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B Communications Reports Financial Results For The Third Quarter of 2012

B Communications Ltd. (NASDAQ Global Market: BCOM)(TASE: BCOM) today reported its financial results for the third quarter ended September 30, 2012.

Bezeq’s Results: For the third quarter of 2012, the Bezeq Group reported revenues of NIS 2.5 billion ($ 638 million) and operating profit of NIS 667 million ($ 171 million). Bezeq’s EBITDA for the third quarter totaled NIS 1 billion ($ 262 million), representing an EBITDA margin of 41%. Net income for the period attributable to the shareholders of Bezeq totaled NIS 342 million ($ 87 million). Bezeq's cash flow from operating activities totaled NIS 1 billion ($ 262 million) during the third quarter of 2012.

Dividend from Bezeq: On October 10, 2012, B Communications received two dividend payments from Bezeq which together totaled NIS 464 million ($ 119 million). These dividend payments included a current dividend of NIS 309 million ($ 79 million), representing B Communications’ share of Bezeq’s net profit for the first half of 2012, and a special dividend of NIS 155 million ($ 40 million), representing B Communications’ share of the fourth installment of six special dividend payments declared by Bezeq and approved by its shareholders last year.

Cash Position: As of September 30, 2012, B Communications’ unconsolidated cash and cash equivalents (including dividend receivable) totaled NIS 853 million ($ 218 million), its unconsolidated total debt was NIS 4.2 billion ($ 1.1 billion), and its net debt totaled NIS 3.3 billion ($ 849 million).

B Communications’ Unconsolidated Balance Sheet Data*

  September 30,   December 31,   September 30,   December 31,
2012 2011 2012 2011
(NIS millions) ($ millions)
Short term liabilities 470 526 120 134
Long term liabilities 3,705 3,874 947 991
Total liabilities 4,175 4,400 1,067 1,125
Cash and cash equivalents 389 354 99 91
Dividend receivable 464 - 119 -
Total net debt 3,322 4,046 849 1,034
 

* Does not include the balance sheet of Bezeq.

B Communications’ Third Quarter Consolidated Financial Results

B Communications’ revenues for the third quarter of 2012 were NIS 2,494 million ($ 638 million), a 15% decrease compared with NIS 2,917 million ($ 746 million) reported in the third quarter of 2011. 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 shareholders for the third quarter totaled NIS 55 million ($ 14 million), compared to NIS 31 million ($ 8 million) reported in the third quarter of 2011. This reflects 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 the Bezeq acquisition 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. 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.

 
During the third quarter of 2012, B Communications recorded amortization expenses related to the Bezeq purchase price allocation (“Bezeq PPA”) of NIS 307 million ($78 million), net. From the Bezeq acquisition date (April 14, 2010) until the end of the reporting quarter, B Communications has amortized approximately 53% of the total Bezeq PPA. It expects to amortize an additional 5% in the fourth quarter of 2012.
 
The Company's Bezeq PPA amortization expense is a non-cash expense that 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’ unconsolidated financial expenses for the third quarter totaled NIS 65 million ($ 17 million). These expenses consisted primarily of NIS 64 million ($ 16 million) of interest and CPI linkage expense on the long-term loans incurred to finance the Bezeq acquisition and NIS 14 million ($ 4 million) of expenses related to the Company’s debentures. These expenses were offset by financial income of NIS 13 million ($ 3 million) generated by our short term investments. The significant financial expenses recorded in the third quarter were due primarily to high CPI linkage expenses attributed to the 0.85% increase in the Israeli CPI, to which approximately half of B Communications’ total debt is linked.

 

B Communications’ Unconsolidated Financial Results

  Quarter ended September 30,   Quarter ended September 30,
2012   2011 2012   2011
(NIS millions) (US$ millions)
Revenues - - - -
Financial expenses (65) (93) (17) (24)
Other expenses (1) (2) - -
PPA amortization, net (95) (107) (24) (27)
Interest in Bezeq's net income 106 171 27 43
Net loss (55) (31) (14) (8)
 

Comments of Management

Commenting on the results, Doron Turgeman, CEO of B Communications' said, “The third quarter of 2012 was another stable period for Bezeq, demonstrating the cash flow-generating power of its formidable position in Israel’s telecommunications market. Due to the continued uninterrupted payment of both regular and special dividends, including the latest installment which we received last month, we have succeeded in building our cash reserves to their current strong level, and are on track with plans to continue expanding our financial stability and liquidity in the quarters to come. Despite current conditions in the Israeli capital market, as a long-term communications player with loans that are not burdened by share price-related covenants, we are able to manage our cash position entirely according to plan, relying upon steady and visible cash flow to fulfill all loan commitments while continuing to accelerate our repayments.”

Bezeq Group Results (Consolidated)

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, 2012. For a full discussion of Bezeq’s results for the quarter, please refer to http://ir.bezeq.co.il.

               
Bezeq Group (consolidated)  

Q3 2012

 

Q3 2011

 

Change

(NIS millions)
Revenues 2,494 2,917 -14.5%
Operating profit 667 944 -29.3%
EBITDA 1,026 1,301 -21.1%
EBITDA margin 41.1% 44.6%
Net profit attributable to Company shareholders 342 550 -37.8%
Diluted EPS (NIS)   0.13   0.20   -35.0%
Cash flow from operating activities 1,024 882 16.1%
Payments for investments, net 270 374 -27.8%
Free cash flow 1   754   508   48.4%
Net debt/EBITDA (end of period) 2 1.64 1.24
Net debt/shareholders' equity (end of period)   3.69   2.93    
 
1 Free cash flow is defined as cash flows from operating activities less net payments for investments.
2 EBITDA in this calculation refers to the trailing twelve months.
 

Revenues of the Bezeq Group in the third quarter of 2012 amounted to NIS 2.49 billion compared with NIS 2.92 billion in the corresponding quarter of 2011, a decrease of 14.5%. Most of the decrease in the Bezeq Group's revenues was due to lower revenues from the sale of cellular handsets and the erosion of revenues from cellular services.

Operating profit of the Bezeq Group in the third quarter of 2012 amounted to NIS 667 million, compared with NIS 944 million in the corresponding quarter of 2011, a decrease of 29.3%. Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter of 2012 amounted to NIS 1.03 billion (EBITDA margin of 41.1%), compared with NIS 1.30 billion (EBITDA margin of 44.6%) in the corresponding quarter of 2011, a decrease of 21.1%. Net profit attributable to Bezeq shareholders in the third quarter of 2012 amounted to NIS 342 million compared with NIS 550 million in the corresponding quarter of 2011, a decrease of 37.8%. The decrease in profitability metrics was primarily due to a decrease in profitability in the cellular segment as well as lower capital gains from real estate and copper sales in the Fixed-line segment compared to the corresponding quarter of 2011.

Cash flow from operating activities in the third quarter of 2012 amounted to NIS 1.02 billion compared with NIS 882 million in the corresponding quarter of 2011, an increase of 16.1% mainly due to improved working capital in the cellular segment. Free cash flow in the third quarter of 2012 amounted to NIS 754 million compared with NIS 508 million in the corresponding quarter of 2011, an increase of 48.4%. The increase in free cash flow was due to an increase in cash flow from operating activities as well as the completion of large infrastructure projects initiated in prior years.

Gross capital expenditures (CAPEX), in the third quarter of 2012 amounted to NIS 346 million compared with NIS 437 million in the corresponding quarter of 2011, a decrease of 20.8%. The Bezeq Group's CAPEX to consolidated sales ratio in the third quarter of 2012 was 13.9%, compared with 15.0% in the corresponding quarter of 2011.

As of September 30, 2012, gross financial debt of the Bezeq Group was NIS 8.94 billion, compared with NIS 9.61 billion as of September 30, 2011. The net financial debt of the Bezeq Group was NIS 7.19 billion compared with NIS 5.99 billion as of September 30, 2011. At the end of September 2012, the Bezeq Group's net financial debt to EBITDA ratio was 1.64, compared with 1.24 at the end of September 2011.

Notes:

   

A.

 

Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of September 30, 2012 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of September 30, 2012 (NIS 3.912 = 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 our 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 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.bcommunications.co.il
www.ir.bezeq.co.il
www.eurocom.co.il
www.igld.com

Forward-Looking Statements
This press release contains forward-looking statements that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, general business conditions in 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.

B Communications Ltd.

Consolidated Statement of Financial Position
 
(In millions)
       

Convenience
translation into
U.S. dollars

September 30 September 30 September 30 December 31
2012 2012 2011 2011
(Unaudited) (Unaudited) (Unaudited) (Audited)
NIS US$ NIS NIS
Assets
Cash and cash equivalents 679 173 1,595 1,369
Investments including derivatives 1,456 372 2,411 1,284
Trade receivables 3,044 778 3,007 3,059
Other receivables 261 67 236 295
Inventory 149 38 199 204
Assets classified as held-for-sale 164 42 102 158
 
Total current assets 5,753 1,470 7,550 6,369
 
Investments including derivatives 94 24 115 119
Long-term trade and other receivables 1,193 305 1,594 1,499
Property, plant and equipment 6,811 1,741 7,392 7,143
Intangible assets 7,189 1,838 8,342 8,085
Deferred and other expenses 406 104 385 412
Investments in equity-accounted investee
(mainly loans) 984 251 1,031 1,059
Deferred tax assets 144 37 218 223
 
Total non-current assets 16,821 4,300 19,077 18,540
 
Total assets 22,574 5,770 26,627 24,909
 

B Communications Ltd.

Consolidated Statement of Financial Position (cont’d)
 

(In millions)

       

Convenience
translation into
U.S. dollars

September 30 September 30 September 30 December 31
2012 2012 2011 2011
(Unaudited) (Unaudited) (Unaudited) (Audited)
NIS US$ NIS NIS
Liabilities

Short-term bank credit, current maturities of long-term liabilities and debentures

934 239 1,442 1,185
Trade payables 772 197 918 892
Other payables including derivatives 741 189 997 784
Dividend payable 1,366 349 1,542 669
Current tax liabilities 564 144 521 499
Deferred income 60 15 52 56
Provisions 172 44 220 186
Employee benefits 288 74 467 389
Total current liabilities 4,897 1,251 6,159 4,660
 
Debentures 5,043 1,289 5,397 5,403
Bank loans 6,524 1,668 6,876 6,753
Loans from institutions and others 546 140 548 544
Dividend payable 326 83 771 636
Employee benefits 228 58 271 229
Other liabilities 86 22 157 186
Provisions 71 18 70 69
Deferred tax liabilities 1,107 283 1,249 1,426
Total non-current liabilities 13,931 3,561 15,339 15,246
 
Total liabilities 18,828 4,812 21,498 19,906
 
Equity
 
Total equity attributable to equity holders
of the Company 833 213 914 936
Non-controlling interests 2,913 745 4,215 4,067
Total equity 3,746 958 5,129 5,003
 
Total liabilities and equity 22,574 5,770 26,627 24,909
 

B Communications Ltd.

Consolidated Statements of Income
 
(In millions, except per share data)
     
Nine months period ended Three months period ended Year ended
September 30 September 30 December 31
 

Convenience
translation
into
U.S. dollars

   

Convenience
translation
into
U.S. dollars

 
2012 2012 2011 2012 2012 2011 2011
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
NIS US$ NIS NIS US$ NIS NIS
Revenues 7,829 2,001 8,723 2,494 638 2,917 11,373
 
Cost and expenses
Depreciation and amortization 2,267 579 2,113 757 194 715 2,984
Salaries 1,528 391 1,622 511 131 549 2,114
General and operating expenses 3,015 771 3,447 963 246 1,183 4,462
Other operating expenses, net 52 13 283 19 5 1 326
 
6,862 1,754 7,465 2,250 576 2,448 9,886
 
Operating income 967 247 1,258 244 62 469 1,487
 
Finance expenses, net 287 73 401 107 27 162 498
 

Income after financing expenses, net

680 174 857 137 35 307 989
 

Share in losses of equity-accounted investee

233 60 203 93 24 66 216
 
Income before income tax 447 114 654 44 11 241 773
 
Income tax 279 71 340 75 19 136 653
 
Net income 168 43 314 (31) (8) 105 120
 
Income (loss) attributable to:
Owners of the Company (105) (27) (98) (55) (14) (31) (219)
Non-controlling interests 273 70 412 24 6 136 339
 
Net income 168 43 314 (31) (8) 105 120
 
 
Net loss per share, basic (3.53) (0.90) (3.39) (1.84) (0.47) (1.10) (7.34)
 
Net loss per share, diluted (3.55) (0.91) (3.44) (1.84) (0.47) (1.11) (7.38)

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