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

 

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

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

RAMAT GAN, Israel, August 31, 2017 /PRNewswire/ -- Internet Gold - Golden Lines Ltd. ("the Company") (NASDAQ Global Select Market and TASE: IGLD) today reported its financial results for the second quarter of 2017. Internet Gold holds the controlling interest in B Communications Ltd. (TASE and NASDAQ: BCOM), which in turn holds the controlling interest in Bezeq, The Israel Telecommunication Corporation Ltd. (TASE: BEZQ).

"We are very pleased with the results of both B Communications and Bezeq, which continues to generate a steady return. With full confidence in Bezeq dividend generating power, we will continue our efforts to improve both our debt and equity positions," said Doron Turgeman, CEO of Internet Gold.

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

Debt and Liquidity Balances

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

(In millions)

June 30,

June 30,

June 30,

December 31,


2017

2017

2016

2016


NIS

US$

NIS

NIS






Series C debentures

261

75

386

389

Series D debentures

550

157

554

551

CPI forward

-

-

6

6

Total debt

811

232

946

946






Cash and cash equivalents

10

3

238

48

Short-term investments

206

59

163

334

Total liquidity

216

62

401

382






Net debt

595

170

545

564






 

Internet Gold's Second Quarter Consolidated Financial Results

Internet Gold's consolidated revenues for the second quarter of 2017 totaled NIS 2.46 billion ($705 million), a 1.9% decrease compared to the NIS 2.51 billion reported in the second quarter of 2016. For both the current and the prior-year periods, Internet Gold's consolidated revenues consisted entirely of Bezeq's revenues.

Internet Gold's consolidated operating profit for the second quarter of 2017 totaled NIS 466 million ($134 million), a 9.7% decrease compared with NIS 516 million reported in the second quarter of 2016.

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

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

Internet Gold's Second Quarter Unconsolidated Financial Results

(In millions)

Three months ended June 30,

Year ended
December 31,


2017

2017

2016

2016


NIS

US$

NIS

NIS






Financial expenses, net

(14)

(4)

(11)

(44)

Operating expenses

(1)

-

(1)

(5)

Interest in BCOM's net profit (loss)

29

8

26

(153)

Net profit (loss)

14

4

14

(202)

 

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

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

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

The Bezeq Group Results (Consolidated)

To provide further insight into its results, the Company is providing the following summary of the consolidated financial report of the Bezeq Group for the second quarter ended June 30, 2017. For a full discussion of Bezeq's results for the second quarter ended June 30, 2017, please refer to its website: http://ir.bezeq.co.il.

Bezeq Group (consolidated) 

Q2 2017

Q2 2016

  % change


(NIS millions)






Revenues

2,463

2,511

(1.9%)

Operating profit

573

616

(7.0%)

Operating margin

23.3%

24.5%


Net profit 

358

377

(5.0%)

EBITDA

997

1,056

(5.6%)

EBITDA margin

40.5%

42.1%


Diluted EPS (NIS)

0.13

0.14

(7.1%)

Cash flow from operating activities

875

870

0.6%

Payments for investments

406

387

4.9%

Free cash flow 1

487

539

(9.6%)

Total debt

11,519

11,504

0.1%

Net debt

9,646

9,254

4.2%

EBITDA (trailing twelve months)

3,972

4,135

(3.9%)

Net debt/EBITDA (end of period) 2

2.43

2.24






1Free cash flow is defined as cash flow from operating activities less net payments for investments.  

2EBITDA in this calculation refers to the trailing twelve months.

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net debt to EBITDA (trailing twelve months) ratio of the Bezeq Group as of June 30, 2017, was 2.43, compared to 2.24 as of June 30, 2016.

Notes:

Convenience translation to U.S Dollars

Unless noted specifically otherwise, the dollar denominated figures were converted to US$ using a convenience translation based on the New Israeli Shekel (NIS)/US$ exchange rate of NIS 3.496 = US$ 1 as published by the Bank of Israel for June 30, 2017.

Use of non-IFRS financial measures

We and the Bezeq Group's management regularly use supplemental non-IFRS financial measures internally to understand, manage and evaluate its business and make operating decisions. The following non-IFRS measures are provided in the press release and accompanying supplemental information because management believes these measurements provide consistent and comparable measures to help investors understand the Bezeq Group's current and future operating cash flow performance and are useful for investors and financial institutions to analyze and compare companies on the basis of operating performance:

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

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

We present the Bezeq Group's EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure, tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense).

EBITDA should not be considered in isolation or as a substitute for net profit or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this press release, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

Management of Bezeq believes that free cash flow is an important measure of its liquidity as well as its ability to service long-term debt, fund future growth and to provide a return to shareholders. We also believe this free cash flow definition does not have any material limitations. Free cash flow is a financial index which is not based on IFRS. Free cash flow is defined as cash from operating activities less cash for the purchase/sale of property, plant and equipment, and intangible assets, net.

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

Reconciliations between the Bezeq Group's results on an IFRS and non-IFRS basis with respect to these non-IFRS measurements are provided in tables immediately following the Company's consolidated results. The  non-IFRS financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with its consolidated financial statements prepared in accordance with IFRS.

About Internet Gold
Internet Gold is a telecommunications-oriented holding company which is a controlled subsidiary of Eurocom Communications Ltd. Internet Gold's primary holding is its controlling interest in B Communications Ltd. (TASE and Nasdaq: BCOM), which in turn holds the controlling interest in Bezeq, The Israel Telecommunication Corp., Israel's largest telecommunications provider (TASE: BEZQ). Internet Gold's shares are traded on NASDAQ and the TASE under the symbol IGLD. For more information, please visit the following Internet sites:

www.igld.com 
www.bcommunications.co.il 
ir.bezeq.co.il 
www.eurocom.co.il

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties.  Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, general business conditions in the industry, changes in the regulatory and legal compliance environments, the failure to manage growth and other risks detailed from time to time in B Communications' filings with the Securities Exchange Commission.  These documents contain and identify other important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.  Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statement.

For further information, please contact:

Idit Cohen - IR Manager 
idit@igld.com / Tel: +972-3-924-0000

Investor relations contacts:

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

 

Internet Gold - Golden Lines Ltd.


Condensed Consolidated Statements of Financial Position as at







(In millions)




June 30,

June 30,

June 30,

December 31,



2017

2017

2016

2016



NIS

US$

NIS

NIS

Current assets






Cash and cash equivalents


1,958

560

1,595

810

Restricted cash


-

-

658

-

Investments


503

144

1,747

1,240

Trade receivables, net


1,991

570

2,029

2,000

Other receivables


349

100

210

217

Related party


56

16

29

-

Inventory


105

30

109

106

Total current assets


4,962

1,420

6,377

4,373







Non-current assets






Trade and other receivables


507

146

647

644

Property, plant and equipment


7,049

2,016

7,120

7,072

Intangible assets


6,314

1,806

6,859

6,534

Deferred expenses and investments


448

128

636

447

Broadcasting rights


456

130

455

432

Investment in equity-accounted investee


12

3

21

18

Deferred tax assets


1,015

290

1,099

1,007

Total non-current assets


15,801

4,519

16,837

16,154







Total assets


20,763

5,939

23,214

20,527







 

Internet Gold - Golden Lines Ltd.







Condensed Consolidated Statements of Financial Position as at







(In millions)









June 30,

June 30,

June 30,

December 31,



2017

2017

2016

2016



NIS

US$

NIS

NIS

Current liabilities






Bank loans and credit and debentures


1,314

375

2,314

2,181

Trade and other payables


1,634

467

1,627

1,661

Related party


-

-

208

32

Current tax liabilities


119

34

698

138

Provisions


79

23

90

80

Employee benefits


318

91

370

315

Total current liabilities


3,464

990

5,307

4,407







Non-current liabilities






Bank loans and debentures


13,437

3,843

13,511

12,241

Employee benefits


259

74

239

258

Other liabilities


251

72

252

244

Provisions


48

14

46

47

Deferred tax liabilities


541

155

667

593

Total non-current liabilities


14,536

4,158

14,715

13,383







Total liabilities


18,000

5,148

20,022

17,790







Equity






Attributable to shareholders of the Company


216

62

379

194

Non-controlling interests


2,547

729

2,813

2,543

Total equity


2,763

791

3,192

2,737







Total liabilities and equity


20,763

5,939

23,214

20,527

 

Internet Gold - Golden Lines Ltd.





Condensed Consolidated Statements of Income for the





(In millions, except per share data)








Year ended


Six months period ended June 30,

Three months period ended June 30,

December 31,


2017

2017

2016

2017

2017

2016

2016


NIS

US$

NIS

NIS

US$

NIS

NIS









Revenues

4,916

1,406

5,070

2,463

705

2,511

10,084









Costs and expenses








Depreciation and amortization

1,053

302

1,083

525

150

538

2,161

Salaries

998

285

1,008

494

141

494

2,017

General and operating expenses

1,938

554

1,998

976

279

975

4,024

Other operating expenses








  (income), net

1

-

(7)

2

1

(12)

21










3,990

1,141

4,082

1,997

571

1,995

8,223









Operating profit

926

265

988

466

134

516

1,861









Financing expenses, net

288

82

361

143

41

154

975









Profit after financing








 expenses, net

638

183

627

323

93

362

886









Share of loss in








 equity-accounted investee

4

1

2

2

1

1

5









Profit before income tax

634

182

625

321

92

361

881









Income tax expenses

174

50

230

85

24

109

442









Net profit for the period

460

132

395

236

68

252

439









Profit (loss) attributable to:








Shareholders of the Company

24

7

(18)

14

4

14

(202)

Non-controlling interests

436

125

413

222

64

238

641









Net Profit for the period

460

132

395

236

68

252

439









Earnings (loss) per share








Basic

1.26

0.36

(0.93)

0.71

0.20

0.72

(10.52)

Diluted

1.26

0.36

(0.93)

0.71

0.20

0.72

(10.52)









 

Reconciliation for NON-IFRS Measures


EBITDA


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


(In millions)

Three month period ended June 30,

Trailing twelve months ended June 30,


2017

2017

2016

2017

2017

2016


NIS

US$

NIS

NIS

US$

NIS








Net profit

358

102

377

1,287

368

1,441

Income tax expenses

111

32

133

533

152

579

Share of loss  in equity-    accounted investee

2

1

1

7

2

6

Financing expenses, net

102

29

105

443

127

304

Depreciation and amortization

424

121

440

1,702

487

1,805








EBITDA

997

285

1,056

3,972

1,136

4,135

 

Net Debt



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



(In millions)

As at June 30,


2017

2017

2016


NIS

US$

NIS





Short term bank loans and credit and debentures

958

274

1,958

Non-current bank loans and debentures

10,561

3,020

9,546

Cash and cash equivalents

(1,854)

(530)

(1,338)

Investments

(19)

(5)

(912)





Net debt

9,646

2,759

9,254





 

Net Debt to Trailing Twelve Months EBITDA Ratio



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



(In millions)

As at June 30,


2017

2017

2016


NIS

US$

NIS





Net debt

9,646

2,759

9,254





Trailing twelve months EBITDA

3,972

1,136

4,135





Net debt to EBITDA ratio

2.43

2.43

2.24

 

Reconciliation for NON-IFRS Measures



Free Cash Flow



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



(In millions)

Three month period ended June 30,


2017

2017

2016


NIS

US$

NIS





Cash flow from operating activities

875

250

870

Purchase of property, plant and equipment

(303)

(87)

(317)

Investment in intangible assets and deferred expenses

(103)

(29)

(70)

Proceeds from the sale of property, plant and equipment

18

5

56





Free cash flow

487

139

539

 

Loan to Value (LTV)



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



(In millions)

As at June 30,


2017


NIS   



IGLD's unconsolidated net debt

595



Market value of B Communications share held by IGLD

1,171



IGLD's LTV

50.8%

 

Net Asset Value (NAV)



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



(In millions)

As at June 30,


2017


NIS



Market value of B Communications share held by IGLD

1,171



IGLD's unconsolidated net debt

595



IGLD's NAV

576

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

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

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

In examining the existence of warning signs as of June 30, 2017, our board of directors noted that our consolidated financial statements (unaudited) as well as our separate internal (unpublished) unaudited financial information as of and for the three months period ended June 30, 2017 reflect that we had a continuing negative cash flow from operating activities of NIS 1 million in the second quarter of 2017.

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

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

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

Internet Gold's Unconsolidated Balance Sheet

(In millions)

June 30,

June 30,

June 30,

December 31,


2017

2017

2016

2016


NIS

US$

NIS

NIS

Current assets





Cash and cash equivalents

10

3

238

48

Short-term investments

206

59

163

334

Other receivables

-

-

1

-

Total current assets

216

62

402

382






Non-current assets





Investment in an investee (*)

811

232

924

758






Total assets

1,027

294

1,326

1,140






Current liabilities





Current maturities of debentures

130

37

130

130

Other payables

13

4

22

21

Total current liabilities

143

41

152

151






Non-current liabilities





Debentures

668

191

795

795






Total liabilities

811

232

947

946






Total equity

216

62

379

194






Total liabilities and equity

1,027

294

1,326

1,140

(*) Investment in B Communications.

Unconsolidated figures as of June 30, 2017:

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

 

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SOURCE Internet Gold - Golden Lines Ltd.



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