- Continued focus on debt structure
improvement -
Internet Gold – Golden Lines Ltd. (NASDAQ Global Select Market
and TASE: IGLD) today reported its financial results for the fourth
quarter and year ended December 31, 2014. 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: BEZQ).
Bezeq’s Results: For the fourth quarter of 2014, the
Bezeq Group reported revenues of NIS 2.3 billion ($582 million) and
operating profit of NIS 633 million ($163 million). Bezeq’s EBITDA
for the fourth quarter totaled NIS 954 million ($245 million),
representing an EBITDA margin of 42.2%. Net income for the period
attributable to Bezeq’s shareholders totaled NIS 416 million ($107
million). Bezeq’s cash flow from operating activities during the
period totaled NIS 739 million ($190 million).
Cash Position: As of December 31, 2014, Internet Gold’s
unconsolidated cash and cash equivalents and short term investments
totaled NIS 322 million ($83 million), its unconsolidated gross
debt was NIS 1.1 billion ($294 million) and its unconsolidated net
debt was NIS 822 million ($211 million).
Internet Gold’s Unconsolidated Balance Sheet Data
(1)
In millions
Convenience translation into
U.S. dollars (Note A) December 31, December
31, December 31, 2013 2014 2014
NIS NIS US$ Short term liabilities 129
67 17 Long term liabilities 931
1,077
277 Total liabilities 1,060
1,144 294 Cash and
cash equivalents 329
322 83 Total net debt 731
822 211
(1) Does not include the consolidated balance sheet of B
Communications and its subsidiaries.
Internet Gold’s Cash Management: Internet Gold 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. According to Internet Gold’s
investment policy approximately 80% of the funds must be invested
in investment-grade securities.
Dividend from Bezeq: On August 6, 2014, Bezeq’s Board of
Directors resolved to recommend to the General Meeting of
Shareholders the distribution of a cash dividend in the amount of
NIS 1,267 million ($326 million). On September 3, 2014, Bezeq’s
shareholders approved the dividend distribution and on October 2,
2014 B Communications received its share totaling approximately NIS
391 million ($101 million).
In accordance with Bezeq’s dividend policy, its Board of
Directors recommended the distribution of 100% of its profits for
the second half of 2014 as a cash dividend of NIS 844 million ($217
million) to its shareholders. The dividend, which is subject to
shareholder approval, is expected to be paid on May 27, 2015 to
shareholders of record as of May 14, 2015. B Communications’ share
of the dividend distribution, if approved, is expected to be
approximately NIS 260 million ($67 million).
Internet Gold’s Fourth Quarter and Full Year Consolidated
Financial Results
Internet Gold’s consolidated revenues for the fourth quarter of
2014 totaled NIS 2,262 million ($582 million), a 6.1% decrease
compared with NIS 2,409 million reported in the fourth quarter of
2013. For the full year 2014, Internet Gold’s revenues totaled NIS
9,055 million ($2,328 million), a 5.3% decrease compared to NIS
9,563 million reported in 2013. For both the current and the
prior-year periods, Internet Gold’s consolidated revenues consisted
entirely of Bezeq’s revenues.
Internet Gold’s consolidated operating income for the fourth
quarter of 2014 totaled NIS 510 million ($131 million), a 24.0%
increase compared with NIS 411 million reported in the fourth
quarter of 2013. For the full year 2014, Internet Gold’s
consolidated operating income totaled NIS 2,595 million ($667
million), a 27.7% increase compared with NIS 2,032 million reported
in 2013. The increase was primarily attributed to Bezeq’s sale of
Yad2 in the second quarter of 2014 that resulted in NIS 582 million
($150 million) of other operating income in 2014.
Internet Gold’s consolidated net income for the fourth quarter
of 2014 totaled NIS 294 million ($76 million), a 70.9% increase
compared with NIS 172 million reported in the fourth quarter of
2013. For the full year 2014, Internet Gold’s consolidated net
income totaled NIS 1,055 million ($271 million), a 22.7% increase
compared with NIS 860 million reported in 2013.
Internet Gold’s Fourth Quarter and Full Year Unconsolidated
Financial Results
As of December 31, 2014 Internet Gold held approximately 67% of
B Communications outstanding shares. Accordingly, Internet Gold’s
interest in B Communications’ net income for the fourth quarter of
2014 totaled NIS 48 million ($12 million), compared with NIS 17
million in the fourth quarter of 2013. For the full year 2014,
Internet Gold’s interest in B Communications’ annual loss totaled
NIS 20 million ($5 million), compared with its interest in B
Communications’ net income of NIS 106 million in 2013.
Internet Gold’s unconsolidated net financial expenses for the
fourth quarter of 2014 totaled NIS 20 million ($5 million) compared
with NIS 6 million in the fourth quarter of 2013. These expenses
consist of NIS 22 million ($6 million) of interest and CPI linkage
expenses related to Internet Gold’s publicly-traded debentures and
were partially offset by NIS 2 million ($1 million) of financial
income generated by short term investments. For the full year 2014,
Internet Gold’s unconsolidated net financial expenses totaled NIS
84 million ($22 million) compared with NIS 76 million in 2013.
These expenses consisted of NIS 93 million ($24 million) of
interest and CPI linkage expenses related to its publicly-traded
debentures and were partially offset by NIS 9 million ($2 million)
of financial income generated by short term investments.
Internet Gold’s net income attributable to shareholders for the
fourth quarter of 2014 totaled NIS 27 million ($7 million) compared
with NIS 10 million in the fourth quarter of 2013. For the full
year 2014, Internet Gold’s loss attributable to shareholders
totaled NIS 108 million ($28 million), compared to net income
attributable to shareholders of NIS 26 million reported in
2013.
In millions
Convenience Convenience
translation into translation into Quarter
ended U.S. dollars Year ended U.S. dollars
December 31, (Note A) December 31, (Note
A) 2013 2014 2014 2013 2014
2014 NIS NIS US$ NIS NIS
US$ Revenues
- - - - - - Financial expenses,
net (6 )
(20 ) (5 ) (76 )
(84
) (22 ) Other expenses (1 )
(1 )
- (4 )
(4 ) (1 ) Interest in
BCOM's net income (loss) 17
48 12
106
(20 ) (5 ) Net income
(loss) 10
27 7 26
(108 ) (28 )
Comments of Management
Commenting on the results, Doron Turgeman, CEO of Internet Gold,
said, “During 2014, we carried on with the process of improving our
debt structure. The issuance of our long-term Series D Debentures
together with our recent debenture exchange transactions extended
the average duration of our outstanding debt from 2.5 years to 3.7
years, while significantly improving our repayment schedule and
debt structure. In addition, we are very pleased with the results
of our subsidiary, B Communications, and with Bezeq, which
continues to generate a steady return that enhances our overall
financial position and capabilities.”
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 fourth quarter and year ended
December 31, 2014. For a full discussion of Bezeq’s results for the
fourth quarter and full year ended December 2014, please refer to
its website: http://ir.bezeq.co.il.
Bezeq Group (consolidated)
Q4 2014 Q4 2013
% change
FY 2014 FY 2013
% change (NIS millions)
(NIS millions)
Revenues 2,262
2,409 -6.1 % 9,055 9,563 -5.3 % Operating profit 633 593 6.7 %
3,226 2,819 14.4 % EBITDA 954 921 3.6 % 4,507 4,130 9.1 % EBITDA
margin 42.2 % 38.2 % 49.8 % 43.2 % Net profit attributable to
Bezeq's shareholders 416 352 18.2 % 2,111 1,771 19.2 % Basic and
Diluted EPS (NIS) 0.15
0.13 15.4 %
0.77 0.65
18.5 % Cash flow from operating activities 739 935 -21.0 % 3,796
4,152 -8.6 % Payments for investments 315 318 -0.9 % 1,275 1,228
3.8 % Free cash flow 1 507
710 -28.6 %
2,751 3,236
-15.0 % Net debt/EBITDA (end of period) 2
1.60 1.96
1.60
1.96 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 2014 amounted to NIS 9.06
billion ($2.33 billion) compared with NIS 9.56 billion in 2013, a
decrease of 5.3%. The decrease in the Bezeq Group’s revenues was
primarily related to a decrease in revenues from cellular services
due to the challenging competitive environment in the cellular
market as well as reduced revenues of Bezeq Fixed Line which were
largely influenced by a decrease in fixed call termination
rates.
Revenues of the Bezeq Group in the fourth quarter of 2014
amounted to NIS 2.26 billion ($582 million) compared with NIS 2.41
billion in the corresponding quarter of 2013, a decrease of 6.1%.
The reduction in the Bezeq Group’s revenues was primarily related
to a decrease in revenues from cellular services as mentioned
above.
Salary expenses of the Bezeq Group in 2014 amounted to
NIS 1.77 billion ($455 million) compared with NIS 1.87 billion in
2013, a decrease of 5.6%. The decrease in the Bezeq Group’s salary
expenses was primarily due to streamlining at Bezeq Fixed Line and
Pelephone as well as a reduction in share-based payments.
Salary expenses of the Bezeq Group in the fourth quarter of 2014
amounted to NIS 440 million ($113 million), in line with the
corresponding quarter of 2013.
Operating expenses of the Bezeq Group in 2014 amounted to
NIS 3.37 billion ($866 million) compared with NIS 3.58 billion in
2013, a decrease of 5.9%.
For the fourth quarter of 2014, operating expenses of the Bezeq
Group amounted to NIS 853 million ($219 million) compared with NIS
966 million in the corresponding quarter of 2013, a decrease of
11.7%. The decrease in the Bezeq Group’s operating expenses was due
to a reduction in most of the expense items of Bezeq Fixed Line and
Pelephone.
Other operating income of the Bezeq Group in 2014
amounted to NIS 586 million ($151 million) compared with NIS 15
million in 2013. The increase in the Bezeq Group’s other operating
income was due to the one-time gain of NIS 582 million ($150
million) from the sale of Coral Tel Ltd., the operator of the
“Yad2” web site.
Other operating expenses of the Bezeq Group in the fourth
quarter of 2014 amounted to NIS 15 million ($4 million) compared
with NIS 81 million in the corresponding quarter of 2013, a
decrease of 81.5%. The decrease in the Bezeq Group’s other
operating expenses was primarily due to a reduction in the
provision for the collective labor agreement at Pelephone.
Operating profit of the Bezeq Group in 2014 amounted to
NIS 3.23 billion ($830 million) compared with NIS 2.82 billion in
2013, an increase of 14.4%. Earnings before interest, taxes,
depreciation and amortization (EBITDA) of the Bezeq Group in
2014 amounted to NIS 4.51 billion ($1.16 billion) (EBITDA margin of
49.8%) compared with NIS 4.13 billion (EBITDA margin of 43.2%) in
2013, an increase of 9.1%. Net profit attributable to Bezeq
shareholders in 2014 amounted to NIS 2.11 billion ($543
million) compared with NIS 1.77 billion in 2013, an increase of
19.2%. The increase in the Bezeq Group’s profitability metrics was
primarily due to the one-time gain from the sale of Coral Tel Ltd.
mentioned above.
Operating profit of the Bezeq Group in the fourth quarter of
2014 amounted to NIS 633 million ($163 million) compared with NIS
593 million in the corresponding quarter of 2013, an increase of
6.7%. EBITDA of the Bezeq Group in the fourth quarter of 2014
amounted to NIS 954 million ($245 million) (EBITDA margin of 42.2%)
compared with NIS 921 million (EBITDA margin of 38.2%) in the
corresponding quarter of 2013, an increase of 3.6%. Net profit
attributable to Bezeq shareholders in the fourth quarter of 2014
amounted to NIS 416 million ($107 million) compared with NIS 352
million in the corresponding quarter of 2013, an increase of 18.2%.
The increase in the Bezeq Group’s profitability metrics was
primarily due to a decrease in operating expenses as well as in
other operating expenses as mentioned above.
Cash flow from operating activities of the Bezeq Group in
2014 amounted to NIS 3.80 billion ($976 million) compared with NIS
4.15 billion in 2013, a decrease of 8.6%. Cash flow from operating
activities of the Bezeq Group in the fourth quarter of 2014
amounted to NIS 739 million ($190 million) compared with NIS 935
million in the corresponding quarter of 2013, a decrease of 21.0%.
The decrease in the Bezeq Group’s cash flow from operating
activities was primarily due to lower profitability as well as a
moderation in the rate of changes in working capital at
Pelephone.
Payments for investments (Capex) of the Bezeq
Group in 2014 amounted to NIS 1.28 billion ($328 million) compared
with NIS 1.23 billion in 2013, an increase of 3.8%. The Bezeq
Group’s high level of investments is due to the continued
nationwide rollout of Bezeq Fixed Line’s fiber optic network
together with investments in advanced technologies for the
enhancement of the NGN (Next Generation Network).
Payments for investments of the Bezeq Group in the fourth
quarter of 2014 amounted to NIS 315 million ($81 million), in line
with the corresponding quarter of 2013.
Free cash flow of the Bezeq Group in 2014 amounted to NIS
2.75 billion ($707 million) compared with NIS 3.24 billion in 2013,
a decrease of 15.0%. Free cash flow of the Bezeq Group in the
fourth quarter of 2014 amounted to NIS 507 million ($130 million)
compared with NIS 710 million in the corresponding quarter of 2013,
a decrease of 28.6%.
Net financial debt of the Bezeq Group amounted to NIS
7.20 billion ($1.85 billion) at December 31, 2014 compared with NIS
8.09 billion as of December 31, 2013. At December 31, 2014, the
Bezeq Group’s net financial debt to EBITDA was 1.60, compared with
1.96 on December 31, 2013.
Notes:
A. Convenience Translation to Dollars: For the
convenience of the reader, certain of the reported NIS figures of
December 31, 2014 have been presented in millions of U.S. dollars,
translated at the representative rate of exchange as of December
31, 2014 (NIS 3.889 = U.S. Dollar 1.00). The U.S. dollar ($)
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
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 Internet Gold
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: BEZQ).
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.igld.comwww.bcommunications.co.ilwww.ir.bezeq.co.il
Forward-Looking Statements
This press release contains forward-looking statements that are
subject to risks and uncertainties. Factors that could cause actual
results to differ materially from these forward-looking statements
include, but are not limited to, general business conditions in the
industry, changes in the regulatory and legal compliance
environments, the failure to manage growth and other risks detailed
from time to time in B Communications’ filings with the Securities
Exchange Commission. These documents contain and identify other
important factors that could cause actual results to differ
materially from those contained in our projections or
forward-looking statements. Stockholders and other readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made.
We undertake no obligation to update publicly or revise any
forward-looking statement.
Internet Gold – Golden Lines Ltd.
Consolidated Statements of Financial Position as at
December 31, (In millions)
Convenience
translation
into
U.S. dollars
(Note A)
2013
2014
2014
NIS
NIS
US$
Assets Cash and cash equivalents 867
732
188 Restricted cash -
65 17
Investments, including derivative
financial instruments
1,868
3,406 876 Trade receivables, net 2,651
2,227 573 Other receivables 347
242 62
Inventory 117
96 25 Assets classified as
held-for-sale 217
95 24 Total current
assets 6,067
6,863 1,765 Investments,
including derivative financial instruments 81
271 70
Long-term trade and other receivables 652
566 145
Property, plant and equipment 6,541
6,574 1,690
Intangible assets 6,613
5,884 1,513 Deferred and
other expenses 381
364 94
Investment in equity-accounted investee
(mainly loans)
1,015
1,057 272 Deferred tax assets 60
-
- Total non-current assets 15,343
14,716 3,784 Total assets 21,410
21,579 5,549
Internet Gold – Golden Lines Ltd.
Consolidated Statements of Financial
Position as at December 31, (cont’d)
(In millions)
Convenience
translation
into
U.S. dollars
(Note A)
2013
2014
2014
NIS
NIS
US$
Liabilities
Short-term bank credit, current maturities
of long-term bank loans and debentures
1,566
1,552 399 Trade payables 721
664
171 Other payables, including derivative financial
instruments 776
757 195 Current tax liabilities 659
671 172 Provisions 125
62 16 Employee
benefits 257
259 67 Total
current liabilities 4,104
3,965
1,020 Bank loans and debentures 12,177
13,428 3,453 Loans from institutions and others 548
- - Employee benefits 234
233 60 Other
liabilities 94
262 67 Provisions 68
69
18 Deferred tax liabilities 1,032
845
217 Total non-current liabilities 14,153
14,837 3,815 Total
liabilities 18,257
18,802 4,835
Equity
Total equity attributable to equity
holders of the Company
(86 )
(186 ) (48 ) Non-controlling
interests 3,239
2,963 762
Total equity 3,153
2,777 714
Total liabilities and equity 21,410
21,579 5,549
Internet Gold – Golden Lines Ltd.
Consolidated Statements of Income for
the Year Ended December 31,
(In millions, except per share
data)
Convenience
translation
into
U.S. dollars
(Note A)
2013
2014
2014
NIS
NIS
US$
Revenues 9,563
9,055 2,328
Cost and expenses Depreciation and
amortization 2,014
1,854 477 Salaries 1,874
1,768 455 General and operating expenses 3,586
3,374 867 Other operating expenses (income), net 57
(536 ) (138 ) 7,531
6,460
1,661 Operating income 2,032
2,595 667 Financing expenses, net 396
694 178 Income after
financing expenses, net 1,636
1,901 489
Share of losses in equity-accounted investee 252
170
44 Income before income tax 1,384
1,731 445 Income tax 524
676
174 Net income for the period 860
1,055 271 Income (loss)
attributable to: Owners of the company 26
(108 )
(28 ) Non-controlling interests 834
1,163
299 Net income for the period
860
1,055 271 Earnings per
share Basic income (loss) per share 1.33
(5.65 )
(1.45 ) Diluted income (loss) per share 1.26
(5.77 ) (1.48 )
Internet Gold – Golden Lines Ltd.
Reconciliation for NON-IFRS
Measures
EBITDA
The following is a reconciliation of the
Bezeq Group’s operating income to EBITDA:
In millions
Quarter ended December 31,
Year ended December 31,
Convenience
Convenience translation
translation into into U.S. dollars
U.S. dollars (Note A) (Note A) 2013
2014 2014 2013 2014 2014
NIS NIS US$ NIS NIS US$
Operating income 593
633 163 2,819
3,226 830 Depreciation and amortization 328
321 82 1,311
1,281 329 EBITDA
921
954 245 4,130
4,507 1,159
Free Cash Flow
The following table shows the calculation
of the Bezeq Group’s free cash flow:
In millions
Quarter ended December 31,
Year ended December 31,
Convenience
Convenience translation
translation into into U.S. dollars
U.S. dollars (Note A) (Note A) 2013
2014 2014 2013 2014 2014
NIS NIS US$ NIS NIS US$
Cash flow from operating activities 935
739
190 4,152
3,796 976 Purchase of property,
plant and equipment (275 )
(261 ) (67 )
(1,042 )
(1,081 ) (278 ) Investment in
intangible assets and deferred expenses (43 )
(54 )
(14 ) (186 )
(194 ) (50 )
Proceeds from the sale of property, plant and equipment 93
83 21 312
230
59 Free cash flow 710
507
130 3,236
2,751 707
Designated disclosure
with respect to the Company’s projected cash flows
In accordance with the “hybrid model disclosure requirements”
promulgated by the Israeli Securities Authority that are applicable
to Internet Gold - Golden Lines Ltd. (the “Company”), the following
is a report of the Company’s projected cash flows (the “report”)
and a disclosure of the examination by the Company’s board of
directors of the Company’s liquidity in accordance with regulations
10(b)(1)(d) and 10(b)(14) of the Securities Regulations (Immediate
and Periodic Notices) 5730-1970:
- The Company’s un-reviewed financial
statements as of and for the quarter ended December 31, 2014,
reflect that the Company had an equity deficit of NIS 186 million
as of such date.
- The Company’s board of directors
reviewed the Company’s outstanding debt obligations, its existing
and anticipated cash resources and needs that were included in the
framework of the projected cash flow report for the period from
January 1, 2015 until December 31, 2015 and for the period from
January 1, 2016 until December 31, 2016 described below. The board
of directors also examined the assumptions and projections that
were included in the report and determined that such assumptions
and projections are reasonable and appropriate.
- Based on the foregoing, the Company’s
board of directors determined that the Company does not have a
liquidity problem and that for the duration of the period covered
by the projected cash flows statement there is no reasonable doubt
that the Company will not meet its existing and anticipated
liabilities when due.
The following is the projected cash
flow of the Company and the assumptions upon which it is
based:
For the period from
For the period from
January 1, 2015 until
January 1, 2016 until
December 31, 2015
December 31, 2016
NIS millions NIS millions
Opening
balance:
Cash and cash equivalents (1) 18
10
Independent
sources:
Cash flows from investing activities: Proceeds from the sale
of marketable securities (2)(3) 47 105
Cash
provided by investing activities 47 106
Sources from
Subsidiary:
Dividends from subsidiary (4) 68
81
Projected
liabilities (projected uses):
Cash flows used in operating activities (5) (4
) (4 ) Cash flows from financing
activities: Repayments of debentures (6) (61 ) (130 ) Interest
payments (6) (58 ) (52 )
Cash used in financing activities
(119 ) (182 )
Closing
balance:
Cash and cash equivalents (1) 10
10
Assumptions and explanations pertaining to
the above table:
(1) Cash flows include the Company’s projected cash flows and do
not include the consolidation of projected cash flows from the
Company’s subsidiary, B Communications Ltd. (“B Communications”) or
from Bezeq - The Israel Telecommunications Corp. Ltd.
(“Bezeq”).
(2) In addition to the cash balances it maintains, the Company
also invests in low-risk, high liquidity marketable securities that
are used to finance its operations. The Company’s investment policy
was reviewed by the Company’s audit committee and by a credit
rating agency. At least 80% of the Company’s portfolio is invested
in securities rated at a local rating of AA- and higher. As of
January 1, 2015, the Company’s investments in marketable securities
totaled NIS 304 million and by December 31, 2016 this balance is
expected to be NIS 167 million.
As of December 31, 2014, cash and cash equivalents and current
investments in marketable securities totaled NIS 322 million. These
liquidity balances can be converted to cash in a short period of
time and are a source for debt service. The liquidity balances by
themselves are sufficient for the service of the Company’s debt
during the projected periods.
(3) For the purposes of calculating cash flows from investments
in marketable securities, the Company assumed an annual yield of 3%
on the average balance of its investments in marketable securities
during the period. This assumption is based on the Company’s
conservative investment policy, as well as on yields historically
achieved by the Company from its investments in marketable
securities and on management’s assessment of the probability of
achieving such yield during the period.
The following are the benchmarks used by the Company and a
sensitivity analysis of the above assessments:
A. In 2014 and in 2013 the Company generated yields of 2.4% and
5.5%, respectively, on its cash and marketable securities
portfolio. The Company does not anticipate that there will be any
material changes to its investment policy in the projected
periods.
B. The following table shows the expected profit in NIS millions
from investments in cash and marketable securities in the projected
periods under a scenario of a 5% annual yield and a scenario of a
-2% annual yield:
Period Annual yield
5% -2% 1 –
annual profit (loss) 14 (6) 2 – annual profit (loss) 11 (4)
(4) Assumption of receipt of a dividend from B Communications
during the period is based on the following:
According to what it believes to be a conservative estimate, the
Company’s management anticipates that B Communications will
distribute accumulated dividends of at least NIS 220 million by
December 31, 2016. This assumption is based on market forecasts of
the estimated net profits of Bezeq and on the Company’s estimation
of B Communications’ anticipated retained earnings during the
projected periods. These estimates are derived, among other things,
from B Communications’ projected financing expenses and its
projected purchase price allocation amortization expenses with
respect to its acquisition of the controlling interest in Bezeq
(“Bezeq PPA”) that are non-cash expenses. Future Bezeq PPA
amortization expenses are expected to decrease significantly from
one year to the next because of the accelerated depreciation method
that was adopted by B Communications at the time of its acquisition
of the controlling interest in Bezeq. From April 14, 2010, the date
of B Communications’ acquisition of its interest in Bezeq, until
December 31, 2014, B Communications has amortized approximately 66%
of the total Bezeq PPA.
The dividend assumption stated in the distribution estimate
above, does not differ materially from that reported in the
previous quarter. The Company’s management made only an internal
update of the timing of distributions between the projected
periods.
B Communications does not have a dividend distribution policy.
Nevertheless, the Company assumes that there is a high probability
that B Communications will distribute most of its retained earnings
balance as a dividend, based, among other things, on B
Communications’ December 2013 distribution of its retained earnings
balance. The Company believes that the probability of future
dividend distributions by B Communications has improved and is
supported by the unrestricted cash mechanism provision in its
Senior Secured Notes that were issued in February 2014 that allows
the use of funds that are not pledged to the holders of the Senior
Secured Notes.
Accordingly, the Company’s management believes that B
Communications will act in the same manner as it did in 2013, and
that it will distribute most of its retained earnings balance, so
long as B Communications will have sufficient resources to service
its debt for a period of at least 18 months and that the
distribution meets the criteria for distributions under Israeli
law. This assumption does not contradict the restrictions on
distributing dividends under applicable law and other restrictions
applicable to B Communications.
(5) The cash flows from the Company’s current operations include
the administrative operating costs and costs associated with the
Company being a dual-listed company traded on the NASDAQ Global
Select Market and on the Tel Aviv Stock Exchange.
(6) The repayment of principal and interest are based on the
repayment schedule for the Company’s outstanding debentures, in
addition to an assumed 0% annual increase in the Consumer Price
Index in 2015 and an assumed 1.5% annual increase in the Consumer
Price Index in 2016.
The Company has additional cash
generating abilities that for conservative reasons were not taken
in to account in preparing the projected cash flow detailed above.
The following describes the Company’s assumptions regarding these
scenarios:
A. All of the Company’s shares in B Communications are free and
clear of any encumbrance. If necessary, the Company can sell some
of these shares, and will still remain the controlling shareholder
of B Communications. An example of this ability to sell shares of B
Communications is the transaction carried out in 2013, when shares
were sold to Norisha Holdings Ltd.
B. The Company has financial flexibility and quick access to
capital markets that enable it to raise funds within a short period
of time. This is evident from the debenture issuances and debenture
series exchanges that the Company completed in the recent
years.
The Company’s board of directors has reviewed the Company’s
liabilities, its existing and anticipated cash resources and needs
that were included in the framework of the projected cash flow
report, examined their scope and feasibility, as well as the timing
of their receipt, and found that all such assumptions and the
projections were reasonable and appropriate.
The Company’s board of directors examined the Company’s
anticipated resources and liabilities, and considering the
financial data in the above cash flow report and management’s
explanations of such data determined that the Company does not have
a liquidity problem and that for the duration of the projected
period for which cash flow information has been provided there is
no reasonable doubt that the Company will not meet its existing and
anticipated liabilities when due.
The information detailed above, concerning the Company’s cash
flow forecast, and particularly concerning the projected dividend
and yield on securities, are forward looking information as defined
in the Securities Law, 5728-1968. This information includes
forecasts, subjective assessments, estimates, etc. and is based,
among other things, on objective market forecasts and reviews
issued to the public, and relies, among other things, on the
company management’s past experience. Furthermore, some of such
information is based on future data and internal estimates by the
Company’s management made at the current time, and there is no
certainty that they will materialize, in whole or in part, due to
factors that are not in the Company’s control. It is hereby
clarified that there is a likelihood that said forward looking
information will not be realized, in whole or in part, both with
respect to the Company’s forecasts and with respect to the working
assumptions on which they are based.
Internet Gold – Golden Lines Ltd.Idit Cohen,
+972-3-924-0000IR
Manageridit@igld.comorInvestor relations:Hadas
Friedman, +972-3-516-7620Investor RelationsHadas@km-ir.co.il
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