Internet Gold Reports Financial Results for the Third Quarter of 2012

Internet Gold Reports Financial Results for the Third Quarter of 2012

-Progress in Line with B Communications' Strategic Plan Driven by Bezeq's Continued Strong Cash Generation-

RAMAT GAN, Israel--(BUSINESS WIRE)-- Internet Gold Ltd. (NASDAQ Global Market and TASE: IGLD) today reported its financial results for the third quarter ended September 30, 2012.


Bezeq's results: For the third quarter of 2012, the Bezeq Group reported revenues of NIS 2.5 billion ($ 638 million) and operating profit of NIS 667 million ($ 171 million). Bezeq's EBITDA for the third quarter totaled NIS 1 billion ($ 262 million), representing an EBITDA margin of 41%. Net income for the period attributed to the shareholders of Bezeq totaled NIS 342 million ($ 87 million). Bezeq's cash flow from operating activities totaled NIS 1 billion ($ 262 million) during the third quarter of 2012.

Dividend from Bezeq: On October 10, 2012, Internet Gold's subsidiary, B Communications received two dividend payments from Bezeq which together totaled NIS 464 million ($ 119 million). These dividend payments included a current dividend of NIS 309 million ($ 79 million), representing B Communications' share of Bezeq's net profit for the first half of 2012, and a special dividend of NIS 155 million ($ 40 million), representing B Communications' share of the fourth installment of six special dividend payments declared by Bezeq and approved by its shareholders last year.

Cash Position: As of September 30, 2012,Internet Gold's unconsolidated cash and cash equivalents totaled NIS 312 million ($ 80 million), its unconsolidated gross debt was NIS 1.17 billion ($ 299 million), and its unconsolidated net debt totaled NIS 858 million ($ 219 million).

Internet Gold's Unconsolidated Balance Sheet Data*

September 30,

December 31,

September 30,

December 31,

2012

2011

2012

2011

(NIS millions)

(US$ millions)

Short term liabilities

147

135

38

34

Long term liabilities

1,023

985

261

252

Total liabilities

1,170

1,120

299

286

Cash and cash equivalents

312

343

80

87

Total net debt

858

777

219

199

* Does not include the balance sheet of B Communications.

Internet Gold's Third Quarter Consolidated Financial Results

Internet Gold's revenues for the third quarter of 2012 were NIS 2,494 million ($ 638 million), a 15% decrease compared with NIS 2,917 million ($ 746 million) reported in the third quarter of 2011. For both the current and the prior-year periods, Internet Gold's revenues consisted entirely of its share of Bezeq's revenues.

Internet Gold's net loss attributable to shareholders for the third quarter totaled NIS 62 million ($ 16 million), compared to a net loss attributable to shareholders of NIS 52 million ($ 13 million) reported in the third quarter of 2011. This net loss reflects the impact of two significant expenses:

  • Amortization of tangible and identifiable intangible assets resulting from the Bezeq acquisition: According to the rules of business combination accounting, the total purchase price of the Bezeq acquisition was allocated to Bezeq's tangible and identifiable intangible assets based on their estimated fair values as determined by an analysis performed by an independent valuation firm. The company's subsidiary, B Communications is amortizing certain of the acquired identifiable intangible assets in accordance with the economic benefit expected from such assets using an accelerated method of amortization.

    During the third quarter of 2012, Internet Gold's subsidiary, B Communications recorded amortization expenses related to the Bezeq purchase price allocation ("Bezeq PPA") of NIS 307 million ($ 78 million), net.From the Bezeq acquisition date (April 14, 2010) until the end of the reporting quarter, B Communications has amortized approximately 53% of the total Bezeq PPA. It expects to amortize an additional 5% in the fourth quarter of 2012.

    B Communications' Bezeq PPA amortization expense is a non-cash expense that is subject to adjustment. If, for any reason, the Company finds it necessary or appropriate to make adjustments to amounts already expensed, it may result in significant changes to future financial statements.

  • Financial expenses: Internet Gold's unconsolidated financial expenses for the third quarter totaled NIS 17 million ($ 4 million). These expenses consisted primarily of expenses related to the Company's debentures, which totaled NIS 25 million ($ 6 million) that were offset by financial income of NIS 8 million ($ 2 million) generated by our short term investments. The significant financial expenses recorded in the third quarter were due primarily to high CPI linkage expenses attributable to the 0.85% increase in the Israeli CPI, to which the Company's debt is linked.

Internet Gold's Unconsolidated Financial Results

Quarter ended September 30,

Quarter ended September 30,

2012

2011

2012

2011

(NIS millions)

(US$ millions)

Revenues

-

-

-

-

Financial expenses

(17

)

(24

)

(4

)

(6

)

Other expenses

(1

)

(2

)

-

-

Interest in Bcom's net loss

(44

)

(26

)

(12

)

(7

)

Net loss

(62

)

(52

)

(16

)

(13

)

Comments of Management

Commenting on the results, Doron Turgeman, CEO of Internet Gold, said, "The third quarter of 2012 was another stable period for Bezeq, demonstrating the cash flow-generating power of its formidable position in Israel's telecommunications market. Despite current conditions in the Israeli capital market, as a long-term communications player with loans not burdened by share price-related covenants, our subsidiary B Communications is able to manage its cash position entirely according to plan, relying upon steady and visible cash flow to fulfill all loan commitments while continuing to accelerate its repayments."

Bezeq Group Results (Consolidated)

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

Bezeq Group (consolidated)

Q3 2012

Q3 2011

Change

(NIS millions)

Revenues

2,494

2,917

-14.5

%

Operating profit

667

944

-29.3

%

EBITDA

1,026

1,301

-21.1

%

EBITDA margin

41.1

%

44.6

%

Net profit attributable to Company shareholders

342

550

-37.8

%

Diluted EPS (NIS)

0.13

0.20

-35.0

%

Cash flow from operating activities

1,024

882

16.1

%

Payments for investments, net

270

374

-27.8

%

Free cash flow 1

754

508

48.4

%

Net debt/EBITDA (end of period) 2

1.64

1.24

Net debt/shareholders' equity (end of period)

3.69

2.93

1

Free cash flow is defined as cash flows from operating activities less net payments for investments.

2

EBITDA in this calculation refers to the trailing twelve months.

Revenues of the Bezeq Group in the third quarter of 2012 amounted to NIS 2.49 billion compared with NIS 2.92 billion in the corresponding quarter of 2011, a decrease of 14.5%. Most of the decrease in the Bezeq Group's revenues was due to lower revenues from the sale of cellular handsets and the erosion of revenues from cellular services.

Operating profit of the Bezeq Group in the third quarter of 2012 amounted to NIS 667 million, compared with NIS 944 million in the corresponding quarter of 2011, a decrease of 29.3%. Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter of 2012 amounted to NIS 1.03 billion (EBITDA margin of 41.1%), compared with NIS 1.30 billion (EBITDA margin of 44.6%) in the corresponding quarter of 2011, a decrease of 21.1%. Net profit attributable to Bezeq shareholders in the third quarter of 2012 amounted to NIS 342 million compared with NIS 550 million in the corresponding quarter of 2011, a decrease of 37.8%. The decrease in profitability metrics was primarily due to a decrease in profitability in the cellular segment as well as lower capital gains from real estate and copper sales in the Fixed-line segment compared to the corresponding quarter of 2011.

Cash flow from operating activities in the third quarter of 2012 amounted to NIS 1.02 billion compared with NIS 882 million in the corresponding quarter of 2011, an increase of 16.1% mainly due to improved working capital in the cellular segment. Free cash flow in the third quarter of 2012 amounted to NIS 754 million compared with NIS 508 million in the corresponding quarter of 2011, an increase of 48.4%. The increase in free cash flow was due to an increase in cash flow from operating activities as well as the completion of large infrastructure projects initiated in prior years.

Gross capital expenditures (CAPEX), in the third quarter of 2012 amounted to NIS 346 million compared with NIS 437 million in the corresponding quarter of 2011, a decrease of 20.8%. The Bezeq Group's CAPEX to consolidated sales ratio in the third quarter of 2012 was 13.9%, compared with 15.0% in the corresponding quarter of 2011.

As of September 30, 2012, gross financial debt of the Bezeq Group was NIS 8.94 billion, compared with NIS 9.61 billion as of September 30, 2011. The net financial debt of the Bezeq Group was NIS 7.19 billion compared with NIS 5.99 billion as of September 30, 2011. At the end of September 2012, the Bezeq Group's net financial debt to EBITDA ratio was 1.64, compared with 1.24 at the end of September 2011.

Notes:

A.

Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of September 30, 2012 have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of September 30, 2012 (NIS 3.912 = U.S. Dollar 1.00). The U.S. dollar ($) amounts presented should not be construed as representing amounts receivable or payable in U.S. dollars or convertible into U.S. dollars, unless otherwise indicated.

B.

Use of non-IFRS Measurements: We and the Bezeq Group's management regularly use supplemental non-IFRS financial measures internally to understand, manage and evaluate its business and make operating decisions. We believe these non-IFRS financial measures provide consistent and comparable measures to help investors understand the Bezeq Group's current and future operating cash flow performance.

These non-IFRS financial measures may differ materially from the non-IFRS financial measures used by other companies.

EBITDA is a non-IFRS financial measure generally defined as earnings before interest, taxes, depreciation and amortization. The Bezeq Group defines EBITDA as net income before financial income (expenses), net, impairment and other charges, expenses recorded for stock compensation in accordance with IFRS 2, income tax expenses and depreciation and amortization. We present the Bezeq Group's EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure, tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense).

EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this press release, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

Reconciliation between the Bezeq Group's results on an IFRS and non-IFRS basis is provided in a table immediately following the Bezeq Group's consolidated results. Non-IFRS financial measures consist of IFRS financial measures adjusted to exclude amortization of acquired intangible assets, as well as certain business combination accounting entries. The purpose of such adjustments is to give an indication of the Bezeq Group's performance exclusive of non-cash charges and other items that are considered by management to be outside of its core operating results. The Bezeq Group's non-IFRS financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with its consolidated financial statements prepared in accordance with IFRS.

About 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: BZEQ). 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.

Internet Gold - Golden Lines Ltd.

Consolidated Statements of Financial Position

(In millions)

Convenience

translation into

U.S. dollars

September 30

September 30

September 30

December 31

2012

2012

2011

2011

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

NIS

US$

NIS

NIS

Assets

Cash and cash equivalents

705

180

1,722

1,447

Investments including derivatives

1,743

446

2,721

1,548

Trade receivables

3,044

778

3,007

3,059

Other receivables

259

66

236

294

Inventory

149

38

199

204

Assets classified as held-for-sale

172

44

113

167

Total current assets

6,072

1,552

7,998

6,719

Investments including derivatives

94

24

115

119

Long-term trade receivables

1,193

305

1,594

1,499

Property, plant and equipment

6,811

1,741

7,392

7,143

Intangible assets

7,189

1,838

8,342

8,085

Deferred and other expenses

406

104

385

412

Investments in equity-accounted investee (mainly loans)

984

251

1,031

1,059

Deferred tax assets

144

37

218

223

Total non-current assets

16,821

4,300

19,077

18,540

Total assets

22,893

5,852

27,075

25,259

Internet Gold - Golden Lines Ltd.

Consolidated Statements of Financial Position

(In millions)

Convenience

translation into

U.S. dollars

September 30

September 30

September 30

December 31

2012

2012

2011

2011

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

NIS

US$

NIS

NIS

Liabilities

Short-term bank credit, current maturities of long-term liabilities and debentures

1,057

270

1,567

1,306

Trade payables

770

197

919

892

Other payables including derivatives

765

195

1,108

790

Dividend payable

1,366

349

1,542

669

Current tax liabilities

564

144

432

499

Deferred income

60