Internet Gold Reports First Quarter 2012 Financial Results

May 9, 2012

Internet Gold Reports First Quarter 2012 Financial Results

 

–          Company Enters 2012 With Continued Steady Progress Driven By
On-Track Bezeq Performance – 

 

 

Ramat Gan, Israel – May 9, 2012 – Internet Gold Ltd. (NASDAQ Global Select Market and TASE: IGLD) (” Internet Gold” or “The Company”) today reported its financial results for the quarter ended March 31, 2012.

 

Bezeq – On-Track Performance: The Bezeq Group reported another stable quarter, delivering revenues of NIS 2.7 billion ($ 738 million) and operating profit of NIS 850 million ($ 229 million) for the period. Bezeq’s EBITDA for the first quarter of 2012 totaled NIS 1.2 billion ($ 323 million), representing an EBITDA margin of 44.1%. Net profit attributable to Bezeq shareholders for the period totaled NIS 582 million ($ 157 million).

 

Dividend from Bezeq: On April 24, 2012, the general meeting of Bezeq’s shareholders, approved a dividend distribution of NIS 1,074 million ($ 289 million) to Bezeq’s shareholders of record on May 4, 2012. The dividend, which is in line with Bezeq’s stated dividend distribution policy, is expected to be paid on May 21, 2012. Internet Gold’s subsidiary, B Communications Ltd., is expected to receive approximately NIS 334 million ($ 90 million) representing its share of the dividend.

 

On May 21, 2012, Bezeq is also expected to distribute the third NIS 500 million installment of the NIS 3.0 billion special dividend that was approved by its shareholders on January 24, 2011. Accordingly, B Communications expects to receive an additional NIS 155 million ($ 42 million) on the payment date, representing its share of the special dividend. On March 29, 2012 and on April 4, 2012, objections were filed with the Economic Division of the Tel Aviv District Court, opposing the continued payments of such distribution. Both objections were filed by holders of B Communications Debentures (Series 5), who filed similar objections in the second half of 2011. Bezeq denied the arguments set forth in the objections and asserted that there is no basis for the relief sought. The Court heard the closing arguments on the objections on May 2, 2012.

 

Cash Position: As of March 31, 2012, Internet Gold’s unconsolidated cash and cash equivalents totaled NIS 325 million ($ 87 million), its unconsolidated total debt was NIS 1.1 billion ($ 304 million), and its net debt totaled NIS 806 million ($ 217 million).

 

Internet Gold Unconsolidated Balance Sheet Data*

 

 

 

As of March 31, 2012

 

 

(NIS millions)

(US dollars in  millions)

Short term liabilities

 

133

36

Long term liabilities

 

998

268

Total liabilities

 

1,131

304

Cash and cash equivalents

 

325

87

Total net debt

 

806

217

 

 

 

 

 

* Does not include the balance sheet of B Communications

 

 

 

 

Internet Gold’s First Quarter Consolidated Financial Results

 

Internet Gold’s revenues for the first quarter were NIS 2,740 million ($ 738 million), a 5.9% decrease compared with NIS 2,913 million ($ 784 million) reported in the first quarter of 2011. For both the current and the prior-year periods, Internet Gold’s revenues consisted almost entirely of Bezeq’s revenues.

 

Internet Gold’s net income attributable to shareholders for the first quarter totaled NIS 3 million ($ 1 million), compared to a net loss attributable to shareholders of NIS 64 million ($ 17 million) in the first quarter of 2011. Internet Gold’s net income 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 interest 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. We and B Communications are 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 first quarter of 2012, we recorded NIS 302 million (US$ 81 million) net, in amortization expenses related to the Bezeq purchase price allocation (“Bezeq PPA”). From the date of acquisition of the controlling interest in Bezeq (April 14, 2010) until the end of the first quarter of 2012, we amortized approximately 44% of the total Bezeq PPA. We expect to amortize an additional 13% over the next three quarters of 2012.

 

The Bezeq PPA amortization expense is a non-cash expense which 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: Internet Gold’s unconsolidated financial expenses in the first quarter of 2012 totaled NIS 9 million ($ 2 million). These expenses consisted of NIS 15 million ($ 4 million) of interest on its outstanding debentures, which were partially offset by NIS 6 million ($ 2 million) in income from marketable securities. In addition Internet Gold recorded its share of B Communications financial expenses that totaled NIS 58 million ($ 16 million) for the period (including NIS 53 million ($ 14 million) of interest on the long-term loans incurred to finance the Bezeq acquisition and NIS 12 million ($ 3 million) in expenses related to B Communications’ debentures).

 

Internet Gold’s Unconsolidated Financial Results  

 

 

 

Q1 2012

 

 

(NIS millions)

(US dollars in millions)

Revenues

 

Financial expenses

 

(9)

(2)

Other expenses

 

(1)

Interest in BCOM’s net loss

 

13

3

Net loss

 

3

1

 

 

 

 


 

Comments of Management

 

Commenting on the results, Mr. Doron Turgeman, the CEO of Internet Gold, said, “As we move into 2012, we continue to be very pleased with all aspects of the Bezeq acquisition, which generates a steady return that continues to enhance our overall financial position and capabilities. We remain exceedingly confident regarding Bezeq’s positioning in Israel’s communications market and continue to seek out appropriate high-potential opportunities further afield.”  

 

Bezeq Group’s Q1 Consolidated Results

 

Revenues of the Bezeq Group in the first quarter of 2012 amounted to NIS 2.74 billion compared with NIS 2.91 billion in the corresponding quarter of 2011, a decrease of 5.9%. Most of the decrease in the Bezeq Group’s revenues is due to the erosion of revenues from cellular services and from the sale of cellular handsets.

 

Operating profit of the Bezeq Group amounted to NIS 850 million in the first quarter of 2012, compared with NIS 665 million in the corresponding quarter of 2011, an increase of 27.8%. EBITDA in the first quarter of 2012 was NIS 1.21 billion (EBITDA margin of 44.1%), compared with NIS 1 billion (EBITDA margin of 34.3%) in the corresponding quarter of 2011, an increase of 20.8%.

 

The increase in operating profit and EBITDA is primarily attributable to a provision of NIS 281.5 million for employee retirement expenses recorded in the first quarter of 2011 and the absence of a similar provision in the current quarter.

 

Net profit attributable to Bezeq shareholders increased by 43.0% and amounted to NIS 582 million in the first quarter of 2012, compared with NIS 407 million in the corresponding quarter of 2011. The increase in net profit is primarily attributable to the provision for employee retirement expenses recorded in the first quarter of 2011, as noted above. In addition, Bezeq recorded a gain of NIS 44 million in the first quarter of 2012 from the sale of assets by the Stage One Venture Capital Fund, in which it holds a 71.8% interest.

 

Cash flow from operating activities of the Bezeq Group in the first quarter of 2012 increased by 28.8% and amounted to NIS 998 million compared with NIS 775 million in the corresponding quarter of 2011.

 

Gross capital expenditures (CAPEX) amounted to NIS 462 million in the first quarter of 2012 compared with NIS 513 million the corresponding quarter in 2011, a decrease of 9.9%. The decrease is due to lower investments in fixed-line operations as the NGN project progresses. The Bezeq Group’s CAPEX to consolidated revenues ratio in the first quarter of 2012 was 16.9%, compared with 17.6% in the corresponding quarter of 2011.

 

As a result of the improved cash flow from operating activities and the decrease in CAPEX payments, free cash flow increased by 26.6% and amounted to NIS 585 million in the first quarter of 2012, compared with NIS 462 million in the corresponding quarter of 2011.

 

As of March 31, 2012, the gross financial debt of the Bezeq Group was NIS 9.42 billion, compared with NIS 5.64 billion as of March 31, 2011. The net financial debt of the Bezeq Group was NIS 6.65 billion compared with NIS 4.94 billion as of March 31, 2011. At the end of March 2012, the Bezeq Group’s net debt to EBITDA ratio was 1.37, compared with 1.00 at the end of March 2011.

 

 

 

To provide further insight into its results, the Company has provided the following summary of the consolidated financial report of the Bezeq Group’s quarter ended March 31, 2012. For a full discussion of Bezeq’s results for the quarter, please refer to http://ir.bezeq.co.il.

 

Notes:

 

  1. A.     Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of March 31, 2012 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of March 31, 2012 (NIS 3.715 = 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 Internet Gold

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

 

www.eurocom.co.il

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 Internet Gold’s 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: +972-3-924-000Investor relations contacts:

Mor Dagan – Investor Relations

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

 

 

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of Financial Position as at

 

 

 

 

 

 

 

Convenience

 

 

 

 

translation into

 

 

 

 

U.S. dollars

 

 

 

 

$1 = NIS 3.715

 

 

March 31

March 31

 

 

2011

2012

2012

 

NIS millions

$ millions

 

Assets

 

 

 

 

Cash and cash equivalents

 

 706 

1,509

406

Investments including derivatives

 

 782 

1,978

532

Trade receivables

 

 2,787 

3,130

843

Other receivables

 

 276 

357

96

Inventory

 

 246 

225

61

Assets classified as held-for-sale

 

 38 

168

45

 

 

 

 

 

Total current assets

 

4,835 

7,367

 1,983

 

 

 

 

 

 

 

 

 

 

Investments including derivatives

 

 129 

101

27

Long-term trade and other receivables

 

 1,299 

1,442

388

Property, plant and equipment

 

 7,402 

7,076

1,905

Intangible assets

 

 9,581 

7,824

2,106

Deferred and other expenses

 

 637 

410

110

Investment in equity – accounted  investees (mainly loans)

 

 1,068 

1,041

280

Deferred tax assets

 

 299 

188

51

 

 

 

 

 

Total non-current assets

 

 20,415 

18,082

 4,867

 

 

 

 

 

Total assets

 

 25,250 

25,449

 6,850

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of Financial Position as at

 

 

 

 

 

 

 

Convenience

 

 

 

 

translation into

 

 

 

 

U.S. dollars

 

 

 

 

$1 = NIS 3.715

 

 

March 31

March 31

 

 

2011

2012

2012

 

NIS millions

$ millions

 

Liabilities

 

 

 

 

Short term bank credit, current maturities of long-term

 

 

 

 

 liabilities and debentures

 

1,474 

1,216

327

Trade payables

 

 1,035 

895

241

Other payables  including derivatives

 

 1,131 

987

266

Dividend payable

 

 675 

677

182

Current tax liabilities

 

 396 

570

154

Deferred income

 

 34 

56

15

Provisions

 

 260 

181

49

Employee benefits

 

538 

358

 96

Liabilities classified as held-for-sale

 

 

 

 

 

 

Total current liabilities

 

 5,552 

4,940

 1,330

 

 

 

 

 

Debentures

 

 3,455 

6,375

1,716

Bank loans

 

 6,070 

6,835

1,840

Loans from institutions and others

 

 542 

541

146

Dividend payable

 

 1,254 

645

173

Employee benefits

 

 267 

229

62

Other liabilities

 

 153 

77

21

Provisions

 

 69 

69

18

Deferred tax liabilities

 

 1,561 

1,319

 355

 

 

 

 

 

Total non-current liabilities

 

 13,371 

16,090

 4,331

 

 

 

 

 

Total liabilities

 

 18,923 

21,030

 5,661

 

 

 

 

 

Equity

 

 

 

 

Total equity attributable to Company’s shareholders

 

 77 

(32)

(9)

Non controlling interest

 

 6,250 

4,451

 1,198

Total equity

 

 6,327 

4,419

 1,189

 

 

 

 

 

Total liabilities and equity

 

 25,250 

25,449

 6,850

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of income for the three months period ended March 31

 

 

 

 

 

 

 

Convenience

 

 

 

 

translation into

 

 

 

 

U.S. dollars

 

 

 

 

$1 = NIS 3.715

 

 

2011

2012

2012

 

NIS millions

$ millions

 

Revenues

 

 2,914 

2,740

 738

 

 

 

 

 

Cost and expenses

 

 

 

 

Depreciation and amortization

 

 700 

755

 203

Salaries

 

 535 

512

 138

General and operating expenses

 

 1,133 

1,083

 292

Other operating expenses, net

 

247 

 

 

 

 

 

 

 

 2,615 

2,350

 633

 

 

 

 

 

Operating income

 

 299 

390

 105

 

 

 

 

 

Finance expenses, net

 

 134 

19

 5

 

 

 

 

 

Income after financing expenses, net

 

 165 

371

 100

 

 

 

 

 

Share in losses of equity – accounted investees

 

 65 

58

 16

 

 

 

 

 

Income before income tax

 

 100 

313

 84

 

 

 

 

 

Income tax

 

 88 

131

 35

 

 

 

 

 

Net income for the year

 

 12 

182

 49

 

 

 

 

 

Income (loss) attributable to:

 

 

 

 

  Owners of the Company

 

(64)

3

 1

  Non-controlling interest

 

 76 

179

 48

 

 

 

 

 

Net income for the year

 

 12 

182

 49

 

 

 

 

 

Profit (loss) per share, basic

 

(3.45)

0.16

0.04

 

 

 

 

 

Profit (loss) per share, diluted

 

(3.47)

0. 15

0.04