Internet Gold Reports its Financial Results for the Third Quarter of 2016

November 23, 2016

Internet Gold Reports its Financial Results for the Third Quarter of 2016

 

– B Communications Improves its Debt Structure –

 

Ramat Gan, Israel – November 23, 2016 – Internet Gold – Golden Lines Ltd. (NASDAQ Global Select Market and TASE: IGLD) today reported its financial results for the third quarter ended September 30, 2016. 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 Corp., Israel’s largest telecommunications provider (TASE: BEZQ).

 

Cash and Debt Position: As of September 30, 2016, Internet Gold’s unconsolidated liquidity balance (comprised of cash and cash equivalents and short term investments) totaled NIS 377 million ($100 million), its unconsolidated total debt was NIS 936 million ($249 million) and its unconsolidated net debt was NIS 559 million ($149 million).

 

Internet Gold’s Unconsolidated Balance Sheet Data (1)

 

(In millions)   Convenience    
    translation into    
    U.S. dollars    
    (Note A)    
  September 30, September 30, September 30, December 31,
  2016 2016 2015 2015
  NIS US$ NIS NIS
Short term liabilities 139 37 202 153
Long term liabilities 797 212 930 926
Total debt 936 249 1,132 1,079
Liquidity balance 377 100 316 277
Net debt 559 149 816 802
         

 

(1)   Does not include the consolidated balance sheet of B Communications and its subsidiaries.

 

Internet Gold’s Unconsolidated Sources and Uses

 

(In millions)   Convenience
    translation into
    U.S. dollars
    (Note A)
  NIS US$
     
Net debt as of December 31, 2015 802 214
     
Dividends received from B Communications (230) (61)
Proceeds from the sale of B Communications shares (56) (15)
Financial expenses, net 39 10
Operating expenses 4 1
     
Net debt as of September 30, 2016 559 149

 

 

B Communications’ Refinancing: On September 18, 2016, the Company’s subsidiary, B Communications, announced the completion of its successful issuance of approximately NIS 1.9 billion of Series C Debentures. The principal of the Series C Debentures, which is unlinked, will be payable in four equal annual installments payable on November 30 of each of the years 2020 through 2023 and one installment payable on November 30, 2024. Each of the first four installments will be equal to 7.5% of the principal amount of the aggregate amount of the Series C Debentures issued and the last installment will equal to 70% of such principal amount. The annual coupon of the Series C Debentures was set on 3.6% and will be denominated in NIS. The net proceeds from the offering were used to fully redeem B Communications’ outstanding $717 million       of 73/8% senior secured notes (the “Notes”). In addition, B Communications’ terminated the cross currency swap hedge transactions it entered into to hedge its exposure to fluctuations in the US$ exchange rate as a result of the Notes issuance.

 

Internet Gold’s Cash Management: Internet Gold manages its cash balances according to an investment policy that was approved 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 Internet Gold’s investment policy more than 80% of its funds must be invested in investment-grade securities. As of today, 83% of its funds are invested in investment-grade securities.

 

Internet Gold’s Third Quarter Consolidated Financial Results:

 

Internet Gold’s consolidated revenues for the third quarter of 2016 totaled NIS 2.5 billion ($668 million), a 3.5% decrease compared to the NIS 2.6 billion reported in the third quarter of 2015. 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 income for the third quarter of 2016 totaled NIS 487 million ($130 million), a 7.2% decrease compared to NIS 525 million reported in the third quarter of 2015.

 

Internet Gold’s consolidated loss for the third quarter of 2016 totaled NIS 41 million ($11 million) compared with net income of NIS 236 million reported in the third quarter of 2015. The decrease resulted from B Communications’ loss in the third quarter of 2016, which included a one-time refinancing and associated expenses of NIS 270 million.

 

Internet Gold’s Third Quarter Unconsolidated Financial Results:

 

As of September 30, 2016 Internet Gold held approximately 65% of the outstanding shares of B Communications. Internet Gold’s interest in B Communications’ loss for the third quarter of 2016 totaled NIS 166 million ($44 million), compared with its share in B Communications’ net income of NIS 25 million in the third quarter of 2015. B Communications’ loss in the third quarter of 2016 included one-time refinancing and associated expenses of NIS 270 million.

 

Internet Gold’s unconsolidated net financial expenses for the third quarter of 2016 totaled NIS 13 million ($4 million) compared with NIS 22 million in the third quarter of 2015. These expenses consist mainly of interest and CPI linkage expenses related to its publicly-traded debentures.

 

Internet Gold’s loss attributable to shareholders for the third quarter of 2016 totaled NIS 180 million ($48 million) compared with net income attributable to shareholders of NIS 2 million in the third 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
  September 30, September 30, September 30, December 31,
  2016 2016 2015 2015
  NIS US$ NIS NIS
Revenues
Financial expenses, net (13) (4) (22) (60)
Income tax benefit 11
Operating expenses (1) (1) (4)
Interest in BCOM’s net income (loss) (166) (44) 25 140
Net income (loss) (180) (48) 2 87

 

Commenting on the results, Doron Turgeman, CEO of Internet Gold said, “We expect that the successful refinance of B Communications’ debt will decrease its annual financial expenses and increase its net profit by approximately NIS 150 million starting in 2017. The new debt structure of B Communications will significantly improve our long term position and will help us to continue to create value for our shareholders in the quarters ahead,” concluded Mr. Turgeman.

 

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

 

 

Revenues of the Bezeq Group in the third quarter of 2016 were NIS 2.51 billion ($668 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 third quarter of 2016 were NIS 501 million ($133 million) compared to NIS 506 million in the corresponding quarter of 2015, a decrease of 1.0%.

 

Operating expenses of the Bezeq Group in the third quarter of 2016 were NIS 994 million ($265 million) compared to NIS 1.00 billion in the corresponding quarter of 2015, a decrease of 0.6%.  The decrease was primarily due to a reduction in interconnect fees and payments to telecom operators, terminal equipment and building maintenance expenses partially offset by an increase in content services, services by sub-contractors and marketing expenses.

 

Other operating income of the Bezeq Group in the third quarter of 2016 amounted to NIS 26 million ($7 million) compared to NIS 13 million in the corresponding quarter of 2015. The increase in other operating income was due to an increase in capital gains from the sale of fixed assets.

 

Operating income of the Bezeq Group in the third quarter of 2016 was NIS 599 million ($159 million) compared to NIS 652 million in the corresponding quarter of 2015, a decrease of 8.1%.

 

Tax expenses of the Bezeq Group in the third quarter of 2016 were NIS 99 million ($26 million) compared to NIS 144 million in the corresponding quarter of 2015, a decrease of 31.3%. 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, as well as a decrease in tax expenses in respect of prior years at Bezeq Fixed-Line.

 

Net income of the Bezeq Group in the third quarter of 2016 was NIS 394 million ($105 million) compared to NIS 407 million in the corresponding quarter of 2015, a decrease of 3.2%.

 

EBITDA of the Bezeq Group in the third quarter of 2016 was NIS 1.04 billion ($277 million) (EBITDA margin of 41.5%) compared to NIS 1.11 billion (EBITDA margin of 42.6%) in the corresponding quarter of 2015, a decrease of 6.1%.

 

The trailing twelve months EBITDA of the Bezeq Group as of September 30, 2016 was NIS 4.1 billion ($1.1 billion) compared to NIS 4.3 billion as of September 30, 2015, a decrease of 4.6%.

 

Payments for investments (Capex) of the Bezeq Group in the third quarter of 2016 were NIS 349 million ($93 million) compared to NIS 427 million in the corresponding quarter of 2015, a decrease of 18.3%.

 

Cash flow from operating activities of the Bezeq Group in the third quarter of 2016 was NIS 902 million ($240 million) compared to NIS 1.05 billion in the corresponding quarter of 2015, a decrease of 14.1%. The decrease was primarily due to increased payments for the retirement of employees at Bezeq Fixed-Line as well as changes in working capital.

 

Free cash flow of the Bezeq Group in the third quarter of 2016 was NIS 577 million ($154 million) compared to NIS 645 million in the corresponding quarter of 2015, a decrease of 10.5%.

 

Total debt of the Bezeq Group as of September 30, 2016 was NIS 11.2 billion ($3 billion) compared to NIS 11.1 billion as of September 30, 2015.

 

Net debt of the Bezeq Group was NIS 9.40 billion ($2.5 billion) as of September 30, 2016 compared to NIS 8.92 billion as of September 30, 2015.

 

Net debt to EBITDA (trailing twelve months) ratio of the Bezeq Group as of September 30, 2016 was 2.31 compared to 2.09 as of September 30, 2015.

 

Notes:

 

  1. Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures as of September 30, 2016 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of September 30, 2016 (NIS 3.758 = 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. 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 income plus net interest expense, provision for income taxes, depreciation and amortization;
  • EBITDA trailing twelve months – defined as net income plus net interest expense, provision for income taxes, depreciation and amortization during last twelve months;
  • 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 – defined as long and short term liabilities 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.

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

 

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)

 

      Convenience    
      translation into    
      U.S. dollars    
      (Note A)    
    September 30, September 30, September 30, December 31,
    2016 2016 2015 2015
    NIS US$ NIS NIS

 

Assets          
Cash and cash equivalents   1,012 269 1,071 619
Restricted cash   8 155
Investments   1,483 395 2,281 1,774
Trade receivables, net   1,998 532 2,203 2,058
Other receivables   228 61 242 286
Inventory   96 25 90 115
           
Total current assets   4,817 1,282 5,895 5,007
           
Long-term trade and other receivables   641 171 643 674
Property, plant and equipment   7,042 1,874 7,302 7,197
Intangible assets   6,724 1,789 *7,258 7,118
Deferred expenses and investments   463 123 671 643
Broadcasting rights   450 120 458 25
Investment in equity-accounted investee   20 5 27 456
Deferred tax assets   1,103 293 *1,200 1,290
           
Total non-current assets   16,443 4,375 17,559 17,403
           
Total assets   21,260 5,657 23,454 22,410

 

 

* Reclassified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Condensed Consolidated Statements of Financial Position as at

 

(In millions)

 

      Convenience    
      translation into    
      U.S. dollars    
      (Note A)    
    September 30, September 30, September 30, December 31,
    2016 2016 2015 2015
    NIS US$ NIS NIS

 

Liabilities          
Bank loans and credit and debentures   2,491 663 2,325  2,219
Trade and other payables   1,611 429 1,915  1,717
Related party   6 2 *217 233
Dividend payable   490 130 647
Current tax liabilities   223 59 801 705
Provisions   87 23 87 100
Employee benefits   280 74 268 378
Total current liabilities   5,188 1,380 6,260 5,352
           
Bank loans and debentures   12,226 3,254 13,604  13,215
Employee benefits   237 63 259 240
Other liabilities   257 68 212  227
Provisions   47 12 70  46
Deferred tax liabilities   645 172 761  729
Total non-current liabilities   13,412 3,569 14,906 14,457
           
Total liabilities   18,600 4,949 21,166 19,809
           
Equity          
Total equity attributable to equity          
holders of the Company   198 53 (165) (93)
Non-controlling interests   2,462 655 2,453 2,694
           
Total equity   2,660 708 2,288 2,601
           
Total liabilities and equity   21,260 5,657 23,454 22,410

 

 

* Reclassified

 


 

Internet Gold – Golden Lines Ltd.

 

Condensed Consolidated Statements of Income as at

 

(In million except per share data)

 

      Year ended
  Nine months period ended September 30, Three months period ended September 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 7,580 2,017 7,379 2,510 668 2,602 9,985
               
Cost and expenses              
Depreciation and amortization 1,622 432 1,588 539 144 577  2,131
Salaries 1,509 401 1,445 501 133 507  1,960
General and operating expenses 2,995 797 2,808 997 265 1,003  3,878
Other operating loss (income), net (21) (6) (103) (14) (4) (10)  3
               
  6,105 1,624 5,738 2,023 538 2,077 7,972
               
Operating income 1,475 393 1,641 487 130 525 2,013
               
Financing expenses, net 816 218 511 455 121 176 595
               
Income after financing              
 expenses, net 659 175 1,130 32 9 349 1,418
               
Share of income (loss) in              
 equity-accounted investee (4) (1) 15 (2) (1) (1) 12
               
Income before income tax 655 174 1,145 30 8 348 1,430
               
Income tax 301 80 368 71 (19) 112 347
               
Net income (loss) for the period 354 94 777 (41) (11) 236 1,083
               
Income (loss) attributable to:              
Owners of the company (198) (53) 17 (180) (48) 2 87
Non-controlling interests 552 147 760 139 37 234 996
               
Net income (loss) for the period 354 94 777 (41) (11) 236 1,083
               
Earnings per share              
               
Net income (loss), basic (10.37) (2.76) 0.90 (9.43) (2.51) 0.09 3.97
               
Net income (loss), diluted (10.37) (2.76) 0.84 (9.43) (2.51) 0.07 3.90

 

 

 

 

 

 

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 September 30,
    Convenience  
    translation  
    into  
    U.S. dollars  
    (Note A)  
  2016 2016 2015
  NIS US$ NIS
       
Net income 394 105 407
Income tax 99 26 144
Share of loss in equity-accounted investee 2 1 1
Financing expenses, net 104 28 100
Depreciation and amortization 442 117 457
       
EBITDA 1,041 277 1,109
       

 

 

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

 

 

(In millions) Trailing twelve months ended September 30,
    Convenience  
    translation  
    into  
    U.S. dollars  
    (Note A)  
  2016 2016 2015
  NIS US$ NIS
       
Net income 1,428 380 1,768
Income tax 534 142 641
Share of loss in equity-accounted investee 7 2 23
Financing expenses, net 308 82 283
Depreciation and amortization 1,790 476 1,546
       
EBITDA trailing twelve months 4,067 1,082 4,261
       

 

 

 

 


 

Bezeq, The Israel Telecommunication Corp.

Reconciliation for NON-IFRS Measures

 

Net Debt

 

The following table shows the calculation of the Bezeq Group’s Net Debt:

 

(In millions) As at September 30,
    Convenience  
    translation  
    into  
    U.S. dollars  
    (Note A)  
  2016 2016 2015
  NIS US$ NIS
       
Short term bank loans and credit and debentures 2,135 568 1,952
Non-current bank loans and debentures 9,111 2,424 9,125
Total debt 11,246 2,992 11,077
       
Cash and cash equivalents (938) (250) (1,030)
Investments (908) (241) (1,126)
       
Net debt 9,400 2,501 8,921
       

 

 

Net Debt to EBITDA Trailing Twelve Months Ratio

 

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

 

(In millions) As at September 30,
    Convenience  
    translation  
    into  
    U.S. dollars  
    (Note A)  
  2016 2016 2015
  NIS US$ NIS
       
Short term bank loans and credit and debentures 2,135 568 1,952
Non-current bank loans and debentures 9,111 2,424 9,125
Total debt 11,246 2,992 11,077
       
Cash and cash equivalents and investments 1,846 491 2,156
       
Net debt 9,400 2,501 8,921
       
Trailing twelve months EBITDA 4,067 1,082 4,261
       
Net debt to EBITDA ratio 2.31 2.31 2.09

 

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 September 30,
    Convenience  
    translation  
    into  
    U.S. dollars  
    (Note A)  
  2016 2016 2015
  NIS US$ NIS
       
Cash flow from operating activities 902 240 1,050
Purchase of property, plant and equipment (290) (77) (373)
Investment in intangible assets and deferred expenses (59) (15) (54)
Proceeds from the sale of property, plant and equipment 24 6 22
       
Free cash flow 577 154 645

 

 

 

 

 

 

 


 

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 September 30 2016, 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 September 30, 2016 reflect that we had a continuing negative cash flow from operating activities of NIS 1 million for the third quarter of 2016.

 

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 third quarter of 2016 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).

 

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.