B Communications Reports Financial Results For the Second Quarter of 2016

August 4, 2016

B Communications Reports Financial Results

For the Second Quarter of 2016

 

Net Income of NIS 40 million in the Second Quarter of 2016 –

 

 

Ramat Gan, Israel – August 4, 2016 – 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 2016.

 

“During the first half of 2016, we continued to execute our business plan by paying an 11% dividend to our shareholders while continuing to reduce our LTV[1] ratio to 35%. We intend to continue to improve our debt structure in order to create more value for our shareholders in the quarters ahead,” said Doron Turgeman, CEO of B Communications.

 

Dividend Distribution: On May 25, 2016, the Company’s Board of Directors declared a cash dividend of NIS 355 million ($92 million), or NIS 11.88 ($3.09) per share. The dividend was paid to the Company’s shareholders on June 29, 2016.

 

Tender Offer: On May 26, 2016 the Company announced that its wholly-owned subsidiary, B Communications (SP4) LP, had invited holders of the Company’s 7⅜% Senior Secured Notes due 2021 (the “Notes”) to submit tenders to purchase their Notes for cash within a purchase price range of $1.00 to $1.07 per $1.00 nominal amount of Notes. On June 27, the tender offer expired and the clearing price for the tender offer was $1.07 per $1.00 par value of the Notes. The aggregate par value of the Notes tendered and purchased by B Communications (SP4) LP was approximately $18.6 million.

 

Dividend from Bezeq: On May 30, 2016, Bezeq distributed NIS 776 Million ($202 million) to shareholders of record as of May 17, 2016. B Communications’ share of the dividend distribution was NIS 204 million ($53 million).

 

On August 3, 2016, the Board of Directors of Bezeq resolved to recommend to the general meeting of its shareholders the distribution of a cash dividend of NIS 665 million ($173 million), representing Bezeq’s profits for the first half of 2016. The dividend will be paid on October 6, 2016 to shareholders of record as of September 20, 2016. B Communications’ share of the dividend distribution is anticipated to be NIS 175 million ($46 million).

 

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 its Notes. On January 20, 2016, the Company announced the completion of the $50 million repurchase program and the approval by its Board of Directors to extend and increase the program by an additional $50 million. Through August 4, 2016, the Company purchased a total of $83 million par value of the Notes (including the Notes that were tendered in connection with the Company’s tender offer that expired in June 2016).

 


 

Cash and Debt Position: As of June 30, 2016, B Communications’ unconsolidated liquidity balances (comprised of cash and cash equivalents and short term investments) totaled NIS 1.35 billion ($351 million) and its financial liabilities totaled NIS 3.27 billion ($849 million) including NIS 2.5 billion ($650 million) of the Notes, NIS 696 million ($181 million) of Series B Debentures (both include accrued interest and unamortized premiums, discounts and debt issuance costs), and a NIS 71 million ($18 million) tax liability.

 

B Communications’ Unconsolidated Balance Sheet Data

 

(In millions)   Convenience    
  translation into    
  U.S. dollars    
  (Note A)    
June 30, June 30, June 30, December 31,
2016 2016 2015 2015
NIS US$ NIS NIS
Financial liabilities  
7⅜% Senior Secured Notes (1) 2,500 650 2,770 2,718
Series B Debentures 696 181 710 710
Tax liability 71 18 117 79
Total debt 3,267 849 3,597 3,507
     
Liquidity balances    
Lockbox account(2) 1,096 285 456 532
Unrestricted cash(3) 252 66 510 421
Total liquidity 1,348 351 966 953
       
Net debt 1,919 498 2,631 2,554

 

(1)   The NIS amount equivalent to $717 million par value of the Notes which were hedged on the date the Notes were issued plus accrued interest and unamortized debt issuance costs.

 

(2)   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.

 

(3)   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 Unconsolidated Sources and Uses

 

(In millions)   Convenience
  translation into
  U.S. dollars
  (Note A)
NIS US$
 
Net debt as of December 31, 2015 2,554 664
   
Dividends received from Bezeq (204) (53)
Net proceeds from the sale of Bezeq shares (978) (254)
Financial expenses, net 134 35
Loss from purchase of Notes 25 7
Tax provision 28 7
Operating expenses 5 1
Dividend distributions to shareholders 355 92
   
Net debt as of June 30, 2016 1,919 499

 

B Communications Second Quarter Consolidated Financial Results

 

B Communications’ consolidated revenues for the second quarter of 2016 totaled NIS 2.5 billion ($653 million), a 3.5% decrease compared to the NIS 2.6 billion reported 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 2016 totaled NIS 517 million ($134 million), a 15.5% decrease compared to NIS 612 million reported in the second quarter of 2015.

 

B Communications’ consolidated net income for the second quarter of 2016 totaled NIS 264 million ($69 million), a 0.8% decrease compared with NIS 266 million reported in the second quarter of 2015.

 

B Communications Second Quarter Unconsolidated Financial Results

 

As of June 30, 2016, B Communications held approximately 26.3% of Bezeq’s outstanding shares. B Communications’ interest in Bezeq’s net income for the second quarter of 2016 totaled NIS 99 million ($26 million), compared to NIS 148 million reported in the second quarter of 2015 (based on the Company’s then 31% ownership interest in Bezeq as of June 30, 2015).

 

During the second quarter of 2016, B Communications recorded net amortization expenses of NIS 19 million ($5 million) related to its Bezeq purchase price allocation (“Bezeq PPA”). The decrease in the Company’s ownership interest in Bezeq to 26.34% will reduce the Company’s future net amortization expenses. From April 14, 2010, the date of the acquisition of its interest in Bezeq, until June 30, 2016, B Communications has amortized approximately 73% 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 2016 totaled NIS 38 million ($10 million) compared to net financial expenses of NIS 85 million in the second quarter of 2015. Financial expenses during the second quarter of 2016 included NIS 53 million ($14 million) related to the Company’s publicly traded Series B Debentures and Notes. These expenses were partially offset by financial income of NIS 15 million ($4 million) generated by short term investments.

 

B Communications’ net income attributable to shareholders for the second quarter of 2016 was NIS 40 million ($10 million) compared to net income of NIS 21 million in the second quarter of 2015.

 

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,
2016 2016 2015 2015
NIS US$ NIS NIS
Revenues
Financing expenses, net (38) (10) (85) (293)
Operating and tax expenses (2) (1) (2) (8)
Income tax benefit 101
PPA amortization, net (19) (5) (40) (119)
Interest in Bezeq’s net income 99 26 148 529
Net income 40 10 21 210

 

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, 2016. For a full discussion of Bezeq’s results for the quarter ended June 30, 2016, please refer to its website: http://ir.bezeq.co.il.

 

Revenues of the Bezeq Group in the second quarter of 2016 were NIS 2.51 billion ($653 million) compared to NIS 2.60 billion in the corresponding quarter of 2015, a decrease of 3.5%. The decrease was due to lower revenues in all of the Bezeq Group’s segments (primarily at Pelephone).

 

Salary expenses of the Bezeq Group in the second quarter of 2016 were NIS 495 million ($128 million) compared to NIS 497 million in the corresponding quarter of 2015, a decrease of 0.4%.

 

Operating expenses of the Bezeq Group in the second quarter of 2016 were NIS 972 million ($253 million) compared to NIS 1.00 billion in the corresponding quarter of 2015, a decrease of 3.0%.  The decrease was primarily due to a reduction in interconnect payments to telecom operators and lower building maintenance expenses.

 

Other operating income of the Bezeq Group in the second quarter of 2016 amounted to NIS 12 million ($3 million) compared to NIS 141 million in the corresponding quarter of 2015. Other operating income was impacted by the recording of capital gains from the sale of fixed assets in the amount of NIS 148 million in the second quarter of 2015.

 

Operating income of the Bezeq Group in the second quarter of 2016 was NIS 616 million ($160 million) (operating margin of 24.5%) compared to NIS 794 million (operating margin of 30.5%) in the corresponding quarter of 2015, a decrease of 22.4%.

 

Tax expenses of the Bezeq Group in the second quarter of 2016 were NIS 133 million ($35 million) compared to NIS 183 million in the corresponding quarter of 2015, a decrease of 27.3%. The decrease in tax expenses was primarily due to a reduction in profit before tax as well as a decrease in the corporate tax rate from 26.5% to 25% beginning January 1, 2016.

 

Net income of the Bezeq Group in the second quarter of 2016 was NIS 377 million ($98 million) compared to NIS 482 million in the corresponding quarter of 2015, a decrease of 21.8%.

 

EBITDA of the Bezeq Group in the second quarter of 2016 was NIS 1.06 billion ($275 million) (EBITDA margin of 42.1%) compared to NIS 1.25 billion (EBITDA margin of 47.8%) in the corresponding quarter of 2015, a decrease of 15.2%.

 

Payments for investments (Capex) of the Bezeq Group in the second quarter of 2016 were NIS 387 million ($101 million) compared to NIS 511 million in the corresponding quarter of 2015, a decrease of 24.3%. The decrease was primarily due to the payment of NIS 96 million by Pelephone to the Ministry of Communications for LTE 4G frequencies in the second quarter of 2015.

 

Cash flow from operating activities of the Bezeq Group in the second quarter of 2016 was NIS 870 million ($226 million), compared to NIS 840 million in the corresponding quarter of 2015, an increase of 3.6%. The increase was primarily due to an improvement in working capital.

 

Free cash flow of the Bezeq Group in the second quarter of 2016 was NIS 539 million ($140 million) compared to NIS 413 million in the corresponding quarter of 2015, an increase of 30.5%.

 

Total debt of the Bezeq Group was NIS 11.5 billion ($3 billion) as of June 30 2016 compared to NIS 11.4 billion as of June 30, 2015. Net debt of the Bezeq Group was NIS 9.25 billion ($2.41 billion) as of June 30, 2016 compared to NIS 9.54 billion as of June 30, 2015.

 

Notes:

 

  • Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of June 30, 2016 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of June 30, 2016 (NIS 3.846 = 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 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.In the press release and accompanying supplemental information, we use the following non-IFRS financial measures: EBITDA, LTV, net debt and free cash flow.Management of the Company believes that free cash flow (defined as net cash flow from operating activities, less net capital expenditures) is an important measure of its liquidity as well as its ability to service long-term debt, fund future growth and to provide a return to shareholders. We also believe this free cash flow definition does not have any material limitations.The following non-IFRS measures are provided because management believes these measurements are useful for investors and financial institutions to analyze and compare companies on the basis of operating performance:
  • EBITDA – defined as net income plus net interest expense, provision for income taxes, depreciation and amortization;
  • Free Cash Flow (FCF) – defined as cash from operating activities less cash for the purchase/sale of property, plant and equipment, and intangible assets, net;
  • Net debt – reflects the Company’s long and short term liabilities minus cash and cash equivalents and short term investments; and
  • LTV (loan to value) – defined as the ratio of our unconsolidated net debt to market value of the Company’s holdings in Bezeq as of the balance sheet date.

Reconciliations between the Bezeq Group’s results on an IFRS and non-IFRS basis with respect to these non-IFRS measurements are provided in tables immediately following the Company’s consolidated results. The 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:

 

Hadas Friedman – Investor Relations

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


 

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,
  2016 2016 2015 2015
  NIS US$ NIS NIS

 

Assets  
Cash and cash equivalents 1,357 353 865  581
Restricted cash             658 171 29 155
Investments 1,584 412 1,897  1,535
Trade receivables, net 2,029 527 2,256  2,058
Other receivables 239 63 244 286
Inventory 109 28 96  115
     
Total current assets 5,976 1,554 5,387 4,730
   
Long-term trade and other receivables 647 168 656 674
Property, plant and equipment 7,120 1,851 7,345 7,197
Intangible assets 6,859 1,784 *7,419 7,118
Deferred expenses and investments 636 165 537 643
Broadcasting rights 455 118 471 456
Investment in equity-accounted investee 21 6 28 25
Deferred tax assets 1,099 286 *1,194 1,279
     
Total non-current assets 16,837 4,378 17,650 17,392
   
Total assets 22,813 5,932 23,037 22,122

 

* Reclassified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,
    2016 2016 2015 2015
    NIS US$ NIS NIS

 

Liabilities        
Bank loans and credit and debentures 2,184 568 2,110  2,089
Trade and other payables 1,607 418 1,820  1,694
Related party 208 54 *217 233
Current tax liabilities 698 182 777 705
Provisions 90 23 90 100
Employee benefits 370 96 272 378
Total current liabilities 5,157 1,341 5,286 5,199
   
Bank loans and debentures 12,716 3,307 12,890 12,290
Employee benefits 239 62 238 240
Other liabilities 252 66 202  227
Provisions 46 12 70  46
Deferred tax liabilities 667 173 805  729
Total non-current liabilities 13,920 3,620 14,205 13,532
     
Total liabilities 19,077 4,961 19,491 18,731
   
Equity    
Total equity attributable to equity holders    
 of the Company 1,426 371 972 1,045
Non-controlling interests   2,310 600 2,574 2,346
       
Total equity 3,736 971 3,546 3,391
     
Total liabilities and equity 22,813 5,932 23,037 22,122

 

* Reclassified

 


 

B Communications Ltd.

 

Condensed Consolidated Statements of Income for the

 

 

      Year ended
  Six months period ended June 30, Three months period ended June 30, December 31,
    Convenience     Convenience    
    translation     translation    
    into     into    
    U.S. dollars     U.S. dollars    
    (Note A)     (Note A)    
  2016 2016 2015 2016 2016 2015 2015
  NIS US$ NIS NIS US$ NIS NIS

 

Revenues 5,070 1,318 4,777 2,511 653 2,603 9,985
         
Cost and expenses          
Depreciation and amortization 1,083 281 1,011 538 140 572  2,131
Salaries 1,008 262 937 494 129 498  1,958
General and operating expenses 1,995 519 1,804 974 253 1,003  3,876
Other operating income, net (7) (2) (93) (12) (3) (82)  3
         
4,079 1,060 3,659 1,994 519 1,991 7,968
         
Operating income 991 258 1,118 517 134 612 2,017
         
Financing expenses, net 335 87 306 143 37 209 535
         
Income after financing          
 expenses, net 656 171 812 374 97 403 1,482
         
Share of income (loss) in          
 equity-accounted investee (2) (1) 16 (1) * 12
         
Income before income tax 654 170 828 373 97 403 1,494
           
Income tax 230 60 256 109 28 137 358
         
Net income for the period 424 110 572 264 69 266 1,136
         
Income (loss) attributable to:          
Owners of the company 17 4 69 40 10 21 210
Non-controlling interests 407 106 503 224 59 245 926
         
Net income for the period 424 110 572 264 69 266 1,136
         
Earnings per share          
Net income (loss), basic 0.59 0.15 2.31 1.35 0.35 0.72 7.04
Net income (loss), diluted 0.59 0.15 2.27 1.35 0.35 0.70 6.97
             

 

* Represents an amount less than US$1.

 

 

 

 

Bezeq, The Israel Telecommunication Corp.

Reconciliation for NON-IFRS Measures

EBITDA

 

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

 

 

(In millions) Three months period ended June 30,
  Convenience  
  translation  
  into  
  U.S. dollars  
  (Note A)  
2016 2016 2015
NIS US$ NIS
     
Net income 377 98 482
Income tax 133 35 183
Share of loss in equity-accounted investee 1
Financing expenses, net 105 27 129
Depreciation and amortization 440 115 451
   
EBITDA 1,056 275 1,245

 

 

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.

 

 


 

Bezeq, The Israel Telecommunication Corp.

Reconciliation for NON-IFRS Measures

 

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)  
2016 2016 2015
NIS US$ NIS
     
Cash flow from operating activities 870 226 840
Purchase of property, plant and equipment (317) (82) (363)
Investment in intangible assets and deferred expenses (70) (18) (148)
Proceeds from the sale of property, plant and equipment 56 14 84
   
Free cash flow 539 140 413

 

Free cash flow is a financial index which is not based on IFRS. Free cash flow is defined as cash from operating activities less cash for the purchase/sale of property, plant and equipment, and intangible assets, net. The Company presents free cash flow as an additional index for assessing its business results and cash flows because the Company believes that free cash flow is an important liquidity index that reflects cash resulting from ongoing operations after cash investments in infrastructure and other fixed and intangible assets.

 

Net Debt

 

The following table shows the calculation of the Bezeq Group’s net debt:

 

(In millions) As at June 30,
  Convenience  
  translation  
  into  
  U.S. dollars  
  (Note A)  
2016 2016 2015
NIS US$ NIS
     
Non-current bank loans and debentures 1,958 509 1,924
Short term bank loans and credit and debentures 9,546 2,482 9,444
Cash and cash equivalents (1,338) (348) (826)
Investments (912) (237) (999)
   
Net debt 9,254 2,406 9,543

Net debt reflects long and short term liabilities minus cash and cash equivalents and investments.

 

[1] LTV (loan to value) ratio is calculated as B Communications’ unconsolidated net debt as a percentage of the market value of its shareholdings in Bezeq as of June 30, 2016.