v3.8.0.1
Document and Entity Information
12 Months Ended
Dec. 31, 2017
shares
Document and Entity Information [Abstract]  
Entity Registrant Name B COMMUNICATIONS LTD
Entity Central Index Key 0001402606
Trading Symbol BCOM
Amendment Flag false
Current Fiscal Year End Date --12-31
Document Fiscal Period Focus FY
Document Type 20-F
Document Period End Date Dec. 31, 2017
Document Fiscal Year Focus 2017
Entity Well-known Seasoned Issuer No
Entity Voluntary Filers No
Entity Current Reporting Status Yes
Entity Filer Category Accelerated Filer
Entity Common Stock, Shares Outstanding 29,889,045

v3.8.0.1
Consolidated Statements of Financial Position
₪ in Millions, $ in Millions
Dec. 31, 2017
ILS (₪)
Dec. 31, 2017
USD ($)
Dec. 31, 2016
ILS (₪)
Current assets      
Cash and cash equivalents ₪ 2,386 [1] $ 688 ₪ 762
Investments 596 [1] 172 907
Trade receivables, net 1,915 [1] 552 2,000
Other receivables 270 [1] 78 216
Related party 43 [1] 12
Inventory 125 [1] 36 106
Total current assets 5,335 [1] 1,538 3,991
Non-current assets      
Long-term trade and other receivables 493 [1] 142 644
Property, plant and equipment 6,940 2,003 7,072
Intangible assets 5,840 1,684 6,534
Deferred expenses and non-current investments 558 [1] 161 465
Broadcast rights 454 [1] 131 432
Deferred tax assets 1,019 [1] 294 1,007
Total non-current assets 15,304 [1] 4,415 16,154
Total assets 20,639 [1] 5,953 20,145
Current liabilities      
Bank loans and credit and debentures 1,858 [1] 536 2,051
Trade and other payables 1,719 [1] 496 1,640
Related party [1] 32
Current tax liabilities 160 [1] 46 138
Provisions 94 [1] 27 80
Employee benefits 280 [1] 81 315
Total current liabilities 4,111 [1] 1,186 4,256
Non-current liabilities      
Bank loans and debentures 12,437 [1] 3,588 11,446
Employee benefits 272 [1] 78 258
Other liabilities 234 [1] 67 244
Provisions 40 [1] 12 47
Deferred tax liabilities 459 [1] 132 593
Total non-current liabilities 13,442 [1] 3,877 12,588
Total liabilities 17,553 [1] 5,063 16,844
Equity      
Attributable to shareholders of the company 1,246 [1] 359 1,170
Non-controlling interests 1,840 [1] 531 2,131
Total equity 3,086 890 3,301
Total liabilities and equity ₪ 20,639 [1] $ 5,953 ₪ 20,145
[1] For information regarding early adoption of IFRS 15, Revenue from Contracts with Customers, see Note 3a.

v3.8.0.1
Consolidated Statements of Income
₪ in Millions, $ in Millions
12 Months Ended
Dec. 31, 2017
ILS (₪)
₪ / shares
[1]
Dec. 31, 2017
USD ($)
$ / shares
Dec. 31, 2016
ILS (₪)
₪ / shares
Dec. 31, 2015
ILS (₪)
₪ / shares
Income Statement [Abstract]        
Revenues ₪ 9,789 $ 2,823 ₪ 10,084 ₪ 9,985
Costs and expenses        
Depreciation and amortization 2,117 611 2,161 2,131
Salaries 2,007 579 2,015 1,958
General and operating expenses 3,906 1,127 4,021 3,876
Other operating expenses (income), net 149 43 21 3
Costs and expenses 8,179 2,360 8,218 7,968
Operating profit 1,610 463 1,866 2,017
Financing expenses (income)        
Finance expenses 586 169 1,054 689
Finance income (69) (20) (123) (154)
Financing expenses, net 517 149 931 535
Profit after financing expenses, net 1,093 314 935 1,482
Share of loss (income) in equity-accounted investee 5 1 5 (12)
Profit before income tax 1,088 313 930 1,494
Income tax expenses 347 100 442 358
Net profit for the year 741 213 488 1,136
Profit (loss) attributable to:        
Shareholders of the company 78 22 (236) 210
Non-controlling interests 663 191 724 926
Net profit for the year ₪ 741 $ 213 ₪ 488 ₪ 1,136
Earnings (loss) per share        
Basic | (per share) ₪ 2.62 $ 0.76 ₪ (7.92) ₪ 7.04
Diluted | (per share) ₪ 2.62 $ 0.76 ₪ (7.92) ₪ 6.97
[1] For information regarding early adoption of IFRS 15, Revenue from Contracts with Customers, see Note 3a.

v3.8.0.1
Consolidated Statements of Comprehensive Income
₪ in Millions, $ in Millions
12 Months Ended
Dec. 31, 2017
ILS (₪)
[1]
Dec. 31, 2017
USD ($)
Dec. 31, 2016
ILS (₪)
Dec. 31, 2015
ILS (₪)
Statement of Comprehensive Income [Abstract]        
Net profit for the year ₪ 741 $ 213 ₪ 488 ₪ 1,136
Items of comprehensive profit (loss), net of tax (8) (2) (15) 7
Total comprehensive profit for the year 733 211 473 1,143
Attributable to:        
Shareholders of the Company 76 21 (240) 212
Non-controlling interests 657 190 713 931
Total comprehensive profit for the year ₪ 733 $ 211 ₪ 473 ₪ 1,143
[1] For information regarding early adoption of IFRS 15, Revenue from Contracts with Customers, see Note 3a.

v3.8.0.1
Consolidated Statements of Changes in Equity
₪ in Millions, $ in Millions
ILS (₪)
USD ($)
Share capital
ILS (₪)
shares
Share premium
ILS (₪)
Treasury Shares
ILS (₪)
Other reserves
ILS (₪)
Retained earnings
ILS (₪)
Total
ILS (₪)
Non-Controlling interests
ILS (₪)
Beginning balance at Dec. 31, 2014 ₪ 3,588   ₪ 3 ₪ 1,057 [1] ₪ (48) ₪ (51) ₪ 961 ₪ 2,627
Beginning balance, shares at Dec. 31, 2014 | shares [2]     29,889,045            
Exercise of options in a subsidiary 19   (1) (1) 20
Dividends to non-controlling interests (1,232)   (1,232)
Dividends to shareholders (127)   (127) (127)
Other comprehensive profit (loss), net of tax 7   2 2 5
Net profit for the year 1,136   210 210 926
Comprehensive profit for the year 1,143   2 210 212 931
Ending balance at Dec. 31, 2015 3,391 $ 882 ₪ 3 1,057 [1] (47) 32 1,045 2,346
Ending balance, shares at Dec. 31, 2015 | shares [2]     29,889,045            
Exercise of options in a subsidiary 4   (2) (2) 6
Transactions with non-controlling interest, net of tax 850   722 722 128
Dividends to non-controlling interests (1,062)   (1,062)
Dividends to shareholders (355)   (355) (355)
Other comprehensive profit (loss), net of tax (15)   3 (7) (4) (11)
Net profit for the year 488   (236) (236) 724
Comprehensive profit for the year 473   3 (243) (240) 713
Ending balance at Dec. 31, 2016 3,301 952 ₪ 3 1,057 [1] (46) 156 1,170 2,131
Ending balance, shares at Dec. 31, 2016 | shares [2]     29,889,045            
Dividends to non-controlling interests (948) (273) (948)
Other comprehensive profit (loss), net of tax (8) (2) 1 (3) (2) (6)
Net profit for the year 741 [3] 213 78 78 663
Comprehensive profit for the year 733 [3] 211 1 75 76 657
Ending balance at Dec. 31, 2017 ₪ 3,086 $ 890 ₪ 3 ₪ 1,057 [1] ₪ (45) ₪ 231 ₪ 1,246 ₪ 1,840
Ending balance, shares at Dec. 31, 2017 | shares [2]     29,889,045            
[1] Represents an amount less than NIS 1.
[2] Net of treasury shares.
[3] For information regarding early adoption of IFRS 15, Revenue from Contracts with Customers, see Note 3a.

v3.8.0.1
Consolidated Statements of Cash Flows
₪ in Millions, $ in Millions
12 Months Ended
Dec. 31, 2017
ILS (₪)
Dec. 31, 2017
USD ($)
Dec. 31, 2016
ILS (₪)
Dec. 31, 2015
ILS (₪)
Cash flows from operating activities        
Net profit for the year ₪ 741 [1] $ 213 ₪ 488 ₪ 1,136
Adjustments:        
Depreciation and amortization 2,117 [1] 611 2,161 2,131
Impairment of goodwill 129 [1] 37
Profit from gaining control over DBS [1] (12)
Share of loss (profit) of equity accounted investees 5 [1] 1 5 (12)
Finance expenses, net 525 [1] 151 981 570
Capital gain, net (27) [1] (8) (86) (136)
Income tax expenses 347 [1] 100 442 358
Change in inventory (35) [1] (10) (20) (20)
Change in trade and other receivables 194 [1] 57 110 323
Change in trade and other payables 16 [1] 5 (24) (271)
Changes in provisions 15 [1] 4 (19) 18
Changes in employee benefits (33) [1] (10) (65) 110
Change in other liabilities (34) [1] (10) 23 (9)
Net income tax paid (473) [1] (136) (534) (534)
Net cash provided by operating activities 3,487 [1] 1,005 3,462 3,652
Cash flows from investing activities        
Purchase of property, plant and equipment (1,131) [1] (326) (1,193) (1,324)
Investment in intangible assets and deferred expenses (399) [1] (115) (223) (311)
Proceeds from the sale of property, plant and equipment 98 [1] 28 138 151
Tax payments due to owners loans [1] (461)
Change in investments, net 301 [1] 87 621 1,574
Net deposits from (to) restricted cash [1] 155 (90)
Cash from gaining control over investee [1] 299
Other 3 [1] 1 15 11
Net cash provided by (used in) investing activities (1,128) [1] (325) (948) 310
Cash flows from financing activities        
Proceeds from issuance of debentures and loans received 2,635 [1] 760 4,184 1,010
Repayment of debentures and loans (1,813) [1] (523) (4,871) (2,297)
Interest paid (537) [1] (155) (915) (769)
Dividends paid by Bezeq to non- controlling interests (948) [1] (273) (1,062) (1,232)
Transactions with non-controlling interests [1] 978
Dividends to shareholders [1] (355) (127)
Payments to Eurocom DBS (61) [1] (18) (256) (680)
Others (11) [1] (3) (36) 1
Net cash used in financing Activities (735) [1] (212) (2,333) (4,094)
Net increase (decrease) in cash and cash equivalents 1,624 [1] 468 181 (132)
Cash and cash equivalents as at the beginning of the year 762 220 581 713
Cash and cash equivalents as at the end of the year ₪ 2,386 [1] $ 688 ₪ 762 ₪ 581
[1] For information regarding early adoption of IFRS 15, Revenue from Contracts with Customers, see Note 3a.

v3.8.0.1
Reporting Entity
12 Months Ended
Dec. 31, 2017
Reporting Entity [Abstract]  
Reporting Entity
Note 1 -Reporting Entity

 

B Communications Ltd. (“the Company”) is an Israeli resident company incorporated in Israel. The address of the Company’s registered office is 2 Dov Friedman Street, Ramat-Gan, Israel. The consolidated financial statements of the Company as at and for the year ended December 31, 2017 include the accounts of the Company and its subsidiaries. The Company is a majority-owned subsidiary of Internet Gold - Golden Lines Ltd. (“IGLD” or “Internet Gold”) and its ultimate parent is Eurocom Holdings (1979) Ltd. (“Eurocom”).

 

On April 14, 2010, the Company completed the acquisition of 30.44% of the outstanding shares of Bezeq - The Israel Telecommunications Corp. Limited (“Bezeq”) and became the controlling shareholder of Bezeq. Bezeq’s ordinary shares are registered for trade on the Tel Aviv Stock Exchange.

 

On February 1, 2016, the Company sold 115,500,000 shares of Bezeq (4.18% of the outstanding shares of Bezeq) for NIS 8.5 per share or NIS 978, net of transaction costs. The Company retained a 26.34% ownership interest in Bezeq, following the closing of the transaction. For more information relating to the Company’s control over Bezeq, see Note 12F.

 

The ordinary shares of the Company are registered for trade on the NASDAQ Global Select Market and on the Tel Aviv Stock Exchange.

 

On June 20, 2017, the Israel Securities Authority began an open investigation (“the Investigation”), which included searches at the offices of Bezeq and of DBS and seizure of documents.

 

As part of the investigation, the Chairman of Bezeq’s Board of Directors (when the investigation was initiated) was questioned, as well as Bezeq’s CEO, the CEO and CFO of DBS, and to the best of Bezeq’s knowledge, other senior officers and officers in the Group.

 

On November 6, 2017, the Israel Securities Authority (“the ISA”) issued a press release regarding the conclusion of the Investigation and the transfer of the Investigation file to the Tel Aviv District Attorney (Taxation and Economics). In accordance with the notice, the ISA concluded that there is prima facie evidence establishing the involvement of the main suspects in the case, in offenses of: (1) fraudulently receiving funds in connection with the entitlement of Bezeq’s controlling shareholder to a receive contingent consideration of NIS 170 as part of the transaction for Bezeq’s purchase of DBS shares from Bezeq’s controlling shareholder, which consideration was based on certain targets to be met by DBS; (2) leaking the material of the independent committee of Bezeq’s Board of Directors that examined interested party transactions (the transaction for the acquisition of DBS shares by Bezeq and the transaction between DBS and Space Communications Ltd. for the purchase by DBS of satellite segments from Space Communications Ltd.) to Bezeq’s controlling shareholder and associates; and (3) promoting Bezeq’s interests in the Ministry of Communications in violation of the Penal Law and the Israel Securities Law. The notice further stated that the Investigation file was transferred to the District Attorney’s Office and that the District Attorney’s Office is authorized to decide on how to continue to proceed with this matter. It should be noted that in this context, on November 20, 2017, Bezeq and DBS received a “letter of notice to the suspect” indicating that the investigation file relating to Bezeq and DBS as suspects was transferred to the Attorney General for review.

 

On February 18, 2018, the ISA and the Israel Police issued a joint press release stating that in view of the evidence the ISA found in its investigation, which raised suspicions of additional offenses, a new joint investigation was opened on that date by investigators of the ISA and the Unit for Combating Economic Crime at Lahav 433. Pursuant to such investigation, a number of suspects were arrested, including senior officers of the Bezeq Group (including a former director and controlling shareholder in Bezeq and Bezeq’s CEO), and were subsequently released under restrictive conditions.

 

To the best of Bezeq’s knowledge, and based on the Court’s rulings, the officers are suspected, together with others, of offenses of fraud, administrative offenses, obstruction of justice, bribery, offenses under the Israel Securities Law, deception and breach of trust in a company, and also some offenses under the Prohibition on Money Laundering Law, 2000.

 

Subsequent to the opening of the investigation, a number of legal proceedings were commenced against Bezeq, officers of Bezeq, and companies of the group of controlling shareholders in Bezeq, including motions for certification of class actions and motions for discovery of documents before submitting a motion for certification of a derivative claim. For further information, see Note 20.

 

Bezeq does not have full information about the investigations described in this section, or the content, the materials or the evidence in the possession of the legal authorities. In addition, in view of the provisions of Israeli law and the concern of obstructing investigation proceedings, Bezeq at present is prevented from, and is avoiding, the examination of all matters that were raised in the investigations. This restricts Bezeq’s activity, including in all matters relating to audits and assessments required for publishing Bezeq’s reports. Accordingly, Bezeq is unable to assess the effects of the investigations, their findings and their results on Bezeq and its officers, on the internal control of Bezeq, on the financial statements and on the estimates, if any, used in the preparation of these financial statements.


v3.8.0.1
Basis of Preparation
12 Months Ended
Dec. 31, 2017
Basis of Preparation [Abstract]  
Basis of Preparation
Note 2 -Basis of Preparation

 

A.Statement of compliance

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

 

The consolidated financial statements were authorized to be issued by the Company’s Board of Directors on May 15, 2018.

 

B.Definitions

 

In these financial statements-

 

(1)The Company: B Communications Ltd.

 

(2)The Group: B Communications Ltd. and its subsidiaries, as listed in Note 12.B.

 

(3)Parent company: Internet Gold - Golden Lines Ltd.

 

(4)Bezeq: Bezeq - The Israel Telecommunication Corp. Limited.

 

(5)Bezeq Group: Bezeq The Israel Telecommunication Corp. Limited and its subsidiaries, as listed in Note 12 Investees.

 

(6)DBS: DBS Satellite Services (1998) Ltd.

 

(7)Eurocom Communications: Eurocom Communications Ltd.

 

(8)Subsidiaries: Companies whose financial statements are fully consolidated, directly or indirectly, with the financial statements of the Company.

 

(9)Associates: Companies, in which the Group’s investment is included, directly or indirectly, in the consolidated financial statements on an equity basis.

 

(10)Investees: Subsidiaries or associates.

 

 (11)Related party: As defined in IAS 24 (2009), Related Party Disclosures.
   
 (12)Israeli CPI: The consumer price index as published by the Israeli Central Bureau of Statistics.

 

C.Functional currency and presentation currency

 

The consolidated financial statements are presented in NIS, which is the Group’s functional currency, and have been rounded to the nearest million. The NIS is the currency that represents the principal economic environment in which the Group operates.

 

D.Convenience translation into U.S. dollars (“dollars” or “$”)

 

For the convenience of the reader, the reported NIS figures as at December 31, 2017, have been presented in dollars, translated at the representative rate of exchange as at December 31, 2017 (NIS 3.467 = US$ 1.00). The dollar amounts presented in these financial statements are merely supplementary information and should not be construed as complying with IFRS translation method or as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated.

 

E.Basis of measurement

 

The consolidated financial statements have been prepared on the historical cost basis except for the following items:

 

*Financial instruments, including financial derivative instruments, measured at fair value recognized through profit or loss.

 

*Inventories measured at the lower of cost and net realizable value.

 

*Equity-accounted investments.

 

*Deferred tax assets and liabilities.

 

*Provisions.

 

*Assets and liabilities for employee benefits.

 

*Liabilities for payment of contingent consideration in a business combination.

 

For further information regarding the measurement of these assets and liabilities see Note 3 regarding significant accounting policies. The methods used to measure fair value are specified in Note 17E.

 

F.Operating cycle

 

The Group’s operating cycle is up to one year. As a result, current assets and current liabilities include items the realization of which is intended and anticipated to take place within one year from the date of the financial statements.

 

G.Use of estimates and judgments

 

The preparation of financial statements in conformity with IFRS requires the Group’s managements to make judgments and use estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

 

Significant estimates and judgments made when applying accounting policies and changes in these estimates and assumptions that could potentially have a material effect on the financial statements are as follows:

 

Subject Main assumptions Possible implications Reference
Useful life and expected operation of fixed assets, intangible assets, broadcasting rights, and subscriber acquisition asset Assumptions of the useful life of groups of fixed assets, intangible assets, and additional assets Change in the value of fixed assets, intangible assets, additional assets, and in depreciation and amortization expenses Note 8, Note 9, Note 10 and Note 11
Measurement of recoverable amounts of cash-generating units that include goodwill Assumption of expected cash flows from cash-generating units Recognition of impairment loss Note 9
Deferred taxes Assumption of anticipated future realization of the tax benefit in the future, including assumptions for the utilization of carryforward losses in DBS, and the assumption that it is more likely than not that the cancellation of the structural separation between Bezeq and DBS will be approved. Recognition or reversal of deferred tax asset in profit or loss Note 19
Uncertain tax positions The extent of the certainty that the Group’s tax positions will be accepted and the risk of it incurring any additional tax and interest expenses. This is based on an analysis of a number of matters including interpretations of tax laws and the Group’s past experience Recognition or reversal of income tax expenses Note 19
Measurement of liabilities and the fair value of the excess of advance payments for contingent consideration in a business combination The assumptions regarding the amount expected to be recovered for Bezeq from the excess of the advance payments, and taking into consideration the solvency of Eurocom DBS Change in the value of the liability for contingent consideration for a business combination and change in the fair value of the excess of the advance payments for contingent consideration and recognition in the statement of income for this change, respectively. Note 12
Provisions and contingent liabilities Assessment of the likelihood of claims against Group companies and measuring potential liabilities attributable to claims Reversal or creation of a provision for a claim and recognition of income/expenses respectively Note 15 and Note 20
Post-employment employee benefits Actuarial assumptions such as discount rate, future salary increases and churn rate Increase or decrease in the post-employment defined benefit obligation Note 18
The existence of effective control over Bezeq The practical ability to appoint most of the members of the board of directors of Bezeq, as a result of the control permit in Bezeq, the composition and distribution of the holdings of the other shareholders of Bezeq and the restrictions on these shareholders under the Telecommunications Law Consolidation of Bezeq’s reports or treatment of Bezeq using the equity method. Note 3

 

H.Determination of fair value

 

When preparing the financial statements, the Group is required to determine the fair value of certain assets and liabilities. Further information about the assumptions made in determining fair values is disclosed in Note 17E regarding fair value.


v3.8.0.1
Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Significant Accounting Policies [Abstract]  
Significant Accounting Policies
Note 3 -Significant Accounting Policies

 

The accounting policies set out below have been applied consistently by Group entities for all periods presented in these consolidated financial statements.

 

In this Note, where the Group has chosen accounting alternatives permitted in accounting standards and/or in accounting policy where there is no explicit provision in accounting standards, such disclosure is presented in bold. This does not attribute greater importance compared to other accounting policies that are not presented in bold.

 

A.Initial application of new standards

 

As from January 1, 2017, the Group has early adopted IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), which sets out guidelines for recognition of revenue.

 

IFRS 15 presents a new model for recognizing revenue from contracts with customers, which includes five steps for analyzing transactions so as to determine when to recognize revenue and in what amount:

 

1.       Identifying the contract with the customer.

2.       Identifying separate performance obligations in the contract.

3.       Determining the transaction price.

4.       Allocating the transaction price to separate performance obligations.

5.       Recognizing revenue when the performance obligations are satisfied.

 

In accordance with the model, the Group recognizes revenue when the customer gains control over the goods or services. Revenue is based on the consideration that the Group expects to receive for the transfer of the goods or services promised to the customer. Revenue is recognized when it is expected that the economic benefits will flow to the Group.

 

Application of the model did not have a material effect on the measurement of the Group’s revenue in 2017, compared to the provisions of the previous standard.

 

The main effect of the Group’s application of IFRS 15 is the accounting treatment for the incremental costs of obtaining a contract with a customer (“Subscriber Acquisition”), which are costs incurred to obtain a contract with a customer and which costs would not have been incurred had the contract not be obtained (such as sales commissions). These are recognized as an asset when the costs are attributed directly to a contract that the Group can specifically identify, they produce or improve the Group’s resources that will be used for its future performance obligation and it is probable that the Group will recover these costs, and not only where there is an obligation of the customer to acquire services from the Group for a defined period.

 

Accordingly, direct commissions paid to agents and sales employees of the Group for sales and upgrades under agreements that do not include an obligation period for the customer, are recognized as an asset for obtaining a contract instead of an expense in the statement of income, since the Group expects to recover the incremental costs for achieving the contract in the framework of the contracts.

 

An asset for obtaining a contract is amortized in accordance with the expected useful life of the subscribers and in accordance with the average churn rate of subscribers based on the type of subscriber and service received (mainly over 1-4 years).

 

Contract acquisition costs that would arise regardless of whether the contract was obtained are recognized as an expense when incurred.

 

The Group applied IFRS 15 using the cumulative effect approach without a restatement of comparative figures.

 

As part of the initial implementation of IFRS 15, the Group has chosen to apply the expedients in the transitional provisions, according to which the cumulative effect approach is applied only for contracts not yet complete at the transition date and the accounting treatment for the contracts completed at the transition date will not be amended.

 

The contracts that are renewed every month and that may be cancelled by the customer at any time, without any penalty, are contracts that ended at the date of initial application of IFRS 15. Therefore, Subscriber Acquisition costs incurred prior to January 1, 2017 and recognized in the statement of income as an expense were not accounted for retroactively.

 

Other than the accounting treatment of Subscriber Acquisition costs, implementation of IFRS 15 had no other material effects on the financial statements. In addition, implementation of IFRS 15 had no effect on retained earnings as at the transition date.

 

The tables below summarize the effects on the consolidated statement of financial position as at December 31, 2017 and on the consolidated statements of income and cash flows for 2017, assuming that the Group’s previous policy regarding subscriber acquisition costs continued during that period.

 

Effect on the consolidated statement of financial position of the Group as at December 31, 2017:

 

   

In accordance with the previous

policy

  Change  In accordance with IFRS15 
   NIS  NIS  NIS 
 Net subscriber acquisition asset (stated as deferred expenses and non-current investments)  4   111   115 
 Equity attributable to shareholders of the Company  1,224   22   1,246 
 Non-controlling interests  1,778   62   1,840 
 Total equity  3,002   84   3,086 

 

Effect on the consolidated cash flows statement of the Group for 2017:

 

   Year ended December 31, 2017 
   

In accordance with the previous

policy

  Change  In accordance with IFRS15 
   NIS  NIS  NIS 
 Net cash from operating activities  3,322   165   3,487 
 Net cash used in investing activities  (963)  (165)  (1,128)

 

Effect on the consolidated statement of income of the Group for 2017:

 

   Year ended December 31, 2017 
   

In accordance with the previous

policy

  Change  In accordance with IFRS15 
   NIS  NIS  NIS 
 General and operating expenses  4,037   (131)  3,906 
 Salaries  2,041   (34)  2,007 
 Depreciation and amortization expenses  2,063   54   2,117 
 Operating profit  1,499   111   1,610 
 Profit after financing expenses  982   111   1,093 
 Profit before income tax  977   111   1,088 
 Income tax  320   27   347 
 Net profit for the period  657   84   741 
 Profit attributable to shareholders of the Company  56   22   78 
 Profit attributable to non-controlling interests  601   62   663 
 Earnings per share (Basic and Diluted)  1.88   0.74   2.62 

 

As from January 1, 2017, the Group applies the amendment to IAS 12, Income Taxes: Recognition of Deferred Tax Assets for Unrealized Losses.

 

The Amendment clarifies that for purposes of recognizing a deferred tax asset, the effect of reversal of deductible temporary differences should be excluded when assessing future taxable profit. Moreover, the Amendment provides that probable future profits may include profits from the recovery of assets at more than their carrying value, if there is sufficient supporting evidence. Application of the amendment did not have an effect on the Group’s financial statements.

 

B.Non-controlling interests

 

On January 1, 2016 the Group changed its accounting policy with respect to transactions with non-controlling interests, while retaining control. According to the new accounting policy, the difference between the consideration paid or received for change in non-controlling interests is recognized in retained earnings. The Group believes that this presentation provides more relevant information about its distributable earnings.

 

This change in accounting policy was applied retrospectively and did not have any impact on earnings per share.

 

Allocation of impairment loss to non-controlling interests

If an impairment loss allocated to non-controlling interests relates to goodwill that was not recognized in the consolidated financial statements, the impairment is not recognized as an impairment loss on goodwill. In such cases, only an impairment loss relating to goodwill that was allocated to the owners of the Company is recognized as an impairment loss on goodwill.

 

For purposes of goodwill impairment testing, when the non-controlling interests are initially measured according to their relative share of the acquiree’s net identifiable assets, the carrying amount of the goodwill is adjusted according to the share which the Group holds in the cash-generating unit to which the goodwill is allocated.

 

C.Consolidation of the financial statements and investments in associates

 

(1)Business combinations

 

A.The Group implemented the acquisition method for all business combinations. The acquisition date is the date on which the acquirer obtained control over the acquiree.

 

B.The Group recognized goodwill at acquisition based on the fair value of the consideration transferred, and the fair value at the acquisition date of any pre-existing equity right of the Group in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed.

 

C.The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree and the liabilities incurred by the acquirer to the previous owners of the acquiree, including the obligation to acquire the acquiree’s equity instruments. In addition, the consideration transferred includes the fair value of any contingent consideration. Subsequent to the acquisition date, the Group recognizes changes in fair value of contingent consideration classified as a financial liability in profit or loss under financing expenses.

 

D.In step acquisitions, the difference between the fair value at the acquisition date of the Group’s pre-existing equity rights in the acquiree and the carrying amount at that date is recognized in the statement of income under other operating income or expenses.

 

E.Costs associated with the acquisition that were incurred by the Group in the business combination such as advisory, legal, valuation and other professional or consulting fees were recognized as expenses in the period the services are received.

 

(2)Subsidiaries

 

Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date of loss of control.

 

Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taking into account when assessing control.

 

(3)Transactions eliminated on consolidation

 

Intra-group balances and income and expense arising from intra-group transactions are eliminated in the preparation of the consolidated financial statements.

 

D.Foreign currency transactions

 

Transactions in foreign currency are translated into the functional currency of the Group at the exchange rate on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies on the reporting date are retranslated to the functional currency at the exchange rate at that date.

 

E.Financial instruments

 

(1)Non-derivative financial assets

 

Non-derivative financial assets include mainly investments in exchange traded notes, financial funds, exchange traded funds (“ETFs”), deposit certificates, debt instruments, shares, trade and other receivables, and cash and cash equivalents.

 

The Group initially recognizes financial assets at the date the Group becomes a party to contractual provisions of the instrument, meaning the date that the Group undertakes to buy or sell the asset.

 

Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.

Regular way sales of financial assets are recognized on the trade date, meaning on the date the Group undertook to sell the asset.

 

(2)Classification of financial assets and the accounting treatment in each group

 

The Group classifies its financial assets as follows:

 

Cash and cash equivalents

Cash consists of cash balances available for immediate use and call deposits. Cash equivalents consist of short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value.

 

Financial assets at fair value through profit or loss

A financial asset is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition. These financial assets are measured at fair value and changes therein are recognized in the statement of income.

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, net of impairment losses.

 

(3)Non-derivative financial liabilities

 

Non-derivative financial liabilities include debentures issued by the Group, loans and borrowings from banks and other credit providers, and trade and other payables.

 

The Group initially recognizes debt instruments as they are incurred. Financial liabilities are initially recognized at fair value plus any attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

 

Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or canceled.

 

(4)CPI-linked assets and liabilities that are not measured at fair value

 

The value of CPI-linked financial assets and liabilities, which are not measured at fair value, is revaluated in each period according to the actual increase in the CPI.

 

(5)Offsetting financial instruments

 

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

 

(6)Derivative financial instruments including hedge accounting

 

a.Hedge accounting

 

The Group holds derivative financial instruments to hedge cash flows against risks to future changes in the CPI. Forward contracts are measured at fair value. Changes in the fair value of a derivative hedging instrument designated as a cash flow hedge are recognized through other comprehensive income, in a hedging reserve under equity, to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. The amount recognized in the hedging reserve is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the statement of income as the hedged item.

 

b.Economic hedges

 

The Group holds other derivative financial instruments to hedge cash flows against foreign currency risks. Hedge accounting is not applied for these instruments. The derivative instruments are recognized at fair value; changes in fair value are recognized in profit and loss as incurred.

 

(7)Share capital

 

a.Ordinary shares

 

Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity.

 

b.Treasury shares

 

When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is carried to share premium.

 

F.Broadcast rights

 

Broadcasting rights are stated at cost, net of rights exercised. The costs of broadcasting rights acquired for the broadcasting of content include the amounts paid to the rights provider, plus direct costs for adjusting the rights to the broadcast. Broadcast rights are amortized in accordance with the actual broadcasts of the total number of expected broadcasts based on the management’s estimate or broadcasts permitted under the agreement (the part that is unamortized at the end of the agreement term is amortized in full upon its termination), or on a straight-line basis in accordance with the term of the rights agreement or the economic life, whichever is shorter. The net adjustment of the broadcasting rights is presented as an adjustment of earnings as part of the ongoing operations in the statements of cash flows.

 

G.Property, plant and equipment

 

(1)Recognition and measurement

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

 

Cost includes expenditures that are directly attributable to acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labor and financing costs as well as any other cost directly attributable to bringing the asset to the condition for its use intended by the management, and the estimated costs of dismantling and removing the items and restoring the site on which they are located when the Group has an obligation to vacate and restore the site. The cost of purchased software that is integral to the functionality of the related equipment is recognized as part of the cost of the equipment.

 

Spare parts, servicing equipment and stand-by equipment are classified as property, plant and equipment when they meet the definition of property, plant and equipment under IAS 16, otherwise they are classified as inventory.

 

When major parts of the property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of the property, plant and equipment.

 

Gain or loss from the disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal of the asset with its carrying amount. Gain or loss from the sale of fixed assets is recognized under operating income in the statement of income.

 

(2)Subsequent expenditure

 

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefit embodied in the replaced item will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing are recognized in the statement of income as incurred.

 

(3)Depreciation

 

Depreciation is recognized in the statement of income on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets under finance lease agreements are depreciated over the shorter of the lease term and their useful lives.

 

An asset is depreciated when it is ready for use, meaning when it reaches the location and condition necessary for it to be capable of operating in the manner intended by management.

 

Leasehold improvements are depreciated over the shorter of the lease term, including the extension option held by the Group and expected to be exercised and the expected life of the improvement.

 

The estimated useful lives for the current period are as follows:

 

   Useful life 
 Fixed line and international network equipment   
 (switches, transmission, power)  4-12 
 Network  12-33 
 Subscriber equipment and installations  4-8 
 Equipment and infrastructure for multichannel television  3-15 
 Vehicles  6-7 
 Office and general equipment  5-10 
 Electronic equipment, computers and internal communication systems  3-7 
 Cellular network  4-10 
 Passive radio equipment at cellular network sites  up to December 31, 2037 
 Buildings  25 
 Seabed cable  4-25 (mainly 25) 

 

Depreciation methods, useful lives and residual values are reviewed at least at each reporting year and adjusted as required.

 

H.Intangible assets

 

(1)Goodwill and brand names

 

Goodwill and brand names that arise upon the acquisition of subsidiaries are included in intangible assets. Subsequent to initial recognition, brand name (Bezeq CGU, Bezeq International CGU and Pelephone CGU) and goodwill are measured at cost less accumulated impairment losses. Goodwill and brand names are measured at least once a year to assess impairment.

 

(2)Software development costs

 

Software development costs are recognized as an intangible asset only if the development costs can be measured reliably; the software is technically and commercially feasible; and the Group has sufficient resources to complete the development and intends to use the software. The costs recognized as an intangible asset include the cost of the materials, direct labor and overhead expenses directly attributable to preparation of the asset for its intended use. Other development costs are recognized in the statement of income as incurred.

 

Capitalized development costs are measured at cost less amortization and accumulated impairment losses.

 

(3)Software

 

Software that is an integral part of the hardware, which cannot function without the programs installed on it, is classified as property, plant and equipment. However, licenses for stand-alone software, which adds functionality to the hardware, is classified (mainly) as intangible assets.

 

(4)Frequency rights

 

Rights to frequencies refer to frequencies assigned to Pelephone for cellular activities, after it won the dedicated tenders of the Ministry of Communications. Depreciation of the asset is recognized in the statement of income on the straight-line method over the term of the allocation of frequencies, which started from the use of the frequencies. The 4G frequencies (LTE) and 3.5G frequencies (UMTS/HSEA) are amortized until August 22, 2028.

 

(5)Other intangible assets

 

Other intangible assets acquired by the Group, which have a definite useful life, are measured at cost less amortization and accumulated impairment losses.

 

(6)Subsequent expenditures

 

Subsequent expenditures are recognized as intangible assets only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures relating to generated goodwill and brands, are recognized in the statement of income as incurred.

 

(7)Amortization

 

Amortization, except for goodwill, brand names (excluding brands acquired in the DBS business combination) and customer relationships, is recognized in the statement of income on a straight-line basis over the estimated useful life of the intangible assets, from the date on which the assets are available for use. Goodwill and brand names are not systematically amortized but are tested for impairment at least once a year.

 

Customer relationships are amortized according to the economic benefit expected from those customers each period based on their expected churn rate, which results in accelerated amortization during the early years of the relationship.

 

Estimated useful lives for the current and comparative periods are as follows:

 

 Type of asset Amortization period
 Frequency usage rights Over the term of the license until 2028
 Computer programs and software licenses 3 - 10 years according to the term of the license or the estimated time of use of the program
 Customer relationships 5 - 7 years
 Brand acquired in a business combination 12

 

Amortization methods and useful lives are reviewed at least once a year and adjusted if appropriate.

 

I.Leased assets

 

Leases, including leases of land from the Israel Land Administration, where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are measured at cost less accumulated amortization and impairment losses.

 

Other leases are classified as operating leases and the leased assets are not recognized in the Group’s statement of financial position. Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease.

 

At inception or upon reassessment of an arrangement, the Group determines whether such an arrangement is or contains a lease. An arrangement is a lease or contains a lease if the following two criteria are met:

 

A. The fulfillment of the arrangement is dependent on the use of a specific asset or assets.

 

B. The arrangement contains rights to use the asset.

 

If, in accordance with these terms, the Group determines that the agreement does not contain a lease, the agreement is accounted for as a service agreement and payments for the service are recognized in profit or loss on a straight-line basis, over the service period.

 

J.Right of use of capacities

 

Transactions for acquiring an indefeasible right of use of submarine communication cable capacities are mostly accounted for as service transactions. The prepaid expense is amortized on a straight-line basis as stated in the agreement, but for no longer than the expected estimated useful life of those capacities.

 

Identifiable capacities which serve Bezeq exclusively meet the definition of a finance lease and are recognized in property, plant and equipment. The asset is depreciated on a straight-line basis as stated in the agreement, but for no longer than the expected estimated useful life of those capacities.

 

K.Inventory

 

The cost of inventories includes the cost of purchase and cost incurred in bringing the inventories to their present location and condition.

 

Inventories are measured at the lower of cost or net realizable value. The Group elected to base the cost of inventories on the moving average principle.

 

The inventories include terminal equipment and accessories intended for sale and service, as well as spare parts used for repairs in the repair service provided to its customers.

 

Slow-moving inventory of terminal equipment, accessories and spare parts are stated net of the provision for impairment.

 

L.Impairment

 

(1)Non-derivative financial assets

 

The Group tests a financial asset for impairment when objective evidence indicates that one or more loss events have had a negative effect on the estimated future cash flows of that asset.

 

Significant financial assets are tested for impairment on an individual basis. Other financial assets are assessed for impairment collectively in groups that share similar credit risk characteristics, taking into account past experience. The financial statements include specific provisions and Group provisions for doubtful debts, which properly reflect, in the estimation of the management, the loss inherent in debts for which collection is in doubt.

 

(2)Non-financial assets

 

Timing of impairment testing

The carrying amounts of the Group’s non-financial assets, other than inventory and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the recoverable amount of the asset is estimated.

 

The Group assesses the recoverable amount of goodwill and brand name once a year, or more frequently if there are indications of impairment.

 

Measurement of recoverable amount

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit, for which the estimated future cash flows from the asset or cash-generating unit (for which future cash flows were not adjusted).

 

Determining cash-generating units

For the purpose of impairment testing, the assets are grouped together into the smallest group of assets that generates cash from continuing use that are largely independent of other assets or groups of assets (“cash-generating unit”).

 

Allocation of goodwill to cash-generating units

For purposes of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes, but in any event is not larger than an operating segment. Goodwill acquired in a business combination is allocated to cash-generating units that are expected to generate benefits from the synergies of the combination.

 

Recognition of impairment loss

An impairment loss is recognized if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. As regards cash-generating units that include goodwill, an impairment loss is recognized when the carrying amount of the cash-generating unit, after including the balance of goodwill, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis. See Note 9.

 

M.Employee benefits

 

(1)Post-employment benefits

 

The Group has a number of post-employment benefit plans. The plans are usually financed by deposits with insurance companies and they are classified as defined contribution plans and defined benefit plans.

 

a.Defined contribution plans

 

A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts.

 

The Group’s obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the statement of income in the periods during which services are rendered by employees.

 

b.Defined benefit plans

 

The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is presented at its present value, and the fair value of any plan assets is deducted. The calculation is performed annually by a qualified actuary. The discount rate is the yield at the reporting date on high-quality linked corporate debentures denominated in NIS, with maturity dates approximating the terms of the Group’s obligations.

  

Net interest costs on a defined benefit plan are calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability.

 

The Group elected to recognize the interest costs that were recognized in profit or loss under financing expenses.

 

Remeasurement of the net defined benefit liability comprises actuarial gains and losses and the return on plan assets (excluding interest). Remeasurements are recognized immediately directly in retained earnings through other comprehensive income.

 

When the benefits of a plan are improved or curtailed, the portion of the increased benefit relating to past service by employees or the gain or loss on curtailment are recognized immediately in profit or loss when the plan improvement or curtailment occurs.

 

(2)Other long-term employee benefits

 

The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The amount of these benefits is stated at its present value. The discount rate is the yield at the reporting date on high-quality linked corporate debentures denominated in NIS, with maturity dates approximating the terms of the Group’s obligations. Any actuarial gains or losses are recognized in the statement of income in the period in which they arise. Any actuarial changes arising from a change in the discount rate are recognized in the financing expenses item, while the other differences are recognized in salary expenses.

 

(3)Benefits for early retirement and dismissal

 

Termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

 

(4)Short-term benefits

 

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on the date when the benefits are expected to be to be wholly settled.

 

In the statement of financial position, the employee benefits are classified as current benefits or as non-current benefits according to the time the liability is due to be settled.

 

N.Provisions

 

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is more likely than not that an outflow of economic benefits will be required to settle the obligation.

 

(1)Legal claims

 

Contingent liabilities are accounted for according to IAS 37 and its related provisions. Accordingly, the claims are classified by likelihood of realization of the exposure to risk, as follows:

 

a.More likely than not - more than 50% probability

 

b.Possible - probability higher than unlikely and less than 50%

 

c.Remote - probability of 10% or less

 

For claims which the Group has a legal or constructive obligation as a result of a past event, which are more likely than not to be realized, the financial statements include provisions which, in the opinion of the Group, based, among other things, on the opinions of its legal advisers retained in respect of those claims, are appropriate to the circumstances of each case, despite the claims being denied by the Group companies. There are also a few recently filed legal proceedings for which the risks cannot be assessed at this stage, therefore no provisions have been made.

 

Note 20 describes the amount of additional exposure due to contingent liabilities that are likely to be realized.

 

(2)Site restoration and clearing costs

 

A provision in respect of an obligation to restore and clear sites is recognized for those rental agreements where the Group has an undertaking to restore the rental property to its original state at the end of the rental period, after dismantling and transferring the site, and restoring it as necessary. The provisions are determined by discounting the expected future cash flows. The carrying amount of the provision is adjusted each period to reflect the time that has passed and is recognized as a financing expense.

 

O.Revenues

 

As from January 1, 2017, the Group has early adopted IFRS 15, Revenue from Contracts with Customers (“IFRS 15” or “the Standard”). As set out in Note 3A, the application of IFRS 15 did not have a material effect on the measurement of the Group’s revenue in 2017, compared to the provisions in the previous standard, and the main effect of application of IFRS 15 in the Group is the accounting treatment of incremental costs of obtaining a contract with a customer.

 

IFRS 15 presents a new model for recognizing revenue from contracts with customers, which includes five steps for analyzing transactions so as to determine when to recognize revenue and in what amount:

 

(1)Identifying the contract

 

The Group accounts for a contract with a customer only when the following conditions are met: 

 

a.The parties to the contract have approved the contract (in writing, orally or according to other customary business practices) and they are committed to satisfying the obligations attributable to them.
   
b.The Group can identify the rights of each party in relation to the goods or services that will be transferred.

 

c.The Group can identify the payment terms for the goods or services that will be transferred.

 

d.The contract has a commercial substance (i.e. the risk, timing and amount of the entity’s future cash flows are expected to change as a result of the contract).

 

e.It is probable that the consideration, to which the Group is entitled to in exchange for the goods or services transferred to the customer, will be collected.

 

(2)Identifying performance obligations

 

On the contract’s inception date, the Group assesses the goods or services promised in the contract with the customer and identifies as a performance obligation any promise to transfer to the customer one of the following:

 

a.Goods or services (or a bundle of goods or services) that are distinct; or

 

b.A series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer.

 

(3)Determining the transaction price

 

The transaction price is the amount of the consideration to which the Group expects to be entitled in exchange for the transfer of goods or services promised to the customer, other than amounts collected in favor of third parties. When determining the transaction price, the Group takes into account the effects of all the following: variable consideration, the existence of a significant financing component in the contract, non-cash consideration and consideration to be paid to the customer.

 

Existence of a significant financing component

In order to measure the transaction price, the Group adjusts the amount of the promised consideration in respect of the effects of the time value of money if the timing of the payments agreed between the parties provides to the customer or the Group a significant financing benefit. In these cases, the contract contains a significant financing component. When assessing whether a contract includes a significant financing component, the Group examines, among other things, the expected length of time between the date the Group transfers the promised goods or services to the customer and the date the customer pays for these goods or services, as well as the difference, if any, between the amount of the consideration promised and the cash selling price of the promised goods or services.

 

When the contract contains a significant financing component, the Group recognizes the amount of the consideration using the discount rate that would be reflected in a separate financing transaction between it and the customer on the inception date of the contract. The financing component is recognized as interest income or expenses over the period, which are calculated according to the effective interest method. In cases where the difference between the time of receiving payment and the time of transferring the goods or services to the customer is one year or less, the Group applies the practical expedient included in the standard and does not separate a significant financing component.

 

(4)Existence of performance obligation

 

Revenue is recognized when the Group satisfies a performance obligation by transferring to the customer control over promised goods or services.

 

(5)Contract costs

 

Incremental costs of obtaining a contract with a customer such as sales fees to agents, are recognized as an asset when the Group is likely to recover these costs. Costs to obtain a contract that would have been incurred regardless of the contract are recognized as an expense as incurred, unless the customer can be billed for those costs.

 

Capitalized costs are amortized in the income statement on a systematic basis that is consistent with the average projected churn rate of subscribers based on the type of subscriber and the service received (mainly over 1-4 years).

 

Every reporting period the Group examines whether the carrying amount of the asset recognized as aforesaid exceeds the consideration the entity expects to receive in exchange for the goods or services to which the asset relates, less the costs directly attributable to the provision of these goods or services that were not recognized as expenses, and if necessary an impairment loss is recognized in profit or loss.

 

(6)Principal supplier or agent

 

When another party is involved in providing goods or services to the customer, the Group examines whether the nature of its promise is a performance obligation to provide the defined goods or services itself, which means the Group is a principal and therefore recognizes revenue in the gross amount of the consideration, or to arrange that another party provide the goods or services which means the Group is an agent and therefore recognizes revenue in the amount of the net commission.

 

The Group is a principal when it controls the promised goods or services before their transfer to the customer. Indicators that the Group controls the goods or services before their transfer to the customer include, inter alia, as follows: the Group is the primary obligor for fulfilling the promises in the contract; the Group has inventory risk before the goods or services are transferred to the customer; and the Group has discretion in setting the prices of the goods or services.

 

P.Financing income and expense

 

Finance income includes mainly accrued interest income using the effective interest method in respect of the sale of terminal equipment in installments, interest income from deposits and changes in the fair value of financial assets at fair value through profit or loss.

 

Finance expenses include mainly interest and linkage expenses on borrowings received and debentures issued and financing expenses for provisions arising from legal claims.

 

In the statements of cash flows, interest received and dividends received are presented as part of cash flows from investing activities. The Group elected to present interest and linkage differences paid for loans and debentures under cash flows used for financing activities.

 

Q.Income tax expense

 

Income tax expense consists of current and deferred tax and is recognized in the statement of income, or in other comprehensive income to the extent it relates to items recognized in other comprehensive income.

 

Current taxes

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date. Current taxes also include taxes in respect of prior years.

 

Uncertain tax positions

A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more likely than not that the Group will have to use its economic resources to pay the obligation.

 

Deferred taxes

 

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group does not recognize deferred taxes for the following temporary differences:

 

Initial recognition of goodwill.

 

Differences arising from investment in subsidiaries and associates, if it is probable that they will not reverse in the foreseeable future and if the Group controls the date of reversal.

 

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

 

A deferred tax asset is recognized for carry-forward losses, tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

Offsetting deferred tax assets and liabilities

The Group sets off deferred tax assets and liabilities if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, but they intend to settle deferred tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

 

Presentation of tax expenses in the statement of cash flows

Cash flows arising from taxes on income are classified in the statement of cash flows as cash flows from operating activities, unless they can be specifically identified with investing and financing activities.

 

R.Earnings per share

 

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise warrants and share options granted to employees.

 

S.Dividend

 

An obligation relating to a dividend proposed or declared after the reporting date is recognized only in the period in which the declaration was made (approved by the general shareholders’ meeting). In the statement of cash flows, dividend paid is presented as part of cash flows used in financing activities.

 

T.New standards and interpretations not yet adopted

 

(1)IFRS 9, Financial Instruments (“IFRS 9”)

 

IFRS 9 replaces the current guidance in IAS 39, Financial Instruments: Recognition and Measurement. The new Standard includes revised guidance on the classification and measurement of financial instruments, a new ‘expected credit loss’ model for calculating impairment for most financial assets, and new guidance and requirements with respect to hedge accounting.

 

IFRS 9 is effective for annual periods beginning on January 1, 2018, with early adoption being permitted. IFRS 9 will be applied retrospectively, except for a number of exemptions.

 

The Group has examined the effects of applying IFRS 9, and in its opinion the effect on the financial statements will be immaterial.

 

(2)IFRS 16, Leases (“IFRS 16”)

 

IFRS 16 replaces IAS 17, Leases (“IAS 17”) and its related interpretations.

 

IFRS 16 must be applied for annual periods beginning on January 1, 2019, with early application being permitted. The Group has decided to early apply IFRS 16 as from January 1, 2018 using the cumulative effect approach.

 

The standard’s instructions rescind the existing requirement that lessees classify leases as operating or finance leases.

 

The standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize a right-of-use asset and a lease liability in its financial statements IFRS 16 includes two exceptions to the general model whereby a lessee may elect to not apply the requirements for recognizing a right-of-use asset and a liability with respect to short-term leases of up to one year and/or leases where the underlying asset has a low value. The Group has decided not to apply the expedient for short-term leases.

 

On the date of initial application, the Group will recognize a lease liability for the leases previously classified as operating leases in accordance with IAS 17. The liability will be measured at the present value of the remaining lease payments, discounted at the Group’s incremental interest rate on the date of initial application.

 

The Group elected to apply the expedient in the standard according to which at the transition date, a right-of-use asset for leases previously classified as operating leases in accordance with IAS 17, will be recognized in the amount equal to the lease liability.

 

In view of the above, adoption of IFRS 16 is not expected to have an effect on the retained earnings at the transition date.

 

The Group elected to adopt the Standard while applying the expedients that are permitted in the transitional provisions to the standard as follows:

 

a.It was not re-examined whether the contract is a lease or contains a lease as at the application date of the Standard. Accordingly, the agreements that were previously accounted for as operating leases will be accounted for in accordance with the new Standard, and the agreements that were previously accounted for as service contracts will continue to be accounted for as such without change.

 

b.The use of one capitalization rate for a lease contracts portfolio with similar characteristics.

 

c.The use of an earlier estimate of an onerous contract under IAS 37 at the transition date as an alternative to assessing the impairment of right-of-use assets.

 

d.Exclusion of direct costs incurred in the lease as part of the asset at the transition date.

 

e.Use of hindsight in determining the lease period if the contract includes options to extend or cancel the lease.

 

IFRS 16 is expected to affect the accounting treatment of real estate leasing agreements, cellular sites, vehicles and other Group assets.

 

The Group believes that at the initial implementation date of the standard, non-current assets are expected to increase by NIS 1.4 billion, current liabilities by NIS 0.4 billion, and non-current liabilities by NIS 1 billion.

 

Accordingly, as from the initial application date, instead of presenting the rental expenses for the leased assets under operating leases, the Group will recognize depreciation expenses for depreciation of the right-of-use assets that were recognized and will also recognize financing expenses for the lease liability.

 

Therefore, application of the standard is expected to result in a decrease in operating expenses in the amount of NIS 0.4 billion in 2018 and an increase in depreciation and amortization and in financing expenses in a similar amount. In addition, following application of the standard, there is expected to be an increase in cash flows from operating activities and a decrease in cash flows from financing activities in the amount of NIS 0.4 billion. Application of the standard is expected to have a negligible effect on the Group’s net profit for 2018.

 

The effect of application of the standard on the financial results, statement of cash flows, and statement of financial position is based on the existing lease contracts as at January 1, 2018 and the Group’s expectations regarding future agreements, and will depend on the actual scope of the lease agreements to which the Group will be a party as from application of the standard at inflation rates in 2018 and other economic variables. Actual results may differ from this estimate.

 

(3)IFRIC 22, Foreign Currency Transactions and Advance Consideration

 

The interpretation provides that the transaction date for the purpose of determining the exchange rate for recording a foreign currency transaction that includes advance consideration is the date of initial recognition of the non-monetary asset/liability from the prepayment If there are multiple payments or receipts in advance, the Group will establish a transaction date for each payment or receipt.

 

IFRIC 22 will be applied for annual periods beginning on January 1, 2018. The Group believes that application of IFRIC 22 will not have a material effect on the financial statements.

 

(4)IFRIC 23, Uncertainty Over Income Tax Treatments

 

IFRIC 23 clarifies application of recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. IFRIC 23 will be effective for annual periods beginning on January 1, 2019, with early application being permitted. The Group believes that application of IFRIC 23 will not have a material effect on the financial statements


v3.8.0.1
Segment Reporting
12 Months Ended
Dec. 31, 2017
Segment Reporting [Abstract]  
Segment Reporting
Note 4 -Segment Reporting

 

A.Operating Segments

 

The Group operates in four segments in the communications sector and every company in the Group operates in one separate business segment. The primary reporting format, by business segments, is based on the Group’s management and internal reporting structure.

 

Each company provides services in the segment in which it operates, using the property, plant and equipment and the infrastructure it owns (see also Note 24). The infrastructure of each company is used only for providing its services. Each of the companies in the Group is exposed to different risks and yield expectations, mainly with respect to the technology and competition in the segment in which it operates. Accordingly, the separable components in the Group are each company in the Group.

 

Based on the above, the business segments of the Group are as follows:

 

-Bezeq - The Israel Telecommunication Corp. Ltd.: fixed line domestic communications

 

-Pelephone Communications Ltd.: cellular communications

 

-Bezeq International Ltd.: international communications, internet services and network end point

 

-DBS Satellite Services (1998) Ltd.: multichannel television

 

The other companies in the Group are presented under the “Other” item. Other operations include call center services (Bezeq Online) and online shopping and classified ads (through Walla). These operations are not reported as reporting segments as they do not fulfill the quantitative thresholds.

 

Inter-segment pricing is set at the price determined in a transaction in the ordinary course of business.

 

The results, assets and liabilities of a segment include items directly attributable to that segment, as well as those that can be allocated on a reasonable basis.

 

Segment capital expenditure is the total cost incurred during the period for acquisition of property, plant and equipment and intangible assets.

 

The Group’s investment in DBS was accounted for using the equity method up to March 23, 2015. As from that date, the financial statements of DBS are consolidated with the financial statements of the Group as described in Note 12B below. The Group reports on multichannel television as an operating segment without adjustment to ownership rates and excess cost in all reporting periods.

 

  Year ended December 31, 2015 
  Domestic
fixed–line communications
  Cellular communications  International communications and Internet services  Multi-channel television  Others  Adjustments  Consolidated 
  NIS  NIS  NIS  NIS  NIS  NIS  NIS 
Revenue from external entities  4,122   2,831   1,485   1,774   197   (440)  9,969 
Inter-segment revenues  285   59   93   -   24   (445)  16 
Total revenue  4,407   2,890   1,578   1,774   221   (885)  9,985 
Depreciation and amortization  725   419   132   322   13   520   2,131 
Segment results - operating income  2,148   157   240   250   (15)  (763)  2,017 
Finance income  30   53   7   32   17   15   154 
Finance expenses  (362)  (4)  (15)  (635)  (2)  329   (689)
Total financing income (expense), net  (332)  49   (8)  (603)  15   344   (535)
Segment profit (loss) after finance expenses, net  1,816   206   232   (353)  -   (419)  1,482 
Share in profit (loss) of equity-accounted investee  -   -   -   -   (2)  14   12 
Segment profit (loss) before income tax  1,816   206   232   (353)  (2)  (405)  1,494 
Income tax  492   55   60   1   -   (250)  358 
Segment results - net profit (loss)  1,324   151   172   (354)  (2)  (155)  1,136 
Additional information:                            
Segment assets  7,311   3,269   1,160   1,667   659   4,965   19,031 
Goodwill  -   -   6   -   10   3,050   3,066 
Investment in equity-accounted investee  -   -   4   -   7   14   25 
Segment liabilities  12,117   513   343   6,685   104   (1,031)  18,731 
Investments in property, plant and equipment and intangible assets  837   419   127   281   33   (80)  1,617 

 

  Year ended December 31, 2016 
  Domestic
fixed–line communications
  Cellular communications  International communications and Internet services  Multi-channel television  Others  Adjustments  Consolidated 
  NIS  NIS  NIS  NIS  NIS  NIS  NIS 
Revenue from external entities  4,063   2,587   1,478   1,745   198   -   10,071 
Inter-segment revenues  320   43   70   -   20   (440)  13 
Total revenue  4,383   2,630   1,548   1,745   218   (440)  10,084 
Depreciation and amortization  717   380   137   296   16   615   2,161 
Segment results - operating income  2,076   32   176   264   (34)  (648)  1,866 
Finance income  30   52   5   13   4   19   123 
Finance expenses  (475)  (6)  (15)  (539)  (2)  (17)  (1,054)
Total financing income (expense), net  (445)  46   (10)  (526)  2   2   (931)
Segment profit (loss) after finance expenses, net  1,631   78   166   (262)  (32)  (646)  935 
Share in profit (loss) of equity-accounted investee  -   -   1   -   (5)  (1)  (5)
Segment profit (loss) before income tax  1,631   78   167   (262)  (37)  (647)  930 
Income tax  399   17   42   (330)  -   314   442 
Segment results - net profit (loss)  1,232   61   125   68   (37)  (961)  488 
Additional information:                            
Segment assets  7,111   3,294   1,177   2,026   193   3,260   17,061 
Goodwill  -   -   6   -   10   3,050   3,066 
Investment in equity-accounted investee  -   -   5   -   1   12   18 
Segment liabilities  11,988   569   380   1,434