Internet Gold Reports its Financial Results for the Second Quarter of 2017

August 31, 2017

Internet Gold Reports its Financial Results for the Second Quarter of 2017

 

– Net profit of The Bezeq Group for The Second Quarter of 2017of NIS 358 Million, Business as Usual –

– Net Profit Attributable to Shareholders of Internet Gold for the Second Quarter of 2017of NIS 14 Million

 

Ramat Gan, Israel – August 31, 2017 – Internet Gold – Golden Lines Ltd. (“the Company”) (NASDAQ Global Select Market and TASE: IGLD) today reported its financial results for the second 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. With full confidence in Bezeq dividend generating power, we will continue our efforts to improve both our debt and equity positions.” said Doron Turgeman, CEO of Internet Gold.

 

ISA Investigation: The Company has been reporting the events concerning the investigation by the Israel Securities Authority (“ISA”) relating to alleged improprieties surrounding the Yes-Bezeq deal. As reported, the investigation appears to focus on Bezeq’s 2015 acquisition of the remaining ownership interest in its satellite TV unit, Yes, from its parent company Eurocom Communications. As previously reported the Company’s Chairman and other senior officers at Yes were remanded to house arrest for a period of time and later barred from communicating on certain issues related to the investigation. In addition, following initial reports about the investigation, civil claims with motions to certify the claims as class action lawsuits were filed in Israel against the Company, Bezeq and others. The Company is currently evaluating the claims and its course of action.

 

Debt and Liquidity Balances

 

As of June 30, 2017, Internet Gold’s unconsolidated liquidity balances comprised of cash and cash equivalents and short term investments totaled NIS 216 million ($62 million), its unconsolidated total debt was NIS 811 million ($232 million) and its unconsolidated net debt was NIS 595 million ($170 million).

 

(In millions) June 30, June 30, June 30, December 31,
  2017 2017 2016 2016
  NIS US$ NIS NIS
         
Series C debentures 261 75 386 389
Series D debentures 550 157 554 551
CPI forward 6 6
Total debt 811 232 946 946
         
Cash and cash equivalents 10 3 238 48
Short-term investments 206 59 163 334
Total liquidity 216 62 401 382
         
Net debt 595 170 545 564
         

 

 

Internet Gold’s Second Quarter Consolidated Financial Results

 

Internet Gold’s consolidated revenues for the second quarter of 2017 totaled NIS 2.46 billion ($705 million), a 1.9% decrease compared to the NIS 2.51 billion reported in the second 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 second quarter of 2017 totaled NIS 466 million ($134 million), a 9.7% decrease compared with NIS 516 million reported in the second quarter of 2016.

 

Internet Gold’s consolidated net profit for the second quarter of 2017 totaled NIS 236 million ($68 million), a 6.3% decrease compared with NIS 252 million reported in the second quarter of 2016.

 

Internet Gold’s net profit attributable to shareholders for the second quarter of 2017 totaled NIS 14 million ($4 million) compared with NIS 14 million for the second quarter of 2016.

 

Internet Gold’s Second Quarter Unconsolidated Financial Results

 

)In millions( Three months ended June 30, Year ended December 31,
  2017 2017 2016 2016
  NIS US$ NIS NIS
         
Financial expenses, net (14) (4) (11) (44)
Operating expenses (1) (1) (5)
Interest in BCOM’s net profit (loss) 29 8 26 (153)
Net profit (loss) 14 4 14 (202)

 

As of June 30, 2017, Internet Gold held approximately 65% of B Communications’ outstanding shares. Accordingly, Internet Gold’s interest in B Communications’ net profit for the second quarter of 2017 totaled NIS 29 million ($8 million) compared with NIS 26 million in the second quarter of 2016.

 

Internet Gold’s unconsolidated net financial expenses in the second quarter of 2017 totaled NIS 14 million ($4 million) compared with NIS 11 million in the second quarter of 2016. These expenses consist of NIS 13 million ($4 million) of interest and CPI linkage expenses related to the Company’s publicly-traded debentures and of NIS 1 million ($300 thousands) of financial expenses generated by short term investments.

 

Internet Gold’s unconsolidated net profit for the second quarter of 2017 totaled NIS 14 million ($4 million) compared with NIS 14 million for the second quarter of 2016.

 

The 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 second quarter ended June 30, 2017. For a full discussion of Bezeq’s results for the second quarter ended June 30, 2017, please refer to its website: http://ir.bezeq.co.il.

 

 

Revenues of the Bezeq Group in the second quarter of 2017 were NIS 2.46 billion ($705 million) compared to NIS 2.51 billion in the corresponding quarter of 2016, a decrease of 1.9%. The decrease was due to lower revenues at Bezeq Fixed-Line, Pelephone and Yes partially offset by an increase in revenues at Bezeq International.

 

Salary expenses of the Bezeq Group in the second quarter of 2017 were NIS 494 million ($139 million) compared to NIS 495 million in the corresponding quarter of 2016, a decrease of 0.2%.

 

Operating expenses of the Bezeq Group in the second quarter of 2017 were NIS 973 million ($278 million) compared to NIS 972 million in the corresponding quarter of 2016, an increase of 0.1%.

 

Other operating income, net of the Bezeq Group in the second quarter of 2017 amounted to NIS 1 million ($300 thousands) compared to NIS 12 million in the corresponding quarter of 2016. Other operating income, net was impacted due to timing differences in the sale of real estate at Bezeq Fixed-Line in the second quarter of 2017.

 

Depreciation and amortization expenses of the Bezeq Group in the second quarter of 2017 were NIS 424 million ($121 million) compared to NIS 440 million in the corresponding quarter of 2016, a decrease of 3.6%. The decrease was primarily due to a reduction in depreciation expenses at Bezeq Fixed-Line as well as a reduction in PPA amortization expenses recorded in connection with the increased ownership interest in Yes.

 

Operating profit of the Bezeq Group in the second quarter of 2017 was NIS 573 million ($164 million) compared to NIS 616 million in the corresponding quarter of 2016, a decrease of 7.0%.

 

 

 

Financing expenses, net of the Bezeq Group in the second quarter of 2017 amounted to NIS 102 million ($29 million) compared to NIS 105 million in the corresponding quarter of 2016, a decrease of 2.9%. The decrease in financing expenses was primarily due a decrease in the estimated second contingent consideration in relation to the acquisition of Yes of NIS 84 million ($24 million). This amount was partially offset by an update in the estimated fair value of advanced payments made by the Bezeq Group to Eurocom DBS of NIS 57 million ($16 million), increased financing expenses at Yes as well as financing expenses of NIS 13 million recognized in connection with the exchange of Yes debentures for Bezeq Fixed-Line debentures.

 

Tax expenses of the Bezeq Group in the second quarter of 2017 were NIS 111 million ($32 million) compared to NIS 133 million in the corresponding quarter of 2016, a decrease of 16.5%. The decrease was due a decrease in the Israeli corporate tax rates from 25% in 2016 to 24% in 2017.

 

Net profit of the Bezeq Group in the second quarter of 2017 was NIS 358 million ($102 million) compared to NIS 377 million in the corresponding quarter of 2016, a decrease of 5.0%.

 

EBITDA of the Bezeq Group in the second quarter of 2017 was NIS 997 million ($285 million) (EBITDA margin of 40.5%) compared to NIS 1.056 billion (EBITDA margin of 42.1%) in the corresponding quarter of 2016, a decrease of 5.6%.

 

Cash flow from operating activities of the Bezeq Group in the second quarter of 2017 was NIS 875 million ($250 million) compared to NIS 870 million in the corresponding quarter of 2016, an increase of 0.6%.

 

Payments for investments (Capex) of the Bezeq Group in the second quarter of 2017 was NIS 406 million ($116 million) compared to NIS 387 million in the corresponding quarter of 2016, an increase of 4.9%.

 

Free cash flow of the Bezeq Group in the second quarter of 2017 was NIS 487 million ($139 million) compared to NIS 539 million in the corresponding quarter of 2016, a decrease of 9.6%. The decrease was primarily due to a decrease in proceeds from the sale of real estate in the amount of NIS 38 million ($11 million).

 

Total debt of the Bezeq Group as of June 30, 2017 was NIS 11.5 billion ($3.3 billion) compared to NIS 11.5 billion as of June 30, 2016.

 

Net debt of the Bezeq Group was NIS 9.6 billion ($2.75 billion) as of June 30, 2017 compared to NIS 9.3 billion as of June 30, 2016.

 

Net debt to EBITDA (trailing twelve months) ratio of the Bezeq Group as of June 30, 2017, was 2.43, compared to 2.24 as of June 30, 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 3.496 = US$ 1 as published by the Bank of Israel for June 30, 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;
  • 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.

 

Condensed Consolidated Statements of Financial Position as at

 

(In millions)

 

    June 30, June 30, June 30, December 31,
    2017 2017 2016 2016
    NIS US$ NIS NIS

 

Current assets          
Cash and cash equivalents   1,958           560 1,595 810
Restricted cash               –   658
Investments   503           144 1,747 1,240
Trade receivables, net   1,991 570 2,029 2,000
Other receivables   349 100 210 217
Related party   56 16 29
Inventory   105 30 109 106
Total current assets   4,962 1,420 6,377 4,373
           
Non-current assets          
Trade and other receivables   507 146 647 644
Property, plant and equipment   7,049 2,016 7,120 7,072
Intangible assets   6,314 1,806 6,859 6,534
Deferred expenses and investments   448 128 636 447
Broadcasting rights   456 130 455 432
Investment in equity-accounted investee   12 3 21 18
Deferred tax assets   1,015 290 1,099 1,007
Total non-current assets    15,801 4,519 16,837 16,154
           
Total assets    20,763 5,939 23,214 20,527
           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Condensed Consolidated Statements of Financial Position as at

 

(In millions)

 

    June 30, June 30, June 30, December 31,
    2017 2017 2016 2016
    NIS US$ NIS NIS

 

Current liabilities          
Bank loans and credit and debentures   1,314 375 2,314 2,181
Trade and other payables   1,634 467 1,627 1,661
Related party   208 32
Current tax liabilities   119 34 698 138
Provisions   79 23 90 80
Employee benefits   318 91 370 315
Total current liabilities         3,464          990 5,307 4,407
           
Non-current liabilities          
Bank loans and debentures        13,437 3,843 13,511 12,241
Employee benefits             259 74 239 258
Other liabilities             251            72 252 244
Provisions              48 14 46 47
Deferred tax liabilities             541 155 667 593
Total non-current liabilities       14,536       4,158 14,715 13,383
           
Total liabilities       18,000       5,148 20,022 17,790
           
Equity          
Attributable to shareholders of the Company             216 62 379 194
Non-controlling interests          2,547 729 2,813 2,543
Total equity         2,763          791 3,192 2,737
           
Total liabilities and equity       20,763       5,939 23,214 20,527

 


        

Internet Gold – Golden Lines Ltd.

 

Condensed Consolidated Statements of Income for the

 

(In millions, except per share data)

      Year ended
  Six months period ended June 30, Three months period ended June 30, December 31,
  2017 2017 2016 2017 2017 2016 2016
  NIS US$ NIS NIS US$ NIS NIS

 

 

Revenues 4,916 1,406 5,070 2,463 705 2,511 10,084
               
Costs and expenses              
Depreciation and amortization 1,053 302 1,083 525 150 538 2,161
Salaries 998 285 1,008 494 141 494 2,017
General and operating expenses 1,938 554 1,998 976 279 975 4,024
Other operating expenses              
  (income), net 1 (7) 2 1 (12) 21
               
  3,990 1,141 4,082 1,997 571 1,995 8,223
               
Operating profit 926 265 988 466 134 516 1,861
               
Financing expenses, net 288 82 361 143 41 154 975
               
Profit after financing              
 expenses, net 638 183 627 323 93 362 886
               
Share of loss in              
 equity-accounted investee 4 1 2 2 1 1 5
               
Profit before income tax 634 182 625 321 92 361 881
               
Income tax expenses 174 50 230 85 24 109 442
               
Net profit for the period 460 132 395 236 68 252 439
               
Profit (loss) attributable to:              
Shareholders of the Company 24 7 (18) 14 4 14 (202)
Non-controlling interests 436 125 413 222 64 238 641
               
Net Profit for the period 460 132 395 236 68 252 439
               
Earnings (loss) per share              
Basic 1.26 0.36 (0.93) 0.71 0.20 0.72 (10.52)
Diluted 1.26 0.36 (0.93) 0.71 0.20 0.72 (10.52)
               

 

 

 

 

 

 

 

 

 

 

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 June 30, Trailing twelve months ended June 30,
  2017 2017 2016 2017 2017 2016
  NIS US$ NIS NIS US$ NIS
             
Net profit 358 102 377 1,287 368 1,441
Income tax expenses 111 32 133 533 152 579
Share of loss in equity-   accounted investee 2 1 1 7 2 6
Financing expenses, net 102 29 105 443 127 304
Depreciation and amortization 424 121 440 1,702 487 1,805
             
EBITDA 997 285 1,056 3,972 1,136 4,135

 

 

Net Debt

 

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

 

(In millions) As at June 30,
  2017 2017 2016
  NIS US$ NIS
       
Short term bank loans and credit and debentures 958 274 1,958
Non-current bank loans and debentures 10,561 3,020 9,546
Cash and cash equivalents (1,854) (530) (1,338)
Investments (19) (5) (912)
       
Net debt 9,646 2,759 9,254
       

 

 

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 June 30,
  2017 2017 2016
  NIS US$ NIS
       
Net debt 9,646 2,759 9,254
       
Trailing twelve months EBITDA 3,972 1,136 4,135
       
Net debt to EBITDA ratio 2.43 2.43 2.24

 

 


 

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 June 30,
  2017 2017 2016
  NIS US$ NIS
       
Cash flow from operating activities 875 250 870
Purchase of property, plant and equipment (303) (87) (317)
Investment in intangible assets and deferred expenses (103) (29) (70)
Proceeds from the sale of property, plant and equipment 18 5 56
       
Free cash flow 487 139  539

 

 

Loan to Value (LTV)

 

The following table shows the calculation of IGLD’s loan to value ratio:

 

 

(In millions) As at June 30,
  2017
  NIS
   
IGLD’s unconsolidated net debt 595
   
Market value of B Communications share held by IGLD 1,171
   
IGLD’s LTV 50.8%

 

 

Net Asset Value (NAV)

 

The following table shows the calculation of IGLD’s net asset value:

 

 

(In millions) As at June 30,
  2017
  NIS
   
Market value of B Communications share held by IGLD 1,171
   
IGLD’s unconsolidated net debt               595
   
IGLD’s NAV 576

 

 

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 June 30, 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 three moths period ended June 30, 2017 reflect that we had a continuing negative cash flow from operating activities of NIS 1 million in the second 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 in the second 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 second 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.

 

 

 

 

 

 

 

 

 

 


 

Internet Gold’s Unconsolidated Balance Sheet

 

(In millions) June 30, June 30, June 30, December 31,
  2017 2017 2016 2016
  NIS US$ NIS NIS
Current assets        
Cash and cash equivalents 10 3 238 48
Short-term investments 206 59 163 334
Other receivables 1
Total current assets 216 62 402 382
         
Non-current assets        
Investment in an investee (*) 811 232 924 758
         
Total assets 1,027 294 1,326 1,140
         
Current liabilities        
Current maturities of debentures 130 37 130 130
Other payables 13 4 22 21
Total current liabilities 143 41 152 151
         
Non-current liabilities        
Debentures 668 191 795 795
         
Total liabilities 811 232 947 946
         
Total equity 216 62 379 194
         
Total liabilities and equity 1,027 294 1,326 1,140

 

(*) Investment in B Communications.

 

Unconsolidated figures as of June 30, 2017:

 

  • Unconsolidated Total equity represents 21% of unconsolidated total balance sheet.
  • Unconsolidated LTV ratio is 50.8%.
  • The ratio of cash and cash equivalents plus short-term investments plus dividend receivable from B Communication and market value of B Communications shares over the control permit (approximately 14.78% of B Communications outstanding shares) to unconsolidated current maturities of debentures is 3.37.
  • Internet Gold’s NAV is NIS 576 million.