B Communications Reports Financial Results For The Second Quarter Of 2012

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

Bezeq - On-Track Performance: The Bezeq Group reported another stable quarter, delivering revenues of NIS 2.6 billion ($ 661 million) and operating profit of NIS 746 million ($ 190 million) for the period. Bezeq’s EBITDA for the second quarter totaled NIS 1.1 billion ($ 281 million), representing an EBITDA margin of 42.5%. Net income for the period attributable to the shareholders of the Company totaled NIS 415 million ($ 106 million). Bezeq's cash flow from operating activities totaled NIS 990 million ($ 252 million) during the quarter ended June 30, 2012.

Dividend from Bezeq: On May 22, 2012, B Communications received two dividend payments from Bezeq totaling NIS 489 million ($ 125 million), consisting of a current dividend of NIS 334 million ($ 85 million), representing B Communications’ share of Bezeq’s net profit for the second half of 2011, and a special dividend of NIS 155 million ($ 40 million), representing the third installment of the six special dividend payments declared by Bezeq and approved by its shareholders last year.

B Communications used the dividend proceeds for three purposes: (1) payment of NIS 254 million ($ 65 million) of its current loan repayment commitment, in-line with the original debt repayment schedule; (2) pre-payment of an additional NIS 188 million ($ 48 million) of its bank debt, consisting of a NIS 82 million ($ 21 million) pre-payment of short term debt originally scheduled for payment in November 2012 and a NIS 106 million ($ 27 million) pre-payment of a “bullet” principal payment due in November 2016, thereby reducing the size of the original NIS 700 million ($ 178 million) "bullet" loan to NIS 32 million ($ 8 million); and (3) increasing current cash balances with the remaining NIS 47 million ($ 12 million).

Cash Position: As of June 30, 2012, B Communications’ unconsolidated cash and cash equivalents totaled NIS 400 million ($ 102 million), its unconsolidated total debt was NIS 4.1 billion ($ 1.1 billion) and its unconsolidated net debt totaled NIS 3.7 billion ($ 948 million).

B Communications’ Unconsolidated Balance Sheet Data*
       
June 30, December 31, June 30, December 31,
2012 2011 2012 2011
(NIS millions) (US$ millions)
Short term liabilities 431 526 110 134
Long term liabilities 3,689 3,874 940 988
Total liabilities 4,120 4,400 1,050 1,122
Cash and cash equivalents 400 354 102 91
Total net debt 3,720 4,046 948 1,031
 

* Does not include the balance sheet of Bezeq

B Communications’ Second Quarter Consolidated Financial Results

B Communications’ revenues for the second quarter were NIS 2,595 million ($ 661 million), a 10% decrease compared with NIS 2,893 million ($ 737 million) reported in the second 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 second quarter totaled NIS 66 million ($ 17 million), compared to a net loss attributable to shareholders of NIS 12 million ($ 3 million) reported in the second quarter of 2011. This net loss 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 second quarter of 2012, B Communications recorded amortization expenses related to the Bezeq purchase price allocation (“Bezeq PPA”) of NIS 305 million ($ 78 million), net. From the Bezeq acquisition date (April 14, 2010) until the end of the reporting quarter, B Communications amortized approximately 48% of the total Bezeq PPA. It expects to amortize an additional 9% in the last two quarters 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 second quarter totaled NIS 100 million ($ 25 million). These expenses consisted primarily of NIS 82 million ($ 21 million) interest and CPI linkage expense on the long-term loans incurred to finance the Bezeq acquisition and NIS 15 million ($ 4 million) of expenses related to the Company’s debentures. The significant financial expenses recorded in the second quarter were due primarily to high CPI linkage expenses attributed to the 1.25% increase in the Israeli CPI, to which approximately half of B Communications’ total debt is linked.

B Communications’ Unconsolidated Financial Results
   
Quarter ended June 30, Quarter ended June 30,
2012   2011 2012   2011
(NIS millions) (US$ millions)
Revenues - - - -
Financial expenses (100) (98) (25) (25)
Tax and other expenses - (1) - -
PPA amortization, net (95) (96) (24) (24)
Interest in Bezeq's net income 129 183 32 46
Net loss (66) (12) (17) (3)
 

Comments of Management

Commenting on the results, Doron Turgeman, the CEO of B Communications, said, “Our significant progress over the past two years demonstrates the soundness in the structure of our work plan and of the capital structure that we negotiated with our lending banks. We are proud to have been able to accelerate the repayment plan, retiring over NIS 2 billion of our debt in just two years while continuing to build our cash reserves to their current level of approximately NIS 400 million. We plan to continue to improve our financial stability and liquidity in the quarters to come. We believe that our loan agreements, which do not have any loan to value covenants, have been advantageous to our Company. We are obviously well aware of the unfavorable state of the financial and capital markets in Israel, as well of the recent decline in Bezeq’s share price – a decline that we believe is temporary. Despite this environment, as a long term communications player, we will continue to manage our business according to plan and with our reliable strong cash flow we are confident that we will be able to fulfill all our loan commitments.

Bezeq Group Results (Consolidated)To provide further insight into its results, the Company has provided the following summary of the Bezeq Group’s consolidated financial report for the quarter ended June 30, 2012. For a full discussion of Bezeq’s results for the quarter, please refer to http://ir.bezeq.co.il.

             
Bezeq Group (consolidated)  

Q2 2012
 

Q2 2011
 

Change
(NIS millions)
Revenues 2,595 2,893 -10.3%
Operating profit 746 935 -20.2%
EBITDA 1,104 1,283 -14.0%
EBITDA margin 42.5% 44.3%
 
Net profit attributable to Company shareholders 415 585 -29.1%
Diluted EPS (NIS)   0.15   0.21   -28.6%
Cash flow from operating activities 990 670 47.8%
Payments for investments, net 360 406 -11.3%
Free cash flow 1   630   264   138.6%
Net debt/EBITDA (end of period) 2 1.69 1.33
Net debt/shareholders' equity (end of period)   3.06   2.66    
 

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 second quarter of 2012 amounted to NIS 2.60 billion compared with NIS 2.89 billion in the corresponding quarter of 2011, a decrease of 10.3 %. Most of the decrease in the Bezeq Group's revenues is due to the decrease in revenues from the sale of cellular handsets and the erosion of revenues from cellular services.

Operating profit of the Bezeq Group in the second quarter of 2012 amounted to NIS 746 million, compared with NIS 935 million in the corresponding quarter of 2011, a decrease of 20.2%. EBITDA in the second quarter of 2012 amounted to NIS 1.10 billion (EBITDA margin of 42.5%), compared with NIS 1.28 billion (EBITDA margin of 44.3%) in the corresponding quarter of 2011, a decrease of 14.0%. Net profit attributable to Bezeq shareholders in the second quarter of 2012 amounted to NIS 415 million compared with NIS 585 million in the corresponding quarter of 2011, a decrease of 29.1%. The decrease in operating profit, EBITDA and net profit is primarily attributable to a decrease in profitability in the cellular segment.

Cash flow from operating activities in the second quarter of 2012 amounted to NIS 990 million compared with NIS 670 million in the corresponding quarter of 2011, an increase of 47.8% due to improved working capital in the cellular segment. As a result of the increased cash flow from operating activities as well as the completion of large infrastructure projects, free cash flow in the second quarter of 2012 amounted to NIS 630 million compared with NIS 264 million in the corresponding quarter of 2011, an increase of 138.6%.

Gross capital expenditures (CAPEX), in the second quarter of 2012 amounted to NIS 382 million compared with NIS 495 million in the corresponding quarter of 2011, a decrease of 22.8%. The Bezeq Group's CAPEX to consolidated revenues ratio in the second quarter of 2012 was 14.7%, compared with 17.1% in the corresponding quarter of 2011.

As of June 30, 2012, gross financial debt of the Bezeq Group was NIS 9.13 billion, compared with NIS 6.98 billion as of June 30, 2011. The net financial debt of the Bezeq Group was NIS 7.90 billion compared with NIS 6.50 billion as of June 30, 2011. At the end of June 2012, the Bezeq Group's net financial debt to EBITDA ratio was 1.69, compared with 1.33 at the end of June 2011.

Notes:
   

A.

Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of June 30, 2012 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of June 30, 2012 (NIS 3.923 = U.S. Dollar 1.00). The U.S. Dollar ($) amounts presented should not be construed as representing amounts receivable or payable in U.S. Dollars or convertible into U.S. Dollars, unless otherwise indicated.
 

B.

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

About B Communications Ltd.B Communications is a telecommunications-oriented holding company and its primary holding is its controlling interest in 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.igld.com www.bcommunications.co.il www.ir.bezeq.co.il

Forward-Looking StatementsThis 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
       

 

Conveniencetranslation intoU.S. dollars
June 30 June 30 June 30 December 31
2012 2012 2011 2011
(Unaudited) (Unaudited) (Unaudited) (Audited)
NIS millions US$ millions NIS millions NIS millions
 
Assets
Cash and cash equivalents 634 162 496 1,369
Investments including derivatives 996 254 385 1,284
Trade receivables 3,115 794 2,855 3,059
Other receivables 347 88 239 295
Inventory 206 52 277 204
Assets classified as held-for-sale 163 42 137 158
 
Total current assets 5,461 1,392 4,389 6,369
 
Investments including derivatives 95 24 112 119
Long-term trade and other receivables 1,324 337 1,474 1,499
Property, plant and equipment 6,966 1,776 7,487 7,143
Intangible assets 7,487 1,909 8,643 8,085
Deferred and other expenses 409 104 396 412

Investments in equity-accounted investee (mainly loans)
1,019 260 1,050 1,059
Deferred tax assets 169 43 259 223
 
Total non-current assets 17,469 4,453 19,421 18,540
 
Total assets 22,930 5,845 23,810 24,909
 

B Communications Ltd.
 

Consolidated Statement of Financial Position (cont’d)
   

 
   

 

Conveniencetranslation intoU.S. dollars
June 30 June 30 June 30 December 31
2012 2012 2011 2011
(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
1,060 270 1,666 1,185
Trade payables 901 230 1,005 892
Other payables including derivatives 660 168 891 784
Dividend payable 669 171 668 669
Current tax liabilities 572 146 398 499
Deferred income 59 15 39 56
Provisions 174 44 253 186
Employee benefits 325 83 488 389
Total current liabilities 4,420 1,127 5,408 4,660
 
Debentures 5,105 1,301 2,770 5,403
Bank loans 6,515 1,661 6,651 6,753
Loans from institutions and others 545 139 546 544
Dividend payable 322 82 941 636
Employee benefits 228 58 267 229
Other liabilities 83 21 155 186
Provisions 70 18 70 69
Deferred tax liabilities 1,210 308 1,361 1,426
Total non-current liabilities 14,078 3,588 12,761 15,246
 
Total liabilities 18,498 4,715 18,169 19,906
 
Equity
 

Total equity attributable to equity holders of the Company
888 226 945 936
Non-controlling interests 3,544 904 4,696 4,067
Total equity 4,432 1,130 5,641 5,003
 
Total liabilities and equity 22,930 5,845 23,810 24,909
 

B Communications Ltd.
 
Consolidated Statements of Income
 
(In millions, except per share data)
     
Six months period ended Three months period ended Year ended
June 30 June 30 December 31
 

ConveniencetranslationintoU.S. dollars
   

ConveniencetranslationintoU.S. dollars
 
2012 2012 2011 2012 2012 2011 2011
NIS millions US$ millions NIS millions NIS millions US$ millions NIS millions NIS millions
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
 
Revenues 5,335 1,360 5,806 2,595 661 2,893 11,373
 
 
Cost and expenses
Depreciation and amortization 1,510 385 1,398 755 192 698 2,984
Salaries 1,017 259 1,073 505 129 540 2,114
General and operating expenses 2,051 523 2,264 969 247 1,132 4,462
Other operating expenses, net 33 8 282 33 8 32 326
 
4,611 1,175 5,017 2,262 576 2,402 9,886
 
Operating income 724 185 789 333 85 491 1,487
 
Finance expenses, net 180 46 239 170 43 127 498
 

Income after financing expenses, net
544 139 550 163 42 364 989
 

Share in losses of equity-accounted investee
141 36 137 83 21 72 216
 
Income before income tax 403 103 413 80 21 292 773
 
Income tax 204 52 204 73 19 116 653
 
Net income 199 51 209 7 2 176 120
 
Income (loss) attributable to:
Owners of the Company (50) (12) (67) (66) (17) (12) (219)
Non-controlling interests 249 63 276 73 19 188 339
 
Net income 199 51 209 7 2 176 120
 
 
Net loss per share, basic (1.69) (0.43) (2.29) (2.24) (0.57) (0.45) (7.34)
 
Net loss per share, diluted (1.70) (0.43) (2.33) (2.24) (0.57) (0.48) (7.38)

Copyright Business Wire 2010

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