Internet Gold Reports Third Quarter 2011 Financial Results

Internet Gold Ltd. (NASDAQ Global Select Market and TASE: IGLD) today reported its financial results for the quarter ended September 30, 2011 and its cash position and loan repayment status as of September 30, 2011.

Bezeq: Another Strong Quarter

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

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

On October 5, 2011, Internet Gold’s subsidiary, B Communications Ltd., received a dividend from Bezeq totaling NIS 464 million (US$ 125 million). The dividend consisted of:
  • A current dividend of NIS 308 million (US$ 83 million), representing the Company’s share of Bezeq’s net profit for the first half of 2011; and
  • A special dividend of NIS 156 million (US$ 42 million), the second of six equal special dividends. As declared by Bezeq's Board of Directors and approved by the Israeli Court, special dividends totaling approximately NIS 3 billion are to be paid with no interest or index adjustments on a semi-annual basis through 2013.

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

Cash Position

As of September 30, 2011, the Company’s cash and cash equivalents totaled NIS 437 million (US$ 117 million), and its unconsolidated gross debt was NIS 1.2 billion (US$ 323 million).

Internet Gold's Unconsolidated Balance Sheet Data*
    As of September 30, 2011
(NIS millions)     (US$ millions)
Short term liabilities 153 41
Long term liabilities 1,047 282
Total liabilities 1,200 323
Cash and cash equivalents 437 117
Total net debt 763 206
 

* Does not include the balance sheet of B Communications.

Internet Gold Third Quarter Consolidated Financial Results

Internet Gold's revenues for the third quarter were NIS 2,917 million (US$ 786 million), a decrease of 4% compared with NIS 3,053 million (US$ 822 million) reported in the third quarter of 2010. For both the current and the prior-year periods, Internet Gold's revenues consisted almost entirely of Bezeq’s revenues.

Internet Gold’s net loss attributable to the Company’s owners for the third quarter totaled NIS 52 million (US$ 14 million) compared with net profit of NIS 8 million (US$ 2 million) in the third quarter of 2010. This net loss reflected the impact of two significant expenses:

  • Amortization of tangible and identifiable intangible assets resulting from the Bezeq acquisition: According to the rules of business combination accounting, the total purchase price of Bezeq was allocated to Bezeq’s tangible and identifiable intangible assets based on their estimated fair values as determined by an analysis performed by an independent valuation firm. During the third quarter of 2011, the Company’s subsidiary, B Communications, recorded NIS 348 million (US$ 94 million) in amortization expenses related to the Bezeq purchase price allocation (“Bezeq PPA”). B Communications is amortizing certain of the acquired identifiable intangible assets in accordance with the economic benefit expected from such assets using an accelerated method of amortization.Bezeq PPA amortization expense is a non-cash expense which is subject to adjustment. If, for any reason, the Company finds it necessary or appropriate to make adjustments to amounts already expensed, it may result in significant changes to future financial statements.
  • Financial expenses: B Communications’ financial expenses for the third quarter totaled NIS 93 million (US$ 25 million). These expenses consisted primarily of interest on the long-term loans incurred to finance the Bezeq acquisition, which totaled NIS 72 million (US$ 20 million), and expenses related to B Communications’ debentures, which totaled NIS 12 million (US$ 3 million). In addition, Internet Gold incurred financial expenses totaling NIS 24 million (US$ 6 million), primarily attributable to the interest payments made during the period to holders of its two series of debentures.

Internet Gold Unconsolidated Financial Results

To provide investors with transparent insight into its business, the Company has also provided its results on an unconsolidated basis. Internet Gold’s interest in B Communications’ net income is presented as a single line item in the unconsolidated table below:

Internet Gold’s Unconsolidated Financial Results

    Q3 2011
(NIS millions)     (US$ millions)
Revenues - -
Financial expenses (24 ) (6 )
Other expenses (2 ) (1 )
Interest in Bcom's net loss (26 ) (7 )
Net loss (52 ) (14 )
 

Comments of Management

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

Bezeq Group’s Q3 Financial Results

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

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

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

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

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

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

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

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

Bezeq Group (consolidated)
   

Q3 2011
   

Q3 2010
   

Change

(NIS millions)
Revenues

2,917
3,033 -3.8 %
Operating Profit 944 979 -3.6 %
EBITDA 1,301 1,329 -2.1 %
EBITDA margin 44.6 % 43.8 %
Net profit attributable to Company shareholders 550 588

-6.5
%
Diluted EPS (NIS)     0.20       0.22       -9.1 %
Cash flow from operating activities 882 1,166 -24.4

%

Capex payments, net1
374 328 14.0 %

Free cash flow2
    508       838       -39.4 %

Net debt/EBITDA (end of period)3
1.24 0.91
Net debt/shareholders' equity (end of period) 2.93 0.92

1
 

Capex data reflects payments related to capex and are based on the cash flow statements.
 

2
Free cash flow is defined as cash flows from operating activities less net capex payments.
 

3
EBITDA in this calculation refers to the trailing twelve months.

Notes:
   

A.
 

Convenience Translation to Dollars: For the convenience of the reader, the reported NIS figures of September 30, 2011 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of September 30, 2011 (NIS 3.712 = U.S. Dollar 1.00). The U.S. Dollar ($) amounts presented should not be construed as representing amounts receivable or payable in U.S. Dollars or convertible into U.S. Dollars, unless otherwise indicated.
 

B.

Use of non-IFRS Measurements: We and the Bezeq Group’s management regularly use supplemental non-IFRS financial measures internally to understand, manage and evaluate its business and make operating decisions. We believe these non-IFRS financial measures provide consistent and comparable measures to help investors understand the Bezeq Group’s current and future operating cash flow performance. These non-IFRS financial measures may differ materially from the non-IFRS financial measures used by other companies.
 
EBITDA is a non-IFRS financial measure generally defined as earnings before interest, taxes, depreciation and amortization. The Bezeq Group defines EBITDA as net income before financial income (expenses), net, impairment and other charges, expenses recorded for stock compensation in accordance with IFRS 2, income tax expenses and depreciation and amortization. We present the Bezeq Group’s EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure, tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense).
 
EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this press release, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.
 
Reconciliation between the Bezeq Group’s results on an IFRS and non-IFRS basis is provided in a table immediately following the Bezeq Group's consolidated results. Non-IFRS financial measures consist of IFRS financial measures adjusted to exclude amortization of acquired intangible assets, as well as certain business combination accounting entries. The purpose of such adjustments is to give an indication of the Bezeq Group’s performance exclusive of non-cash charges and other items that are considered by management to be outside of its core operating results. The Bezeq Group’s non-IFRS financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with its consolidated financial statements prepared in accordance with IFRS.
 

About Internet Gold - Golden Lines Ltd.

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

www.eurocom.co.il www.igld.com www.bcommunications.co.il ww.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’s 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.

Consolidated Statements of Financial Position
       
Convenience
translation into
U.S. dollars
September 30 September 30 September 30 December 31
2011 2011 2010 2010
(Unaudited) (Unaudited) (Unaudited) (Audited)
NIS millions US$ millions NIS millions NIS millions
Assets
Cash and cash equivalents 1,722 464 1,796 404
Investments including derivatives 2,721 733 643 1,029
Receivables in respect of series C debentures - - 169 -
Trade receivables 3,007 810 2,747 2,701
Other receivables 234 63 203 228
Inventory 199 54 178 177
Current tax assets 2 1 - 3
Assets classified as held-for-sale 113 30 30 219
 
Total current assets 7,998 2,155 5,766 4,761
 
Investments including derivatives 115 31 134 129
Long-term trade receivables and other receivables 1,594 429 1,073 1,114
Property, plant and equipment 7,392 1,991 5,534 7,392
Intangible assets 8,342 2,247 14,897 9,163
Deferred and other expenses 385 104 670 423

Investments in equity-accounted investee (mainly loans)
1,031 278 1,111 1,084
Deferred tax assets 218 59 334 254
 
Total non-current assets 19,077 5,139 23,753 19,559
 
 
Total assets 27,075 7,294 29,519 24,320
 

Consolidated Statements of Financial Position
       
Convenience
translation into
U.S. dollars
September 30 September 30 September 30 December 31
2011 2011 2010 2010
(Unaudited) (Unaudited) (Unaudited) (Audited)
NIS millions US$ millions NIS millions NIS millions
Liabilities

Short-term bank credit, current maturities of long-term liabilities and debentures
1,567 422 1,661 1,501
Trade payables 919 248 1,103 1,066
Other payables including derivatives 1,108 299 953 817
Dividend payable 1,542 415 891 -
Current tax liabilities 432 116 437 346
Deferred income 52 14 32 34
Provisions 220 59 295 251
Employee benefits 467 126 351 269
Liabilities classified as held-for-sale -   -   - 21
Total current liabilities 6,307   1,699   5,723 4,305
 
Debentures 6,445 1,736 3,528 3,546
Bank loans 6,876 1,852 6,284 6,138
Loans from institutions and others 548 148 540 541
Dividend payable 771 208 - -
Employee benefits 271 73 298 305
Deferred income and other liabilities 156 43 44 150
Provisions 70 19 68 69
Deferred tax liabilities 1,249   336   2,444 1,555
Total non-current liabilities 16,386   4,415   13,206 12,304
 
Total liabilities 22,693   6,114   18,929 16,609
 
Equity
 

Total equity attributable to Company's shareholders
(14 ) (4 ) 455 295
Non-controlling interest 4,396   1,184   10,135 7,416
Total equity 4,382   1,180   10,590 7,711
 
Total liabilities and equity 27,075   7,294   29,519 24,320
 

Consolidated Statements of Operations
         
Nine months period ended Three months period ended Year ended
September 30, September 30, December 31,
  Convenience     Convenience  
translation translation
into into
U.S. dollars U.S. dollars
2011 2011 2010 2011 2011 2010 2010
NIS millions US$ millions NIS millions NIS millions US$ millions NIS millions NIS millions
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues 8,726 2,351 5,658 2,917 786 3,053 8,732
 
Cost and expenses
Depreciation and amortization 2,113 569 1,062 714 192 577 2,295
Salaries 1,626 438 934 551 149 495 1,500

General and operating expenses
3,452 930 2,380 1,184 319 1,291 3,711

Other operating expenses (income), net
277   75   (113 ) 1   -   (59 ) (3 )
 
7,468   2,012   4,263   2,450   660   2,304   7,503  
 
Operating income 1,258 339 1,395 467 126 749 1,229
 
Financing expenses, net 473   127   369   186   50   180   389  
 

Income after financing expense, net
785 212 1,026 281 76 569 840
 

Share in losses of equity-accounted investee
203   55   154   66   18   71   235  
 
Income before income tax 582 157 872 215 58 498 605
Income tax 340   92   357   136   37   189   385  
 
Net income 242   65   515   79   21   309   220  
 
Attributable to:
Owners of the Company (149 ) (40 ) (69 ) (52 ) (14 ) 8 (209 )
Non-controlling interest 391   105   584   131   35   301   429  
Net income 242   65   515   79   21   309   220  
 

Income (loss) per share, basic
Net income (loss) per share (7.94 ) (2.14 ) (3.63 ) (2.82 ) (0.76 ) 0.42   (11.11 )
 

Income (loss) per share, diluted
Net income (loss) per share (8.00 ) (2.16 ) (3.63 ) (2.84 ) (0.77 ) 0.42   (11.23 )

Copyright Business Wire 2010

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