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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