Internet Gold Reports its Financial Results for the First Quarter 2017

May 18, 2017

Internet Gold Reports its Financial Results for the First Quarter 2017

 

– Net Profit Attributable to Shareholders of NIS 10 Million in the First Quarter of 2017 –

 

Ramat Gan, Israel – May 18, 2017 – Internet Gold – Golden Lines Ltd. (NASDAQ Global Select Market and TASE: IGLD) today reported its financial results for the first quarter of 2017. Internet Gold holds the controlling interest in B Communications Ltd. (TASE and NASDAQ: BCOM), which in turn holds the controlling interest in Bezeq, The Israel Telecommunication Corporation Ltd. (TASE: BEZQ).

 

“We are very pleased with the results of both B Communications and Bezeq, which continues to generate a steady return that enhances our overall financial position and capabilities,” said Doron Turgeman, CEO of Internet Gold.

 

Debt and Liquidity Balances: As of March 31, 2017, Internet Gold’s unconsolidated liquidity balances comprised of cash and cash equivalents and short term investments totaled NIS 219 million ($60 million), its unconsolidated total debt was NIS 798 million ($220 million) and its unconsolidated net debt was NIS 579 million ($160 million).

 

Internet Gold’s Unconsolidated Debt and Liquidity Balances (1)

 

(In millions) March 31, March 31, March 31, December 31,
  2017 2017 2016 2016
  NIS US$ NIS NIS
Short term liabilities 133 37 140 151
Long term liabilities 665 183 793 795
Total debt 798 220 933 946
Liquidity balances 219 60 169 382
Net debt 579 160 764 564
         

 

  • Does not include the debt or liquidity balances of B Communications and its subsidiaries.

 

Internet Gold’s First Quarter Consolidated Financial Results

 

Internet Gold’s consolidated revenues for the first quarter of 2017 totaled NIS 2.5 billion ($675 million), a 4.1% decrease compared to the NIS 2.6 billion reported in the first quarter of 2016. For both the current and the prior-year periods, Internet Gold’s consolidated revenues consisted entirely of Bezeq’s revenues.

 

Internet Gold’s consolidated operating profit for the first quarter of 2016 totaled NIS 460 million ($127 million), a 2.5% decrease compared with NIS 472 million reported in the first quarter of 2016.

 

Internet Gold’s consolidated net profit for the first quarter of 2017 totaled NIS 224 million ($62 million), a 56.6% increase compared with NIS 143 million reported in the first quarter of 2016. The increase in net profit in the first quarter of 2017 was mainly due to B Communications’ lower net financial expenses resulted from the refinance of its debt in the third quarter of 2016.

 

 

Internet Gold’s First Quarter Unconsolidated Financial Results

 

As of March 31, 2017, Internet Gold held approximately 65% of B Communications’ outstanding shares. Accordingly, Internet Gold’s interest in B Communications’ net profit for the first quarter of 2017 totaled NIS 25 million ($7 million) compared with a net loss of NIS 15 million in the first quarter of 2016.

 

Internet Gold’s unconsolidated net financial expenses for the first quarter of 2017 totaled NIS 14 million ($4 million) compared with NIS 15 million in the first quarter of 2016. These expenses consist of NIS 12 million ($3 million) of interest and CPI linkage expenses related to Internet Gold’s publicly-traded debentures and of NIS 2 million ($1 million) of financial expenses generated by short term investments.

 

Internet Gold’s net profit attributable to shareholders for the first quarter of 2017 totaled NIS 10 million ($3 million) compared with a loss attributable to shareholders of NIS 32 million in the first quarter of 2016. The net profit in the first quarter of 2017 was mainly due to B Communications’ lower net financial expenses resulting from the refinance of its debt in the third quarter of 2016.

 

)In millions( Three months ended March 31, Year ended December 31,
  2017 2017 2016 2016
  NIS US$ NIS NIS
         
Financial expenses, net (14) (4) (15) (44)
Operating expenses (1) (2) (5)
Interest in BCOM’s net profit (loss) 25 7 (15) (155)
Net profit (loss) 10 3 (32) (204)

 

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 first quarter ended March 31, 2017. For a full discussion of Bezeq’s results for the first quarter ended March 31, 2017, please refer to its website: http://ir.bezeq.co.il.

 

 

Revenues of the Bezeq Group in the first quarter of 2017 were NIS 2.45 billion ($675 million) compared to NIS 2.56 billion in the corresponding quarter of 2016, a decrease of 4.1%. The decrease was due to lower revenues in all of the Bezeq Group segments.

 

Salary expenses of the Bezeq Group in the first quarter of 2017 were NIS 504 million ($139 million) compared to NIS 513 million in the corresponding quarter of 2016, a decrease of 1.8%.

 

Operating expenses of the Bezeq Group in the first quarter of 2017 were NIS 959 million ($264 million) compared to NIS 1.02 billion in the corresponding quarter of 2016, a decrease of 5.8%. The decrease was primarily due to a reduction in expenses in all of the Bezeq Group segments, primarily at Pelephone and was impacted by the early adoption of accounting standard IFRS 15 whereby dealer commissions are capitalized.

 

Other operating income, net of the Bezeq Group in the first quarter of 2017 amounted to NIS 4 million ($1 million) compared to other operating expenses, net of NIS 5 million in the corresponding quarter of 2016. Other operating income, net was impacted by the collective labor agreement at Bezeq International in the corresponding quarter of 2016 as well as the reduction in capital gains from the sale of fixed assets at Bezeq Fixed-Line in the first quarter of 2017.

 

Depreciation and amortization expenses of the Bezeq Group in the first quarter of 2017 were NIS 428 million ($118 million) compared to NIS 449 million in the corresponding quarter of 2016, a decrease of 4.7%. The decrease was due to a reduction in depreciation and amortization expenses at Pelephone due to the termination of depreciation of the CDMA network as well as other assets.

 

Operating profit of the Bezeq Group in the first quarter of 2017 was NIS 566 million ($156 million) compared to NIS 574 million in the corresponding quarter of 2016, a decrease of 1.4%.

 

Financing expenses, net of the Bezeq Group in the first quarter of 2017 amounted to NIS 101 million ($28 million) compared to NIS 102 million in the corresponding quarter of 2016, a decrease of 1.0%.

 

Tax expenses of the Bezeq Group in the first quarter of 2017 were NIS 113 million ($31 million) compared to NIS 183 million in the corresponding quarter of 2016, a decrease of 38.3%. The decrease in tax expenses was due to a reduction in the tax asset and the recognition of deferred tax expenses in the corresponding quarter of 2016 in the amount of NIS 64 million resulting from a decrease in corporate tax rates in Israel from 26.5% to 25%.

 

Net profit of the Bezeq Group in the first quarter of 2017 was NIS 350 million ($96 million) compared to NIS 288 million in the corresponding quarter of 2016, an increase of 21.5%. The increase in net profit was primarily due to the aforementioned decrease in tax expenses.

 

EBITDA of the Bezeq Group in the first quarter of 2017 was NIS 994 million ($274 million) (EBITDA margin of 40.5%) compared to NIS 1.023 billion (EBITDA margin of 40.0%) in the corresponding quarter of 2015, a decrease of 2.8%.

 

Cash flow from operating activities of the Bezeq Group in the first quarter of 2017 was NIS 826 million ($227 million) compared to NIS 922 million in the corresponding quarter of 2016, a decrease of 10.4%. The decrease was primarily due to changes in working capital.

 

Payments for investments (Capex) of the Bezeq Group in the first quarter of 2017 was NIS 380 million ($105 million) compared to NIS 345 million in the corresponding quarter of 2016, an increase of 10.1%.

 

Free cash flow of the Bezeq Group in the first quarter of 2017 was NIS 456 million ($126 million) compared to NIS 619 million in the corresponding quarter of 2016, a decrease of 26.3%.

 

Total debt of the Bezeq Group as of March 31, 2017 was NIS 10.7 billion ($2.9 billion) compared to NIS 10.6 billion as of March 31, 2016.

 

Net debt of the Bezeq Group was NIS 9.33 billion ($2.57 billion) as of March 31, 2017 compared to NIS 8.83 billion as of March 31, 2016.

 

Net debt to EBITDA (trailing twelve months) ratio of the Bezeq Group as of March 31, 2017, was 2.32, compared to 2.04 as of March 31, 2016.

 

Notes:

 

Convenience translation to U.s Dollars

 

Unless noted specifically otherwise, the dollar denominated figures were converted to US$ using a convenience translation based on the New Israeli Shekel (NIS)/US$ exchange rate of NIS 3.632 = US$ 1 as published by the Bank of Israel for March 31, 2017.

 

Use of non-IFRS financial measures

 

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. The following non-IFRS measures are provided in the press release and accompanying supplemental information because management believes these measurements provide consistent and comparable measures to help investors understand the Bezeq Group’s current and future operating cash flow performance and are useful for investors and financial institutions to analyze and compare companies on the basis of operating performance:

 

  • EBITDA – defined as net profit plus income tax expenses, share of loss in equity accounted investee, net financing expenses and depreciation and amortization;
  • EBITDA trailing twelve months – defined as net profit plus income tax expenses, share of loss in equity accounted investee, net financing expenses and depreciation and amortization during last twelve months;
  • Net debt – defined as long and short term bank loans and debentures minus cash and cash equivalents and short term investments; and
  • Net debt to EBITDA ratio – defined as net debt divided by the trailing twelve months EBITDA.
  • Free Cash Flow (FCF) – defined as cash from operating activities less cash used for the purchase/sale of property, plant and equipment, and intangible assets, net;

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

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 profit 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.

 

Management of Bezeq believes that free cash flow 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. 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.

 

Bezeq also uses net debt and the net debt to EBITDA trailing twelve months ratio to analyze its financial capacity for further leverage and in analyzing the company’s business and financial condition. Net debt reflects long and short term liabilities minus cash and cash equivalents and investments.

 

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 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: BEZQ). 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.igld.com

www.bcommunications.co.il

www.ir.bezeq.co.il

www.eurocom.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:

 

Hadas Friedman – Investor Relations

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

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of Financial Position as at

 

(In millions)

 

    March 31, March 31, March 31, December 31,
    2017 2017 2016 2016
    NIS US$ NIS NIS

 

Current assets          
Cash and cash equivalents   810 223 1,233 810
Restricted cash   715
Investments   1,076 296 1,524 1,240
Trade receivables, net   1,976 544 2,042 2,000
Other receivables   334 92 299 217
Inventory   114 31 123 106
Total current assets   4,310 1,186 5,936 4,373
           
Non-current assets          
Trade and other receivables   595 163 662 644
Property, plant and equipment   7,078 1,949 7,189 7,072
Intangible assets   6,408 1,764 6,986 6,534
Deferred expenses and investments   460 127 568 447
Broadcasting rights   438 121 456 432
Investment in equity-accounted investee   14 4 23 18
Deferred tax assets   1,008 278 1,104 1,007
Total non-current assets   16,001 4,406 16,988 16,154
           
Total assets   20,311 5,592 22,924 20,527
           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of Financial Position as at

 

(In millions)

 

    March 31, March 31, March 31, December 31,
    2017 2017 2016 2016
    NIS US$ NIS NIS

 

Current liabilities          
Bank loans and credit and debentures   1,950 537 2,380 2,181
Trade and other payables   1,746 481 1,921 1,661
Related party   6 2 206 32
Current tax liabilities   143 39 711 138
Provisions   81 22 88 80
Employee benefits   308 85 380 315
Total current liabilities   4,234 1,166 5,686 4,407
           
Non-current liabilities          
Bank loans and debentures   11,983 3,299 12,396 12,241
Employee benefits   260 72 238 258
Other liabilities   250 69 262 244
Provisions   47 13 46 47
Deferred tax liabilities   570 157 665 593
Total non-current liabilities   13,110 3,610 13,607 13,383
           
Total liabilities   17,344 4,776 19,293 17,790
           
Equity          
Attributable to shareholders of the Company   205 56 364 194
Non-controlling interests   2,762 760 3,267 2,543
Total equity   2,967 816 3,631 2,737
           
Total liabilities and equity   20,311 5,592 22,924 20,527

 


        

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of Income for the

 

(In millions, except per share data)

 

        Year ended
  Three months ended March 31, December 31,
  2017 2017 2016 2016
  NIS US$ NIS NIS

 

 

Revenues 2,453 675 2,559 10,084
         
Costs and expenses        
Depreciation and amortization 528 145 545 2,161
Salaries 504 139 514 2,017
General and operating expenses 962 264 1,023 4,024
Other operating expense (income), net (1) 5 21
         
  1,993 548 2,087 8,223
         
Operating profit 460 127 472 1,861
         
Financing expenses, net 145 40 207 975
         
Profit after financing expenses, net 315 87 265 886
         
Share of loss in equity-accounted investee 2 1 1 5
         
Profit before income tax 313 86 264 881
         
Income tax expenses 89 24 121 442
         
Net profit for the period 224 62 143 439
         
Profit (loss) attributable to:        
shareholders of the Company 10 3 (32) (202)
Non-controlling interests 214 59 175 641
         
Net profit for the period 224 62 143 439
         
Earnings (loss) per share        
Basic 0.55 0.15 (1.67) (10.52)
Diluted 0.55 0.15 (1.67) (10.52)

 

 

 

 

 

 

 

Bezeq, The Israel Telecommunication Corporation Ltd.

Reconciliation for NON-IFRS Measures

 

EBITDA

 

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

 

(In millions) Three month period ended March 31, Trailing twelve months ended March 31,
  2016 2017 2017 2016 2017 2017
  NIS NIS US$ NIS NIS US$
             
Net profit 288 350 96 1,546 1,306 359
Income tax 183 113 31 629 555 153
Share of loss in equity-   accounted investee 1 2 1 5 6 2
Financing expenses, net 102 101 28 328 446 123
Depreciation and amortization 449 428 118 1,816 1,718 473
             
EBITDA 1,023 994 274 4,324 4,031 1,110

 

 

Net Debt

 

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

 

(In millions) As at March 31,
  2016 2017 2017
  NIS NIS US$
       
Short term bank loans and credit and debentures 2,073 1,594 439
Non-current bank loans and debentures 8,532 9,109 2,508
Cash and cash equivalents (1,221) (792) (218)
Investments (556) (578) (159)
       
Net debt 8,828 9,333 2,570
       

 

Net Debt to Trailing Twelve Months EBITDA Ratio

 

The following table shows the calculation of the Bezeq Group’s net debt to EBITDA trailing twelve months ratio:

 

(In millions) As at March 31,
  2016 2017 2017
  NIS NIS US$
       
Net debt 8,828 9,333 2,570
       
Trailing twelve months EBITDA 4,324 4,031 1,110
       
Net debt to EBITDA ratio 2.04  2.32  2.32

 

 


 

Bezeq, The Israel Telecommunication Corporation Ltd.

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 month period ended March 31,
  2016 2017 2017
  NIS NIS US$
       
Cash flow from operating activities 922 826 227
Purchase of property, plant and equipment (294) (277) (76)
Investment in intangible assets and deferred expenses (51) (103) (28)
Proceeds from the sale of property, plant and equipment 42 10 3
       
Free cash flow  619  456  126

 

 


 

Designated Disclosure with Respect to the Company’s Projected Cash Flows

 

In connection with the issuance of the Series D Debentures in 2014, we undertook to comply with the “hybrid model disclosure requirements” as determined by the Israeli Securities Authority and as described in the prospectus governing our Series D Debentures.

 

This model provides that in the event certain financial “warning signs” exist, and for as long as they exist, we will be subject to certain disclosure obligations towards the holders of our Series D Debentures.

 

In examining the existence of warning signs as of March 31 2017, our board of directors noted that our consolidated financial statements (unaudited) as well as our separate internal (unpublished) unaudited financial information as of and for the quarter ended March 31, 2017 reflect that we had a continuing negative cash flow from operating activities of NIS 1 million for the first quarter of 2017.

 

The Israeli regulations provide that the existence of a continuing negative cash flow from operating activities could be deemed to be a “warning sign” unless our board of directors determines that the possible “warning sign” does not reflect a liquidity problem.

 

Such continuing negative cash flow from operating activities results from the general operating expenses of the Company of NIS 1 million for the first quarter of 2017 and due to the fact that the Company, as a holding company, does not have any cash inflows from operating activities. Our main source of cash inflows is generated from dividends (classified as cash flow from investing activities) or debt issuances (classified as cash flow from financing activities). We did not have any such inflows in the first quarter of 2017.

 

Such continuing negative cash flow from operating activities does not effect our liquidity in any manner. Our board of directors reviewed our financial position, outstanding debt obligations and our existing and anticipated cash resources and uses and determined that the existence of the continuing negative cash flow from operating activities, as mentioned above, does not reflect a liquidity problem.