Internet Gold Reports Financial Results For the Second Quarter of 2019

Thursday, 29. August 2019 18:27

Ramat Gan, Israel, Aug. 29, 2019 (GLOBE NEWSWIRE) --  Internet Gold - Golden Lines Ltd. (the “Company”) (NASDAQ Global Select Market and TASE: IGLD), a holding company whose principal asset is a 51.95% stake in B Communications Ltd. (“B Communications”) (NASDAQ and TASE: BCOM), that owns 26.34% of the outstanding shares of Bezeq The Israel Telecommunication Corporation Limited, the leading communication group in Israel ("Bezeq") (TASE: BEZQ), today reported its financial results for the second quarter of 2019.

In January 2019, the Company reported that because of its inability to generate funds by selling its ownership interest in B Communications, it intends to withhold payments to its debenture holders until further notice. As a result, the Company's long-term debt was classified as "short-term" debt.

On June 24, 2019 the Company announced execution of a definitive agreement (the “SPA”) among the Company, B Communications, Searchlight II BZQ, L.P. (“Searchlight”) and T.N.R Investments Ltd. (together with Searchlight, the “Purchasers” and the “Searchlight Transaction”).

The Searchlight Transaction provides for the sale by the Company of its entire holdings in B Communications for the aggregate sum of NIS 225 million and an investment by the Company in B Communications of NIS 345 million (consisting of the amount to be paid for the B Communications shares by the Purchasers and an additional amount of NIS 120 million). In consideration, the Company will receive NIS 310 million par value of Series C debentures of B Communications as well as 8,383,234 ordinary shares of B Communications.

The SPA includes certain covenants by the parties applicable during the period between signing and closing, including, exclusivity, making required filings with the Ministry of Communications, obtaining court approval and the approval of the shareholders of B Communications, as well as certain restricted actions by the Company, B Communications and Bezeq.

In addition, the SPA includes certain conditions to closing, including the receipt of court approval, the issuance of a control permit to the Purchasers by the Ministry of Communications, antitrust approvals, absence of material adverse effect, designation of board members on behalf of the Purchasers on the boards of directors of B Communications and Bezeq, and the maintenance of minimum liquidity and maximum indebtedness of B Communications upon closing.

On July 16, 2019, approval of the Searchlight Transaction was obtained from the Israel Competition Authority.

The Court Process

One of the conditions to closing of the Searchlight Transaction is the receipt of court approval pursuant to Section 350 of the Israeli Companies Law, 5759-1999 (the “Arrangement”). On July 9, 2019, the Tel-Aviv Jaffa District Court (the “Court”) approved our petition and ordered the convening of meetings of the Company’s creditors and Shareholders for the purpose of approving the Arrangement.

On July 30, 2019, we announced that the creditors meeting unanimously approved the Searchlight Transaction with the required majority under Section 350 of the Israeli Companies Law (“Section 350”). In addition, on July 29, 2019, BCOM announced that the meetings of the debenture holders of B Communications approved the Searchlight Transaction.

On August 8, 2019 the Company’s shareholders’ meeting approved the Searchlight Transaction with the required majority under Section 350. In addition, on August 8, 2019, B Communications announced that its shareholders approved the Searchlight Transaction.

Following the approval of our creditors and shareholders, on August 8, 2019, we submitted to the Court a petition requesting approval of the Arrangement pursuant to Section 350.

On August 20, 2019, we announced that the Court approved our petition to approve the Arrangement.

There is no guarantee that all conditions to the closing of the Searchlight Transaction will be satisfied, including, among others, the issuance of a control permit to the Purchasers by the Israel Ministry of Communications. Accordingly, there is no guarantee that the Searchlight Transaction will be completed.

If the Searchlight Transaction is consummated, the Company will not be able to fully pay its debts, and it intends to initiate an additional creditors’ arrangement which will be submitted to the applicable Israeli court pursuant to Section 350. The Company anticipates that pursuant to such arrangement, the existing shares of the Company will be nullified and that the creditors of the Company will receive, among other items, 100% of the outstanding shares of the Company.

Internet Gold’s Unconsolidated Financial Liabilities and Liquidity

As of June 30, 2019, Internet Gold’s unconsolidated liquidity balances comprised of cash and cash equivalents and short-term investments totaled NIS 132 million ($37 million), its unconsolidated financial liabilities totaled NIS 766 million ($215 million) and its unconsolidated net debt totaled NIS 634 million ($178 million).

(In millions) June 30,  June 30,  June 30,  December 30, 
  2018  2019  2019  2018 
  NIS  NIS  US$  NIS 
             
Series C debentures  22   23   6   22 
Series D debentures *  795   743   209   717 
Total financial liabilities  817   766   215   739 
                 
                 
Cash and cash equivalents  111   108   30   69 
Short-term investments  132   24   7   67 
Total liquidity  243   132   37   136 
                 
Net debt  574   634   178   603 
                 

* The outstanding balance of Series D debentures as of June 30, 2019 includes NIS 11 million ($3 million) arising from implementation of IFRS9. It should be noted that the increase in the outstanding Series D debentures balance will not increase the Company's future debt repayments and will decrease the Company's finance expenses over the term of the debentures.

Internet Gold's Second Quarter Consolidated Financial Results

Internet Gold's consolidated revenues for the second quarter of 2019 totaled NIS 2.2 billion ($623 million), a 4.7% decrease from the NIS 2.3 billion reported in the second quarter of 2018. For both the current and the prior periods, Internet Gold's consolidated revenues consisted entirely of Bezeq’s revenues.

Internet Gold's consolidated operating loss for the second quarter of 2019 totaled NIS 541 million ($152 million) compared to an operating loss of NIS 17 million in the second quarter of 2018. The operating loss during the second quarter was negatively impacted as a result to the impairment loss recorded by B Communications with respect to Bezeq’s cellular communications segment, resulting from the continued fierce competition in the Israeli cellular market.  The Bezeq PPA amortization expense is a non-cash expense that is subject to adjustment.

Internet Gold's consolidated net loss for the second quarter of 2019 totaled NIS 1,902 million ($533 million) compared to a net loss of NIS 210 million in the second quarter of 2018. In addition to the negative impact of the impairment losses with respect to the cellular segment during the second quarter, the consolidated net loss was also impacted by the tax asset write off by Bezeq relating to DBS, which totaled NIS 1,166 million ($327 million).

Notes:

Convenience translation to U.S. Dollars

Unless noted specifically otherwise, the dollar denominated figures were converted to US$ using a convenience translation based on the New Israeli Shekel (NIS)/US$ exchange rate of NIS 3.566 = US$ 1 as published by the Bank of Israel for June 30, 2019.

About Internet Gold

Internet Gold is a telecommunications-oriented holding company whose principal asset is a 51.95% stake in B Communications Ltd, the owner of 26.34% of outstanding shares of Bezeq The Israel Telecommunication Corporation Limited, the leading communications group in Israel. 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 including statements regarding completion of the Searchlight Transaction. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the risk that regulatory approvals required for the Searchlight Transaction will not be obtained or that the Searchlight Transaction will not close for any reason, 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 the Company's 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.

There is no certainty that the Searchlight Transaction will be consummated.

For further information, please contact:

Doron Turgeman
doron@igld.com / Tel: +972-3-924-0000

Internet Gold - Golden Lines Ltd.

Consolidated Statements of Financial Position as at

(In millions) June 30,  June 30,  June 30,  December 31, 
  2018  2019  2019  2018 
  NIS  NIS  US$  NIS 
Current Assets            
Cash and cash equivalents  1,209   1,549   434   1,173 
Investments  2,198   2,205   618   1,847 
Trade receivables  1,821   1,744   489   1,773 
Other receivables  314   291   83   272 
Inventory  96   100   28   97 
Total current assets  5,638   5,889   1,652   5,162 
                 
Non-Current Assets                
Trade and other receivables  447   535   150   470 
Property, plant and equipment  6,949   6,106   1,713   6,313 
Intangible assets  5,353   3,257   913   4,227 
Deferred expenses and investments  585   503   141   509 
Broadcasting rights  467   59   16   60 
Right of use assets  1,424   1,175   330   1,504 
Deferred tax assets  1,035   12   3   1,205 
Investment Property  130   -   -   64 
Total non-current assets  16,390   11,647   3,266   14,352 
                 
Total assets  22,028   17,536   4,918   19,514 

  

Internet Gold - Golden Lines Ltd.

Consolidated Statements of Financial Position as at

(In millions) June 30,  June 30,  June 30,  December 31, 
  2018  2019  2019  2018 
  NIS  NIS  US$  NIS 
Current Liabilities            
Bank loans and debentures  2,120   4,815   1,350   4,724 
Leases liabilities  417   434   122   445 
Trade and other payables  1,607   1,523   427   1,714 
Current tax liabilities  8   27   8   8 
Provisions  110   148   42   175 
Employee benefits  369   443   124   581 
Total current liabilities  4,631   7,390   2,073   7,647 
                 
Non-Current Liabilities                
Bank loans and debentures  13,140   9,709   2,722   9,637 
Leases liabilities  1,034   1,022   287   1,106 
Employee benefits  267   487   137   445 
Other liabilities  210   163   46   175 
Provisions  40   39   11   38 
Deferred tax liabilities  440   123   34   302 
Total non-current liabilities  15,131   11,543   3,237   11,703 
                 
Total liabilities  19,762   18,933   5,310   19,350 
                 
Equity (equity deficit)                
Attributable to shareholders of the Company  51   (960)  (269)  (453)
Non-controlling interests  2,215   (437)  (123)  617 
Total equity  2,266   (1,397)  (392)  164 
                 
Total liabilities and equity  22,028   17,536   4,918   19,514 

Designated Disclosure with Respect to the Company's Projected Cash Flows

In connection with the issuance of the Series D Debentures in 2014, we undertook to comply with the "hybrid model disclosure requirements" as determined by the Israeli Securities Authority and as described in the prospectus governing our Series D Debentures.

This model provides that in the event certain financial "warning signs" exist, and for as long as they exist, we will be subject to certain disclosure obligations towards the holders of our Series D Debentures.

As aforementioned, in January 2019, the Company reported that because of its inability to generate funds by selling its ownership interest in B Communications, it intends to withhold payments to its debenture holders until further notice.

As described above, on June 24, 2019, the Company entered into the Searchlight Transaction. If the Searchlight Transaction is consummated, the Company will not be able to fully pay its debts, and intends to initiate an additional creditors’ arrangement which will be submitted to the applicable Israeli court pursuant to Section 350 of the Israeli Companies Law. The Company anticipates that pursuant to such arrangement, the existing shares of the Company will be nullified and that the creditors of the Company will receive, among else, 100% of the shares of the Company.

Our unconsolidated unaudited cash flow statement for the quarter ended June 30, 2019 reflects, as expected, a continuing negative cash flow from operating activities of NIS 3 million. In addition, the Company’s unconsolidated unaudited statements of financial position as of June 30, 2019, reflect that the Company had an equity deficit of NIS 960 million and negative working capital of approximately NIS 633 million as of such date. The negative working capital is a result of the classification of the Company‘s long term debt as “short-term“ debt.

On June 26, 2019, the Company announced that Midroog Ltd. ceased rating the Company’s Series C and Series D Debentures at the Company’s request.

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