B Communications : BEZEQ GROUP REPORTS SECOND QUARTER 2019 FINANCIAL RESULTS

Press Release

BEZEQ GROUP REPORTS

SECOND QUARTER 2019 FINANCIAL RESULTS

Tel Aviv, Israel - August 29, 2019 - Bezeq - The Israel Telecommunication Corp., Ltd. (TASE: BEZQ), Israel's leading telecommunications provider, today announced its financial results for the three months ended June 30, 2019. Details regarding the investor conference call and webcast to be held today are included later in this press release.

The financial results in the second quarter of 2019 were impacted by three extraordinary items: A write-off of the balance of the tax asset in respect of losses from yes of NIS 1.166 billion, an impairment loss in Pelephone assets of NIS 951 million and capital gains of NIS 403 million for the sale of the "Sakia" complex

	Bezeq Group (consolidated)	Q2 2019	Q2 2018	% change
			(NIS millions)
Revenues		2,224	2,333	(4.7%)
Operating profit	(94)	371
EBITDA		384	908	(57.7%)
EBITDA margin	17.3%	38.9%
Net profit		(1,573)	195
Diluted EPS (NIS)	(0.57)	0.07
Cash flow from operating activities	624	806	(22.6%)
Payments for investments	525	531	(1.1%)
Free cash flow	1	350	122	186.9%
		2	2.5	2.5
Net debt/Adjusted EBITDA (EOP)
1	Free cash flow is defined as cash flow from operating activities less net payments for investments and as
of 2018, with the implementation of accounting standard IFRS 16, less payments for leases.
2	Adjusted EBITDA in this ratio is EBITDA excluding other operating income/expenses, one-time loss from
impairment and the effect of the adoption of accounting standard IFRS 16.

Shlomo Rodav, Bezeq's Chairman, stated, "Heightened competition in all areas of the Israeli telecommunications market is reflected in our second quarter results. In response, we are taking many actions to adapt Bezeq to the competitive situation and strengthen the Group for the upcoming challenges in future years. We do this through deep and complex streamlining processes in each of the Group companies as well as through creating managerial and operational synergies. Streamlining processes naturally result in short-term expenses but are poised to create significant value in the medium and long term. The fruits of these processes will be seen in the future and more materially as time goes on. On the other hand, we are developing new areas of activity tailored to technological and consumer changes in the various markets and adapting existing businesses to changing realities. The continued fierce competition in the cellular market led to revised estimates in prices of services and profitability of equipment sales in Pelephone that led to an impairment in value. We will continue

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to operate under strict corporate governance rules in the future. In addition, the quarterly results were significantly impacted by the write-off of the tax asset in respect of losses from yes. It should be noted that this is an accounting write-off and does not affect the company's current operations."

Yali Rothenberg, CPA, Bezeq Group's Chief Financial Officer, commented, "We continue to deliver strong business performance relative to the market, while streamlining and reducing expenses. During the quarter, our financial results were affected by three extraordinary items: a write- off of the balance of the tax asset in respect of losses from yes of NIS 1.166 billion, an impairment loss in Pelephone assets of NIS 951 million and capital gains of NIS 403 million for the sale of the "Sakia" complex.

During the quarter, we continued to solidify Bezeq's significant financial strength by, among other factors, reducing net debt by approximately NIS 1 billion compared to the corresponding quarter. In 2019, we raised NIS 1.39 billion at an average duration of over 7 years, and made early repayments of NIS 438 million. We will continue to work to reduce our debt and extend its duration."

Bezeq Group Results (Consolidated)

Revenues in the second quarter of 2019 were NIS 2.22 billion, compared to NIS 2.33 billion in the same quarter of 2018, a decrease of 4.7%.

The decrease in revenues was due to lower revenues in Bezeq Fixed-Line, Pelephone and yes.

Salary expenses in the second quarter of 2019 were NIS 489 million, compared to NIS 503 million in the same quarter of 2018, a decrease of 2.8%.

The decrease in salary expenses was primarily due to the reduction in salary expenses in Bezeq International and yes.

Operating and general expenses in the second quarter of 2019 were NIS 814 million, compared to NIS 838 million in the same quarter of 2018, a decrease of 2.9%.

The decrease in operating and general expenses was primarily due to lower expenses in Pelephone and Bezeq Fixed-Line.

Other operating income, net in the second quarter of 2019 was NIS 414 million, compared to operating expenses of NIS 84 million in the same quarter of 2018.

Other operating income/expenses was impacted by the recording of capital gains of NIS 403 million from the sale of the "Sakia" complex in the current quarter and the provision of NIS 81 for the early retirement of employees at Bezeq Fixed-Line in the second quarter of 2018.

Depreciation, amortization and impairment expenses in the second quarter of 2019 was NIS 478 million, compared to NIS 537 million in the same quarter of 2018, a decrease of 11.0%. The decrease in depreciation, amortization and impairment expenses was primarily due to the decrease in depreciable and amortizable assets in yes in the fourth quarter of 2018. The decrease was partially offset by the ongoing loss from impairment (fixed and intangible assets) recorded in the current quarter.

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Loss from impairment of assets in the second quarter of 2019 was NIS 951 million. The loss was due to the decrease in value of goodwill at Pelephone.

Operating loss in the second quarter of 2019 amounted to NIS 94 million, compared to operating profit of NIS 371 million in the same quarter of 2018. EBITDA in the second quarter of 2019 amounted to NIS 384 million (EBITDA margin of 17.3%), compared to NIS 908 million (EBITDA margin of 38.9%) in the same quarter of 2018, a decrease of 57.7%.

After adjusting for the loss from impairment and other operating income/expenses, adjusted EBITDA in the second quarter of 2019 was NIS 921 million (EBITDA margin of 41.4%), compared to NIS 992 million (EBITDA margin of 42.5%) in the same quarter of 2018, a decrease of 7.2%.

Financing expenses in the second quarter of 2019 were NIS 136 million, compared to NIS 110 million in the same quarter of 2018, an increase of 23.6%.

The increase in financing expenses was primarily due to the increase in financing expenses in Bezeq Fixed-Line and yes.

Tax expenses in the second quarter of 2019 were NIS 1.34 billion, compared to NIS 65 million in the same quarter of 2018.

The increase in tax expenses was due to the write-off of the balance of the tax asset in respect of losses from yes as well as an increase in taxable income mainly due to capital gains for the sale of the "Sakia" complex.

Net loss in the second quarter of 2019 amounted to NIS 1.57 billion, compared to net profit of NIS 195 million in the same quarter of 2018. The transition from net profit to net loss was primarily due to the aforementioned decrease in operating profit and write-off of the tax asset.

After adjusting for the write-offof the tax asset, loss from impairment and other operating income/expenses, adjusted net profit in the second quarter of 2019 was NIS 225 million, compared to NIS 260 million in the same quarter of 2018, a decrease of 13.5%.

Cash flow from operating activities in the second quarter of 2019 was NIS 624 million, compared to NIS 806 million in the same quarter of 2018, a decrease of 22.6%. The decrease in cash flow from operating activities was primarily due to a decrease in all key Group segments primarily resulting from changes in working capital.

Payments for investments (Capex) in the second quarter of 2019 amounted to NIS 525 million, compared to NIS 531 million in the same quarter of 2018, a decrease of 1.1%.

Capex in the second quarter of 2019 included payment of a betterment levy of NIS 149 million in connection with the sale of the "Sakia" complex, compared to the payment of NIS 112 million for permit fees in the second quarter of 2018.

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Free cash flow in the second quarter of 2019 was NIS 350 million, compared to NIS 122 million in the same quarter of 2018, an increase of 186.9%. The increase in free cash flow was primarily due to proceeds of NIS 323 million received in connection with the sale of the "Sakia" complex, compared to payment of NIS 80 million for betterment tax in the second quarter of 2018.

Net financial debt of the Group was NIS 8.42 billion as of June 30, 2019 compared to NIS 9.40 billion as of June 30, 2018. As of June 30, 2019, the Group's net financial debt to Adjusted EBITDA ratio was 2.5, in-line with the result as of June 30, 2018.

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2019 Outlook

Due to extraordinary items in the second quarter of 2019 (write-off of the tax asset, impairment loss in Pelephone assets and the recording of capital gains from the sale of the "Sakia" complex) as well as the inclusion of estimated costs for early retirement in the Outlook, the Bezeq Group is updating its Outlook for 2019, as originally published in the Company's periodic report as of December 31,

2018 ("Original Outlook") as follows:

Net loss attributable to shareholders:

Approximately NIS 1.1 billion (compared to net profit of NIS 900 million to NIS 1.0 billion in the Original Outlook)

EBITDA:

Approximately NIS 2.9 billion (compared to NIS 3.9 in the Original Outlook)

CAPEX*:

Approximately NIS 1.7 billion (unchanged)

The Group's updated Outlook includes the write-off of the balance of the tax asset in respect of losses from yes of NIS 1.166 billion, an impairment loss in Pelephone assets of NIS 951 million, capital gains of NIS 403 million from the sale of the "Sakia" complex and provisions of NIS 380 million for the early retirement of employees in Bezeq Fixed-Line, Pelephone, Bezeq International and yes. It is noted that NIS 360 million of the total forecasted provisions for early retirement have not yet been recorded as actual provisions in the financial statements and represents an estimate that may not be realized.

The Company's forecasts in this section are forward-looking information, as defined in the Securities Law. The forecasts are based on the Company's estimates, assumptions and expectations and do not include the effects, if any, of the cancellation of the Group's structural separation and the merger with the subsidiary companies and everything involved therein in 2019. The Group's forecasts are based, inter alia, on its estimates regarding the structure of competition in the telecommunications market and regulation in this sector, the economic situation and accordingly, the Group's ability to implement its plans in 2019. Actual results may differ from these estimates taking note of changes which may occur in the foregoing, in business conditions, and the effects of regulatory decisions, technology changes and developments in the structure of the telecommunications market, and so forth, or the realization of one or more of the risk factors listed in sections 2.20, 3.19, 4.14 and 5.19 of the Periodic Report of 2018, and specifically the risk factor detailed in section 2.20.12 of the Periodic Report of 2018 regarding the impairment of assets in the subsidiary companies.

The Company shall report, as required, deviations of more/less than 10% of the range and amounts stated in the Outlook.

**CAPEX - payments for investments (gross) in fixed and intangible assets

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