B Communications : Q2 2019

B Communications Reports Financial Results For the

Second Quarter of 2019

Ramat Gan, Israel - August 29, 2019 - B Communications Ltd. (NASDAQ Global Select Market and TASE: BCOM), a holding company with a controlling interest in Israel's largest telecommunications provider, Bezeq, The Israel Telecommunication Corporation Limited ("Bezeq") (TASE: BEZQ), today reported its financial results for the second quarter of 2019.

Recent Developments

As previously reported, during the last few weeks the Tel Aviv-Jaffa District Court (the "Court") approved the "Searchlight-Fuhrer" transaction and the arrangement pursuant to Section 350 of the Israeli Companies Law relating to the transaction among the Company, Internet Gold, Searchlight and T.N.R Investments (the vehicle of the Fuhrer Group). No objections to the settlement and transaction were received prior to the deadline set by the Court.

The Searchlight-Fuhrer transaction was also approved by the debenture holders and shareholders of both the Company and Internet Gold-Golden Lines Ltd., as required by law, and by the Israeli Antitrust Authority. The Israeli Securities Authority has indicated that it does not intend to oppose the arrangement and transactions pursuant to it.

The approval of the Israeli Ministry of Communications will be required to complete the transaction.

The Searchlight Fuhrer transaction includes the purchase of all Internet Gold's holdings in our company in consideration for NIS 225 million and a direct investment of NIS 260 million in our company. In accordance with the pending transaction, upon closing, Internet Gold will inject an aggregate of NIS 345 million (which will include the consideration payable by Searchlight to Internet Gold) into our company in consideration for newly issued shares and debentures of B Communications.

Pursuant to the updated proposal, an aggregate of NIS 640 million will be injected into the Company (compared to only NIS 250 million in the original proposal), in consideration of share capital and long-terminterest-bearing debentures having an approximate equivalent value. The Searchlight proposal will also enable the Company to make the final payment in respect of its Series B debentures as well very substantial payments (NIS 614 million) on account of its obligations to the existing Series C debenture holders (before the allotment of the additional debentures).

The consolidated financial results of the Company for the second quarter of 2019 were impacted by three extraordinary items: (i) the write-off of the tax asset in respect of losses from Yes of NIS 1.166 billion, (ii) the impairment losses in Pelephone of NIS 1.35 billion, and (iii) the capital gains of NIS 403 million from the sale of the "Sakia" property.

Comments of Ami Barlev, CEO of B Communications:

Over the past few weeks, the Company's management has continued to make intensive efforts to promote alternatives and transactions that will enable a significant capital injection into the Company.

We are very pleased with the several approvals received to date with respect to the transaction. At this stage, all approvals required for the transaction have been received, with the exception of the approval from the Israeli Ministry of Communications, which we expect to receive in the very near future.

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We thank the public for the trust and the high confidence that has been given to our company over the past few months. The Company's board of directors intends to continue to act for the benefit of all the Company's stakeholders.

Heightened competition in all areas of the Israeli telecommunications market is reflected in Bezeq's Group second quarter results. In response, the Bezeq Group is taking many actions to adapt Bezeq to the competitive situation and strengthen the Group for the upcoming challenges. The Bezeq Group has initiated deep and complex streamlining processes in each of the Group companies as well as by creating managerial and operational synergies. Streamlining processes naturally result in short-term expenses but are expected to create significant value in the medium and long term. The fruits of these processes will be seen as time goes by. On the other hand, the Bezeq's Group is developing new areas of activity tailored to technological and consumer changes in the various markets and is adapting existing businesses to changing realities.

On February 14, 2019, Bezeq petitioned the Supreme Court to cancel the structural separation in the Bezeq Group immediately. The Ministry is expected to respond by September 5, 2019. If granted, the cancellation of the structural separation is expected to improve the Bezeq Group's competitive position.

Bezeq's management is taking significant steps to ensure Bezeq's stability and growth in the coming years. We believe in their considerable abilities.

Business Performance:

The Bezeq Group continues to deliver strong business performance relative to the market, while streamlining and reducing expenses. During the quarter, The Bezeq Group continued to solidify its significant financial strength by, among other factors, reducing net debt by approximately NIS 1 billion compared to the corresponding quarter in 2018. In 2019, Bezeq raised NIS 1.39 billion with an average duration of over 7 years and made early repayments of NIS 438 million. Bezeq intends to continue to work to reduce its debt and extend the duration of its debt.

In the second quarter, Bezeq strengthened its presence in customer homes and in businesses through the significant penetration of its advanced BE router, along with related solutions that complement the home broadband experience. At the same time, Bezeq continued to expand and strengthen its advanced business communications solutions. Bezeq is making great efforts to develop new growth engines that leverage the diverse capabilities of the company. The Ministry of Communications recently released a number of new policy documents regarding various aspects of fiber optic services for private customers. We hope that when the hearing is completed, a new policy will be formulated that will allow Bezeq to start providing the services on an economic basis.

In the second quarter, Bezeq International continued to grow revenues and stabilize profitability metrics, despite the intense competition in the telecommunications market. In addition, Bezeq International grew its cloud operations and formed partnerships with international companies. Recently, Bezeq International signed an agreement with its labor union regarding the ongoing streamlining and synergy processes. Further to this agreement, Bezeq International launched its first triple play package including, leading Internet services from Bezeq International together with high quality TV from Yes. This package enables Bezeq International to enhance the value proposition for both existing and new customers and to offer a full range of telecommunications products under one roof/umbrella?.

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Pelephone has grown the number of subscribers for more than three years and has added another 58,000 subscribers since the beginning of 2019. This is an impressive achievement, especially in light of the intense competition and erosion in profitability in the cellular market. Alongside the growth in subscribers, Pelephone continued to streamline operations and saved NIS 51 million in operating expenses in the first half of 2019. Pelephone is currently negotiating with its labor union to reach a new agreement that will allow Pelephone to make the necessary adjustments to ensure its future in a changing and competitive environment.

B Communications' Unconsolidated Financial Liabilities and Liquidity

As of June 30, 2019, B Communications' unconsolidated liquidity balances (comprised of cash and cash equivalents, short term investments and funds deposited in a pledged account) totaled NIS 706 million ($198 million) and its financial liabilities totaled NIS 2.52 billion ($708 million), including NIS 2.28 billion ($641 million) of Series C Debentures and NIS 237 million ($67 million) of Series B Debentures (including accrued interest and unamortized premiums, discounts and debt issuance costs for both series). All of the debt is now classified as currently due.

(In millions)	June 30,		June 30,		June 30,		December 31,
	2018	2019	2019	2018
	NIS		NIS		US$		NIS
Financial liabilities
Series B debentures	230	237	67	229
Series C debentures	2,236		2,282		641		2,238
Total financial liabilities	2,466	2,519	708	2,467
Liquidity
Cash and short-term investments	524	663	186	546
Pledged account (*)	40		43		12		43
Total liquidity	564		706		198		589
Net debt	1,902		1,813		510		1,878

• Pledged for the benefit of the holders of the Series C Debentures. Pursuant to the indenture for the Series C Debentures, the account is required to include sufficient funds to meet the next interest payment payable to the holders of those debentures.

B Communications Unconsolidated Sources and Uses for the Six Months Ended June 30, 2019

(In millions)	NIS		US$
Net debt as of December 31, 2018	1,878	528
Financing expenses, net	42	12
Issuance of shares	(117)	(33)
Operating expenses	10		3
Net debt as of June 30, 2019	1,813		510

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Bezeq's Dividend Distribution Policy:

On March 27, 2019, Bezeq's Board of Directors resolved to cancel Bezeq's dividend distribution policy, which was previously updated on March 6, 2018. The decision was made as a result of Bezeq's expected failure to meet the "profit test" during the next two years. Accordingly, Bezeq's Board of Directors decided that it would not be appropriate to maintain a dividend policy when in practice dividends are not expected to be paid.

The cancellation of Bezeq's dividend policy will not prevent Bezeq's Board of Directors from examining from time to time the distribution of dividends to its shareholders, taking into consideration, among other factors, the provisions of the law, the state of its business and capital structure, and the need to maintain a balance between ensuring its financial strength and stability and the continued creation of value to its shareholders, all of which are subject to the approval of the general meeting of shareholders of Bezeq with respect to each specific distribution, as prescribed in the Bezeq's Articles of Association.

B Communications Second Quarter Consolidated Financial Results

B Communications' consolidated revenues for the second quarter of 2019 totaled NIS 2.22 billion ($625 million), a 4.7% decrease from NIS 2.33 billion reported in the second quarter of 2018. For both the current and the prior periods, B Communications' consolidated revenues consisted entirely of Bezeq's revenues.

B Communications' consolidated operating loss for the second quarter of 2019 totaled NIS 536 million ($151 million) compared to an operating loss of NIS 14 million reported in the second quarter of 2018. The loss in the second quarter of 2019 resulted mainly from impairment losses related to Bezeq's cellular segment.

B Communications' consolidated loss for the second quarter of 2019 totaled NIS 1.87 billion ($527 million), compared to a loss of NIS 197 million reported in the second quarter of 2018. The loss in the second quarter of 2019 resulted mainly from impairment losses related to Bezeq's cellular segment and the cancellation of Bezeq's deferred tax asset that resulted from the Bezeq-Yes transaction.

B Communications' loss attributable to shareholders for the second quarter of 2019 was NIS 1.02 billion ($286 million), compared to a loss of NIS 315 million reported in the second quarter of 2018.

B Communications Unconsolidated Financial Results

								Year ended
(In millions)	Three months ended June 30,			December 31,
	2018	2019			2019	2018
	NIS		NIS			US$		NIS
Financing expenses, net	(17)	(24)			(7)	(96)
Operating expenses	(8)	(5)			(1)	(18)
PPA amortization, net	(9)	(10)			(3)	(16)
Impairment losses	(333)	(819)			(229)	(618)
Interest in Bezeq's net profit (loss)	52		*(165)			*(46)		(281)
Loss for the period	(315)		(1,021)			(286)		(1,029)

• Adjusted by impairment losses of Pelephone in the amount of NIS 951 million. 4

As of June 30, 2019, B Communications held approximately 26.34% of Bezeq's outstanding shares. B Communications' interest in Bezeq's loss for the second quarter of 2019 totaled NIS 414 million ($116 million) compared with the net profit of NIS 52 million reported in the second quarter of 2018.

During the second quarter of 2019, B Communications recorded net amortization expenses related to its Bezeq purchase price allocation ("Bezeq PPA") of NIS 10 million ($3 million). In addition, B Communications incurred impairment losses of NIS 819 million ($229 million) in the second quarter of 2019 with respect to impairment losses in Bezeq's cellular communications segment resulting from the continued fierce competition in the Israeli cellular market. From April 14, 2010, the date of the acquisition of its interest in Bezeq, until June 30, 2019, B Communications has amortized approximately 86% of the total Bezeq PPA. The Bezeq PPA amortization expense is a non-cash expense that is subject to adjustment.

B Communications' unconsolidated net financial expenses for the second quarter of 2019 totaled NIS 24 million ($7 million) compared with net financial expenses of NIS 17 million in the second quarter of 2018. Net financial expenses for the second quarter of 2019 included NIS 28 million ($8 million) of financial expenses related to the Company's Series B and C debentures. Those expenses were partially offset by a financial profit of NIS 4 million ($1 million) generated by short term investments.

B Communications' unconsolidated loss for the second quarter of 2019 was NIS 1.02 billion ($287 million) compared with a loss of NIS 315 million reported in the second quarter of 2018. The loss in the second quarter of 2019 resulted mainly from impairment losses related to Bezeq's cellular segment and the cancellation of Bezeq's deferred tax asset that resulted from the Bezeq- Yes transaction.

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 quarter ended June 30, 2019. For a full discussion of Bezeq's results for the quarter ended June 30, 2019, please refer to its website: http://ir.bezeq.co.il.

Bezeq Group (consolidated)	Q2-2019	Q2-2018 % change
	(NIS millions)
Revenues	2,224	2,333	(4.7%)
Operating profit (loss)	(94)	371
Operating margin	-4.2%	15.9%
Net profit (loss)	(1,573)	195
EBITDA	384	908	(57.7%)
EBITDA margin	17.3%	38.9%
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%
Total debt	11,334	12,000	(5.6%)
Net debt	8,419	9,401	(10.4%)
EBITDA (trailing twelve months)	1,107	3,729	(70.3%)
Adjusted EBITDA (trailing twelve months) 2	3,821	3,909	(2.3%)
Net debt / Adjusted EBITDA (end of period) 3	2.5	2.5

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

2 Adjusted EBITDA in excluding other operating income/expenses and loss from impairment of assets 3 Net debt to adjusted EBITDA ratio is excluding IFRS 16 impact

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