Internet Gold – Golden Lines Ltd. (NASDAQ Global Market and TASE: IGLD)
today reported its financial results for the fourth quarter and year
ended December 31, 2013.
Bezeq’s Results: For the fourth quarter of 2013, the Bezeq Group
reported revenues of NIS 2.4 billion ($694 million) and operating profit
of NIS 593 million ($171 million). Bezeq’s EBITDA for the fourth quarter
totaled NIS 921 million ($265 million), representing an EBITDA margin of
38%. Net income for the period attributable to Bezeq’s shareholders
totaled NIS 352 million ($101 million). Bezeq's cash flow from operating
activities during the period totaled NIS 935 million ($269 million).
Cash Position: As of December 31, 2013, Internet Gold’s
unconsolidated cash and cash equivalents totaled NIS 329 million ($95
million), its unconsolidated gross debt was NIS 1.06 billion ($306
million) and its unconsolidated net debt was NIS 731 million ($211
million).
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Internet Gold's Unconsolidated Balance Sheet Data (1)
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In millions
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Convenience
translation into
U.S.
dollars
(Note A)
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December 31,
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December 31,
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2012
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2013
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2013
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NIS
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NIS
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US$
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Short term liabilities
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138
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138
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40
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Long term liabilities
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895
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922
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266
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Total liabilities
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1,033
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1,060
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306
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Cash and cash equivalents(2)
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179
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329
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95
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Total net debt
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854
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731
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211
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(1) Does not include the balance sheet of B Communications.
(2) On March 3, 2014 Internet Gold issued a total of NIS 117.6 million
par value of Series D Debentures at 107% of their par value for an
aggregate consideration of NIS 126 million ($36 million). As a result,
as of such date Internet Gold's a cash and cash equivalent balance was
NIS 455 million ($131 million).
Dividend from Bezeq: In accordance with Bezeq's dividend policy,
its Board of Directors recommended the distribution of 100% of its
profits for the second half of 2013 as a cash dividend of NIS 802
million ($231 million) to shareholders. The dividend, which is subject
to shareholder approval, is expected to be paid on April 23, 2014 to
shareholders of record as of April 6, 2014. B Communications’ share of
the dividend distribution is expected to be approximately NIS 248
million ($71 million).
Internet Gold’s Fourth Quarter and Full Year Financial Results
Internet Gold's consolidated revenues for the fourth quarter of 2013
were NIS 2,409 million ($694 million), a 1.6% decrease compared with NIS
2,449 million reported in the fourth quarter of 2012. For the full year
2013, Internet Gold's revenues totaled NIS 9,563 million ($2,755
million), a 7% decrease compared to NIS 10,278 million reported in 2012.
For both the current and the prior-year periods, Internet Gold’s
consolidated revenues consisted entirely of Bezeq’s revenues.
During the fourth quarter of 2013, B Communications recorded net
amortization expenses of NIS 133 million ($38 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 December 31, 2013, B
Communications has amortized approximately 60% 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.
Internet Gold’s financial expenses, net: Internet Gold’s unconsolidated
net financial expenses for the fourth quarter of 2013 totaled NIS 6
million ($2 million). These expenses included NIS 17 million ($5
million) related to the Company’s publicly-traded debentures. These
expenses were partially offset by financial income of NIS 4 million ($1
million) that resulted from the Company’s investments in marketable
securities and NIS 7 million ($2 million) of non-cash income related to
the revaluation of Nurisha Holdings Ltd.’s option to purchase B
Communications shares from us. In accordance with IAS 39, such option
must be revalued each quarter until it vests in the second quarter of
2014. As a non-cash item, any expense or income resulting from this
revaluation does not affect the Company’s cash-flow.
Internet Gold’s unconsolidated net financial expenses for 2013 totaled
NIS 76 million ($22 million). These expenses consisted primarily of NIS
79 million ($23 million) of interest and CPI linkage expenses related to
the Company's publicly-traded debentures and a NIS 9 million ($3
million) non-cash expense related to the revaluation of the option
issued to Norisha Holdings Ltd. to purchase B Communications shares from
us as detailed above. These expenses were offset in part by financial
income of NIS 12 million ($3 million) generated by short term
investments.
Internet Gold's net loss attributable to shareholders for the fourth
quarter of 2013 was NIS 5 million ($1 million) compared to nil in the
fourth quarter of 2012. For the full year 2013, Internet Gold’s
net income attributable to shareholders totaled NIS 11 million ($3
million), compared to a net loss of NIS 37 million reported in 2012.
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Internet Gold’s Unconsolidated Financial Results
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In millions
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Convenience
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Convenience
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translation into
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translation into
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Quarter ended
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U.S. dollars
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Year ended
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U.S. dollars
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December 31,
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(Note A)
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December 31,
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(Note A)
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2012
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2013
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2013
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2012
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2013
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2013
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NIS
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NIS
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US$
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NIS
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NIS
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US$
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Revenues
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-
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-
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-
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-
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-
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-
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Financial expenses, net
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(3
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(6
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(2
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(60
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)
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(76
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(22
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Other expenses
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(11
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(1
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-
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(14
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(4
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(1
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Interest in BCOM's net income
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14
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2
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1
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37
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91
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26
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Net income (loss)
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-
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(5
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(1
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(37
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11
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3
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Comments of Management
Commenting on the results, Doron Turgeman, CEO of Internet Gold said,
“2013 was another year of progress according to our long-term work plan.
With the goal of increasing our liquidity, during the year we sold a
portion of our B Communications shares, received a first time dividend
from B Communications and recently raised a new series of long term
debentures. We now have sufficient cash balances, according to the
assumptions of our current work plan, to fully service our debt until
2017. In general, we continue to be very pleased with all aspects of the
Bezeq acquisition, 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 full year ended December 31, 2013. For
a full discussion of Bezeq’s results for the fourth quarter and full
year of 2013, please refer to its website: http://ir.bezeq.co.il.
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Bezeq Group (consolidated)
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Q4 2013
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Q4 2012
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% change
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FY 2013
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FY 2012
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% change
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(NIS millions)
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(NIS millions)
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Revenues
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2,409
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2,449
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-1.6
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%
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9,563
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10,278
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-7.0
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%
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Operating profit
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593
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778
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-23.8
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%
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2,819
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3,041
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-7.3
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%
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EBITDA
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921
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1,139
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-19.1
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%
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4,130
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4,477
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-7.8
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%
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EBITDA margin
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38.2
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%
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46.5
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%
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43.2
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%
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43.6
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%
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Net profit attributable to Bezeq's shareholders
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352
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522
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-32.6
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%
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1,771
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1,861
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-4.8
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%
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Diluted EPS (NIS)
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0.13
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0.19
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-26.3
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%
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0.65
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0.68
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-4.4
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%
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Cash flow from operating activities
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935
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1,002
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-6.7
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%
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4,152
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4,014
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3.4
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%
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Payments for investments, net
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225
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192
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17.2
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%
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916
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1,235
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-25.8
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%
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Free cash flow 1
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710
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810
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-12.3
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%
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3,236
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2,779
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16.4
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%
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Net debt/EBITDA (end of period) 2
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1.96
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1.79
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1.96
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1.79
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1 Free cash flow is defined as cash flow from operating
activities less net payments for investments.
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2 EBITDA in this calculation refers to the trailing
twelve months.
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Revenues in 2013 of the Bezeq Group amounted to NIS 9.56 billion ($2.76
billion) compared with NIS 10.28 billion in 2012, a decrease of 7.0%.
The reduction in Bezeq Group revenues was primarily related to a
decrease in the revenues of Pelephone due to increased competition in
the market. The decrease was partially offset by an increase in the
revenues of Bezeq International.
Revenues of the Bezeq Group in the fourth quarter of 2013 amounted to
NIS 2.41 billion ($694 million) compared with NIS 2.45 billion in the
corresponding quarter of 2012, a decrease of 1.6%.
Profitability metrics were influenced by an increase in the net
provision for employee retirement at Bezeq’s fixed-line segment, which
amounted to NIS 90 million ($26 million) in 2013, of which NIS 54
million ($16 million) was recorded in the fourth quarter of 2013. By
comparison, the provision for employee retirement in 2012 amounted to
NIS 32 million, of which NIS 19 million was recorded in the fourth
quarter. In addition, in the fourth quarter of 2012 there was an
exceptionally large amount of capital gains recorded from the sales of
real estate and copper in the amount of NIS 130 million compared with
NIS 35 million ($10 million) in the fourth quarter of 2013. Furthermore,
in the fourth quarter of 2013, Pelephone recorded a one-time expense in
the amount of NIS 61 million ($18 million) due to the implementation of
an agreement with its employee labor union.
Operating profit of the Bezeq Group in 2013 amounted to NIS 2.82 billion
($812 million) compared with NIS 3.04 billion in 2012, a decrease of
7.3%. Operating profit in the fourth quarter of 2013 amounted to NIS 593
million ($171 million) compared with NIS 778 million in the
corresponding quarter of 2012, a decrease of 23.8%.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
of the Bezeq Group in 2013 amounted to NIS 4.13 billion ($1.19 billion)
(EBITDA margin of 43.2%) compared with NIS 4.48 billion in 2012 (EBITDA
margin of 43.6%), a decrease of 7.8%. EBITDA in the fourth quarter of
2013 amounted to NIS 921 million ($265 million) (EBITDA margin of 38.2%)
compared with NIS 1.14 billion (EBITDA margin of 46.5%) in the
corresponding quarter of 2012, a decrease of 19.1%.
Net profit attributable to Bezeq shareholders in 2013 amounted to NIS
1.77 billion ($510 million) compared with NIS 1.86 billion in 2012, a
decrease of 4.8%. Net profit in the fourth quarter of 2013 amounted to
NIS 352 million ($101 million) compared with NIS 522 million in the
corresponding quarter of 2012, a decrease of 32.6%.
Operating cash flow of the Bezeq Group in 2013 amounted to NIS 4.15
billion ($1.20 billion) compared with NIS 4.01 billion in 2012, an
increase of 3.4%. Free cash flow in 2013 amounted to NIS 3.24 billion
($932 million) compared with NIS 2.78 billion in 2012, an increase of
16.4%.
Net financial debt of the Bezeq Group was NIS 8.09 billion ($2.33
billion) as of December 31, 2013 compared with NIS 8.00 billion as of
December 31, 2012.
Notes:
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A.
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Convenience Translation to Dollars: For the convenience of
the reader, certain of the reported NIS figures of December 31,
2013 have been presented in millions of U.S. dollars, translated
at the representative rate of exchange as of December 31, 2013
(NIS 3.471 = U.S. Dollar 1.00). The U.S. dollar ($) 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.
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B.
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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.
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These non-IFRS financial measures may differ materially from the
non-IFRS financial measures used by other companies.
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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).
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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.
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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.
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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.com
www.bcommunications.co.il
www.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.
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Internet Gold – Golden Lines Ltd.
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Consolidated Statements of Financial Position as at December 31,
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(In millions)
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Convenience
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translation into
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U.S. dollars
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(Note A)
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2012
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2013
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2013
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NIS
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NIS
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US$
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Assets
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Cash and cash equivalents
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764
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867
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249
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Investments, including derivative financial instruments
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1,655
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1,868
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538
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Trade receivables, net
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2,927
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2,651
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764
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Other receivables
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329
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347
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101
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Inventory
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123
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117
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34
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Assets classified as held-for-sale
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164
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217
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63
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Total current assets
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5,962
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6,067
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1,749
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Investments, including derivative financial instruments
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90
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81
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23
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Long-term trade and other receivables
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1,074
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652
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188
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Property, plant and equipment
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6,911
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6,562
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1,891
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Intangible assets
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7,252
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6,582
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1,896
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Deferred and other expenses
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384
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390
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112
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Investment in equity-accounted investee (mainly loans)
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1,005
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1,015
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292
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Deferred tax assets
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128*
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60
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17
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Total non-current assets
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16,844
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15,342
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4,419
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Total assets
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22,806
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21,409
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6,168
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* Restated following the retrospective application of the
amendment to IAS 19, Employee Benefits.
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Internet Gold – Golden Lines Ltd.
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Consolidated Statements of Financial Position as at December
31, (cont’d)
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(In millions)
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Convenience
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translation into
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U.S. dollars
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|
|
|
(Note A)
|
|
|
|
|
|
2012
|
|
2013
|
|
2013
|
|
|
|
|
|
NIS
|
|
NIS
|
|
US$
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Short-term bank credit, current maturities
|
|
|
|
|
|
|
|
|
|
of long-term liabilities and debentures
|
|
|
|
1,707
|
|
1,575
|
|
|
454
|
|
|
Trade payables
|
|
|
|
793
|
|
721
|
|
|
208
|
|
|
Other payables, including derivative
|
|
|
|
|
|
|
|
|
|
financial instruments
|
|
|
|
746
|
|
776
|
|
|
224
|
|
|
Dividend payable
|
|
|
|
669
|
|
-
|
|
|
-
|
|
|
Current tax liabilities
|
|
|
|
588
|
|
657
|
|
|
189
|
|
|
Provisions
|
|
|
|
145
|
|
125
|
|
|
36
|
|
|
Employee benefits
|
|
|
|
251*
|
|
257
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
4,899
|
|
4,111
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures
|
|
|
|
5,913
|
|
6,944
|
|
|
2,001
|
|
|
Bank loans
|
|
|
|
6,422
|
|
5,223
|
|
|
1,505
|
|
|
Loans from institutions and others
|
|
|
|
540
|
|
548
|
|
|
158
|
|
|
Employee benefits
|
|
|
|
*260
|
|
234
|
|
|
67
|
|
|
Other liabilities
|
|
|
|
67
|
|
90
|
|
|
25
|
|
|
Provisions
|
|
|
|
66
|
|
68
|
|
|
20
|
|
|
Deferred tax liabilities
|
|
|
|
1,159
|
|
1,028
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
14,427
|
|
14,135
|
|
|
4,072
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
19,326
|
|
18,246
|
|
|
5,257
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Total equity attributable to equity holders
|
|
|
|
|
|
|
|
|
|
of the Company
|
|
|
|
(92)*
|
|
(102
|
)
|
|
(29
|
)
|
|
Non-controlling interests
|
|
|
|
3,572*
|
|
3,265
|
|
|
940
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
3,480
|
|
3,163
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
|
22,806
|
|
21,409
|
|
|
6,168
|
|
|
|
|
* Restated following the retrospective application of the
amendment to IAS 19, Employee Benefits.
|
|
|
|
|
|
Internet Gold – Golden Lines Ltd.
|
|
|
|
Consolidated Statements of Income for the Year December 31
|
|
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
translation
|
|
|
|
|
|
|
|
|
|
into
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
|
|
|
2012
|
|
2013
|
|
2013
|
|
|
|
|
|
NIS
|
|
NIS
|
|
US$
|
|
Revenues
|
|
|
|
10,278
|
|
9,563
|
|
2,755
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
2,367
|
|
2,019
|
|
582
|
|
Salaries
|
|
|
|
1,980*
|
|
1,882
|
|
542
|
|
General and operating expenses
|
|
|
|
3,997
|
|
3,576
|
|
1,030
|
|
Other operating (income) expenses, net
|
|
|
|
(1)
|
|
62
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,343
|
|
7,539
|
|
2,172
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
1,935
|
|
|
2,024
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
Financing expenses, net
|
|
|
|
415*
|
|
420
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
Income after financing
|
|
|
|
|
|
|
|
|
|
expenses, net
|
|
|
|
1,520
|
|
1,604
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
Share in losses of equity-accounted investee
|
|
|
|
245
|
|
252
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
|
|
1,275
|
|
1,352
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
|
556*
|
|
517
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
|
|
719
|
|
835
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to:
|
|
|
|
|
|
|
|
|
|
Owners of the Company
|
|
|
|
(37)*
|
|
11
|
|
3
|
|
Non-controlling interests
|
|
|
|
756*
|
|
824
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
|
|
719
|
|
835
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), basic
|
|
|
|
(1.97)
|
|
0.29
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), diluted
|
|
|
|
(2.01)
|
|
0.22
|
|
0.06
|
|
|
|
* Restated following the retrospective application of the
amendment to IAS 19, Employee Benefits.
|
|
|
|
|
|
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
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
translation
|
|
|
|
|
|
|
|
|
|
into
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
(Note A)
|
|
|
|
|
|
2012
|
|
2013
|
|
2013
|
|
|
|
|
|
NIS
|
|
NIS
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
3,041
|
|
2,819
|
|
812
|
|
Depreciation and amortization
|
|
|
|
1,436
|
|
1,311
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
4,477
|
|
4,130
|
|
1,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow
|
|
|
|
The following table shows the calculation of the Bezeq Group’s
free cash flow:
|
|
|
|
In millions
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
translation
|
|
|
|
|
|
|
|
|
|
into
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
(Note A)
|
|
|
|
|
|
2012
|
|
2013
|
|
2013
|
|
|
|
|
|
NIS
|
|
NIS
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities
|
|
|
|
4,014
|
|
4,152
|
|
1,196
|
|
Purchase of property, plant and equipment
|
|
|
|
(1,271)
|
|
(1,042)
|
|
(300)
|
|
Investment in intangible assets and deferred expenses
|
|
|
|
(269)
|
|
(186)
|
|
(54)
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
305
|
|
312
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
|
2,779
|
|
3,236
|
|
932
|
|
|
|
|
|
|
|
|
|
|
Designated disclosure with respect to the
Company's projected cash flows
Projected cash flow (1)
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 projected cash flow 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, 2013, reflect that the Company had an
equity deficit of NIS 102 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 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 there is
no reasonable doubt that for the duration of the period covered by the
projected cash flow statement the Company will not meet its existing
and anticipated liabilities when due.
|
|
|
The following is the projected cash flow
and its working assumptions:
|
|
|
|
|
|
|
|
For the period from
January 1 until December 31
|
|
|
|
|
|
2014
|
|
2015
|
|
|
|
|
|
NIS millions
|
|
NIS millions
|
|
Opening balance:
|
|
|
|
|
|
|
|
Cash and cash equivalents (2)
|
|
|
|
71
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Independent sources:
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Proceeds from the sale of marketable securities (3)
|
|
|
|
-
|
|
|
75
|
|
|
Cash provided by investing activities
|
|
|
|
-
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from the issuance of Series D Debentures issue (4)
|
|
|
|
124
|
|
|
-
|
|
|
Proceeds from exercise of option given to Norisha Holdings Ltd. (5)
|
|
|
|
28
|
|
|
-
|
|
|
Cash provided by financing activities
|
|
|
|
152
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Sources from Subsidiary:
|
|
|
|
|
|
|
|
Dividends from subsidiary (6)
|
|
|
|
-
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Projected liabilities (projected uses):
|
|
|
|
|
|
|
|
Cash flows used in operating activities (7)
|
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
|
|
|
|
|
Purchase of marketable securities (3)
|
|
|
|
(6
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Repayments of debentures (8)
|
|
|
|
(127
|
)
|
|
(129
|
)
|
|
Interest payments (4) (8)
|
|
|
|
(56
|
)
|
|
(52
|
)
|
|
Cash used in financing activities
|
|
|
|
(183
|
)
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
Closing balance:
|
|
|
|
|
|
|
|
Cash and cash equivalents (2)
|
|
|
|
30
|
|
|
30
|
|
|
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. As of January 1, 2014, the Company’s investment in
marketable securities totaled NIS 258 million and by December 31,
2015 this balance is expected to be NIS 205 million. For details
on the investment policy see item (3) below.
|
|
|
|
|
|
|
(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
investment policy, whereby at least 50% of the its cash balances
will be invested in government bonds or cash on-call deposits; up to
35% will be invested in corporate bonds with a rating higher than A-
and an average rating higher than AA-; and up to 15% will be
invested in shares and/or corporate bonds with a rating lower than
A-. The assumption is also based 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 2013 and in 2012 the Company generated yields of 5.5% and
6.9%, 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 2014 and in 2015.
|
|
|
|
|
|
|
|
|
|
|
B. The following table shows the expected profit in NIS millions
from investments in cash and marketable securities in 2014 and 2015
under a scenario of a 5% annual yield and a scenario of a -2% annual
yield:
|
|
|
|
|
|
|
|
Year\Annual yield
|
|
|
|
5%
|
|
|
|
-2%
|
|
2014 profit (loss)
|
|
|
|
13
|
|
|
|
(5)
|
|
2015 profit (loss)
|
|
|
|
14
|
|
|
|
(5)
|
|
|
|
|
|
|
(4)
|
|
|
For the purpose of calculating the cash flows, the Company took into
account the proceeds from the issuance of its new Series D
Debentures in March 2014 and the future interest payments thereon.
|
|
|
|
|
|
|
(5)
|
|
|
On 27 June, 2013 the Company sold 3,571,741 ordinary shares of B
Communications to Norisha Holdings Ltd. (“Norisha”) in consideration
of NIS 125 million.
|
|
|
|
|
|
|
|
|
|
Under the agreement, Norisha may be eligible to receive up to an
additional 892,935 ordinary shares of B Communications for no
additional consideration pursuant to the adjustment mechanism agreed
upon by the parties in the agreement. In general, the mechanism
requiring the transfer of additional shares without any
consideration will apply only in the event that the average price
for B Communications’ shares in the 90 trading days preceding 27
June, 2014 is between NIS 28 and NIS 35 (or less).
|
|
|
|
|
|
|
|
|
|
In the event that the number of additional shares to be transferred
will be less than 892,935 shares, Norisha will have the option to
purchase the remaining shares from the Company based on the price
mechanism detailed in the agreement. For the purpose of the cash
flow calculation, the Company assumed at a high probability that
Norisha will exercise the option granted to it under the agreement
and will purchase the additional 892,935 shares at an exercise price
of NIS 31.59 per share (the exercise price stated in the agreement,
adjusted for the dividend paid in December 2013). The average price
of B Communications’ shares during the three months ended February
28, 2014 was NIS 55.45, which is higher than the exercise price.
|
|
|
|
|
|
|
(6)
|
|
|
Presumption of the receipt of a dividend from B Communications
during the period is based on the following:
|
|
|
|
|
|
|
|
|
|
According to conservative estimates, the Company’s management
anticipates that while in 2014 no dividend will be received from B
Communications, a dividend should be received in the period ending
September 30, 2015. The Company’s management anticipates that B
Communications’ retained earnings balance will be at least NIS 170
million at September 30, 2015. This assumption is based on market
forecasts of the estimated net profits of Bezeq during the projected
periods and on B Communications’ anticipated financing expenses and
continued depreciation of its purchase price allocation ("PPA")
costs. Deprecation of PPA costs 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.
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
Accordingly, the Company’s management believes that B Communications
will act in the same manner it did in 2013, and that it will
distribute most of its retained earnings balance, as long as this
balance meets the criteria for distributions under Israeli law and
that B Communications will have the resources to service its debt
for a period of at least 18 months. This assumption does not
contradict the restrictions on distributing dividends under
applicable law and other restrictions applicable to B Communications.
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In accordance with the Company’s assumption concerning Norisha
exercise its option as noted in paragraph 5 above, the Company also
assumed that its share in the dividend that will be distributed by B
Communications will be approximately 65% of the total dividend
amount, which represents the Company's projected ownership interest
in B Communications after Norisha exercises its option.
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(7)
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The cash flows from the Company’s current operations include the
administrative operating costs and costs derived from it being a
publicly dual-listed Company traded on Nasdaq and on the Tel Aviv
Stock Exchange.
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(8)
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The repayment of principal and interest are based on the repayment
schedule for the Company’s outstanding debentures, in addition to an
assumed annual 2% increase in the Consumer Price Index.
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The Company has additional cash generating
scenarios that for conservative reasons were not taken in to account in
the projected cash flow detailed above. The following describes the
Company's assumptions regarding these scenarios:
Note: Even if the above assumptions are not realized, the Company has
additional avenues to finance its operations and meet its obligations.
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A.
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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. This assumption is supported by a similar
transaction carried out in 2013, when shares in B Communications
were sold to Norisha, as noted.
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B.
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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 bond issues that the
Company has completed in the past few years.
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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 figures in the above cash
flow report and management’s explanations of it, determined that the
Company does not have a liquidity problem and that there is no
reasonable doubt that for the duration of the projected period for which
cash flow information has been provided 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 the said 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. Accordingly, the Company’s actual
results could be different due to current risks that are described in
Chapter 3 of this prospectus, various accounting ramifications, changes
in market conditions, business-economic variables, and other possible
causes.
Copyright Business Wire 2014