Internet Gold Reports Fourth Quarter 2010 Financial Results

Wireless News
03-12-2011
Internet Gold Reports Fourth Quarter 2010 Financial Results
Type: News

Internet Gold reported its financial results for the fourth quarter and full year ended December 31, 2010 together with its cash position and loan repayment status as of December 31, 2010.

In a release on March 8, the Company noted that as of December 31, 2010, Internet Gold's 76.78 percent owned subsidiary B Communications Ltd. exceeded its original plan for the repayment of the debt it incurred to fund its April 2010 acquisition of the controlling interest (approximately 30 percent) in Bezeq - The Israel Telecommunication Corp., Ltd. ("Bezeq"). From April 14, 2010 through December 31, 2010, B Communications repaid NIS 892 million (US$ 251 million) principal amount of debt.
At December 31, 2010, Internet Gold's cash and cash equivalents totaled NIS 256 million (US$ 72 million) and its total unconsolidated debt was NIS 901 million (US$ 254 million). This reflected the following events:

-Successful placement of NIS 170 million in debentures: On September 28, 2010, Internet Gold issued NIS 170 million (US $48 million) of Series C debentures. These debentures carry a 4.45 percent fixed annual interest rate, are linked to the Israeli CPI, and are listed for trade on the Tel Aviv Stock Exchange.

-Successful Exchange of Series B Debentures for Series C Debentures: On December 19, 2010, the Company issued an additional NIS 148 million (US $42 million) of Series C debentures, and exchanged them for approximately 19 percent of its outstanding Series B Debentures. The goal of this transaction was to improve the Company's liquidity, the average duration of its debentures and its cash position after the Bezeq transaction.

-Successful placement of NIS 134 million in Debentures in February 2011: On February 28, the Company raised an additional NIS 134 million (US $38 million) through the issuance of additional Series C debentures.

Internet Gold's revenues for the fourth quarter of 2010 were NIS 3.1 billion (US$ 866 million) compared with NIS 323 million reported in the fourth quarter of 2009. The Company's revenues for the fourth quarter of 2010 consisted primarily of Bezeq's revenues, together with the modest contribution of its media business, which totaled NIS 16 million (US$ 5 million) for the period. Internet Gold's fourth quarter 2009 revenues consisted of sales generated by its legacy 012 Smile telecom business. Revenues for the full year 2010, which consolidate Bezeq's results from April 14, 2010, were NIS 8.7 billion (US$ 2.5 million) compared with NIS 1.2 billion for 2009.

Internet Gold's net loss for the fourth quarter totaled NIS 171 million (US$ 48 million) compared with net income of NIS 31 million recorded in the fourth quarter of 2009. Internet Gold's net loss for the year ended December 31, 2010 totaled NIS 241 million (US$ 68 million) compared with net income of NIS 62 million recorded in 2009. These net losses reflected 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 Bezeq 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. During the fourth quarter of 2010, Internet Gold recorded an additional NIS 267 million (US$ 75 million) in amortization expenses related to the aforementioned Bezeq purchase price allocation ("Bezeq PPA"), bringing the total of its Bezeq PPA amortization expense for 2010 to NIS 359 million (US$ 101 million). Internet Gold 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 under which approximately 40 percent of the acquired identifiable intangible assets will be amortized during 2010 and 2011.Bezeq PPA amortization expense is a non-cash expense which 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. (see Note B below).

-Financial expenses: Internet Gold's financial expenses for the fourth quarter totaled NIS 129 million (US$ 36 million). These expenses consisted primarily of interest on the long-term loans incurred to finance the Bezeq acquisition, which totaled NIS 73 million (US$ 20 million), and expenses related to the Company's CPI- linked debentures, which totaled NIS 31 million (US$ 9 million). This was offset by NIS 8 million (US$ 2 million) of finance income generated by the Company's conservative portfolio of marketable investments.

Commenting on the results, Eli Holtzman, CEO of Internet Gold, said, "2010 was an outstanding year for the Internet Gold Group. From a strategic point of view, the Bezeq acquisition, which we closed in April, transformed us from a niche ISP/ILD player into a very broad communications group, giving us control over Israel's largest Telco and clear leadership of the Israeli telecommunications market. From the financial point of view, we have already accelerated our loan repayment plan, and carried out a bond exchange transaction that improved the structure of our outstanding debt.

"With the goal of focusing fully on Bezeq and our communications business, we have recently sold three of our Goldmind.Media assets and intend to divest our remaining media holdings during the next several months. Taken as a whole, we are very pleased with the development of our business, and continue to seek out additional ways to create value for our shareholders."

To provide further insight into its results, the Company has provided the following summary of the Bezeq Group's quarter and year ended December 31, 2010 consolidated financial reports. For a full discussion of Bezeq's results for the quarter, please refer to http:/ /ir.bezeq.co.il.

Bezeq Group revenues for 2010 totaled a record NIS 12.0 billion, up 4.1 percent from NIS 11.5 billion in 2009. Revenue growth was driven by higher revenues at Pelephone, Bezeq International and the initial consolidation of the Walla! results, and was partially offset by a 0.8 percent decline in Bezeq Fixed-Line's revenues. Fourth quarter 2010 Bezeq group revenues totaled NIS 3.1 billion, an increase of 4.3 percent versus the year ago quarter.

In the second quarter, Bezeq began consolidating the results of Walla!, the leading Israeli Internet portal serving a community of more than 5 million monthly users in Israel and abroad.

Bezeq's operating profit increased 26.0 percent to NIS 3.7 billion in 2010 as compared to the full year 2009. The improvement in operating profit delivered a 31.2 percent operating margin and was driven primarily by higher total revenues and the positive impact of ongoing cost reduction initiatives, as well as by the incremental capital gains from the ongoing disposal of real estate and copper during the year.

Net profit attributable to Bezeq shareholders from continuing operations in 2010 amounted to NIS 2.4 billion, up 13.3 percent as compared to the full year 2009, when excluding a one-time gain of NIS 1.5 billion related to the deconsolidation of yes in the third quarter of 2009.

Bezeq's EBITDA for 2010 increased 15.6 percent to NIS 5.2 billion (EBITDA margin 43.0 percent) compared to 2009 (EBITDA margin 38.7 percent). EBITDA in the fourth quarter of 2010 increased 48.2 percent to NIS 1.3 billion (41.5 percent EBITDA margin) versus the year ago quarter (29.2 percent EBITDA margin).

Fourth quarter and full year 2009 operating profit, net profit, and EBITDA for the Fixed-Line segment were impacted by a NIS 267 million provision for employee retirement recorded in Q4 2009 versus an NIS 36 million provision recorded in 2010, of which only NIS 5 million was recorded in the fourth quarter. Subsequent to year end, Bezeq announced a plan to early retire up to 260 employees at an estimated cost of NIS 281.5 million. The provision for these expenses will be recorded in the first quarter of 2011.

Cash flow from operating activities in 2010 rose 1.1 percent year- over-year to NIS 3.7 billion versus the full year 2009.

Gross capital expenditures in 2010 amounted to NIS 1.6 billion, an increase of 9.3 percent as compared to the full year 2009. This rise was primarily related to the ongoing rollout of the Bezeq's Fixed-Line segment's NGN (next generation network) infrastructure. The 2010 consolidated capex-to-sales ratio was 13.7 percent, as compared with 13.1 percent for the full year 2009.

As of December 31, 2010, Bezeq's consolidated financial debt was NIS 5.7 billion, compared with NIS 4.1 billion as of December 31, 2009. The year-over-year increase in the financial debt was primarily related to Bezeq raising new debt totaling NIS 2.6 billion during the second and third quarters of 2010 through new loans from Israeli banks with an average duration of 4.7 years. These increases were partially offset by the repayment of debentures and loans by Bezeq and Pelephone. As of year-end 2010, the Bezeq's net debt-to- EBITDA ratio was 1.04, as compared to 0.76 at year-end 2009.

Internet Gold is an Israel-based telecommunications group.

More information:

www.eurocom.co.il

www.bcommunications.co.il

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