B Communications Reports Third Quarter 2011 Financial Results

November 10, 2011

 

 

B Communications Reports Third Quarter 2011 Financial Results

 

–          Business Plan Continues to Progress Ahead of Schedule –

–          Another Stable Quarter For Bezeq –

 

 

Ramat Gan, Israel – November 10, 2011 – B Communications Ltd. (NASDAQ Global Market and TASE: BCOM) today reported its financial results for the third quarter ended September 30, 2011.

Bezeq: Another Strong Quarter

The Bezeq Group reported another strong, stable quarter, delivering revenues of NIS 2.9 billion (US$ 781 million) and operating profit of NIS 944 million (US$ 254 million) for the period. Bezeq’s EBITDA for the third quarter of 2011 totaled NIS 1.3 billion (US$ 350 million), representing an EBITDA margin of 44.6%.

Continued Ahead-Of-Schedule Progress for the Company’s Financing Plan

On October 5, 2011, B Communications received a dividend from Bezeq totaling NIS 464 million (US$ 125 million). The dividend consisted of:

  • A current dividend of NIS 308 million (US$ 83 million), representing the Company’s share of Bezeq’s net profit for the first half of 2011; and

 

  • A special dividend of NIS 156 million (US$ 42 million), the second of six equal special dividends. As declared by Bezeq’s Board of Directors and approved by the Israeli Court, special dividends totaling approximately NIS 3 billion are to be paid with no interest or index adjustments on a semi-annual basis through 2013.  

 

The Company used this dividend for two purposes: (1) payment of NIS 238 million (US$ 64 million) of its current loan repayment commitment; and (2) pre-payment of an additional NIS 226 million (US$ 61 million) to banks, thereby reducing the size of the final “bullet” repayment that is due at November 2016, and saving related future interest expenses.

 

B Communications’ Cash Position

As of September 30, 2011, the Company’s cash and cash equivalents totaled NIS 385 million (US$ 104 million), its unconsolidated gross debt was NIS 4.81 billion (US$ 1.3 billion) and its net debt totaled NIS 3.96 billion (US$ 1.1 billion).  

 

B Communications’ Unconsolidated Balance Sheet Data*

 

    As of September 30, 2011
    (NIS millions) (US$ millions)
Short term liabilities   802 216
Long term liabilities   4,005 1,079
Total liabilities   4,807 1,295
Cash and cash equivalents   385 104
Dividend receivable   464 125
Total net debt   3,958 1,066
       

* Does not include the balance sheet of Bezeq

B Communications’ Third Quarter Consolidated Financial Results

B Communications’ revenues for the third quarter were NIS 2,917 million (US$ 786 million), a decrease of 3.8% compared with NIS 3,033 million (US$ 817 million) reported in the third quarter of 2010. For both the current and the prior-year periods, B Communications’ revenues consisted entirely of its share of Bezeq’s revenues.

B Communications’ net loss attributable to the shareholders of the company, for the third quarter totaled NIS 31 million (US$ 9 million) compared with net income of NIS 42 million (US$ 11 million) in the third 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 rules 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 as determined by an analysis performed by an independent valuation firm. During the third quarter of 2011, B Communications recorded NIS 348 million (US$ 94 million) in amortization expenses 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 benefit expected from such assets using an accelerated method of amortization.  

 

Bezeq PPA amortization expense is a non-cash expense which is subject to adjustment. If, for any reason, the Company finds it necessary or appropriate to make adjustments to amounts already expensed, it may result in significant changes to future financial statements.

  • Financial expenses: B Communications’ financial expenses for the third quarter totaled NIS 93 million (US$ 25 million). These expenses consisted primarily of interest on the long-term loans incurred to finance the Bezeq acquisition, which totaled NIS 72 million (US$ 20 million), and expenses related to the Company’s debentures, which totaled NIS 12 million (US$ 3 million).

 

B Communications’ Unconsolidated Financial Results  

 

    Q3 2011
    (NIS millions) (US$ millions)
Revenues  
Financial expenses   (93) (25)
Tax and other expenses   (2) (1)
PPA amortization, net   (107) (29)
Interest in Bezeq’s net income   171 46
Net loss   (31) (9)
       

 

Comments of Management

Commenting on the results, Mr. Doron Turgeman, the recently-appointed CEO of B Communications, said, “During the third quarter, we continued to focus on the smooth execution of our accelerated loan repayment plan. To date, we have repaid approximately NIS 2 billion (US$ 539 million) of our total bank debt, including NIS 1,683 million (US$ 453 million) of principal and NIS 313 million (US$ 84 million) of interest and CPI-linkage expenses. In parallel, we continue to be very pleased with developments at Bezeq, and therefore feel favorably positioned to carry out our plans.”

Bezeq Group’s Q3 Financial Results

 

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

Revenues of the Bezeq Group in the third quarter of 2011 amounted to NIS 2.9 billion, a decrease of 3.8% compared with the third quarter of 2010. Revenues from Bezeq Fixed-line operations and from Pelephone were adversely affected by the reduction of mobile termination rates to the cellular networks commencing January 1, 2011. The decrease in revenues was partially offset by growth in Pelephone’s equipment sales revenues.

Operating profit of the Bezeq Group amounted to NIS 944 million in the third quarter of 2011, a decrease of 3.6% compared with the third quarter of 2010. EBITDA for the third quarter was NIS 1.30 billion (EBITDA margin of 44.6%), a decrease of 2.1% compared with the third quarter of 2010 (EBITDA margin of 43.8%). The decrease in these profitability indices is primarily due to the intensifying competition in the cellular market.

Net profit attributed to the shareholders of Bezeq in the third quarter of 2011 amounted to NIS 550 million, a decrease of 6.5% compared with the third quarter of 2010. The decrease is primarily attributable to a rise in finance expenses due to the increase in debt.

Since the beginning of the year, cash flows from operating activities decreased by 21.1% compared with the corresponding period and amounted to NIS 2.3 billion, mainly due to the sharp rise in sales of smartphones resulting in a significant increase in payment to suppliers while customer payments for these phones are made in 36 installments.

Gross investments (CAPEX) in the third quarter of 2011 amounted to NIS 437 million, an increase of 14.7% compared with the third quarter of 2010. The increase is primarily attributable to the investment by Bezeq International in a submarine cable. The CAPEX to sales ratio was 15% in the third quarter of 2011, compared with 12.6% in the corresponding quarter of 2010.

On September 30, 2011, the gross financial debt of the Bezeq Group was NIS 9.6 billion, compared with NIS 5.7 billion on September 30, 2010. The increase is due to the incurrence of NIS 4.7 billion of debt, of which NIS 2.7 billion was recorded in the third quarter of 2011. Conversely, NIS 0.8 million debt was repaid.

On September 30, 2011, the net financial debt of the Bezeq Group was NIS 6.0 billion, compared with NIS 4.3 billion on September 30, 2010. At the end of September 2011, the ratio of net debt to EBITDA of the Group was 1.24, compared with 0.91 at the end of September 2010.

 

 

 

 

 

 

 

Notes:

  1. A.     Convenience Translation to Dollars: For the convenience of the reader, the reported NIS figures of September 30, 2011 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of September 30, 2011 (NIS 3.712 = 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 the Bezeq Group’s management regularly use supplemental non-IFRS financial measures internally to understand, manage and evaluate its business and make operating decisions. We believe these non-IFRS financial measures provide consistent and comparable measures to help investors understand the Bezeq Group’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. The Bezeq Group defines EBITDA as net income before financial income (expenses), net, impairment and other charges, expenses recorded for stock compensation in accordance with IFRS 2, income tax expenses and depreciation and amortization. We present the Bezeq Group’s EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure, tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense).
 
EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this press release, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.
 

Reconciliation between the Bezeq Group’s results on an IFRS and non-IFRS basis is provided in a table immediately following the Bezeq Group’s consolidated results. Non-IFRS financial measures consist of IFRS financial measures adjusted to exclude amortization of acquired intangible assets, as well as certain business combination accounting entries. The purpose of such adjustments is to give an indication of the Bezeq Group’s performance exclusive of non-cash charges and other items that are considered by management to be outside of its core operating results. The Bezeq Group’s 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 B Communications Ltd.

B Communications is a telecommunications-oriented holding company and its primary holding is its controlling interest in in Bezeq, The Israel Telecommunication Corp., Israel’s largest telecommunications provider (TASE: BZEQ). B Communications shares are traded on NASDAQ and the TASE under the symbol BCOM For more information, please visit the following Internet sites:

www.eurocom.co.il

www.igld.com

bcommunications.co.il

www.ir.bezeq.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:

Mor Dagan – Investor Relations

mor@km-ir.co.il / Tel: +972-3-516-7620

 

 

 

 

B Communications Ltd.

Consolidated Statement of Financial Position

    Convenience    
    translation into    
    U.S. dollars    
  September 30 September 30 September 30 December 31
  2011 2011 2010 2010
  (Unaudited) (Unaudited) (Unaudited) (Audited)
  NIS millions US$ millions NIS millions NIS millions

 

Assets        
Cash and cash equivalents  1,595   430   1,782   383 
Investments including derivatives  2,411   649   373   789 
Trade receivables  3,007   810   2,737   2,701 
Other receivables  234   63   197   228 
Inventory  199   54   178   177 
Current tax assets  2   1   –   3 
Assets classified as held-for-sale  102   27   30   194 
         
Total current assets  7,550   2,034   5,297   4,475 
         
Investments including derivatives 115   31   134   129 
Long-term trade and other receivables  1,594   429   1,073   1,114 
Property, plant and equipment  7,392   1,991   5,533   7,392 
Intangible assets  8,342   2,247   14,889   9,163 
Deferred and other expenses  385   104   670   423 
Investments in equity-accounted investee        
 (mainly loans)  1,031   278   1,111   1,084 
Deferred tax assets  218   59   333   254 
         
Total non-current assets  19,077   5,139   23,743   19,559
         
         
Total assets  26,627   7,173   29,040   24,034 

 

B Communications Ltd.

Consolidated Statement of Financial Position (cont’d)

    Convenience    
    translation into    
    U.S. dollars    
  September 30 September 30 September 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  1,442   388   1,466  1,380 
Trade payables 918   248   1,089   1,061 
Other payables  including derivatives  997   269   951   816 
Dividend payable 1,542   415   891   – 
Current tax liabilities 521   140   436   346 
Deferred income  52   14   32   34 
Provisions  220   59   295   251 
Employee benefits  467  126   351  269 
Total current liabilities  6,159   1,659   5,511   4,157 
         
Debentures 5,397   1,454   2,643   2,776 
Bank loans  6,876   1,852   6,284   6,138 
Loans from institutions and others 548   148   540   541 
Dividend payable  771   208   –   – 
Employee benefits  271   73   298   305 
Other liabilities  157   42   44   150 
Provisions  70   19   68   69 
Deferred tax liabilities  1,249   336   2,444   1,555 
Total non-current liabilities  15,339   4,132   12,321   11,534 
         
Total liabilities  21,498   5,791   17,832   15,691 
         
Equity        
         
Total equity attributable to Company’s        
 shareholders  914   246   1,397   1,212 
Non-controlling interest  4,215   1,136   9,811   7,131 
Total equity  5,129   1,382   11,208   8,343 
         
Total liabilities and equity  26,627   7,173   29,040   24,034 

 

B Communications Ltd.

Consolidated Statements of Operations

(In millions, except share data)

  Nine months period ended Three months period ended Year ended
  September 30, September 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  8,723   2,350   5,599   2,917   786   3,033   8,657 
               
Cost and expenses              
Depreciation and amortization  2,113   569   1,061   715   192   577   2,294 
Salaries  1,622   437   925   549   148   492   1,488 
General and operating expenses  3,447   928   2,327   1,183   319   1,272   3,640 
Other operating expenses              
 (income), net  283   76  (111)  1   –  (59)   5 
               
  7,465  2,010   4,202  2,448  659   2,282   7,427 
               
Operating income  1,258   340   1,397   469   127   751   1,230 
               
Finance expenses, net  401   108   282   162   44   158   287 
               
Income after financing              
 expenses, net  857   232   1,115   307   83   593   943 
               
Share in losses of              
equity-accounted investee  203   55  (154)   66   18  (71)   235 
               
Income before income tax  654   177   961   241   65   522   708 
Income tax  340   92   357   136   37   189   385 
               
Net income  314   85   604   105   28   333   323 
               
Attributable to:              
  Owners of the Company (98) (26)     26  (31) (9) 42  (140)
  Non-controlling interest  412   111   578   136   37   291   463 
Net income  314   85   604   105   28   333   323 
               
Income (loss) per share, basic              
Net income (loss) per share (3.39) (0.91) 0.94  (1.10) (0.30) 1.39  (4.83)
               
Income (loss) per share, diluted              
Net income (loss) per share (3.44) (0.93) 0.94  (1.11) (0.30) 1.39  (4.93)