B Communications Ltd. (NASDAQ Global Select Market and TASE: BCOM),
a holding company with a controlling interest in Israel’s largest
telecommunications provider, Bezeq, The Israel Telecommunication
Corporation Ltd. (TASE: BEZQ), today reported its financial results
for the fourth quarter and year ended December 31, 2018.
Ami Barlev, CEO of B Communications:
"The Company's management is acting intensively
and transparently along with its debenture holders to formulate a
structured process with the goal of securing full payment to the
debenture holders while in parallel, strengthening the Company's
cash flow and shareholders' equity. The Company believes that it
has a range of viable business options and the financial
flexibility that will enable it to strengthen its cash flow and to
generate long-term and satisfactory understandings with its
debenture holders. Among such options is the issuance of
securities, which option has been made feasible as a result of the
recent approval received from the Ministry of Communications
permitting a further decrease in the ownership percentage of Bezeq
while retaining the control permit.
Management continues to believe that the
Company's base asset, Bezeq, is a quality asset, and a leading
player in communications and infrastructure markets in Israel.The
Company's management began and is continuing its discussions with
its shareholders in good faith and transparency in order to examine
investment possibilities on behalf of the Company's shareholders.
Nevertheless, there is no certainty that the discussions will
mature or will be successful. and the Company will at all times
consider considerations of efficiency and fairness in order to
enable rapid and quality debt servicing.
Taking into consideration the recent accounting
and financial circumstances with respect to the year-end results
and valuations of Bezeq, which were brought to the Company's
attention lately, but which impact Bezeq’s financial statements as
of and for the year ended December 31, 2018, the Company's
outstanding debt was classified as "short-term"."
It should be clarified that this classification
is under examination and will be examined up to the date our
audited annual financial statements are issued and may change
depending on the circumstances and progress of the negotiations and
arrangements detailed in this report.
Recent Developments
On March 19, 2019, Bezeq announced that it
expected to write off NIS 1.5 billion ($416 million) in its 2018
financial statements due to the impairment of assets in its
satellite TV subsidiary. As a result, the Company was required to
incur additional impairment charges on its consolidated balance
sheets, which resulted in being below debt covenants requiring
minimum shareholders’ equity and a minimum ratio of shareholders’
equity to total balance sheet on an unconsolidated basis as of
December 31, 2018.
On March 20, 2019, the Company announced that it
intends to withhold payments to its debenture holders until further
notice. During the past week, the Company held initial meetings
with its debenture holders as well as internal meetings in order to
formulate a plan that is mutually agreeable to the Company and its
debenture holders. No assurance can be given that such efforts will
be successful or that the debenture holders will not seek other
alternatives.
B Communications’ Unconsolidated Financial
Liabilities and Liquidity
As of December 31, 2018, B Communications’
unconsolidated liquidity balances (comprised of cash and cash
equivalents, short term investments and funds deposited in a
pledged account) totaled NIS 589 million ($157 million) and its
financial liabilities totaled NIS 2.47 billion ($658 million),
including NIS 2.2 billion ($597 million) of Series C Debentures and
NIS 229 million ($61 million) of Series B Debentures (including
accrued interest and unamortized premiums, discounts and debt
issuance costs for both series).All of the debt is now classified
as currently due.
(In
millions) |
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
Series B debentures |
|
|
229 |
|
|
|
61 |
|
|
|
460 |
|
Series C
debentures |
|
|
2,238 |
|
|
|
597 |
|
|
|
1,987 |
|
Total
financial liabilities |
|
|
2,467 |
|
|
|
658 |
|
|
|
2,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
short-term investments |
|
|
546 |
|
|
|
146 |
|
|
|
475 |
|
Pledged
account (*) |
|
|
43 |
|
|
|
11 |
|
|
|
36 |
|
Total
liquidity |
|
|
589 |
|
|
|
157 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
debt |
|
|
1,878 |
|
|
|
501 |
|
|
|
1,936 |
|
|
* |
Pledged for the benefit of the holders of the Series C Debentures.
Pursuant to the indenture for the Series C Debentures, the account
is required to include sufficient funds to meet the next interest
payment payable to the holders of those debentures. |
B Communications Unconsolidated Sources and
Uses for the Year Ended December 31, 2018
(In millions) |
|
NIS |
|
|
US$ |
|
|
|
|
|
|
|
|
Net
debt as of December 31, 2017 |
|
|
1,936 |
|
|
|
516 |
|
|
|
|
|
|
|
|
|
|
Dividends received from Bezeq |
|
|
(180 |
) |
|
|
(48 |
) |
Financing expenses, net |
|
|
97 |
|
|
|
26 |
|
Tax
payment |
|
|
6 |
|
|
|
2 |
|
Operating expenses |
|
|
19 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Net debt as of December
31, 2018 |
|
|
1,878 |
|
|
|
501 |
|
Recent private placement: On
January 20, 2019, the Company conducted a private placement of
7,385,600 of its ordinary shares, NIS 0.1 par value, to certain
institutional, “qualified” and private investors in Israel. The
Company’s gross proceeds from the offering was approximately NIS
118 million, based on a price of NIS 16 per share.
Bezeq's dividend distribution
policy: On March 6, 2018, Bezeq’s Board of Directors
decided to revise Bezeq's dividend distribution policy, whereby
commencing with Bezeq’s May 2018 distribution it will distribute on
a semi-annual basis to its shareholders, a dividend equal to 70% of
Bezeq's semi-annual net profit based on its consolidated financial
statements. On March 27, 2019, Bezeq's Board of
Directors resolved to cancel the Company's dividend distribution
policy, which was updated on March 6, 2018. The decision was made
from a position of clarity and transparency with its shareholders
and the circumstances that emerged due to the impossibility of
distributing a dividend as a result of the expected failure to meet
the "profit test" in the next two years. Accordingly, the Board of
Directors decided that it would not be appropriate to maintain a
dividend policy when in practice it is not effective.
The cancellation of Bezeq dividend policy will
not prevent Bezeq's Board of Directors from examining from time to
time the distribution of dividends to its shareholders, taking into
consideration, among other factors, the provisions of the law, the
state of its business and capital structure, and the need to
maintain a balance between ensuring its financial strength and
stability and the continued creation of value to its shareholders,
all of which are subject to the approval of the general meeting of
shareholders of Bezeq with respect to each specific distribution,
as prescribed in the Bezeq's Articles of Association.
Dividends from Bezeq: On
October 10, 2018, Bezeq distributed a cash dividend of NIS 318
million ($85 million), representing 70% of its net profit for the
first half of 2018. B Communications received NIS 84 million ($22
million) as its share of the dividend distribution. In May 2018,
Bezeq distributed a cash dividend of NIS 369 million ($98 million),
representing 70% of its net profit for the second half of 2017 and
B Communications received NIS 96 million ($26 million) as its share
of the dividend distribution.
The Bezeq Group 2019
Outlook
The Bezeq Group's outlook for 2019, based on the
existing information known to the Bezeq Group as of today:
Net profit attributable to shareholders: |
Approximately NIS 900 million - NIS 1.0
billion |
|
|
EBITDA: |
Approximately NIS 3.9 billion |
|
|
CAPEX: |
Approximately NIS 1.7 billion |
The Bezeq Group's forecasts in this section are
forward-looking information, as defined in the Securities Law. The
forecasts are based on The Bezeq Group's estimates, assumptions and
expectations and do not include the effects of the provision for
early retirement of employees and the signing of collective labor
agreements in the Bezeq Group, including the collective labor
agreement with DBS (see immediate report dated March 14, 2019), and
do not include the effects, if any, of the cancellation of the
Bezeq Group’s structural separation and the merger with the
subsidiary companies and everything involved therein in 2019. The
Bezeq Group's forecasts are based, inter alia, on its estimates
regarding the structure of competition in the telecommunications
market and regulation in this sector, the economic situation and
accordingly, the Bezeq Group's ability to implement its plans in
2019. Actual results may differ from these estimates taking note of
changes which may occur in the foregoing, in business conditions,
and the effects of regulatory decisions, technology changes and
developments in the structure of the telecommunications market, and
so forth, or the realization of one or more of the risk factors
listed in the Bezeq Group Periodic Report of 2018. The Bezeq Group
shall report, as required, deviations of more/less than 10% of the
range and amounts stated in the
forecast.
B Communications Fourth Quarter and Full
Year Consolidated Financial Results
B Communications’ consolidated revenues for the
fourth quarter of 2018 totaled NIS 2.32 billion ($621 million), a
5.4% decrease from NIS 2.46 billion reported in the fourth quarter
of 2017. For the full year 2018, B Communications’ revenues totaled
NIS 9.32 billion ($2.48 billion), a 4.8% decrease from NIS 9.8
billion reported in 2017. For both the current and the prior year
periods, B Communications’ consolidated revenues consisted entirely
of Bezeq’s revenues.
B Communications’ consolidated operating loss
for the fourth quarter of 2018 was NIS 2.18 billion ($582 million)
compared to operating profit of NIS 262 million in the fourth
quarter of 2017. For the full year 2018, B Communications’
consolidated operating loss totaled NIS 1.39 billion ($372 million)
compared to operating profit of NIS 1.6 billion in 2017. The
operating loss in 2018 is mainly due to non-cash impairment charges
at Bezeq of NIS 1.7 billion ($447 million), mainly with respect to
its investment in DBS (Bezeq’s satellite broadcasting subsidiary)
and by the NIS 559 million ($149 million) provision for early
retirement of Bezeq employees. In addition, B Communications had
impairment charges of NIS 656 million ($175 million) with respect
to its carrying value of Pelephone and Bezeq International (Bezeq’s
cellular communications and international communications and
internet services subsidiaries).
B Communications’ consolidated loss for the
fourth quarter of 2018 totaled NIS 2.14 billion ($573 million)
compared to net profit of NIS 43 million in the fourth quarter of
2017. For the full year 2018, B Communications’ consolidated loss
totaled NIS 1.97 billion ($526 million) compared to net profit of
NIS 741 million in 2017.
B Communications’ loss attributable to
shareholders for the fourth quarter of 2018 was NIS 830 million
($221 million) compared with a loss of NIS 45 million in the fourth
quarter of 2017. For the full year 2018, B Communications’ loss
attributable to shareholders was NIS 1.08 billion ($290 million)
compared with a net profit of NIS 78 million in 2017.
B Communications Fourth Quarter and Full
Year Unconsolidated Financial Results
(In
millions) |
|
Three months ended December
31, |
|
|
Year ended December 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing expenses, net |
|
|
(32 |
) |
|
|
(9 |
) |
|
|
(24 |
) |
|
|
(96 |
) |
|
|
(26 |
) |
|
|
(100 |
) |
Operating expenses |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(11 |
) |
|
|
(19 |
) |
|
|
(5 |
) |
|
|
(17 |
) |
PPA
amortization, net |
|
|
(331 |
) |
|
|
(88 |
) |
|
|
(64 |
) |
|
|
(691 |
) |
|
|
(184 |
) |
|
|
(130 |
) |
Interest
in Bezeq's net profit (loss) |
|
|
(463 |
) |
|
|
(124 |
) |
|
|
54 |
|
|
|
(280 |
) |
|
|
(75 |
) |
|
|
325 |
|
Net
profit (loss) |
|
|
(830 |
) |
|
|
(222 |
) |
|
|
(45 |
) |
|
|
(1,086 |
) |
|
|
(290 |
) |
|
|
78 |
|
As of December 31, 2018, B Communications held
approximately 26.3% of Bezeq's outstanding shares. B
Communications’ interest in Bezeq's loss for the fourth quarter of
2018 totaled NIS 463 million ($124 million), compared with net
profit of NIS 54 million reported in the fourth quarter of 2017.
The loss was due to impairment charges relating to DBS in the
amount of NIS 1.5 billion ($407 million) and a NIS 466 million
($124 million) provision for costs associated with the early
retirement of Bezeq Fixed-Line employees. For the full year 2018, B
Communications’ interest in Bezeq's loss totaled NIS 280 million
($75 million) compared to net profit of NIS 325 million in
2017.
During the fourth quarter and full year of 2018,
B Communications recorded net amortization expenses related to its
Bezeq purchase price allocation (“Bezeq PPA”) of NIS 8 million ($2
million) and NIS 35 million ($9 million), respectively. In
addition, B Communications incurred non-cash goodwill impairment
charges of NIS 323 million ($86 million) and NIS 656 million ($175
million) in the fourth quarter and full year of 2018 respectively,
with respect to the impairment of goodwill in Bezeq’s cellular
communications and international communications and internet
services subsidiaries. The impairment charges resulted from the
continued fierce competition in the Israeli cellular telephony, ILD
and ISP markets. From April 14, 2010, the date of the acquisition
of its interest in Bezeq, until December 31, 2018, B Communications
has amortized approximately 83% of the total Bezeq PPA. The Bezeq
PPA amortization expense is a non-cash expense that is subject to
adjustment.
B Communications' unconsolidated net financial
expenses for the fourth quarter of 2018 totaled NIS 32 million ($9
million) compared with net financial expenses of NIS 24 million in
the fourth quarter of 2017. Net financial expenses for the fourth
quarter of 2018 included NIS 25 million ($7 million) of financial
expenses related to the Company's Series B and C debentures and a
financial loss of NIS 7 million ($2 million) generated by short
term investments.
B Communications' unconsolidated net financial
expenses for 2018 totaled NIS 96 million ($26 million) compared
with NIS 100 million in 2017. Net financial expenses for 2018
included NIS 100 million ($27 million) of financial expenses
related to the Company's Series B and C debentures. These expenses
were partially offset by financial income of NIS 4 million ($1
million) generated by short term investments.
B Communications’ unconsolidated loss for the
fourth quarter of 2018 was NIS 830 million ($222 million) compared
with a loss of NIS 45 million in the fourth quarter of 2017. For
the full year 2018, B Communications’ unconsolidated loss totaled
NIS 1.08 billion ($290 million) compared with net profit of NIS 78
million in 2017. The loss in 2018 was mainly due to non-cash
impairment charges at Bezeq of NIS 1.5 billion ($407 million),
primarily with respect to its investment in DBS, and by the NIS 559
million ($149 million) provision for early retirement of Bezeq
employees. In addition, B Communications incurred impairment
charges of NIS 656 million ($175 million) with respect to Pelephone
and Bezeq International.
Bezeq Group Results
(Consolidated)
To provide further insight into its results, the
Company is providing the following summary of the consolidated
financial report of the Bezeq Group for the quarter and full year
ended December 31, 2018. For a full discussion of Bezeq’s results
for the quarter and full year ended December 31, 2018, please refer
to its website: http://ir.bezeq.co.il.
Bezeq Group (consolidated) |
|
Q4 2018 |
|
|
Q4 2017 |
|
|
% change |
|
|
FY – 2018 |
|
|
FY – 2017 |
|
|
% change |
|
|
|
(NIS millions) |
|
|
|
|
|
(NIS millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
2,326 |
|
|
|
2,458 |
|
|
|
(5.4 |
)% |
|
|
9,321 |
|
|
|
9,789 |
|
|
|
(4.8 |
)% |
Operating profit (loss) |
|
|
(1,810 |
) |
|
|
427 |
|
|
|
|
|
|
|
(548 |
) |
|
|
2,110 |
|
|
|
|
|
Operating margin |
|
|
- |
|
|
|
17.4 |
% |
|
|
|
|
|
|
- |
|
|
|
21.6 |
% |
|
|
|
|
Net profit (loss) |
|
|
(1,755 |
) |
|
|
205 |
|
|
|
|
|
|
|
(1,066 |
) |
|
|
1,235 |
|
|
|
|
|
Adjusted net profit1 |
|
|
199 |
|
|
|
299 |
|
|
|
(33.3 |
)% |
|
|
983 |
|
|
|
1,308 |
|
|
|
(24.8 |
)% |
EBITDA2 |
|
|
(1,230 |
) |
|
|
854 |
|
|
|
|
|
|
|
1,641 |
|
|
|
3,825 |
|
|
|
(57.1 |
)% |
EBITDA margin |
|
|
|
|
|
|
34.7 |
% |
|
|
|
|
|
|
17.6 |
% |
|
|
39.1 |
% |
|
|
|
|
Adjusted EBITDA3 |
|
|
853 |
|
|
|
950 |
|
|
|
(10.2 |
)% |
|
|
3,538 |
|
|
|
3,893 |
|
|
|
(9.1 |
)% |
Adjusted EBITDA margin |
|
|
36.7 |
% |
|
|
38.6 |
% |
|
|
|
|
|
|
38.0 |
% |
|
|
39.8 |
% |
|
|
|
|
Diluted EPS (LPS) (NIS) |
|
|
(0.63 |
) |
|
|
0.07 |
|
|
|
|
|
|
|
(0.39 |
) |
|
|
0.45 |
|
|
|
|
|
Cash flow from operating activities |
|
|
914 |
|
|
|
842 |
|
|
|
8.6 |
% |
|
|
3,512 |
|
|
|
3,525 |
|
|
|
(0.4 |
)% |
Payments for investments |
|
|
416 |
|
|
|
391 |
|
|
|
6.4 |
% |
|
|
1,727 |
|
|
|
1,530 |
|
|
|
12.9 |
% |
Free cash flow4 |
|
|
679 |
|
|
|
473 |
|
|
|
43.6 |
% |
|
|
1,598 |
|
|
|
2,093 |
|
|
|
(23.7 |
)% |
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,179 |
|
|
|
11,861 |
|
|
|
(5.7 |
)% |
Net debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,885 |
|
|
|
9,391 |
|
|
|
(5.4 |
)% |
Net debt/ Adjusted EBITDA (end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.51 |
|
|
|
241 |
|
|
|
|
|
- Adjusted Net profit is excluding the impact of other operating
expenses and impairment of assets.
- As of 1.1.2018, Bezeq has early adopted accounting standard
IFRS 16 “Leases”. The impact of the implementation of the
accounting standard on EBITDA and cash flow from operating
activities in 2018 was an increase of NIS 412 million and NIS 397
million, respectively.
- Adjusted EBITDA is excluding the impact of accounting standard
IFRS 16, other operating expenses and impairment of assets.
- Free cash flow is defined as cash flow from operating
activities less net payments for investments.
Revenues of the Bezeq Group in 2018 totaled NIS 9.32 billion
($2.5 billion) compared to NIS 9.79 billion in 2017, a decrease of
4.8%. Revenues of the Bezeq Group in the fourth quarter of 2018
were NIS 2.32 billion ($618 million), compared to NIS 2.46 billion
in the corresponding quarter of 2017, a decrease of 5.4%. The
decrease in revenues in both the fourth quarter and full year was
due to lower revenues across all key Bezeq Group segments.
Salary expenses of the Bezeq Group in 2018
totaled NIS 1.99 billion ($530 million), compared to NIS 2.01
billion in 2017, a decrease of 0.6%. Salary expenses of the Bezeq
Group in the fourth quarter of 2018 were NIS 485 million ($129
million) compared to NIS 505 million in the corresponding quarter
of 2017, a decrease of 4.0%. The decrease in salary expenses in
both the fourth quarter and full year was due to efficiency
measures implemented in all key Bezeq Group segments.
Operating expenses of the Bezeq Group in 2018
totaled NIS 3.38 billion ($901 million) compared to NIS 3.89
billion in 2017, a decrease of 13.2%. Operating expenses of the
Bezeq Group in the fourth quarter of 2018 were NIS 885 million
($236 million) compared to NIS 1 billion in the corresponding
quarter of 2017, a decrease of 11.8%. The decrease in both the
fourth quarter and full year was primarily due to the early
adoption of accounting standard IFRS 16. In addition, lower
expenses were recorded in terminal equipment and marketing and
general expenses in both periods.
Other operating expenses, net of the Bezeq Group
in 2018 was NIS 634 million ($169 million) compared with operating
income, net of NIS 19 million in 2017. Other operating expenses,
net of the Bezeq Group in the fourth quarter of 2018 amounted to
NIS 511 million ($136 million) compared to NIS 9 million in the
corresponding quarter of 2017. The increase in other operating
expenses in the both the fourth quarter and full year was primarily
as a result of the provision for early retirement of Bezeq Fixed
Line employees in the amount of NIS 559 million ($149 million) and
a provision for legal claims in the amount of NIS 90 million ($24
million).
Loss from impairment of assets of the Bezeq
Group in 2018 totaled NIS 1.68 billion ($447 million) compared to
NIS 87 million in 2017. The increase was primarily attributable to
the impairment relating to DBS.
Depreciation and amortization expenses of the
Bezeq Group in 2018 totaled NIS 2.19 billion ($584 million)
compared to NIS 1.72 billion in 2017, an increase of 27.6%.
Depreciation and amortization expenses of the Bezeq Group in the
fourth quarter of 2018 were NIS 580 million ($154 million),
compared to NIS 427 million in the corresponding quarter of 2017,
an increase of 35.8%. The increase in depreciation expenses in the
fourth quarter and full year was primarily due to the amortization
of right-of-use assets resulting from the early adoption of
accounting standard IFRS 16 beginning January 1, 2018.
Operating loss of the Bezeq Group in 2018
totaled NIS 548 billion ($146 million) compared to operating profit
of NIS 2.11 billion in 2017. Operating loss of the Bezeq Group in
the fourth quarter of 2018 was NIS 1.8 billion ($478 million)
compared to operating profit of NIS 427 million in the
corresponding quarter of 2017. The loss in both the fourth quarter
and full year of 2018 was due to the NIS 1.7 billion ($478 million)
of impairment charges, mainly relating to DBS, the provision of NIS
559 million ($149 million) for costs associated with the early
retirement of Bezeq Fixed-Line employees and by lower revenues
across all key Bezeq Group segments.
Financing expenses, net of the Bezeq Group in
2018 totaled NIS 435 million ($116 million), compared to NIS 417
million in 2017, an increase of 4.31%. The increase in financing
expenses in 2018 was primarily due to the increase in financing
expenses at Bezeq Fixed-Line partially offset by the decrease in
DBS. In addition, finance expenses were impacted by the early
adoption of accounting standard IFRS 16 beginning January 1, 2018.
Financing expenses, net of the Bezeq Group in the fourth quarter of
2018 amounted to NIS 108 million ($28 million) compared to NIS 120
million in the corresponding quarter of 2017, a decrease of 10%.
The decrease in financing expenses in the fourth quarter was
primarily due to the decrease in financing expenses at DBS.
Tax expenses of the Bezeq Group in 2018 totaled
NIS 80 million ($21 million) compared to NIS 453 million in 2017, a
decrease of 82.3%. The decrease in tax expenses was primarily due
to a reduction in profitability as well as a decrease in the
corporate tax rate from 24% to 23% in 2018. The Bezeq Group
recorded a tax benefit of NIS 163 million ($43 million) in the
fourth quarter of 2018 compared to tax expense of NIS 101 million
in the corresponding quarter of 2017. The decrease in tax expenses
was primarily due to a reduction in profitability as well as a
decrease in the corporate tax rate from 24% to 23% in 2018.
The Bezeq Group incurred a loss of NIS 1.06
billion ($284 million) in 2018 compared to net profit of NIS 1.24
billion in 2017. The Bezeq Group incurred a loss of NIS 1.75
billion ($468 million) in the fourth quarter of 2018 compared to
net profit of NIS 205 million in the corresponding quarter of
2017.
EBITDA of the Bezeq Group in 2018 totaled NIS
1.64 billion ($437 million) (EBITDA margin of 17.6%) compared to
NIS 3.83 billion (EBITDA margin of 39.1%) in 2017, a decrease of
57.1%. Negative EBITDA of the Bezeq Group in the fourth quarter of
2018 was NIS 1.23 billion ($328 million), compared to NIS 854
million (EBITDA margin of 34.7%) in the corresponding quarter of
2017.
Adjusted EBITDA of the Bezeq Group represents
EBITDA after adjusting for the impact of accounting standard IFRS
16, other operating expenses and loss from impairment of assets.
The adjusted EBITDA in 2018 totaled NIS 3.53 billion ($941 million)
(EBITDA margin of 38%) compared to NIS 3.89 billion (EBITDA margin
of 39.8%) in 2017. Adjusted EBITDA in the fourth quarter of 2018
totaled NIS 853 million ($227 million) (EBITDA margin of 36.7%)
compared to NIS 950 million (EBITDA margin of 38.6%) in the
corresponding quarter of 2017.
Cash flow from operating activities of the Bezeq
Group in 2018 totaled NIS 3.51 billion ($937 million) compared to
NIS 3.53 billion in 2017, a decrease of 0.4%. Cash flow from
operating activities of the Bezeq Group in the fourth quarter of
2018 was NIS 914 million ($243 million) compared to NIS 842 million
in the corresponding quarter of 2017, an increase of 8.6%.
Payments for investments (Capex) of the Bezeq
Group in 2018 totaled NIS 1.72 billion ($458 million) compared to
NIS 1.53 billion in 2017, an increase of 12.9%. The increase in
investments in 2018 was primarily due to payments of NIS 109
million for permit fees and taxes relating to the sale of "Sakia",
which had not been finalized as of December 31, 2018. The Bezeq
Group’s Capex in the fourth quarter of 2018 was NIS 416 million
($110 million) compared to NIS 391 million in the corresponding
quarter of 2017, an increase of 6.4%.
Free cash flow of the Bezeq Group in 2018
totaled NIS 1.6 billion ($426 million) compared to NIS 2.09 billion
in 2017, a decrease of 23.7%. The decrease in free cash flow in
2018 was primarily due to the aforementioned decrease in cash flow
from operating activities as well as lease payments pursuant to
accounting standard IFRS 16. Free cash flow of the Bezeq Group in
the fourth quarter of 2018 was NIS 679 million ($181 million)
compared to NIS 473 million in the corresponding quarter of 2017,
an increase of 43.6%. The increase in free cash flow in the fourth
quarter of 2018 was primarily due to an increase in proceeds from
the sale of real estate of NIS 272 million compared to NIS 22
million in the corresponding quarter of 2017.
Total debt of the Bezeq Group as of December 31,
2018 was NIS 11.2 billion ($2.98 billion) compared to NIS 11.9
billion as of December 31, 2017.
Net debt of the Bezeq Group was NIS 8.88 billion
($2.37 billion) as of December 31, 2018 compared to NIS 9.39
billion as of December 31, 2017.
Net debt to adjusted EBITDA ratio of the Bezeq
Group as of December 31, 2018, was 2.51 compared to 2.41 as of
December 31, 2017.
Notes:
Convenience translation to U.S
Dollars
Unless noted specifically otherwise, the dollar
denominated figures were converted to US$ using a convenience
translation based on the New Israeli Shekel (NIS)/US$ exchange rate
of NIS 3.748 = US$ 1 as published by the Bank of Israel for
December 31, 2018.
Use of non-IFRS financial
measures
We and the Bezeq Group’s management regularly
use supplemental non-IFRS financial measures internally to
understand, manage and evaluate its business and make operating
decisions. The following non-IFRS measures are provided in the
press release and accompanying supplemental information because
management believes these measurements are useful for investors and
financial institutions to analyze and compare companies on the
basis of operating performance:
- EBITDA - defined as net profit plus net interest expense,
provision for income taxes, depreciation and amortization;
- EBITDA trailing twelve months - defined as net profit plus net
interest expense, provision for income taxes, depreciation and
amortization during last twelve months;
- Net debt - defined as long and short-term liabilities minus
cash and cash equivalents and short-term investments; and
- Net debt to EBITDA ratio - defined as net debt divided by the
trailing twelve months EBITDA.
- Free Cash Flow (FCF) - defined as cash from operating
activities less cash for the purchase/sale of property, plant and
equipment, and intangible assets, net.
These non-IFRS financial measures may differ
materially from the non-IFRS financial measures used by other
companies.
We present the Bezeq Group’s EBITDA as a
supplemental performance measure because we believe that it
facilitates operating performance comparisons from period to period
and company to company by backing out potential differences caused
by variations in capital structure, tax positions (such as the
impact of changes in effective tax rates or net operating losses)
and the age of, and depreciation expenses associated with, fixed
assets (affecting relative depreciation expense).
EBITDA should not be considered in isolation or
as a substitute for net profit or other statement of operations or
cash flow data prepared in accordance with IFRS as a measure of
profitability or liquidity. EBITDA does not take into account our
debt service requirements and other commitments, including capital
expenditures, and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses. In addition,
EBITDA, as presented in this press release, may not be comparable
to similarly titled measures reported by other companies due to
differences in the way that these measures are calculated.
Management of Bezeq believes that free cash flow
is an important measure of its liquidity as well as its ability to
service long-term debt, fund future growth and to provide a return
to shareholders. We also believe this free cash flow definition
does not have any material limitations. Free cash flow is a
financial index which is not based on IFRS. Free cash flow is
defined as cash from operating activities less cash for the
purchase/sale of property, plant and equipment, and intangible
assets, net. Bezeq also uses the net debt and net debt to EBITDA
trailing twelve months ratio to analyze its financial capacity for
further leverage and in analyzing the company’s business and
financial condition. Net debt reflects long and short-term
liabilities minus cash and cash equivalents and investments.
Reconciliations between the Bezeq Group’s
results on an IFRS and non-IFRS basis with respect to these
non-IFRS measurements are provided in tables immediately following
the Company's consolidated results. The non-IFRS financial measures
are not meant to be considered in isolation or as a substitute for
comparable IFRS measures and should be read only in conjunction
with its consolidated financial statements prepared in accordance
with IFRS. IFRS 16
Effective January 1, 2018 ("the Initial
Application Date"), the Bezeq Group early adopted IFRS 16, Leases
(“IFRS16” or "the Standard "). The main effect of early adoption of
IFRS16 is reflected in the cancellation of the existing requirement
that lessees classify leases as operating (off-balance sheet) or
financing leases. The new Standard presents a uniform model for the
accounting treatment of all leases, pursuant to which the lessee is
to recognize the asset and the liability in respect of the lease in
its financial statements. The Standard also sets out new disclosure
requirements that are more extensive than the existing
requirements. Accordingly, until the Initial Application Date, the
Bezeq Group classified most of the leases in which it is the lessee
as operating leases, since it did not substantially bear all the
risks and rewards from the assets.
In accordance with IFRS16, for agreements in
which the Bezeq Group is the lessee, the Bezeq Group applies a
unified accounting model, by which it recognizes a right-of-use
asset and a lease liability at the inception of the lease contract
for all the leases in which the Bezeq Group has a right to control
identified assets for a specified period of time. Accordingly, the
Bezeq Group recognizes depreciation and amortization expenses in
respect of a right-of-use asset, tests a right-of-use asset for
impairment in accordance with IAS 36, Impairment of Assets
(hereinafter: “IAS 36”) and recognizes financing expenses on a
lease liability. Therefore, as from the Initial Application Date,
lease expenses relating to assets leased under an operating lease,
which were presented as part of general and administrative expenses
in the income statement, are recognized as assets and written down
as depreciation and amortization expenses.
The Bezeq Group applies the standard using the
cumulative effect approach without a restatement of comparative
information.
In respect of all the leases, the Bezeq Group
has elected to apply the transitional provision of recognizing a
lease liability at the Initial Application Date according to the
present value of the future lease payments discounted at the
incremental interest rate of the lessee at that date and
concurrently recognizing a right-of-use asset at the same amount of
the liability, adjusted for any prepaid or accrued lease payments
that were recognized as an asset or liability before the Initial
Application Date. Therefore, application of the standard did not
have an effect on the balance of the Bezeq Group’s retained
earnings at the Initial Application Date.
Upon initial application, the Bezeq Group also
elected to apply the following expedients, as permitted by the
standard:
- Relying on a previous assessment of whether an arrangement is a
lease or contains a lease at the application date of the standard.
Accordingly, the agreements that were previously classified as
operating leases are accounted for in accordance with the new
Standard, and the agreements that were previously classified as
service contracts continue to be accounted for as such without
change.
- Applying a single discount rate to a portfolio of leases with
similar characteristics.
- Not separating non-lease components from the lease components
and accounting for all the components as a single lease
component.
- Relying on a previous assessment of whether a contract is
onerous in accordance with IAS 37 at the transition date, as an
alternative to assessing the impairment of right-of-use
assets.
- Excluding initial direct costs from the measurement of the
right-of-use asset at the Initial Application Date.
- Using hindsight in determining the lease period if the contract
includes options to extend or cancel the lease.
Presented below are the principal accounting
policies for leases in which the Bezeq Group is the lessee, which
were applied as from January 1, 2018 following the application of
the Standard:
(1) Determining whether an arrangement
contains a lease
At the inception of the arrangement, the Bezeq
Group determines whether the arrangement is or contains a lease and
examines whether the arrangement transfers the right to control the
use of an identifiable asset for a period of time in return for
payment. When assessing whether the arrangement transfers control
over the use of an identifiable asset, the Bezeq Group estimates,
over the lease term, whether it has both rights set out below:
A.The right to essentially obtain all the
economic rewards associated with the use of the identifiable
asset.
B.The right to direct the use of the
identifiable asset.
For lease contracts that include non-lease
components, such as services or maintenance, which are related to a
lease component, the Bezeq Group elected to account for the
contract as a single lease component without separating the
components.
(2) Leased assets and lease
liability
Contracts that award the Bezeq Group the right
to control the use of an identifiable asset over a period of time
for a consideration are accounted for as leases. At initial
recognition, the Bezeq Group recognizes a liability at the present
value of the future minimum lease payments (these payments do not
include variable lease payments that are not linked to the CPI, or
to any change in the rate of interest, or any change in the
exchange rate), and concurrently, the Bezeq Group recognizes a
right-of-use asset at the amount of the liability, adjusted for
lease payments paid in advance or accrued, plus direct costs
incurred in the lease.
Since the interest rate implicit in the lease is
not readily determinable, the incremental borrowing rate of the
Bezeq Group is used (the borrowing rate that the Bezeq Group would
be required to pay to borrow the amounts required to obtain an
asset at a similar value to the right-of-use asset in a similar
economic environment, in a similar period and with similar
collateral).
Subsequent to initial recognition, the asset is
accounted for using the cost model and it is amortized over the
lease term or the useful life of the asset (whichever is
earlier).
(3) The lease terms
The lease term is the non-cancellable period of
the lease plus periods covered by an extension or termination
option if it is reasonably certain that the Bezeq Group will
exercise or not exercise the option.
(4) Depreciation of right-of-use
asset
After lease commencement, a right-of-use asset
is measured on a cost basis less accumulated depreciation and
accumulated impairment losses and is adjusted for re-measurements
of the lease liability. Depreciation is calculated on a
straight-line basis over the useful life or contractual lease
period, whichever earlier, as follows:
Type of asset |
Weighted average depreciation period as
of January 1, 2018 (In years) |
Cellular communications sites |
6.5 |
Buildings |
7 |
Vehicles |
2 |
At the Initial Application Date of IFRS 16, the
Bezeq Group recognized right-of-use assets and lease liabilities in
the amount of NIS 1.6 billion.
In measurement of the lease liabilities, the
Bezeq Group discounted lease payments using the nominal incremental
borrowing rate at January 1, 2018. The discount rates used to
measure lease liabilities range between 1.3% and 3.6% (weighted
average of 1.5%). This range is affected by differences in the
lease term.
The difference between the Bezeq Group’s
agreements for the minimum contractual lease payments in the amount
of NIS 1.0 billion, as reported in Note 21A to the Annual Financial
Statements, and the lease liabilities recognized at the Initial
Application Date, amounting to NIS 1.5 billion, is mainly due to
the options for extending the lease, which will most likely be
exercised, which were not included in Note 21A to the Annual
Statements.
About B Communications Ltd.
B Communications is a holding company with the
controlling interest in Israel’s largest telecommunications
provider, Bezeq. For more information please visit the following
Internet sites:
www.igld.comwww.bcommunications.co.il
www.ir.bezeq.co.il
Forward-Looking Statements
This press release contains forward-looking
statements that are subject to risks and uncertainties. Factors
that could cause actual results to differ materially from these
forward-looking statements include, but are not limited to, general
business conditions in the industry, changes in the regulatory and
legal compliance environments, the failure to manage growth and
other risks detailed from time to time in B Communications' filings
with the Securities Exchange Commission. These documents contain
and identify other important factors that could cause actual
results to differ materially from those contained in our
projections or forward-looking statements. Stockholders and other
readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on
which they are made. We undertake no obligation to update publicly
or revise any forward-looking statement.
At this stage, there is no certainty regarding
the maturity of the discussions and contacts between the Company
and its debenture holders and shareholders, but the Company's Board
of Directors believes that in light of the current circumstances
described in the Company's recent reports it is obliged to
participate in such discussions, both transparently and in good
faith.
For further information, please
contact:
Yuval Snir - IR
ManagerYuval@igld.com / Tel:
+972-3-924-0000
Hadas Friedman – Investor
RelationsHadas@km-ir.co.il / Tel:
+972-3-516-7620B Communications Ltd.
Consolidated Statements of Financial
Position as at December 31,
(In millions)
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
Unaudited |
|
|
Unaudited |
|
|
Audited |
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,104 |
|
|
|
295 |
|
|
|
2,386 |
|
Investments |
|
|
1,780 |
|
|
|
475 |
|
|
|
596 |
|
Trade
receivables |
|
|
1,773 |
|
|
|
473 |
|
|
|
1,915 |
|
Other
receivables |
|
|
269 |
|
|
|
71 |
|
|
|
270 |
|
Related
party |
|
|
- |
|
|
|
- |
|
|
|
43 |
|
Inventory |
|
|
97 |
|
|
|
26 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
5,023 |
|
|
|
1,340 |
|
|
|
5,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Trade
and other receivables |
|
|
470 |
|
|
|
126 |
|
|
|
493 |
|
Property, plant and equipment |
|
|
6,346 |
|
|
|
1,693 |
|
|
|
6,940 |
|
Intangible assets |
|
|
4,190 |
|
|
|
1,118 |
|
|
|
5,840 |
|
Deferred
expenses and investments |
|
|
507 |
|
|
|
135 |
|
|
|
558 |
|
Broadcasting rights |
|
|
60 |
|
|
|
16 |
|
|
|
454 |
|
Rights
of use assets |
|
|
1,504 |
|
|
|
401 |
|
|
|
- |
|
Deferred
tax assets |
|
|
1,205 |
|
|
|
322 |
|
|
|
1,019 |
|
Investment Property |
|
|
58 |
|
|
|
15 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current assets |
|
|
14,340 |
|
|
|
3,826 |
|
|
|
15,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
19,363 |
|
|
|
5,166 |
|
|
|
20,639 |
|
B Communications Ltd.
Consolidated Statements of Financial
Position as at December 31, (cont’d)
(In millions)
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
Unaudited |
|
|
Unaudited |
|
|
Audited |
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Bank loans and credit and debentures |
|
|
3,997 |
|
|
|
1,066 |
|
|
|
1,858 |
|
Leases
rights liabilities |
|
|
445 |
|
|
|
119 |
|
|
|
- |
|
Trade
and other payables |
|
|
1,702 |
|
|
|
454 |
|
|
|
1,719 |
|
Current
tax liabilities |
|
|
8 |
|
|
|
2 |
|
|
|
160 |
|
Provisions |
|
|
175 |
|
|
|
47 |
|
|
|
94 |
|
Employee
benefits |
|
|
581 |
|
|
|
155 |
|
|
|
280 |
|
Total
current liabilities |
|
|
6,908 |
|
|
|
1,843 |
|
|
|
4,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loans and debentures |
|
|
9,637 |
|
|
|
2,571 |
|
|
|
12,437 |
|
Leases
rights liabilities |
|
|
1,106 |
|
|
|
295 |
|
|
|
- |
|
Employee
benefits |
|
|
445 |
|
|
|
119 |
|
|
|
272 |
|
Other
liabilities |
|
|
175 |
|
|
|
47 |
|
|
|
234 |
|
Provisions |
|
|
38 |
|
|
|
10 |
|
|
|
40 |
|
Deferred
tax liabilities |
|
|
401 |
|
|
|
107 |
|
|
|
459 |
|
Total
non-current liabilities |
|
|
11,802 |
|
|
|
3,149 |
|
|
|
13,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
18,710 |
|
|
|
4,992 |
|
|
|
17,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to shareholders of the Company |
|
|
171 |
|
|
|
45 |
|
|
|
1,246 |
|
Non-controlling interests |
|
|
482 |
|
|
|
129 |
|
|
|
1,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity |
|
|
653 |
|
|
|
174 |
|
|
|
3,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and equity |
|
|
19,363 |
|
|
|
5,166 |
|
|
|
20,639 |
|
B Communications Ltd.
Consolidated Statements of Income for the
Year Ended December 31,
(In millions except per share
data)
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
Unaudited |
|
|
Unaudited |
|
|
Audited |
|
Revenues |
|
|
9,321 |
|
|
|
2,487 |
|
|
|
9,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,364 |
|
|
|
630 |
|
|
|
2,117 |
|
Salaries |
|
|
1,995 |
|
|
|
532 |
|
|
|
2,007 |
|
General
and operating expenses |
|
|
3,394 |
|
|
|
905 |
|
|
|
3,906 |
|
Loss
from impairment of assets |
|
|
2,331 |
|
|
|
622 |
|
|
|
129 |
|
Other
operating expense, net |
|
|
633 |
|
|
|
169 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,717 |
|
|
|
2,858 |
|
|
|
8,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
(1,396 |
) |
|
|
(371 |
) |
|
|
1,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing expenses, net |
|
|
531 |
|
|
|
142 |
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) after financing expenses, net |
|
|
(1,927 |
) |
|
|
(513 |
) |
|
|
1,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of
loss in |
|
|
|
|
|
|
|
|
|
|
|
|
Equity-accounted investee |
|
|
3 |
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before income tax |
|
|
(1,930 |
) |
|
|
(514 |
) |
|
|
1,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expenses |
|
|
40 |
|
|
|
11 |
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
profit (loss) for the year |
|
|
(1,970 |
) |
|
|
(525 |
) |
|
|
741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of the Company |
|
|
(1,086 |
) |
|
|
(290 |
) |
|
|
78 |
|
Non-controlling interests |
|
|
(884 |
) |
|
|
(235 |
) |
|
|
663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
profit (loss) for the year |
|
|
(1,970 |
) |
|
|
(525 |
) |
|
|
741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(36.35 |
) |
|
|
(9.7 |
) |
|
|
2.62 |
|
Diluted |
|
|
(36.35 |
) |
|
|
(9.7 |
) |
|
|
2.62 |
|
Reconciliation for NON-IFRS
Measures
EBITDA
The following is a reconciliation of the Bezeq
Group’s net profit to EBITDA:
(In
millions) |
|
Three-month period ended December
31, |
|
|
Year ended December 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
|
|
(1,755 |
) |
|
|
(468 |
) |
|
|
205 |
|
|
|
(1,066 |
) |
|
|
(284 |
) |
|
|
1,235 |
|
Tax
expenses (income) |
|
|
(163 |
) |
|
|
(43 |
) |
|
|
101 |
|
|
|
80 |
|
|
|
21 |
|
|
|
453 |
|
Share of
loss (income) in equity- accounted investee |
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
|
5 |
|
Financing expenses, net |
|
|
108 |
|
|
|
29 |
|
|
|
120 |
|
|
|
435 |
|
|
|
116 |
|
|
|
417 |
|
Depreciation and amortization |
|
|
580 |
|
|
|
155 |
|
|
|
427 |
|
|
|
2,189 |
|
|
|
584 |
|
|
|
1,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
(1,230 |
) |
|
|
(327 |
) |
|
|
854 |
|
|
|
1,641 |
|
|
|
438 |
|
|
|
3,825 |
|
Net Debt
The following table shows the calculation of the
Bezeq Group’s net debt:
(In
millions) |
|
As at December 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
|
|
|
|
|
|
|
|
Short term bank loans and credit and debentures |
|
|
1,542 |
|
|
|
411 |
|
|
|
1,632 |
|
Non-current bank loans and debentures |
|
|
9,637 |
|
|
|
2,571 |
|
|
|
10,229 |
|
Cash and
cash equivalents |
|
|
(890 |
) |
|
|
(237 |
) |
|
|
(2,181 |
) |
Investments |
|
|
(1,404 |
) |
|
|
(375 |
) |
|
|
(289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
debt |
|
|
8,885 |
|
|
|
2,370 |
|
|
|
9,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Debt to Trailing Twelve Months EBITDA
Ratio
The following table shows the calculation of the
Bezeq Group’s net debt to Adjusted EBITDA trailing twelve months
ratio:
(In
millions) |
|
As at December 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
|
|
|
|
|
|
|
|
Net debt |
|
|
8,885 |
|
|
|
2,370 |
|
|
|
9,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trailing
twelve months Adjusted EBITDA |
|
|
3,538 |
|
|
|
943 |
|
|
|
3,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
to Adjusted EBITDA ratio |
|
|
2.51 |
|
|
|
2.51 |
|
|
|
2.41 |
|
Reconciliation
for NON-IFRS Measures
Free Cash Flow
The following table shows the calculation of the
Bezeq Group’s free cash flow:
(In
millions) |
|
Three-month period ended December
31, |
|
|
Year ended December 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities |
|
|
914 |
|
|
|
244 |
|
|
|
842 |
|
|
|
3,512 |
|
|
|
936 |
|
|
|
3,525 |
|
Purchase
of property, plant and equipment |
|
|
(327 |
) |
|
|
(87 |
) |
|
|
(296 |
) |
|
|
(1,216 |
) |
|
|
(324 |
) |
|
|
(1,131 |
) |
Investment in intangible assets and deferred expenses |
|
|
(89 |
) |
|
|
(24 |
) |
|
|
(95 |
) |
|
|
(390 |
) |
|
|
(104 |
) |
|
|
(399 |
) |
Lease
payments |
|
|
(91 |
) |
|
|
(25 |
) |
|
|
- |
|
|
|
(422 |
) |
|
|
(113 |
) |
|
|
- |
|
Permit
fee |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(121 |
) |
|
|
(32 |
) |
|
|
- |
|
Betterment tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(80 |
) |
|
|
(21 |
) |
|
|
- |
|
Proceeds
from the sale of property, plant and equipment |
|
|
272 |
|
|
|
73 |
|
|
|
22 |
|
|
|
315 |
|
|
|
84 |
|
|
|
98 |
|
Free
cash flow |
|
|
679 |
|
|
|
181 |
|
|
|
473 |
|
|
|
1,598 |
|
|
|
426 |
|
|
|
2,093 |
|
Effect of Early Adoption of
IFRS16
The tables below summarize the effects on the
consolidated statement of financial position as at December 31,
2018 and on the consolidated statements of income for 2018,
assuming the Bezeq Group's previous policy regarding leases
continued during that period.
Effect on the consolidated statement of
financial position as at December 31, 2018:
|
|
In accordance with the previous policy |
|
|
Change |
|
|
In accordance with IFRS 16 |
|
(In
millions) |
|
NIS |
|
|
NIS |
|
|
NIS |
|
|
|
|
|
|
|
|
|
|
|
Other receivables |
|
|
321 |
|
|
|
(52 |
) |
|
|
269 |
|
Property, plant and equipment |
|
|
6,348 |
|
|
|
(2 |
) |
|
|
6,346 |
|
Intangible assets |
|
|
4,191 |
|
|
|
(1 |
) |
|
|
4,190 |
|
Right-of-use assets |
|
|
- |
|
|
|
1,504 |
|
|
|
1,504 |
|
Trade
and other payables |
|
|
1,791 |
|
|
|
(89 |
) |
|
|
1,702 |
|
Short-term lease liabilities |
|
|
- |
|
|
|
445 |
|
|
|
445 |
|
Long-term lease liabilities |
|
|
- |
|
|
|
1,106 |
|
|
|
1,106 |
|
Equity
attributable to shareholders |
|
|
175 |
|
|
|
(4 |
) |
|
|
171 |
|
Non-controlling interests |
|
|
491 |
|
|
|
(9 |
) |
|
|
482 |
|
Effect on the consolidated statement of income
for the year ended December 31, 2018:
|
|
In accordance with the previous policy |
|
|
Change |
|
|
In accordance with IFRS 16 |
|
(In
millions) |
|
NIS |
|
|
NIS |
|
|
NIS |
|
|
|
|
|
|
|
|
|
|
|
General and operating expenses |
|
|
3,806 |
|
|
|
(412 |
) |
|
|
3,394 |
|
Depreciation and amortization |
|
|
1,965 |
|
|
|
399 |
|
|
|
2,364 |
|
Loss
from impairment of assets |
|
|
2,328 |
|
|
|
3 |
|
|
|
2,331 |
|
Operating loss |
|
|
(1,406 |
) |
|
|
10 |
|
|
|
(1,396 |
) |
Financing expenses, net |
|
|
505 |
|
|
|
26 |
|
|
|
531 |
|
Loss
after financing expenses |
|
|
(1,911 |
) |
|
|
(16 |
) |
|
|
(1,927 |
) |
Loss
before income tax |
|
|
(1,914 |
) |
|
|
(16 |
) |
|
|
(1,930 |
) |
Income
tax |
|
|
43 |
|
|
|
(3 |
) |
|
|
40 |
|
Loss for
the period |
|
|
(1,957 |
) |
|
|
(13 |
) |
|
|
(1,970 |
) |
Loss
attributable to shareholders of the Company |
|
|
(1,082 |
) |
|
|
(4 |
) |
|
|
(1,086 |
) |
loss
attributable to non-controlling interests |
|
|
(875 |
) |
|
|
(9 |
) |
|
|
(884 |
) |
Designated Disclosure with Respect to
the Company's Projected Cash Flows
In connection with the issuance of our Series C
Debentures in September 2016, we undertook to comply with the
"hybrid model disclosure requirements" as determined by the Israeli
Securities Authority and as described in the prospectus governing
our Series C Debentures.
This model provides that in the event certain
financial "warning signs" exist, and for as long as they exist, we
will be subject to certain disclosure obligations towards the
holders of our Series C Debentures.
In examining the existence of warning signs as
of December 31, 2018, our board of directors noted that our
unconsolidated unaudited cash flow statement for the fourth quarter
of 2018 reflects that we, as expected, had a continuing negative
cash flow from operating activities of NIS 4 million. In addition,
the Company’s unaudited statements of financial position as of
December 31, 2018, reflect that the Company had negative working
capital of approximately NIS 1.9 billion as of such date as a
result of the classification of the Compan'y long term debt to
“short term“.
As long as the Company does not reach
understandings with its debenture holders by the signing date of
its annual financial statements which will cause the insolvancy of
the Company, , the auditors report for the Company's annual
financial statements will include a "going concern warning". At
this stage, and as detailed in this report, the Company is
negotiating with both its debenture holders and shareholders and
there is no certainty as to the success of the negotiations.
As of this date, the Company is in continuous
discussions with its debenture holders in order to formulate an
agreement regarding the structure of the Company's debt, including
taking into account the cessation of payments to the debenture
holders, as noted in the Company's previous reports to the
public.
The Company and the debenture holders are
continuing the aforementioned negotiations and are examining
possibilities for holding a joint discussion with representatives
of Internet Gold in order to formulate understandings regarding the
possibility of making an investment in the Company, enabling the
Company to strengthen it equity position.
Disclosure with Respect to the Company's
Requirements Under Series C Debentures
The Company declares with respect to the
reporting period as follows:
- The Company did not record in favor of a third party any lien
of any rank whatsoever over its direct or indirect holdings of
691,361,036 shares of Bezeq (the “Bezeq Shares”) including over any
of the rights accompanying such shares.
- The Company did not make any disposition of the Bezeq
Shares.
- The Company did not assume any financial debt (as defined in
the Trust Deed of the Series C Debentures) during the reporting
period (other than in the framework of the issuance of the
Debentures, and its wholly owned subsidiaries, including B
Communications (SP1) and B Communications (SP2) did not issue any
financial debt whatsoever during the reporting period.
- As of the reporting date, the Company holds approximately
26.34% of Bezeq’s outstanding shares, directly and through its
subsidiary.
- The equity attributable to the Company’s shareholders (not
including non-controlling interests) according to this report
amounts to NIS 171 million and represents 6.5% of the Company’s
total balance sheet on an unconsolidated basis.
B Communications’ Unconsolidated Statement
of Financial position as at December 31,
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
(In
millions) |
|
NIS |
|
|
US$ |
|
|
NIS |
|
|
|
Unaudited |
|
|
Unaudited |
|
|
Audited |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
213 |
|
|
|
56 |
|
|
|
205 |
|
Short-term investments |
|
|
376 |
|
|
|
100 |
|
|
|
306 |
|
Other
receivables |
|
|
2 |
|
|
|
1 |
|
|
|
- |
|
Total
current assets |
|
|
591 |
|
|
|
157 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in an investee (*) |
|
|
2,055 |
|
|
|
548 |
|
|
|
3,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
2,646 |
|
|
|
705 |
|
|
|
3,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Current
maturities of debentures |
|
|
2,455 |
|
|
|
655 |
|
|
|
226 |
|
Other
payables |
|
|
20 |
|
|
|
5 |
|
|
|
27 |
|
Total
current liabilities |
|
|
2,475 |
|
|
|
660 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Debentures |
|
|
- |
|
|
|
- |
|
|
|
2,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
2,475 |
|
|
|
660 |
|
|
|
2,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity |
|
|
171 |
|
|
|
45 |
|
|
|
1,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and equity |
|
|
2,646 |
|
|
|
705 |
|
|
|
3,707 |
|
(*) Investment in Bezeq.
B Communications (NASDAQ:BCOM)
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