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B Communications Reports Financial Results For the Second Quarter of 2020

B Communications Ltd.

TEL-AVIV, Israel , Aug. 19, 2020 (GLOBE NEWSWIRE) -- B Communications Ltd. (NASDAQ Global Select Market and TASE: BCOM) (“BCOM” or the “Company”), a holding company with a controlling interest in Israel’s largest telecommunications provider, Bezeq, The Israel Telecommunication Corporation Limited (“Bezeq”) (TASE: BEZQ), today reported its financial results for the second quarter of 2020.

Comments of Tomer Raved, CEO of B Communications:

“While the novel coronavirus pandemic (“COVID-19) continues to impact Israel and the global populations, our group is working to help consumers, businesses and communities in these uncertain times by maintaining and improving our leading telecom infrastructure, as well as by providing important services and support to the entire market. We continue to implement our strategy and vision for the Israeli telecom market while positioning the group for long term success,” Mr. Raved noted. “We are proud of our second quarter results, which reflect gradual improvements across our entire group. We welcome Mr. Gil Sharon, Bezeq’s incoming Chairman, to the group, and we are happy to be taking part in the upcoming revolution in Israel’s communication infrastructure, primarily around 5G and fiber optics,” he concluded.

COVID-19 Update

Telecommunications companies as a whole belong to the infrastructure sector, which is an essential sector that requires and enables almost complete operational activity during a crisis. The availability and consumption of telecommunications services is essential and remains intact in such an event. Therefore, Bezeq’s exposure to risks related to the COVID-19 crisis is relatively limited and low relative to companies in other sectors. In addition, although the COVID-19 crisis has global implications, the telecommunications sector to which Bezeq belongs is essentially local, based on local infrastructure and provides services mainly to the Israeli consumer market.

As of June 30, 2020, and as of the date of approval of our report for the second quarter of 2020, there was primarily a decrease in revenues from Pelephone’s roaming services, as well as some decrease in revenues from the business sector in all of the Bezeq group companies. The overall impact of the COVID-19 pandemic on the financial and business position of the group companies was mixed, as the growth in Bezeq’s operations along with the measures taken by the group’s companies counteracting the effects of the pandemic and offsetting most of the decrease in revenues from Pelephone’s roaming services.

The Company estimates that the group’s financial robustness, cash-generating capacity, high cash balances, strong debt structure and its ready access to the capital markets and credit providers will enable it to adequately deal with the effects of the pandemic and its possible continuation or worsening beyond the group’s assumptions.

Litigations Update

Settlement of Israeli Derivative Action

On March 30, 2020, the Company entered into a settlement agreement concerning a derivative action commenced in July 2016 that had been pending in Tel Aviv-Jaffa District Court (the “Horev Derivative Action”). The derivative claim had alleged that the Company had distributed an unlawful dividend of NIS 113 million, including approximately NIS 73 million to the Company’s former controlling shareholder, Internet Gold – Golden Lines Ltd. (“Internet Gold”). Under the settlement agreement, the Company will receive a total of New Israeli Shekels (“NIS”) 22 million (principal plus accrued interest) of the Company’s Series C Debentures currently held by Internet Gold, in return for a waiver of the derivative action against Internet Gold. The derivative plaintiff will be awarded a total amount of NIS 4.23 million for expenses, lawyers’ fees and reward (which amount will come out of the NIS 22 million amount being paid by Internet Gold). This funding and the closing of this case are expected to happen during the third quarter of 2020.

On June 2, 2020, the Company and its former directors entered into a settlement agreement as part of the Horev Derivative Action, under which those directors will pay NIS 2.5 million (the “Directors’ Settlement Amount”) to the Company to settle all outstanding claims in that matter. In July 2020, after the final court approval, the settlement was completed and fully funded. The Company’s D&O insurance paid the Company the full Directors’ Settlement Amount and the Company paid the derivative plaintiff and its counsel a total amount of NIS 720 thousand.

Settlement of U.S. Class Action

On March 4, 2020, the Company announced that it entered into an agreement to settle the class action in the United States District Court for the Southern District of New York entitled Rex & Roberta Ling Living Trust v. B Communications Ltd., which had commenced in 2017. On August 10, 2020, the court granted final approval for the settlement and the allocation of the settlement proceeds. The Company paid $1.2 million, which was fully covered by its D&O insurance policy, and was released from any and all claims related to the class action by both the named plaintiffs as well as all members of the settlement class, with no admission of liability or any form of wrongdoing whatsoever.

B Communications’ Unconsolidated Financial Liabilities and Liquidity

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

(In millions)

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Series B debentures

 

 

237

 

 

 

-

 

 

 

-

 

 

 

-

 

Series C debentures (1)

 

 

2,282

 

 

 

1,884

 

 

 

543

 

 

 

1,884

 

Series D debentures (1)

 

 

-

 

 

 

58

 

 

 

17

 

 

 

58

 

Series E debentures

 

 

-

 

 

 

101

 

 

 

30

 

 

 

100

 

Total financial liabilities

 

 

2,519

 

 

 

2,043

 

 

 

590

 

 

 

2,042

 

Liquidity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

 

663

 

 

 

254

 

 

 

74

 

 

 

459

 

Long term bank deposits

 

 

-

 

 

 

161

 

 

 

47

 

 

 

-

 

Pledged account (2)

 

 

43

 

 

 

39

 

 

 

11

 

 

 

39

 

Total liquidity

 

 

706

 

 

 

454

 

 

 

132

 

 

 

498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net debt

 

 

1,813

 

 

 

1,589

 

 

 

458

 

 

 

1,544

 


1) 

 

 

Series C and D debentures balances on the Company’s statements of financial position as of June 30, 2020 include amortized discount of NIS 159 million ($46 million) (NIS 175 million as of December 31, 2019).

 

 

 

 

2) 

 

 

Pledged for the benefit of the holders of the Series C Debentures, Series D Debentures and Series E Debentures. Pursuant to the indentures for the Series C Debentures, Series D Debentures and Series E Debentures, the account is required to include sufficient funds to meet the next interest payment payable to the holders of these debentures. The funds are invested in long term bank deposits.


B Communications Second Quarter Unconsolidated Financial Results

 

 

Three months ended June 30,

 

 

Year ended
December 31,

 

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

(In millions)

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

Financing income (expenses), net

 

 

(24

)

 

 

(27

)

 

 

(8

)

 

 

78

 

Operating expenses

 

 

(5

)

 

 

(4

)

 

 

(1

)

 

 

(16

)

PPA amortization, net

 

 

(10

)

 

 

1

 

 

 

-

 

 

 

(38

)

Impairment losses

 

 

(819

)

 

 

(2

)

 

 

(1

)

 

 

(590

)

Interest in Bezeq’s net profit (loss)

 

 

(165

)

 

 

72

 

 

 

21

 

 

 

(287

)

Net profit (loss)

 

 

(1,023

)

 

 

40

 

 

 

11

 

 

 

(853

)

As of June 30, 2020, B Communications held approximately 26.34% of Bezeq’s outstanding shares. B Communications’ interest in Bezeq’s net profit for the Second quarter of 2020 totaled NIS 72 million ($21 million), compared to interest in Bezeq’s loss of NIS 165 million for the Second quarter of 2019.

B Communications performed a full impairment test of its investment in Pelephone after Pelephone revenues from roaming services decreased as a result of the COVID-19. As a result, the Company recorded impairment losses of NIS 2 million ($1 million) in the second quarter of 2020.

B Communications’ unconsolidated net financial expenses for the Second quarter of 2020 totaled NIS 27 million ($8 million) compared to NIS 24 million for the Second quarter of 2019. Net financial expenses for the Second quarter of 2020 included mainly NIS 19 million ($5 million) of accrued interest expenses.

B Communications’ unconsolidated net profit for the Second quarter of 2020 was NIS 40 million ($11 million) compared to loss of NIS 1.02 billion for the Second quarter of 2019.

B Communications Second Quarter Consolidated Financial Results

B Communications’ consolidated revenues for the second quarter of 2020 totaled NIS 2.16 billion ($623 million), a 3.1% decrease from NIS 2.22 billion for the second quarter of 2019. The decrease in revenues was due to lower revenues in Pelephone, Bezeq International and Yes, partially offset by an increase in revenues in Bezeq Fixed-Line.

B Communications’ consolidated operating profit for the second quarter of 2020 was NIS 505 million ($146 million), compared to an operating loss of NIS 536 million for the second quarter of 2019.

B Communications’ consolidated net profit for the second quarter of 2020 totaled NIS 237 million ($68 million) compared to a consolidated loss of NIS 1.87 billion for the second quarter of 2019.

B Communications’ net profit attributable to shareholders for the second quarter of 2020 was NIS 40 million ($12 million) compared to a loss of NIS 1.02 billion for the second quarter of 2019.

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 (or the “Group”) for the quarter ended June 30, 2020. For a full discussion of Bezeq’s results for the quarter ended June 30, 2020, please refer to its website: http://ir.bezeq.co.il.

Bezeq Group (consolidated)

 

Q2-2019

 

 

Q2-2020

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

(NIS millions)

 

 

 

 

Revenues

 

 

2,224

 

 

 

2,155

 

 

 

(3.1

)%

Operating profit (loss)

 

 

(94

)

 

 

512

 

 

 

 

 

Operating margin

 

 

(4.2

)%

 

 

23.8

%

 

 

 

 

Net profit (loss)

 

 

(1,573

)

 

 

270

 

 

 

 

 

EBITDA

 

 

384

 

 

 

977

 

 

 

154.4

%

EBITDA margin

 

 

17.3

%

 

 

45.3

%

 

 

 

 

Adjusted EBITDA

 

 

831

 

 

 

872

 

 

 

4.9

%

Adjusted EBITDA margin

 

 

37.4

%

 

 

40.5

%

 

 

8.3

%

Diluted EPS(LPS) (NIS)

 

 

(0.57

)

 

 

0.10

 

 

 

 

 

Cash flow from operating activities

 

 

624

 

 

 

561

 

 

 

(10.1

)%

Payments for investments

 

 

525

 

 

 

351

 

 

 

(33.1

)%

Free cash flow

 

 

350

 

 

 

144

 

 

 

(58.9

)%

Total debt

 

 

11,334

 

 

 

9,472

 

 

 

(16.4

)%

Net debt

 

 

8,419

 

 

 

7,543

 

 

 

(10.4

)%

Adjusted EBITDA (trailing twelve months)

 

 

3,414

 

 

 

3,327

 

 

 

(2.5

)%

Net debt / TTM Adjusted EBITDA (end of period)

 

 

2.5

 

 

 

2.3

 

 

 

(8.0

)%

Revenues of the Bezeq Group in the second quarter of 2020 were NIS 2.16 billion ($623 million) compared to NIS 2.22 billion in the corresponding quarter of 2019, a decrease of 3.1%. The decrease in revenues was due to lower revenues in Pelephone, Bezeq International and Yes, partially offset by an increase in revenues in Bezeq Fixed-Line.

Salary expenses of the Bezeq Group in the second quarter of 2020 were NIS 444 million ($128 million) compared to NIS 489 million in the same quarter of 2019, a decrease of 9.2%. The decrease in salary expenses was primarily due to a reduction in the number of employees in all key Group segments.

Operating expenses in the second quarter of 2020 were NIS 753 million ($217 million), compared to NIS 814 million in the same quarter of 2019, a decrease of 7.5%. The decrease in operating expenses was due to a reduction in expenses in Bezeq International and Yes.

Other operating income, net in the second quarter of 2020 amounted to NIS 19 million ($5 million), compared to NIS 414 million in the same quarter of 2019. The decrease in other operating income was due to the recognition of capital gains of NIS 403 million from the sale of the “Sakia” complex in the second quarter of 2019, which was not repeated in the corresponding quarter of 2020.

Depreciation, amortization, and ongoing impairment expenses in the second quarter of 2020 were NIS 465 million ($134 million), compared to NIS 478 million in the same quarter of 2019, a decrease of 2.7%. The decrease in depreciation amortization and ongoing impairment expenses was due to a decrease in those expenses for Yes, Pelephone and Bezeq International, partially offset by an increase in those expenses for Bezeq Fixed-Line.

Profitability metrics in the second quarter of 2020 were impacted by the absence of three extraordinary items that had affected the corresponding quarter of 2019: A write-off of the balance of the tax asset in respect of losses from Yes of NIS 1.17 billion, an impairment loss related to Pelephone assets of NIS 951 million, and capital gains of NIS 403 million for the sale of the “Sakia” complex.

Operating profit in the second quarter of 2020 amounted to NIS 512 million ($148 million), compared to an operating loss of NIS 94 million in the corresponding quarter of 2019.

EBITDA in the second quarter of 2020 amounted to NIS 977 million ($282 million), (EBITDA margin of 45.3%), compared to NIS 384 million (EBITDA margin of 17.3%) in the same quarter of 2019, an increase of 154.4%.

Adjusted EBITDA of the Bezeq Group in the second quarter of 2020 was NIS 872 million ($251 million) (reflecting an adjusted EBITDA margin of 40.5%) compared to NIS 831 million (reflecting an adjusted EBITDA margin of 37.4%) in the same quarter of 2019, an increase of 4.9%.

Financing expenses in the second quarter of 2020 were NIS 159 million ($46 million), compared to NIS 136 million in the corresponding quarter of 2019, an increase of 16.9%. The increase in financing expenses was due to an increase in financing expenses of Bezeq Fixed-Line primarily as a result of the early repayment of debt as well as actuarial adjustments in respect of provisions for employee benefits in the second quarter of 2020. The increase was partially offset by a decrease in interest expenses and linkage differentials due to changes in the Israeli CPI.

Net profit in the second quarter of 2020 amounted to NIS 270 million ($78 million), compared to a loss of NIS 1.57 billion in the corresponding quarter of 2019. The increase in net profit was due the three extraordinary items that had affected the corresponding quarter of 2019 as mentioned above.

Cash flow from operating activities in the second quarter of 2020 was NIS 561 million ($162 million), compared to NIS 624 million in the same quarter of 2019, a decrease of 10.1%. The decrease in cash flow from operating activities was primarily due to changes in working capital of Bezeq Fixed-line.

Cash used for investment activities in the second quarter of 2020 amounted to NIS 351 million ($101 million), compared to NIS 525 million in the same quarter of 2019, a decrease of 33.1%. The decrease in cash used for investments was primarily due to a decrease in investments in Bezeq Fixed-Line due to the absence in the second quarter of 2020 of the payment of NIS 149 million for a betterment levy in connection with the sale of the “Sakia” complex, which occurred in the corresponding quarter of 2019. In addition, there was a decrease in investments in Yes due to the Group’s migration to IP broadcasting.

Free cash flow in the second quarter of 2020 was NIS 144 million ($41 million), compared to NIS 350 million in the same quarter of 2019, a decrease of 58.9%. The decrease in free cash flow was due to the absence in the second quarter of 2020 of the receipt of net proceeds of NIS 174 million relating to the sale of the “Sakia” complex (consideration received less betterment levy paid), which occurred in the corresponding quarter of 2019. In addition, free cash flow was impacted by the aforementioned decrease in cash flow from operating activities.

Net financial debt of the Group was NIS 7.54 billion ($2.2 billion), as of June 30, 2020 compared to NIS 8.42 billion as of June 30, 2019. As of June 30, 2020, the Group’s net financial debt to Adjusted EBITDA ratio was 2.3, compared to 2.5 as of June 30, 2019.

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 3.466 = US$ 1 as published by the Bank of Israel for June 30, 2020.

Bezeq Group 2020 Outlook

The financial reports for the year 2019 and first quarter of 2020 did not include Bezeq’s outlook for the year 2020, due to the COVID-19 pandemic, the restrictions imposed in connection with it and the resulting uncertainty in the economy. Although the uncertainty in the economy remains high, Bezeq decided to publish its outlook for 2020 based on current information and based on a review of the Group’s performance thus far during the pandemic. Based on the information known to Bezeq today, the Group’s outlook for 2020 is as follows:

  • Adjusted net profit* attributable to shareholders - NIS 950 million

  • Adjusted EBITDA* - NIS 3.5 billion

  • CAPEX** - NIS 1.5 billion

The Bezeq Group’s forecasts in this section are forward-looking information, as defined under U.S. and Israeli securities laws and regulations. The forecasts are based on the Bezeq Group’s estimates, assumptions and expectations, and do not include the effects, if any, of the cancellation of the Bezeq Group’s structural separation and the merger involving its subsidiary companies and everything related thereto in 2020.

The Bezeq Group’s forecasts are based, among other things, on its estimates regarding the structure of competition in the telecommunications market and regulation in the telecommunications sector, the economic outlook and accordingly, Bezeq’s ability to implement its plans in 2020. Actual results may differ from these estimates, taking note of changes that may occur to the foregoing, including changes to business conditions, and the effects of regulatory decisions, technology changes and developments in the structure of the telecommunications market, and so forth, or the realization of one or more of the risk factors listed in the Bezeq’s annual report for 2019. In addition, there is no certainty that the outlook will be fully or partially realized, among other things, due to the COVID-19 pandemic and the resulting uncertainty.

Bezeq will report, as required, deviations of more/less than 10% of the amounts stated in the outlook.

* Adjusted net profit and Adjusted EBITDA – after adjusting for other operating expenses/income, net and one-time losses/gains from impairment/increase in value of assets. Adjusted EBITDA and Adjusted Net Profit in 2019 were NIS 3.73 billion and NIS 950 million, respectively.

** CAPEX - gross payments for investments in fixed and intangible assets. CAPEX in 2019 amounted to NIS 1.55 billion.

Use of non-IFRS financial measures

BCOM’s management 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 used in this press release and in the accompanying supplemental information because management believes these measurements are useful for investors and financial institutions to analyze and compare companies on the basis of operating performance:

  • EBITDA - defined as net profit plus net interest expense, provision for income taxes, depreciation and amortization.

  • EBITDA trailing twelve months - defined as net profit plus income tax expenses, net financing expenses and depreciation, amortization and impairment during the last twelve months.

  • Adjusted EBITDA - defined as net profit plus income tax expenses, net financing expenses, depreciation, amortization and impairment, other operating expenses, net, and impairment losses.

  • Net debt - defined as long and short-term liabilities minus cash and cash equivalents and short-term investments.

  • Net debt to adjusted EBITDA ratio - defined as net debt divided by the trailing twelve months adjusted EBITDA.

  • Free Cash Flow - defined as cash from operating activities less cash for the purchase/sale of property, plant and equipment, and intangible assets, net and lease payments.

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.

Bezeq’s management 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 the net debt and net debt to EBITDA trailing twelve months ratios to analyze its financial capacity for further leverage and in analyzing the Bezeq Group’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 the Company’s consolidated financial statements prepared in accordance with IFRS.

About B Communications Ltd.

B Communications is a holding company with a controlling interest in Israel’s largest telecommunications provider, Bezeq. B Communications is controlled by Searchlight II BZQ L.P (60.18%) and T.N.R Investments Ltd (11.39%). Our controlling shareholders have extensive telecom experience and financial strength, representing significant business and management added value for the Bezeq Group. The Searchlight group has proven and successful experience in global investments in communications companies as well as upgrading processes such as infrastructure and technology.

For more information please visit the following internet sites:

www.bcommunications.co.il
www.ir.bezeq.co.il
www.searchlightcap.com
  
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 B Communications’ 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 and 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. Shareholders 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, except as may be required by law.

For further information, please contact:

Yuval Snir - IR Manager
Yuval@bcomm.co.il / Tel: +972-3-924-0000

B Communications Ltd.

Consolidated Statements of Financial Position as at

(In millions)

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

 

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

1,441

 

 

 

749

 

 

 

216

 

 

 

814

 

Restricted cash

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39

 

Investments

 

 

2,181

 

 

 

1,434

 

 

 

413

 

 

 

1,241

 

Trade receivables

 

 

1,744

 

 

 

1,701

 

 

 

490

 

 

 

1,689

 

Other receivables

 

 

289

 

 

 

305

 

 

 

88

 

 

 

313

 

Assets held for sale

 

 

-

 

 

 

46

 

 

 

14

 

 

 

43

 

Inventory

 

 

100

 

 

 

110

 

 

 

32

 

 

 

93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

5,755

 

 

 

4,345

 

 

 

1,252

 

 

 

4,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

535

 

 

 

454

 

 

 

131

 

 

 

477

 

Property, plant and equipment

 

 

6,105

 

 

 

6,073

 

 

 

1,752

 

 

 

6,032

 

Intangible assets

 

 

3,256

 

 

 

3,191

 

 

 

921

 

 

 

3,180

 

Deferred expenses and investments

 

 

503

 

 

 

554

 

 

 

160

 

 

 

366

 

Broadcasting rights

 

 

59

 

 

 

65

 

 

 

19

 

 

 

59

 

Rights of use assets

 

 

1,175

 

 

 

1,212

 

 

 

350

 

 

 

1,182

 

Deferred tax assets

 

 

12

 

 

 

37

 

 

 

10

 

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

 

11,645

 

 

 

11,586

 

 

 

3,343

 

 

 

11,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

17,400

 

 

 

15,931

 

 

 

4,595

 

 

 

15,587

 


B Communications Ltd.

Consolidated Statements of Financial Position as at (cont’d)

(In millions)

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

 

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Bank loans and debentures

 

 

4,083

 

 

 

955

 

 

 

276

 

 

 

1,007

 

Leases rights liabilities

 

 

434

 

 

 

399

 

 

 

115

 

 

 

416

 

Trade and other payables

 

 

1,489

 

 

 

1,356

 

 

 

391

 

 

 

1,414

 

Current tax liabilities

 

 

27

 

 

 

52

 

 

 

15

 

 

 

11

 

Provisions

 

 

148

 

 

 

122

 

 

 

35

 

 

 

125

 

Employee benefits

 

 

443

 

 

 

486

 

 

 

140

 

 

 

654

 

Total current liabilities

 

 

6,624

 

 

 

3,370

 

 

 

972

 

 

 

3,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank loans and debentures

 

 

9,709

 

 

 

10,394

 

 

 

2,999

 

 

 

10,412

 

Leases rights liabilities

 

 

1,022

 

 

 

1,017

 

 

 

293

 

 

 

969

 

Employee benefits

 

 

487

 

 

 

344

 

 

 

99

 

 

 

356

 

Other liabilities

 

 

163

 

 

 

175

 

 

 

50

 

 

 

139

 

Provisions

 

 

38

 

 

 

50

 

 

 

14

 

 

 

49

 

Deferred tax liabilities

 

 

123

 

 

 

241

 

 

 

70

 

 

 

237

 

Total non-current liabilities

 

 

11,542

 

 

 

12,221

 

 

 

3,525

 

 

 

12,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

18,166

 

 

 

15,591

 

 

 

4,497

 

 

 

15,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity (deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to shareholders of the Company

 

 

(631

)

 

 

(88

)

 

 

(25

)

 

 

(187

)

Non-controlling interests

 

 

(135

)

 

 

428

 

 

 

123

 

 

 

(15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity (deficit)

 

 

(766

)

 

 

340

 

 

 

98

 

 

 

(202

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity (deficit)

 

 

17,400

 

 

 

15,931

 

 

 

4,595

 

 

 

15,587

 


B Communications Ltd.

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,

 

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

 

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

4,480

 

 

 

4,342

 

 

 

1,253

 

 

 

2,223

 

 

 

2,155

 

 

 

622

 

 

 

8,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,021

 

 

 

907

 

 

 

262

 

 

 

516

 

 

 

460

 

 

 

133

 

 

 

2,064

 

Salaries

 

 

985

 

 

 

925

 

 

 

267

 

 

 

489

 

 

 

446

 

 

 

129

 

 

 

1,937

 

General and operating expenses

 

 

1,632

 

 

 

1,550

 

 

 

447

 

 

 

818

 

 

 

755

 

 

 

218

 

 

 

3,276

 

Impairment losses

 

 

1,345

 

 

 

8

 

 

 

2

 

 

 

1,345

 

 

 

8

 

 

 

2

 

 

 

1,274

 

Other operating expenses (income)

 

 

(409

)

 

 

(22

)

 

 

(6

)

 

 

(409

)

 

 

(19

)

 

 

(6

)

 

 

(188

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,574

 

 

 

3,368

 

 

 

972

 

 

 

2,759

 

 

 

1,650

 

 

 

476

 

 

 

8,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit (loss)

 

 

(94

)

 

 

974

 

 

 

281

 

 

 

(536

)

 

 

505

 

 

 

146

 

 

 

566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing expenses, net

 

 

277

 

 

 

246

 

 

 

71

 

 

 

161

 

 

 

186

 

 

 

54

 

 

 

472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit (loss) after financing expenses, net

 

 

(371

)

 

 

728

 

 

 

210

 

 

 

(697

)

 

 

319

 

 

 

92

 

 

 

94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share of loss in equity-accounted investee

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit (loss) before income tax

 

 

(372

)

 

 

728

 

 

 

210

 

 

 

(698

)

 

 

319

 

 

 

92

 

 

 

92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expenses

 

 

1,277

 

 

 

184

 

 

 

53

 

 

 

1,180

 

 

 

82

 

 

 

24

 

 

 

1,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit (loss) for the period

 

 

(1,649

)

 

 

544

 

 

 

157

 

 

 

(1,878

)

 

 

237

 

 

 

68

 

 

 

(1,381

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit (loss) attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders of the Company

 

 

(977

)

 

 

100

 

 

 

29

 

 

 

(1,021

)

 

 

40

 

 

 

12

 

 

 

(853

)

Non-controlling interests

 

 

(672

)

 

 

444

 

 

 

128

 

 

 

(857

)

 

 

197

 

 

 

56

 

 

 

(528

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit (loss) for the period

 

 

(1,649

)

 

 

544

 

 

 

157

 

 

 

(1,878

)

 

 

237

 

 

 

68

 

 

 

(1,381

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

(26.77

)

 

 

0.87

 

 

 

0.25

 

 

 

(27.38

)

 

 

0.36

 

 

 

0.10

 

 

 

(19.76

)

Diluted

 

 

(26.77

)

 

 

0.87

 

 

 

0.25

 

 

 

(27.38

)

 

 

0.36

 

 

 

0.10

 

 

 

(19.76

)


Reconciliation for NON-IFRS Measures

EBITDA

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

 

 

Three-months period ended June 30,

 

 

Trailing twelve months ended June 30,

 

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

 

2020

 

 

2020

 

(In millions)

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

 

NIS

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit (loss)

 

 

(1,573

)

 

 

270

 

 

 

78

 

 

 

(2,794

)

 

 

788

 

 

 

227

 

Tax expenses (income)

 

 

1,342

 

 

 

83

 

 

 

24

 

 

 

1,376

 

 

 

254

 

 

 

73

 

Share of loss in equity - accounted investee

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

1

 

 

 

-

 

Financing expenses, net

 

 

136

 

 

 

159

 

 

 

47

 

 

 

452

 

 

 

507

 

 

 

146

 

Depreciation and amortization

 

 

478

 

 

 

465

 

 

 

134

 

 

 

2,071

 

 

 

1,885

 

 

 

544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

384

 

 

 

977

 

 

 

282

 

 

 

1,107

 

 

 

3,435

 

 

 

990

 

Other operating expenses (income), net

 

 

(414

)

 

 

(19

)

 

 

(6

)

 

 

88

 

 

 

196

 

 

 

57

 

Lease payments

 

 

(90

)

 

 

(86

)

 

 

(25

)

 

 

(407

)

 

 

(406

)

 

 

(117

)

Impairment losses

 

 

951

 

 

 

-

 

 

 

-

 

 

 

2,626

 

 

 

102

 

 

 

30

 

Adjusted EBITDA

 

 

831

 

 

 

872

 

 

 

251

 

 

 

3,414

 

 

 

3,327

 

 

 

960

 

Net Debt

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

 

 

As at June 30,

 

 

 

2019

 

 

2020

 

 

2020

 

(In millions)

 

NIS

 

 

NIS

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

Short term bank loans and debentures

 

 

1,625

 

 

 

955

 

 

 

276

 

Non-current bank loans and debentures

 

 

9,709

 

 

 

8,517

 

 

 

2,457

 

Cash and cash equivalents

 

 

(971

)

 

 

(708

)

 

 

(204

)

Investments

 

 

(1,944

)

 

 

(1,221

)

 

 

(352

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net debt

 

 

8,419

 

 

 

7,543

 

 

 

2,177

 

Net Debt to Trailing Twelve Months Adjusted EBITDA Ratio

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

 

 

As at June 30,

 

 

 

2019

 

 

2020

 

 

2020

 

(In millions)

 

NIS

 

 

NIS

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

Net debt

 

 

8,419

 

 

 

7,543

 

 

 

2,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trailing twelve months Adjusted EBITDA

 

 

3,414

 

 

 

3,327

 

 

 

960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net debt to Adjusted EBITDA ratio

 

 

2.5

 

 

 

2.3

 

 

 

2.3

 


Reconciliation for NON-IFRS Measures

Free Cash Flow

The following table shows the calculation of the Bezeq Group’s free cash flow:

 

 

Three-month period ended June 30,

 

 

 

2019

 

 

2020

 

 

2020

 

(In millions)

 

NIS

 

 

NIS

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operating activities

 

 

624

 

 

 

561

 

 

 

162

 

Purchase of property, plant and equipment

 

 

(281

)

 

 

(238

)

 

 

(69

)

Investment in intangible assets and deferred expenses

 

 

(95

)

 

 

(113

)

 

 

(33

)

Lease payments

 

 

(90

)

 

 

(86

)

 

 

(25

)

Permit fee

 

 

(149

)

 

 

-

 

 

 

-

 

Proceeds from the sale of property, plant and equipment

 

 

341

 

 

 

20

 

 

 

6

 

Free cash flow

 

 

350

 

 

 

144

 

 

 

41

 

B Communications’ Unconsolidated Statement of Financial position as at

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

(In millions)

 

NIS

 

 

NIS

 

 

US$

 

 

NIS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

469

 

 

 

41

 

 

 

12

 

 

 

413

 

Restricted cash

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39

 

Short-term investments

 

 

237

 

 

 

213

 

 

 

61

 

 

 

46

 

Other receivables

 

 

1

 

 

 

2

 

 

 

1

 

 

 

-

 

Total current assets

 

 

707

 

 

 

256

 

 

 

74

 

 

 

498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long term investments

 

 

-

 

 

 

200

 

 

 

58

 

 

 

-

 

Investment in an investee (*)

 

 

1,188

 

 

 

1,346

 

 

 

388

 

 

 

1,190

 

Total non-current assets

 

 

1,188

 

 

 

1,546

 

 

 

446

 

 

 

1,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

1,895

 

 

 

1,802

 

 

 

520

 

 

 

1,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of debentures

 

 

2,457

 

 

 

-

 

 

 

-

 

 

 

-

 

Other payables

 

 

69

 

 

 

14

 

 

 

4

 

 

 

14

 

Total current liabilities

 

 

2,526

 

 

 

14

 

 

 

4

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

 

-

 

 

 

1,876

 

 

 

541

 

 

 

1,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

2,526

 

 

 

1,890

 

 

 

545

 

 

 

1,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity deficit

 

 

(631

)

 

 

(88

)

 

 

(25

)

 

 

(187

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity deficit

 

 

1,895

 

 

 

1,802

 

 

 

520

 

 

 

1,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(*)    Investment in Bezeq.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Disclosure with Respect to the Company’s Requirements Under its Series C, D and E Debentures

As of the reporting date, the Company holds approximately 26.34% of Bezeq’s outstanding shares, directly and through its subsidiary.

Designated disclosure with respect to the Company’s projected cash flows

In accordance with the “hybrid model disclosure requirements” promulgated by the Israeli Securities Authority that are applicable to the Company, the following is a report concerning the Company’s projected cash flows and a disclosure of the examination by the Company’s board of directors of the Company’s liquidity in accordance with regulations 10(b)(1)(d) and 10(b)(14) of the Israeli Securities Regulations (Immediate and Periodic Notices) 5730-1970.

This model provides that in the event certain financial “warning signs” exist, and for as long as they exist, the Company will be subject to certain disclosure obligations towards the holders of its debentures.

In examining the existence of warning signs as of June 30, 2020, the Company’s board of directors noted that the Company’s unconsolidated unaudited cash flow statement for the second quarter of 2020 reflects that the Company, as expected, had a continuing negative cash flow from operating activities of NIS 4 million. In addition, the Company’s unaudited statements of financial position as of June 30, 2020, reflect that the Company had an equity deficit of NIS 88 million.

The Company’s board of directors reviewed the Company’s outstanding debt obligations, its existing and anticipated cash resources and needs that were included in the framework of the projected cash flow report for the periods from July 1, 2020 until December 31, 2020, from January 1, 2021 until December 31, 2021, and from January 1, 2022 until June 30, 2022 described below. The board of directors also examined the assumptions and projections that were included in the report and determined that such assumptions and projections are reasonable and appropriate.

Based on the foregoing, the Company’s board of directors determined that the Company does not have a liquidity problem and that for the duration of the period covered by the projected cash flows statement, there is no reasonable doubt that the Company will not meet its existing and anticipated liabilities when due.

The following is the projected cash flow for the Company and the assumptions upon which it is based:

NIS millions

 

For the
period from
July 1,
2020
until
December 31,
2020

 

 

For the
period from
January 1,
2021
until
December 31,
2021

 

 

For the
period from
January 1,
2022
until
June 30,
2022

 

 

 

 

 

 

 

 

 

 

 

Opening balance:

 

 

 

 

 

 

 

 

 

Bank deposits and marketable securities

 

 

413

 

 

 

373

 

 

 

293

 

Cash and cash equivalents

 

 

41

 

 

 

38

 

 

 

34

 

Total liquidity

 

 

454

 

 

 

411

 

 

 

327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Projected sources:

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from maturity of bank deposits

 

 

40

 

 

 

80

 

 

 

40

 

Profits from investments in marketable securities and interest on bank deposits

 

 

2

 

 

 

3

 

 

 

2

 

Cash flows from investing activities

 

 

42

 

 

 

83

 

 

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Projected uses:

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

(6

)

 

 

(10

)

 

 

(4

)

Cash used in operating activities

 

 

(6

)

 

 

(10

)

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows used in financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest payments on debentures

 

 

(39

)

 

 

(78

)

 

 

(39

)

Cash used in financing activities

 

 

(39

)

 

 

(78

)

 

 

(39

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

38

 

 

 

34

 

 

 

33

 

Bank deposits and marketable securities

 

 

373

 

 

 

293

 

 

 

253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liquidity

 

 

411

 

 

 

327

 

 

 

286

 

  • The Company expects a 1% return on its investments in long-term deposits and marketable securities.

  • Annual interest payments on the Company’s traded debentures in an amount of NIS 78 million according to the debentures amortization table.

  • The Company has sufficient sources for the repayment of its liabilities, through cash balances, investments in bank deposits and marketable securities that can be redeemed in short term.

  • During July 2020, the Company received NIS 2.5 million from its D&O insurance as a result of the settlement agreement for the Horev derivative action (as detailed above), which was paid by its former directors. The Company paid the derivative plaintiff and its counsel NIS 720 thousand.

  • As a result of the settlement agreement for the Horev Derivative Action (mentioned above) the Company is expected to receive NIS 22 million of its Series C Debentures and will pay the derivative plaintiff and its lawyers fees and reward of NIS 4.23 million in cash during the third quarter of 2020.

The board of directors has reviewed and approved the sources included in the disclosure of the projected cash flow after it found them to be reasonable with respect to the financial scope of each source and the timing for which such cash flows are expected to be received.

The foregoing factors, as part of the disclosure of the forecasted cash flow, constitute forward-looking information. The Company’s sustainability and expectations, and the assumptions underlying the cash flow forecast are based on the data available to the Company as of the date of this report, and assuming its continued operations in the ordinary course of business. These assumptions and estimates also depend on external factors over which the Company has little or no influence. The actual results for the Company may differ materially from the above projections as a result of the uncertainty that currently prevails with respect to the global economy and the communications markets.