B Communications Reports its Financial Results for the First Quarter of 2014

  B Communications Reports its Financial Results for the First Quarter of 2014  Business Wire  RAMAT GAN, Israel -- May 29, 2014  B Communications Ltd. (NASDAQ Global Market and TASE: BCOM) today reported its financial results for the first quarter ended March 31, 2014.  Bezeq’s Results: For the first quarter of 2014, the Bezeq Group reported revenues of NIS 2.3 billion ($663 million) and operating profit of NIS 688 million ($197 million). Bezeq’s EBITDA for the first quarter totaled NIS 1.0 billion ($287 million), representing an EBITDA margin of 43.36%. Net income for the period attributable to Bezeq’s shareholders totaled NIS 457 million ($131 million). Bezeq's cash flow from operating activities during the period totaled NIS 1.0 billion ($299 million).  Cash Position: As of March 31, 2014,  B Communications’ unconsolidated cash and cash equivalents and short term investments (including dividend receivable) totaled NIS 766 million ($220 million). As of March 31, 2014,  B Communications’ unconsolidated Senior Secured Notes (7⅜%) balance totaled NIS 2.8 billion ($790 million) and its Series B Debentures balance totaled NIS 695 million ($199 million) (including accrued interest and unamortized premiums, discounts and debt issuance costs).  B Communications’ Unconsolidated Balance Sheet Data (in millions)                                                                                                       Convenience                                          translation                                          into                                          U.S. dollars                                          (Note A)                               March      March 31,         March      December                               31,                          31,        31,                               2014                         2013                               NIS        US$               NIS        NIS Debentures and loans Senior Secured Notes 7⅜%      2,754      790               -          - Series B Debentures           695        199               518        706 Series A Debentures           -          -                 182        193 Bank and institutional        -          -                 3,185      2,502 loans Total                         3,449      989               3,885      3,401                                                                        Liquidity balances Dividend receivable           248        71                421        - Lockbox account^(1)           204        59                434        209 Unrestricted Cash^(2)         314        90                151        455 Total                         766        220               1,006      664        Lockbox Account- one or more accounts designated as a Lockbox Account (1)  and maintained by B Communications (SP-2) Ltd. (or any of its       successors) and pledged as Collateral to the Security Agent for the       benefit of the holders of the Notes.              Unrestricted Cash- any funds, property or assets (including any property       or assets acquired with or earned on such Unrestricted Cash) not       expressly required by the terms of the Indenture to be deposited in or       allocated to the Lockbox Account and any other funds with respect to (2)   which the Indenture expressly provides that such funds shall constitute       Unrestricted Cash, including proceeds from Indebtedness permitted to be       Incurred under the Indenture which are not otherwise expressly required       by the terms of the Indenture to be deposited in or allocated to the       Lockbox Account; provided that no Specified Shares or Collateral shall       constitute Unrestricted Cash.         B Communications' cash management: B Communications' manages its cash balances according to an investment policy that was approved by its board of directors. The investment policy seeks to preserve principal and maintain adequate liquidity while maximizing the income received from investments without significantly increasing the risk of loss. B Communications' investment policy prescribes the following criteria for cash management: a) funds in the Lockbox account may only be invested in investment-grade securities; b) unrestricted funds may be invested according to the following: at least 65% of the funds must be invested in investment-grade securities and up to 35% of the funds may be invested in non-investment-grade securities.  B Communications' refinancing: On February 19, 2014, B Communications announced the closing of its successful private offering of $800 million of 7⅜% Senior Secured Notes due 2021 (the "Notes"). The Notes were offered and sold in the United States to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act of 1933, as amended (the "Securities Act") and to certain qualifying investors in offshore transactions, including in Israel, in reliance on Regulation S under the Securities Act. The Notes have been admitted for trading on the system of the Tel Aviv Stock Exchange for trading by institutional investors, known as TACT Institutional. The net proceeds from the Notes offering were used by B Communications to repay all amounts outstanding under the loans incurred to acquire its controlling interest in Bezeq and to deposit funds into a lockbox account. In addition, B Communications entered into five Cross Currency Swap ("CCS") transactions in order to hedge its exposure to fluctuations in the $ exchange rate as a result of the Notes issuance. The CCS transactions hedge $725 million principal amount of the Notes.  On March 17, 2014, B Communications completed an early redemption all of its outstanding Series A Debentures having a par value of NIS 153 million for total consideration of NIS 203 million. As of that date the Series A Debentures were delisted from the Tel Aviv Stock Exchange.  Dividend from Bezeq: On March 5, 2014, the Board of Directors of Bezeq resolved to recommend to the general meeting of shareholders the distribution of a cash dividend of NIS 802 million ($230 million). On March 27, 2014, Bezeq's shareholders approved the dividend distribution and on April 23, 2014, B Communications’ received its share of the dividend distribution of approximately NIS 248 million ($71 million).  B Communications’ First Quarter Financial Results  B Communications’ consolidated revenues for the first quarter of 2014 were NIS 2,311 million ($663 million), a 3.9% decrease compared with NIS 2,405 million reported in the first quarter of 2013. For both the current and the prior-year periods, B Communications’ consolidated revenues consisted entirely of Bezeq’s revenues.  During the first quarter of 2014, B Communications recorded net amortization expenses of NIS 108 million ($31 million) related to its Bezeq purchase price allocation (“Bezeq PPA”) in its consolidated financial statements. From April 14, 2010, the date of the acquisition of its interest in Bezeq, until March 31, 2014, B Communications has amortized approximately 61% of the total Bezeq PPA. The Bezeq PPA amortization expense is a non-cash expense that is subject to adjustment. If, for any reason, B Communications finds it necessary or appropriate to make adjustments to amounts already expensed, it may result in significant changes to its audited financial reports, as well as to future financial statements.  B Communications’ unconsolidated net financial expenses for the first quarter of 2014 totaled NIS 310 million ($89 million) compared to NIS 48 million in the first quarter of 2013. These expenses consisted primarily of NIS 179 million ($51 million) of one-time expenses relating to the early repayment of the loans incurred to acquire the controlling interest in Bezeq and the early redemption of all outstanding Series A Debentures. In addition, B Communications' incurred NIS 83 million ($24 million) of non-cash net expenses related to the revaluation of its CCS hedge transactions. The CCS transactions do not qualify for hedge accounting. In accordance with IAS 39, derivatives that do not qualify for hedge accounting are recognized on the statement of financial position at their fair value, with changes in the fair value recognized as a component of “financial expenses, net” in the statement of income. B Communications expects that these non-cash revaluation expenses will fully offset over the term of the hedge transactions against the USD denominated Notes. However, until then such revaluation expenses could have a material adverse effect on B Communications’ statement of income due to the volatility of the fair value valuation method. Additional financial expenses during the first quarter of 2014 include NIS 41 million ($12 million) related to the publicly traded Series B debentures, the recently issued Senior Secured Notes and the redeemed Series A Debentures and interest and CPI linkage expenses of NIS 11 million ($3 million) on the extinguished long-term loans incurred to finance the Bezeq acquisition. These expenses were offset in part by financial income of NIS 4 million ($1 million) generated by short term investments.  B Communications’ loss attributable to shareholders for the first quarter of 2014 was NIS 203 million ($58 million) compared to net income attributable to shareholders of NIS 61 million reported in the first quarter of 2013.  B Communications’ Unconsolidated Financial Results                                                               In millions                         Convenience                                     translation                                     into                                     U.S. dollars                                     (Note A)                    Three-month      Three-month       Three-month                    period ended     period ended      period          Year                                                       ended           ended                    March 31,        March 31,         March 31,       December                                                                       31,                    2014                               2013                    NIS              US$               NIS             NIS Revenues           -                -                 -               - Financing          (310     )       (89      )        (48    )        (211  ) expenses, net Other and income tax         (1       )       -                 (1     )        (12   ) expenses PPA amortization,      (33      )       (9       )        (41    )        (186  ) net Interest in Bezeq's net        141             40               151            546    income Net income         (203     )       (58      )        61             137    (loss)                                                                               Comments of Management  Commenting on the results, Mr. Doron Turgeman, B Communications’ CEO, stated, “During the first quarter of 2014, we progressed in line with our business plan and met all of our goals, which are based on the stable platform and unique strength of Bezeq, our base asset, which continues to prove its long-term cash-generating power with NIS 457 million of net income and NIS 757 million of free cash flow for the quarter. During the first quarter our Company entered a new promising phase after completing the refinancing of bank and institutional loans, which we announced on February 2014. Our new debt structure has significantly improved our financial position, providing us with a more convenient loan repayment schedule that will improve our future cash flows. This improvement in our future cash flows is also supported by the decision of Midroog (an Israeli rating company affiliated with Moody’s) to raise our local debt rating during the first quarter. In the quarters ahead, we will continue our efforts to strengthen our financial stability and liquidity in order to improve our debt and equity positions.”  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 first quarter ended March 31, 2014. For a full discussion of Bezeq’s results for the first quarter of 2014, please refer to its website: http://ir.bezeq.co.il.  Bezeq Group (consolidated)                  Q1 2014   Q1 2013   % change                                               (NIS millions)                                                                        Revenues                                      2,311       2,405       -3.9  % Operating profit                              688         761         -9.6  % EBITDA                                        1,002       1,089       -8.0  % EBITDA margin                                 43.4  %     45.3  % Net profit attributable to Bezeq's            457         497         -8.0  % shareholders Diluted EPS (NIS)                           0.17     0.18     -5.6  % Cash flow from operating activities           1,043       972         7.3   % Payments for investments                      315         289         9.0   % Free cash flow ^1                           757      726      4.3   % Net debt/EBITDA (end of period) ^2          1.81     1.68       ^1  Free cash flow is defined as cash flow 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 first quarter of 2014 amounted to NIS 2.31 billion ($663 million) compared with NIS 2.41 billion in the corresponding quarter of 2013, a decrease of 3.9%. The reduction in the Bezeq Group revenues was primarily related to a decrease in the revenues of Bezeq Fixed Line due to a reduction in fixed call termination rates. In addition, Pelephone revenues decreased as a result of increased competition in the market.  General and Operating expenses of the Bezeq Group in the first quarter of 2014 amounted to NIS 869 million ($249 million) compared with NIS 889 million in the corresponding quarter of 2013, a decrease of 2.2%. The decrease in the Bezeq Group General and Operating expenses was due to a reduction in fixed call termination rates which was partially offset by a moderate increase in equipment expenses due to increased sales of cellular handsets, tablets and other accessories.  Salaries expenses of the Bezeq Group in the first quarter of 2014 amounted to NIS 448 million ($128 million) compared with NIS 499 million in the corresponding quarter of 2013, a decrease of 10.2%. The decrease in the Bezeq Group salaries expenses was primarily due to streamlining at Bezeq Fixed Line as well as a reduction in share based payments.  Other operating income, net of the Bezeq Group in the first quarter of 2014 amounted to NIS 8 million ($2 million) compared with NIS 72 million in the corresponding quarter of 2013. The decrease in the Bezeq Group other operating income was primarily due to a reduction in real estate and copper sales as well as an increase in the provision for employee early retirement which negatively impacted profitability metrics and offset the improvement in Bezeq Fixed Line activities.  Operating profit of the Bezeq Group in the first quarter of 2014 amounted to NIS 688 million ($197 million) compared with NIS 761 million in the corresponding quarter of 2013, a decrease of 9.6%. After adjusting for other operating income line items, the Bezeq Group operating profit decreased by NIS 9 million ($3 million) compared to the corresponding quarter of 2013.  Earnings before interest, taxes, depreciation and amortization (EBITDA) of the Bezeq Group in the first quarter of 2014 amounted to NIS 1.00 billion ($287 million) (EBITDA margin of 43.4%) compared with NIS 1.09 billion (EBITDA margin of 45.3%) in the corresponding quarter of 2013, a decrease of 8.0%. After adjusting for other operating income line items, the Bezeq Group adjusted EBITDA decreased by NIS 23 million compared to the corresponding quarter of 2013.  Net profit attributable to Bezeq's shareholders in the first quarter of 2014 amounted to NIS 457 million ($131 million) compared with NIS 497 million in the corresponding quarter of 2013, a decrease of 8.0%.  Operating cash flow of the Bezeq Group in the first quarter of 2014 amounted to NIS 1.04 billion ($299 million) compared with NIS 972 million in the corresponding quarter of 2013, an increase of 7.3%. The increase in the Bezeq Group operating cash flow was primarily due to an improvement in working capital. Free cash flow of the Bezeq Group in the first quarter of 2014 amounted to NIS 757 million ($217 million) compared with NIS 726 million in the corresponding quarter of 2013, an increase of 4.3%.  Net financial debt of the Bezeq Group amounted to NIS 7.32 billion ($2.10 billion) at March 31, 2014 compared with NIS 7.30 billion as of March 31, 2013.  Notes:       Convenience Translation to Dollars: For the convenience of the reader,      certain of the reported NIS figures of March 31, 2014 have been presented      in millions of U.S. dollars, translated at the representative rate of A.  exchange as of March 31, 2014 (NIS 3.487 = U.S. Dollar 1.00). The U.S.      dollar ($) 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.       Use of non-IFRS Measurements: We and the Bezeq Group’s management      regularly use supplemental non-IFRS financial measures internally to B.   understand, manage and evaluate our business and make operating      decisions. We believe these non-IFRS financial measures provide      consistent and comparable measures to help investors understand the Bezeq      Group’s current and future operating cash flow performance.       These non-IFRS financial measures may differ materially from the non-IFRS      financial measures used by other companies.       EBITDA is a non-IFRS financial measure generally defined as earnings      before interest, taxes, depreciation and amortization. The Bezeq Group      defines EBITDA as net income before financial income (expenses), net,      impairment and other charges, expenses recorded for stock compensation in      accordance with IFRS 2, income tax expenses and depreciation and      amortization. We present the Bezeq Group’s EBITDA as a supplemental      performance measure because we believe that it facilitates operating      performance comparisons from period to period and company to company by      backing out potential differences caused by variations in capital      structure, tax positions (such as the impact of changes in effective tax      rates or net operating losses) and the age of, and depreciation expenses      associated with, fixed assets (affecting relative depreciation expense).       EBITDA should not be considered in isolation or as a substitute for net      income or other statement of operations or cash flow data prepared in      accordance with IFRS as a measure of profitability or liquidity. EBITDA      does not take into account our debt service requirements and other      commitments, including capital expenditures, and, accordingly, is not      necessarily indicative of amounts that may be available for discretionary      uses. In addition, EBITDA, as presented in this press release, may not be      comparable to similarly titled measures reported by other companies due      to differences in the way that these measures are calculated.       Reconciliation between the Bezeq Group’s results on an IFRS and non-IFRS      basis is provided in a table immediately following the Company'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: BEZQ). B Communications shares are traded on NASDAQ and the TASE under the symbol BCOM. For more information please visit the following Internet sites:  www.bcommunications.co.il www.ir.bezeq.co.il www.eurocom.co.il www.igld.com  Forward-Looking Statements  This press release contains forward-looking statements that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, general business conditions in the industry, changes in the regulatory and legal compliance environments, the failure to manage growth and other risks detailed from time to time in B Communications' filings with the Securities Exchange Commission. These documents contain and identify other important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statement.  B Communications Ltd. Condensed Consolidated Statements of Financial Position as at                                    Convenience                                                      translation                                       into                                       U.S. dollars                                       (Note A)                         March 31,     March 31,        March 31,     December                                                                      31,                         2014          2014             2013          2013                         NIS           US$ millions     NIS           NIS                         millions                       millions      millions Assets Cash and cash           1,070         307              641           739 equivalents Restricted cash         23            6                -             - Investments, including derivative              1,820         522              2,029         1,667 financial instruments Trade receivables,      2,499         716              2,875         2,651 net Other receivables       296           85               408           349 Inventory               100           29               148           117 Assets classified       201           58               251           217 as held-for-sale                                                                       Total current           6,009         1,723            6,352         5,740 assets                                                                        Investments, including derivative              81            23               93            81 financial instruments Long-term trade and     618           177              950           652 other receivables Property, plant and     6,533         1,875            6,681         6,541 equipment Intangible assets       6,484         1,860            7,103         6,613 Deferred and other      378           107              391           381 expenses Investment in equity-accounted        1,032         296              1,024         1,015 investee (mainly loans) Deferred tax assets     29            8                62            60                                                                       Total non-current       15,155        4,346            16,304        15,343 assets                                                                       Total assets            21,164        6,069            22,656        21,083                                                                                                                                              B Communications Ltd. Condensed Consolidated Statements of Financial Position as at (cont’d)                                    Convenience                                                      translation                                       into                                       U.S. dollars                                       (Note A)                         March 31,     March 31,        March 31,     December                                                                      31,                         2014          2014             2013          2013                         NIS           US$ millions     NIS           NIS                         millions                       millions      millions Liabilities Short-term bank credit, current maturities of           1,133         325              1,477         1,451 long-term liabilities and debentures Trade payables          627           180              652           721 Other payables, including derivative              843           241              862           736 financial instruments Dividend payable        554           159              677           - Current tax             665           191              626           659 liabilities Provisions              122           35               126           125 Employee benefits       269           77               230           257 Total current           4,213         1,208            4,650         3,949 liabilities                                                                       Debentures              8,553         2,453            4,877         6,027 Bank loans              3,497         1,003            6,416         5,223 Loans from institutions and        -             -                538           548 others Employee benefits       235           67               259           234 Other liabilities       218           63               80            90 Provisions              68            20               67            68 Deferred tax            971           278              1,109         1,032 liabilities Total non-current       13,542        3,884            13,346        13,222 liabilities                                                                       Total liabilities       17,755        5,092            17,996        17,171                                                                       Equity Total equity attributable to         795           228              1,021         995 equity holders of the Company Non-controlling         2,614         749              3,639         2,917 interests                                                                       Total equity            3,409         977              4,660         3,912                                                                       Total liabilities       21,164        6,069            22,656        21,083 and equity                                                                                                                                              B Communications Ltd. Condensed Consolidated Statements of Income for the                                                                                               Three months period ended                 Year                                                                       ended                             March 31,                                 December                                                                       31,                                       Convenience                                             Translation                                         into                                         U.S. dollars                                         (Note A)                             2014        2014              2013        2013                             NIS         US$               NIS         NIS                             (In millions, except per share data) Revenues                    2,311       663               2,405       9,563                                                                        Cost and expenses Depreciation and            469         134               492         2,014 amortization Salaries                    448         128               500         1,873 General and operating       870         250               889         3,584 expenses Other operating             (8    )     (2        )       (41   )     57 (income) expenses, net                                                                                                    1,779      510              1,840      7,528                                                                        Operating income            532         153               565         2,035                                                                        Financing expenses, net     345        99               65         320                                                                        Income after financing      187         54                500         1,715 expenses, net                                                                        Share in losses of equity-accounted            19         6                40         252 investee                                                                        Income before income        168         48                460         1,463 tax                                                                        Income tax                  131        37               153        524                                                                        Net income for the          37         11               307        939 period                                                                        Income (loss) attributable to: Owners of the Company       (203  )     (58       )       61          137 Non-controlling             240        69               246        802 interests                                                                        Net income for the          37         11               307        939 period                                                                        Earnings per share                                                                        Net income (loss),          (6.80 )     (1.95     )       2.04       4.56 basic                                                                        Net income (loss),          (6.82 )     (1.96     )       2.04       4.50 diluted                                                                                                                                                B Communications Ltd. Reconciliation for NON-IFRS Measures  EBITDA  The following is a reconciliation of the Bezeq Group’s operating income to EBITDA:                                                            Three months period ended                                March 31,                                                Convenience                                                     translation                                                  into                                                  U.S. dollars                                                  (Note A)                                2014              2014             2013                                NIS millions      US$ millions     NIS millions                                                                    Operating income               688               197              761 Depreciation and               314               90               328 amortization                                                                    EBITDA                         1,002             287              1,089                                                                                                                                        Free Cash Flow  The following table shows the calculation of the Bezeq Group’s free cash flow:                                                               Three months period ended                                 March 31,                                                Convenience                                                     translation                                                  into                                                  U.S. dollars                                                  (Note A)                                 2014             2014             2013                                 NIS millions     US$ millions     NIS millions                                                                    Cash flow from operating        1,043            299              972 activities Purchase of property, plant     (267     )       (76     )        (245    ) and equipment Investment in intangible assets and deferred             (48      )       (14     )        (44     ) expenses Proceeds from the sale of property, plant and             29              8               43       equipment                                                                    Free cash flow                  757             217             726       Contact:  B Communications Ltd. Idit Cohen – IR Manager Tel: +972-3-924-0000 idit@igld.com or Investor relations contacts: Hadas Friedman - Investor Relations Tel: +972-3-516-7620 Hadas@km-ir.co.il  
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