividend of NIS 22 million ($6 million), or NIS 0.73 ($0.19) per share. The actual amount of dividends to be paid in US$ will be converted from NIS based upon the representative rate of exchange published by the Bank of Israel on September 16, 2015. The dividend will be payable to all of the Company’s shareholders of record at the end of the NASDAQ trading day on September 16, 2015. The payment date will be September 29, 2015.

 

Bezeq’s Results: For the second quarter of 2015, the Bezeq Group reported revenues of NIS 2.60 billion ($691 million) and operating profit of NIS 794 million ($211 million). Bezeq’s EBITDA for the second quarter totaled NIS 1.25 billion ($330 million), representing an EBITDA margin of 47.8%. Net profit for the period attributable to Bezeq’s shareholders totaled NIS 482 million ($128 million). Bezeq’s cash flow from operating activities during the period totaled NIS 840 million ($223 million). The second quarter of 2015 was the first quarter in which Bezeq fully consolidated the operating results of YES in its financials.

 

Cash and Debt Position: As of June 30, 2015, B Communications’ unconsolidated cash and cash equivalents and short term investments totaled NIS 966 million ($256 million) and its financial liabilities totaled NIS 3.60 billion ($954 million) including NIS 2.80 billion ($735 million) of 7⅜% Senior Secured Notes (the “Notes”), NIS 710 million ($188 million) of Series B Debentures (both include accrued interest and unamortized premiums, discounts and debt issuance costs) and a NIS 117 million ($31 million) tax liability.

 

Notes Repurchase Program: On August 10, 2014 the Company announced that its Board of Directors had approved the buyback of up to $50 million of the Notes. Through the end of the second quarter of 2015, the Company purchased $10 million par value of the Notes. During the third quarter of 2015 and through August 31, 2015, the Company purchased an additional $3.3 million par value of the Notes.

 

 

B Communications’ Unconsolidated Balance Sheet Data (In millions)

 

      Convenience
      translation into
      U.S. dollars
      (Note A)
  June 30, June 30, June 30,
  2014 2015 2015
  NIS NIS US$
Financial liabilities      
7⅜% Senior Secured Notes (1) 2,774 2,770 735
Series B Debentures 708 710 188
Tax liability(2) 136 117 31
Total 3,618 3,597 954
       
Liquidity balances      
Lockbox account(3) 301 456 121
Unrestricted cash(4) 397 510 135
Total 698 966 256

 

(1)   The Notes balance is the sum of (a) the NIS amount equivalent (NIS 2,561 million) of the $725 million hedge that was established on the date the Notes were issued, (b) $65 million (the residual balance of our Notes that was not hedged) multiplied by the representative rate of exchange as of June 30, 2015 (NIS 3.769 = U.S. $1.00) and (c) accrued interest and unamortized debt issuance costs.

 

(2) On January 22, 2015, B Communications entered into a Tax Assessment Agreement with the Israeli Tax Authority (the “Agreement”) with respect to (i) a final tax assessment with respect to tax years 2007-2009, and (ii) a final tax assessment with respect to the sale of its legacy communications business that was completed on January 31, 2010. According to the Agreement, B Communications agreed to pay the Israeli Tax Authority NIS 148 million ($39 million) including interest and CPI linkage differences, in 24 monthly installments starting in February 2015.

 

(3)   Lockbox account – one or more accounts designated as a lockbox account and maintained by B Communications (SP-2) Ltd. (or any of its successors) and pledged as collateral to the security agent for the benefit of the holders of the Notes. Amounts from prior periods are shown as comparative data and reflect amounts that were maintained by B Communications (SP-2) Ltd. but not in a lockbox account.

 

(4)   Unrestricted cash – any funds, property or assets (including any property or assets acquired with or earned on such unrestricted cash) not expressly required by the terms of the Indenture for the secured Notes to be deposited in or allocated to the lockbox account and any other funds with respect to which the Indenture expressly provides constitute unrestricted cash, including proceeds from indebtedness permitted to be incurred under the Indenture which are not otherwise expressly required by the terms of the Indenture to be deposited in or allocated to the lockbox account; provided that no specified shares or collateral shall constitute unrestricted cash.

 

B Communications Cash Management: B Communications manages its cash balances according to an investment policy that was established by its Board of Directors. The investment policy seeks to preserve principal and maintain adequate liquidity while maximizing the income received from investments without significantly increasing the risk of loss. According to B Communications’ investment policy, approximately 80% of the funds must be invested in investment-grade securities.

 

Dividend from Bezeq: On March 25, 2015, the Board of Directors of Bezeq resolved to recommend to the general meeting of Bezeq shareholders the distribution of a cash dividend of NIS 844 million ($224 million). On May 6, 2015, Bezeq’s shareholders approved the dividend distribution and on May 27, 2015, B Communications received its NIS 259 million ($69 million) share of the dividend distribution.

 

 

On August 30, 2015, the Board of Directors of Bezeq resolved to recommend to the general meeting of shareholders the distribution of a cash dividend of NIS 933 million ($248 million) representing Bezeq’s profits for the first half of 2015, excluding its NIS 12 million ($3 million) revaluation gain arising from its gaining control over YES. The dividend, which is subject to shareholder approval, is expected to be paid on October 26, 2015 to shareholders of record as of October 12, 2015. B Communications’ share of the dividend distribution, if approved, is expected to be approximately NIS 286 million ($76 million).

 

B Communications Second Quarter Consolidated Financial Results

 

B Communications’ consolidated revenues for the second quarter of 2015 totaled NIS 2.60 billion ($691 million), a 15.7% increase compared to the NIS 2.25 billion reported in the second quarter of 2014. The increase resulted from the full consolidation of Yes beginning in the second quarter of 2015. For both the current and the prior-year periods, B Communications’ consolidated revenues consisted entirely of Bezeq’s revenues.

 

B Communications’ consolidated operating income for the second quarter of 2015 totaled NIS 612 million ($162 million), a 41% decrease compared to NIS 1,040 million reported in the second quarter of 2014. The decrease was due to the inclusion in Bezeq’s second quarter 2014 results of a NIS 582 million one-time capital gain (before tax) from the sale of Coral Tel Ltd., the operator of the “Yad2” web site.

 

B Communications’ consolidated net income for the second quarter of 2015 totaled NIS 266 million ($71 million), compared with NIS 572 million reported in the second quarter of 2014. Bezeq’s results for the second quarter of 2014 included a NIS 437 million one-time capital gain (after tax) from the sale Coral Tel Ltd.

 

B Communications Second Quarter Unconsolidated Financial Results

 

As of June 30, 2015, B Communications held approximately 31% of Bezeq’s outstanding shares. Accordingly,    B Communications’ interest in Bezeq’s net income for the second quarter of 2015 totaled NIS 148 million ($39 million), compared to NIS 250 million reported in the second quarter of 2014.

 

During the second quarter of 2015, B Communications recorded net amortization expenses of NIS 40 million ($10 million) related to its Bezeq purchase price allocation (“Bezeq PPA”). From April 14, 2010, the date of the acquisition of its interest in Bezeq, until June 30, 2015, B Communications has amortized approximately 69% of the total Bezeq PPA. The Bezeq PPA amortization expense is a non-cash expense that is subject to adjustment.

 

B Communications’ unconsolidated net financial expenses for the second quarter of 2015 totaled NIS 85 million ($22 million) compared to net financial expenses of NIS 100 million in the second quarter of 2014. Financial expenses during the second quarter of 2015 included NIS 55 million ($15 million) related to the publicly traded Series B Debentures and the Notes and financial expenses of NIS 29 million ($8 million) generated by the decline in value of our short term investments.

 

B Communications’ net income attributable to shareholders for the second quarter of 2015 was NIS 21 million ($6 million) compared to NIS 107 million reported in the second quarter of 2014.

 

 

 

 

 

 

In millions   Convenience    
    translation into    
    U.S. dollars    
    (Note A)    
  Three-month Three-month Three-month  
  period ended period ended period ended Year ended
  June 30, June 30, June 30, December 31,
  2015 2015 2014 2014
  NIS US$ NIS NIS
Revenues
Financing expenses, net (85) (22) (100) (508)
Operating and tax expenses (2) (1) (1) (15)
PPA amortization, net (40) (10) (42) (148)
Interest in Bezeq’s net income 148 39 250 650
Net income (loss) 21 6 107 (21)

 

Bezeq Group Results (Consolidated)

 

To provide further insight into its results, the Company is providing the following summary of the consolidated financial report of the Bezeq Group for the quarter ended June 30, 2015. For a full discussion of Bezeq’s results for the quarter ended June 30, 2015, please refer to its website: http://ir.bezeq.co.il.

 

 

Revenues of the Bezeq Group in the second quarter of 2015 amounted to NIS 2.60 billion ($691 million) compared with NIS 2.25 billion in the corresponding quarter of 2014, an increase of 15.7%. The increase was related to the first-time consolidation of Yes revenues in the second quarter of 2015 in the amount of NIS 439 million ($116 million) as well as an increase in the revenues of Bezeq Fixed-Line and Bezeq International. The increase was partially offset by lower revenues at Pelephone.

 

 

 

 

Salary expenses of the Bezeq Group in the second quarter of 2015 amounted to NIS 497 million ($132 million) compared with NIS 443 million in the corresponding quarter of 2014, an increase of 12.2%. The increase was due to the first-time consolidation of Yes salary expenses in the amount of NIS 62 million ($16 million). The increase was partially offset by a decrease in salary expenses of Pelephone due to continued streamlining actions.

 

Operating expenses of the Bezeq Group in the second quarter of 2015 amounted to NIS 1.00 billion ($266 million) compared with NIS 822 million in the corresponding quarter of 2014, an increase of 21.9%. The increase was due to the first-time consolidation of Yes operating expenses in the second quarter of 2015 in the amount of NIS 227 million ($60 million). The increase was partially offset by a decrease in operating expenses at Pelephone and Bezeq Fixed-Line, due to continued streamlining actions.

 

Other operating income of the Bezeq Group in the second quarter of 2015 amounted to NIS 141 million ($37 million) compared with NIS 568 million in the corresponding quarter of 2014. Other operating income was influenced by the recording of a one-time NIS 582 million ($154 million) gain from the sale of Coral Tel Ltd., in the second quarter of 2014. The decrease in other operating income was partially offset by provision in the amount of NIS 117 million for early retirement of employees at Bezeq Fixed-Line in the second quarter of 2014.

 

Operating profit of the Bezeq Group in the second quarter of 2015 amounted to NIS 794 million ($211 million) compared with NIS 1.23 billion in the corresponding quarter of 2014, a decrease of 35.7%. Earnings before interest, taxes, depreciation and amortization (EBITDA) of the Bezeq Group in the second quarter of 2015 amounted to NIS 1.25 billion ($330 million) (EBITDA margin of 47.8%) compared with NIS 1.55 billion (EBITDA margin of 69.0%) in the corresponding quarter of 2014, a decrease of 19.8%.

 

Net profit of the Bezeq Group in the second quarter of 2015 amounted to NIS 482 million ($128 million) compared with NIS 810 million in the corresponding quarter of 2014, a decrease of 40.5%.

 

The decrease in profitability metrics of the Bezeq Group was due to the aforementioned recording of a one-time NIS 582 million ($154 million) gain from the sale of Coral Tel Ltd., which was partially offset by provision in the amount of NIS 117 million for early retirement of employees at Bezeq Fixed-Line in the second quarter of 2014.

 

Cash flow from operating activities of the Bezeq Group in the second quarter of 2015 amounted to NIS 840 million ($223 million) compared with NIS 1.06 billion in the corresponding quarter of 2014, a decrease of 21.1%. The decrease in cash flow from operating activities was primarily due to lower profitability at Pelephone and changes in working capital at Pelephone and Bezeq Fixed-Line. The decrease was partially offset by the consolidation of the NIS 106 million ($28 million) cash flow from operating activities of YES in the second quarter of 2015.

 

 

 

 

 

Payments for investments (Capex) of the Bezeq Group in the second quarter of 2015 amounted to NIS 511 million ($136 million) compared with NIS 323 million in the corresponding quarter of 2014, an increase of 58.2%. The increase in investments was primarily due to the payment of NIS 96 million ($25 million) by Pelephone for the LTE 4G frequencies in a government tender as well as the first-time consolidation of investments by YES in the second quarter of 2015 in the amount of NIS 82 million ($22 million).

 

Free cash flow of the Bezeq Group in the second quarter of 2015 amounted to NIS 413 million ($110 million) compared with NIS 787 million in the corresponding quarter of 2014, a decrease of 47.5%.

 

Net financial debt of the Bezeq Group amounted to NIS 9.54 billion ($2.53 billion) at June 30, 2015 compared with NIS 6.95 billion as of June 30, 2014. At June 30, 2015, the Bezeq Group net financial debt to EBITDA ratio was 2.30, compared with 1.54 on June 30, 2014.

 

Notes:

 

  1. Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of June 30, 2015 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of June 30, 2015 (NIS 3.769 = U.S. $ 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.

 

  1. 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 our 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 Company’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 holding company with a controlling interest in Israel’s largest telecommunications provider, Bezeq, The Israel Telecommunication Corp. (TASE: BEZQ). B Communications shares are traded on NASDAQ and the TASE under the symbol “BCOM.” For more information please visit the following Internet sites:

 

www.bcommunications.co.il

www.ir.bezeq.co.il

www.eurocom.co.il

www.igld.com

 

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:

 

ISRAEL

Hadas Friedman – Investor Relations

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

 

INTERNATIONAL

Philip Carlson / Brad Nelson – KCSA

bcom@kcsa.com / Tel: +1-212-896-1233 / 1217

 

B Communications Ltd.

 

Condensed Consolidated Statements of Financial Position as at

 

(In millions)

 

      Convenience    
      translation into    
      U.S. dollars    
      (Note A)    
    June 30, June 30, June 30, December 31,
    2015 2015 2014 2014
    NIS US$ NIS NIS

 

Assets          
Cash and cash equivalents   865 230 703 713
Restricted cash               29 8 73 65
Investments, including derivatives   1,897 503 2,319 3,102
Trade receivables, net   2,256 598 2,335 2,227
Other receivables   220 58 329 243
Inventory   96 26 89 96
Assets classified as held-for-sale   24 6 135 52
           
Total current assets   5,387 1,429 5,983 6,498
           
Investments, including derivatives   177 47 80 271
Long-term trade and other receivables   656 173 587 566
Property, plant and equipment   7,345 1,949 6,542 6,572
Intangible assets   7,642 2,028 6,175 5,908
Deferred and other expenses   360 95 370 364
Broadcasting rights   471 125
Investment in equity-accounted investee   28 8 1,014 1,057
Deferred tax assets   855 227 35
           
Total non-current assets   17,534 4,652 14,803 14,738
           
Total assets   22,921 6,081 20,786 21,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B Communications Ltd.

 

Condensed Consolidated Statements of Financial Position as at (cont’d)

 

(In millions)

 

      Convenience    
      translation into    
      U.S. dollars    
      (Note A)    
    June 30, June 30, June 30, December 31,
    2015 2015 2014 2014
    NIS US$ NIS NIS

 

Liabilities          
Bank loans and credit and debentures   2,110 560 1,554 1,501
Trade payables   1,021 271 639 664
Liability to related party   101 27
Other payables including derivatives   799 211 680 741
Current tax liabilities   777 206 727 671
Provisions   90 24 133 62
Employee benefits   272 72 378 259
Total current liabilities   5,170 1,371 4,111 3,898
           
Bank loans and debentures   12,890 3,420 11,218 12,357
Employee benefits   238 63 229 233
Other liabilities   202 53 299 256
Provisions   70 19 68 69
Deferred tax liabilities   805 214 899 835
Total non-current liabilities   14,205 3,769 12,713 13,750
           
Total liabilities   19,375 5,140 16,824 17,648
           
Equity          
Total equity attributable to equity holders          
of the Company   972 258 894 961
Non-controlling interests   2,574 683 3,068 2,627
           
Total equity   3,546 941 3,962 3,588
           
Total liabilities and equity   22,921 6,081 20,786 21,236

 

 

 


 

B Communications Ltd.

 

Condensed Consolidated Statements of Income for the

 

(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    
    (Note A)     (Note A)    
  2015 2015 2014 2015 2015 2014 2014
  NIS US$ NIS NIS US$ NIS NIS

 

Revenues 4,777 1,268 4,561 2,603 691 2,250 9,055
               
Cost and expenses              
Depreciation and amortization 1,011 268 941 572 152 472 1,873
Salaries 937 249 891 498 132 443 1,770
General and operating expenses 1,804 479 1,693 1,003 266 823 3,368
Other operating income, net (93) (25) (536) (82) (22) (528) (535)
               
  3,659 971 2,989 1,991 528 1,210 6,476
               
Operating income 1,118 297 1,572 612 162 1,040 2,579
               
Financing expenses, net 306 81 471 209 55 126 611
               
Income after financing              
expenses, net 812 216 1,101 403 107 914 1,968
               
Share of income in              
equity-accounted investee 16 4 98 79 170
               
Income before income tax 828 220 1,003 403 107 835 1,798
               
Income tax 256 68 394 137 36 263 667
               
Net income for the period 572 152 609 266 71 572 1,131
               
Income (loss) attributable to:              
Owners of the company 69 18 (96) 21 6 107 (21)
Non-controlling interests 503 134 705 245 65 465 1,152
               
Net income for the period 572 152 609 266 71 572 1,131
               
Earnings per share              
Net income (loss), basic 2.31 0.61 (3.23) 0.72 0.19 3.57 (0.70)
Net income (loss), diluted 2.27 0.60 (3.30) 0.70 0.18 3.52 (0.81)

 

 

 

 

 

 

 

B Communications Ltd.

 

Reconciliation for NON-IFRS Measures

 

EBITDA

 

The following is a reconciliation of the Bezeq Group’s operating income to EBITDA:

 

 

(In millions) Three months period ended
  June 30,
    Convenience  
    translation  
    into  
    U.S. dollars  
    (Note A)  
  2015 2015 2014
  NIS US$ NIS
       
Operating income 794 210 1,234
Depreciation and amortization 451 120 319
       
EBITDA 1,245 330 1,553
       

 

 

Free Cash Flow

 

The following table shows the calculation of the Bezeq Group’s free cash flow:

 

 

(In millions) Three months period ended
  June 30,
    Convenience  
    translation  
    into  
    U.S. dollars  
    (Note A)  
  2015 2015 2014
  NIS US$ NIS
       
Cash flow from operating activities 840 223 1,064
Purchase of property, plant and equipment (363) (96) (281)
Investment in intangible assets and deferred expenses (148) (39) (42)
Proceeds from the sale of property, plant and equipment 84 22 46
       
Free cash flow 413 110 787