Internet Gold Reports Second Quarter 2011 Financial Results

August 2, 2011

Internet Gold Reports Second Quarter 2011 Financial Results

 

 

–          Bezeq Delivers Another Strong Quarter –

–          Bezeq’s Significant Regular and Special Dividends Continue to Boost the Cash Position of the Company’s Subsidiary BCOM  –

 

 

Ramat Gan, Israel – August 2, 2011 – Internet Gold Ltd. (NASDAQ Global Select Market and TASE: IGLD) today reported its financial results for the quarter ended June 30, 2011 and its cash position and loan repayment status as of June 30, 2011.  

 

Bezeq delivers another strong quarter

The Bezeq Group reported another strong, stable quarter, delivering revenues of NIS 2.9 billion (US$ 849 million) and operating profit of NIS 935 million (US$ 274 million) in the second quarter. Bezeq’s EBITDA for the second quarter of 2011 totaled NIS 1.3 billion (US$ 381 million), representing an EBITDA margin of 44.35%, and cash flow from operating activities reached NIS 670 million (US$ 196 million).

Dividends Received from Bezeq

On May 19, 2011, Internet Gold’s subsidiary, B Communications, received two dividends from Bezeq totaling NIS 520 million (US$ 152 million). The dividends consisted  of:

 

  • Current dividend totaling NIS 363 million (US$ 106 million), representing B Communication’s share of Bezeq’s net profit for the second half of 2010; and
  • Special dividend totaling NIS 157 million (US$ 46 million), the first of six equal special dividends to be paid with no interest or index adjustments on a semi-annual basis through 2013, totaling approximately NIS 3 billion (US$ 878 million) over a three year period, as declared by Bezeq’s Board of Directors and approved by the Israeli Court.  

 

Cash Position

As of June 30, 2011, Internet Gold’s unconsolidated cash and cash equivalents totaled NIS 343 million (US$ 100 million), and its unconsolidated gross debt was NIS 1.06 billion (US$ 309 million). Having increased its ownership interest in B Communications during the second quarter, Internet Gold currently holds (indirectly) 24.39% of the outstanding shares of Bezeq.  

 

Internet Gold’s Unconsolidated Balance Sheet Data*

 

 

 

As of June 30, 2011

 

 

(NIS millions)

(US$ millions)

Short term liabilities

 

134

39

Long term liabilities

 

922

270

Total liabilities

 

1,056

309

Cash and cash equivalents

 

343

100

Total net debt

 

713

209

 

 

 

 

 

* Does not include the balance sheet of B Communications.

 

 

Internet Gold Second Quarter Financial Results

Internet Gold’s revenues for the second quarter were NIS 2,895 million (US$ 848 million), an increase of 12% compared with NIS 2,586 million (US$ 751 million) reported in the second quarter of 2010. For both the current and the prior-year periods, Internet Gold’s revenues consisted mostly of Bezeq’s revenues. However, for the second quarter of 2011, Internet Gold’s revenues reflected Bezeq’s revenues for the entire quarter, while during the second quarter of 2010, Internet Gold began to consolidate its share of Bezeq’s revenues commencing April 14, 2010, the date of B Communications’ acquisition of the controlling interest in Bezeq.

 

Internet Gold’s net loss for the second quarter totaled NIS 33 million (US$ 10 million) compared with a net loss of NIS 43 million (US$ 13 million) in the second quarter of 2010. This net loss reflected the impact of two significant expenses:

 

  • Amortization of tangible and identifiable intangible assets resulting from the Bezeq acquisition: According to the standards of business combination accounting, the total purchase price of Bezeq was allocated to Bezeq’s tangible and identifiable intangible assets based on their estimated fair values. During the second quarter of 2011, Internet Gold’s subsidiary, B Communications, recorded amortization expenses of NIS 310 million (US$ 91 million) related to the Bezeq purchase price allocation (“Bezeq PPA”). B Communications is amortizing certain of the acquired identifiable intangible assets in accordance with the economic future benefits expected from such assets using an accelerated method of amortization under which approximately 16% of the acquired identifiable intangible assets were amortized during 2010 and an additional 15% will be amortized during 2011.  

 

  • Financial expenses: B Communications’ financial expenses, net for the second quarter totaled NIS 98 million (US$ 29 million). These expenses consisted primarily of interest on the long-term loans incurred to finance the Bezeq acquisition, which totaled NIS 86 million (US$ 25 million), and expenses related to its debentures, which totaled NIS 14 million (US$ 4 million). In addition, Internet Gold incurred financial expenses, net totaling NIS 27 million (US$ 8 million), reflecting the interest payments it made during the period to holders of its two series of outstanding debentures.

 

 

Internet Gold Unconsolidated Financial Results

 

 

 

Q2 2011

 

 

(NIS millions)

(US$ millions)

Revenues

 

Financial expenses

 

(27)

(8)

Tax and other expenses

 

2

Interest in BCOM’s net loss

 

(8)

(2)

Net loss

 

(33)

(10)

 

 

 

 

 


Comments of Management

Commenting on the results, Mr. Eli Holtzman, CEO of Internet Gold said, “The second quarter was another period of progress during which we continued to accelerate the debt repayment plan of our subsidiary, B Communications, due primarily to the significant current and special dividends that it received on May 19 from Bezeq. From April 14, 2010 through June 30, 2011, B Communications repaid approximately NIS 1.5 billion (US$ 439 million) of its bank debt, comprised in part of NIS 1,307 million (US$ 383 million) of principal, and its finance plan continues to progress ahead-of-schedule. We are also very pleased with developments at Bezeq, and continue to focus on the smooth execution of our loan repayment plan. In parallel, we continue looking for opportunities to create additional value for our shareholders.”

Consolidation of Bezeq Results

  • Bezeq results consolidated for entire second quarter of 2011: Internet Gold’s results for the second quarter of 2011 reflect the consolidation of the operations of Bezeq for the entire three-month period. However, Internet Gold’s results for the comparative period of 2010 included Bezeq’s results commencing April 14, 2010, the date of the acquisition. 

 

  • Supplemental unconsolidated results table: To provide investors with transparent insight into its business, Internet Gold has also provided its results on an unconsolidated basis. Internet Gold’s interest in B Communications’ net income is presented as a single line item in the unconsolidated table, (see above, “Internet Gold’s Unconsolidated Q2 Financial Results”).

 

Bezeq Group’s Q2 Financial Results

 

To provide further insight into its results, we have provided the following summary of the consolidated financial report of the Bezeq Group’s quarter ended June 30, 2011. For a full discussion of Bezeq’s results for the quarter, please refer to http://ir.bezeq.co.il.

 

Bezeq Group’s revenues for the second quarter of 2011 amounted to NIS 2.9 billion (US$ 849 million), a decrease of 3.0% compared to the second quarter of 2010. Bezeq Fixed-Line revenues and Pelephone revenues were negatively affected by the reduction in mobile termination rates that came into effect on January 1, 2011.  The decrease in revenues was moderated by growth in Pelephone’s revenues from equipment sales and by the consolidation of Walla! (commencing April 25, 2010).

 

Bezeq Group’s operating profit in the second quarter of 2011 amounted to NIS 935 million (US$ 274 million), a decrease of 5.6% compared with the second quarter of 2010. Net profit attributable to the owners of Bezeq in the second quarter amounted to NIS 585 million (US$ 171 million), a decrease of 8.3% compared with the corresponding quarter. EBITDA for the second quarter amounted to NIS 1.28 billion (US$ 375 million) (EBITDA margin of 44.3%), a decrease of 4.1% compared with the corresponding quarter, (EBITDA margin of 44.9%). In the second quarter of 2010, a one-time gain of NIS 57 million (US$ 17 million) was recorded as a result of the consolidation of Walla’s operations by Bezeq International. After adjustment for the one-time gain growth was recorded in each of the above parameters.

 

Cash flow from operating activities in the second quarter of 2011 was down 31.4% compared with the corresponding quarter in 2010, and amounted to NIS 670 million (US$ 196 million), mainly due to  the sharp rise in sales of smartphones and the significant increase in supplier payments whereas subscriber payments for those handsets are made in 36 installments.

 

Gross investments (CAPEX) in the second quarter of 2011 amounted to NIS 495 million (US$ 145 million), an increase of 15.9% compared with the corresponding quarter in 2010. The increase stemmed, among other things, from the investment in a submarine cable by Bezeq International. The CAPEX to sales ratio was 17.1% in the second quarter of 2011, compared with 14.3% in the second quarter of 2010.

 

As a result of the decrease in cash flow from operating activities and the increase in CAPEX, free cash flow in the second quarter of 2011 amounted to NIS 264 million (US$ 77 million), compared with NIS 606 million (US$ 177 million) in the corresponding quarter in 2010, a decrease of 56.4%.

 

As of June 30, 2011, the net financial debt of the Bezeq Group was NIS 6.5 billion (US$ 1.9 million), compared with NIS 5.0 billion (US$ 1.5 billion) on June 30, 2010. The increase was attributable to the issuance of NIS 2.8 billion (US$ 820 million) of debt, of which NIS 2 billion (US$ 586 million) was issued in the second quarter of 2011. In contrast, NIS 1.4 billion (US$ 410 million) of debt was repaid. At the end of June 2011, the ratio of the Bezeq Group’s net debt to EBITDA was 1.33, compared with 1.07 at the end of June 2010. We note that an issue of NIS 2.7 billion (US$ 791 million) of debentures at the end of June 2011 is not included in the Bezeq Group’s balance sheet since the consideration was received after the balance sheet date.

 

Bezeq Group (Consolidated) 1

 

Q2 2011

Q2 2010

Change

 

 

(NIS millions)

 

Revenues

 

2,893

2,981

-3.0%

Operating profit

 

935

990

-5.6%

EBITDA

 

1,283

1,338

-4.1%

EBITDA margin

 

44.3%

44.9%

 

Net profit attributable to Company shareholders

 

585

638

-8.3%

Diluted EPS (NIS)

 

0.21

0.24

-12.5%

Cash flow from operating activities

 

670

976

-31.4%

Capex payments, net 2

 

406

370

9.7%

Free cash flow 3

 

264

606

-56.4%

Net debt/EBITDA (end of period) 4

 

1.33

1.07

 

Net debt/shareholders’ equity (end of period)

 

2.66

0.92

 

 

 

 

 

 

1 Bezeq Group results reflect the consolidation of Walla! as of April 25, 2010.

2 Capex data reflects payments related to capex and are based on the cash flow statements.

3 Free cash flow is defined as cash flow from operating activities less net capex payments.

4 EBITDA in this calculation refers to the trailing twelve months.

 

 


Notes:

 

  1. A.     Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of June 30, 2011 and for the periods than ended, and for the comparative periods have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of June 30, 2011 (NIS 3.415 = 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 Bezeq’s management regularly internally use supplemental non-IFRS financial measures to understand, manage and evaluate our business and make operating decisions. We believe these non-IFRS financial measures provide consistent and comparable measures to help investors understand Bezeq’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. Bezeq 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 Bezeq’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.
 

About Internet Gold – Golden Lines Ltd.

Internet Gold is Israel’s leading telecommunications group. Internet Gold’s main asset is its control of Bezeq, the Israel Telecommunication Corp. (http://ir.bezeq.co.il) (TASE:BZEQ), Israel’s largest telecommunications service provider, which is  based on  its approximately  78.11% ownership of B Communications Ltd. (Nasdaq and TASE: BCOM), the holder of the controlling  interest (31.23%) and board control of Bezeq.

Internet Gold is controlled by Eurocom Communications, a leading privately-held investment group headquartered in Ramat-Gan, Israel. Internet Gold’s shares are traded on the NASDAQ Global Select Market (Nasdaq: IGLD) and the Tel Aviv Stock Exchange (TASEב) where its share price is tracked as part of the TA-100 Index.

For more information, please visit the following Internet sites:
http://ir.bezeq.co.il
http://www.eurocom.co.ilhttp://www.bcommunications.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’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: +972-3-924-0000

 

Investor 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

 

 

 

 

 

Convenience

 

 

 

 

translation into

 

 

 

 

U.S. dollars

 

 

 

June 30

June 30

June 30

December 31

 

2011

2011

2010

2010

 

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

 

NIS millions

US$ millions

NIS millions

NIS millions

 

Assets

 

 

 

 

Cash and cash equivalents

 548 

 160 

 365 

 404 

Investments including derivatives

 675 

 198 

 547 

 1,029 

Trade receivables

 2,855 

 836 

 2,689 

 2,701 

Other receivables

 237 

 69 

284 

 228 

Inventory

 277 

 81 

 169 

 177 

Current tax assets

 2 

 1 

 – 

 3 

Assets classified as held-for-sale

 151 

 44 

 38 

 219 

 

 

 

 

 

Total current assets

 4,745 

 1,389 

 4,092 

 4,761 

 

 

 

 

 

Investments including derivatives

112 

 33 

 138 

 129 

Long-term trade receivables

 1,474 

 432 

 940 

 1,114 

Property, plant and equipment

 7,487 

 2,192 

 5,514 

 7,392 

Intangible assets

 8,643 

 2,531 

 14,932 

 9,163 

Deferred and other expenses

 396 

 116 

 687 

 423 

Investments in equity-accounted investee

 

 

 

 

 (mainly loans)

 1,050 

 307 

 1,136 

 1,084 

Deferred tax assets

 259 

 76 

 337 

 254 

 

 

 

 

 

Total non-current assets

 19,421 

 5,687 

 23,684 

 19,559

 

 

 

 

 

 

 

 

 

 

Total assets

 24,166 

 7,076 

 27,776 

 24,320 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of Financial Position

 

 

 

 

Convenience

 

 

 

 

translation into

 

 

 

 

U.S. dollars

 

 

 

June 30

June 30

June 30

December 31

 

2011

2011

2010

2010

 

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

 

NIS millions

US$ millions

NIS millions

NIS millions

 

Liabilities

 

 

 

 

Short-term bank credit, current maturities of

 

 

 

 

 long-term liabilities and debentures

 1,789 

 524 

2,155

1,501

Trade payables

 1,005 

 294 

1,033

1,066

Other payables  including derivatives

 996 

 292 

774

817

Dividend payable

668 

 196 

Current tax liabilities

309 

 90 

254

346

Deferred income

 39 

 11 

33

34

Provisions

 253 

 74 

371

251

Employee benefits

 488 

 143 

454

269

Liabilities classified as held-for-sale

21 

Total current liabilities

 5,551 

 1,625 

5,074

4,305

 

 

 

 

 

Debentures

3,692 

1,081 

 2,817 

 3,546 

Bank loans

 6,651 

 1,948 

 5,869 

 6,138 

Loans from institutions and others

546 

 160 

 – 

 541 

Dividend payable

 941 

 276 

 – 

 – 

Employee benefits

 267 

 78 

 295 

 305 

Deferred income and other liabilities

 155 

 45 

 5 

 150 

Provisions

 70 

 20 

 73 

 69 

Deferred tax liabilities

 1,361 

 399 

 2,474 

 1,555 

Total non-current liabilities

 13,683 

 4,007 

 11,533 

 12,304 

 

 

 

 

 

Total liabilities

 19,234 

 5,632 

 16,607 

 16,609 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Total equity attributable to Company’s

 

 

 

 

 shareholders

 38 

 11 

432 

295 

Non-controlling interest

 4,894 

 1,433 

 10,737 

 7,416 

Total equity

4,932 

 1,444 

 11,169 

 7,711 

 

 

 

 

 

Total liabilities and equity

 24,166 

 7,076 

 27,776 

 24,320 

 

 

 

 

 

 

 

 

 

 

 

 

Internet Gold – Golden Lines Ltd.

 

Consolidated Statements of Operations

 

 

 

Six months period ended

Three months period ended

Year ended

 

June 30,

June 30,

December 31,

 

 

Convenience

 

 

Convenience

 

 

 

 

translation

 

 

translation

 

 

 

 

into

 

 

into

 

 

 

 

U.S. dollars

 

 

U.S. dollars

 

 

 

2011

2011

2010

2011

2011

2010

2010

 

NIS millions

US$ millions

NIS millions

NIS millions

US$ millions

NIS millions

NIS millions

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

 

Revenues

5,809

1,701

2,605

2,895

848

2,586

8,732

 

 

 

 

 

 

 

 

Cost and expenses

 

 

 

 

 

 

 

Depreciation and amortization

1,399

409

485

699

205

484

2,295

Salaries

1,075

315

439

540

158

437

1,500

General and operating                   

 

 

 

 

 

 

 

 expenses

2,268

664

1,089

1,135

332

1,076

3,711

Other operating expenses

 

 

 

 

 

 

 

 (income), net

276

81

(54)

29

9

(11)

(3)

 

 

 

 

 

 

 

 

 

5,018

1,469

1,959

2,403

704

1,986

7,503

 

 

 

 

 

 

 

 

Operating income

791

232

646

492

144

600

1,229

 

 

 

 

 

 

 

 

Financing expenses, net

287

84

189

153

45

136

389

 

 

 

 

 

 

 

 

Income after financing

 

 

 

 

 

 

 

 expense, net

504

148

457

339

99

464

840

 

 

 

 

 

 

 

 

Share in losses of

 

 

 

 

 

 

 

equity-accounted investee

137

40

83

72

21

83

235

 

 

 

 

 

 

 

 

Income before income tax

367

108

374

267

78

381

605

Income tax

204

60

168

116

34

147

385

 

 

 

 

 

 

 

 

Net income

163

48

206

151

44

234

220

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

  Owners of the Company

(97)

(28)

(77)

(33)

(10)

(43)

(209)

  Non-controlling interest

260

76

283

184

54

277

429

Net income

163

48

206

151

44

234

220

 

 

 

 

 

 

 

 

Income (loss) per share,

 

 

 

 

 

 

 

 basic

 

 

 

 

 

 

 

Net income (loss) per share

(5.10)

(1.49)

(4.07)

(1.68)

(0.49)

(2.22)

(11.11)

 

 

 

 

 

 

 

 

Income (loss) per share,

 

 

 

 

 

 

 

 diluted

 

 

 

 

 

 

 

Net income (loss) per share

(5.15)

(1.51)

(4.07)

(1.72)

(0.50)

(2.32)

(11.23)