Bezeq Israeli Telecomunictn : GROUP REPORTS FIRST QUARTER 2019 FINANCIAL RESULTS

Press Release

BEZEQ GROUP REPORTS

FIRST QUARTER 2019 FINANCIAL RESULTS

Tel Aviv, Israel - May 30, 2019 - Bezeq - The Israel Telecommunication Corp., Ltd. (TASE: BEZQ), Israel's leading telecommunications provider, today announced its financial results for the three months ended March 31, 2019. Details regarding the investor conference call and webcast to be held today are included later in this press release.

Bezeq Group (consolidated)	Q1 2019	Q1 2018	% change
	(NIS millions)
Revenues	2,256	2,361	(4.4%)
Operating profit	511	462	10.6%
EBITDA	977	987	(1.0%)
EBITDA margin	43.3%	41.8%
Net profit	300	260	15.4%
Diluted EPS (NIS)	0.11	0.09	22.2%
Cash flow from operating activities	765	909	(15.8%)
Payments for investments	373	368	1.4%
Free cash flow 1	316	423	(25.3%)
Net debt/Adjusted EBITDA2 (EOP)	2.47	2.35

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, "During the quarter, all of the Bezeq Group companies focused on a wide range of streamlining processes aimed at adapting expenses to restrictive regulations, intense market competition and emerging revenue trends. These activities were carried out consistently and continuously at all levels of operations with a long-term view. Technological innovation alongside changes in consumer preferences are impacting the global telecommunications market. Meanwhile, competition in the local market is as intense as ever, and regulatory processes that should have been implemented long ago hinder Bezeq's ability to compete fairly in the market and deprives consumers of the best possible product offerings. All these factors intensify our need to capitalize on our infrastructure and technological advantages in order to improve and diversify the services we provide to our customers while making the Group more efficient and flexible.

The number of employees in all of the Group companies decreased during the first quarter. Results of this process will become more apparent in the coming quarters, along with benefits of additional efficiency measures. At the same time, we have developed new fields of activity in each of the Group companies, while preparing the basis for the next generation of telecommunications services."

BEZEQ GROUP REPORTS FIRST QUARTER 2019 FINANCIAL RESULTS

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Yali Rothenberg, CPA, Bezeq Group's Chief Financial Officer commented, "In the first quarter of 2019, we reduced Group net debt by NIS 400 million compared with the corresponding quarter last year. We will continue to focus on debt management in the coming quarters to suit the Group's needs and the level of competition and risks in the markets. It is important to note the vote of confidence Bezeq received from the Israeli rating agencies, Maalot and Midroog, who recently confirmed the AA rating for the Company's debt. We will continue to maintain the financial strength of the Bezeq Group, among others, by raising new debt that will replace part of the existing debt with longer durations, while continuing to strive towards decreasing overall net debt."

Bezeq Group Results (Consolidated)

Revenues in the first quarter of 2019 were NIS 2.26 billion, compared to NIS 2.36 billion in the same quarter of 2018, a decrease of 4.4%.

The decrease in revenues was due to lower revenues in all key Group segments.

Salary expenses in the first quarter of 2019 were NIS 492 million, compared to NIS 510 million in the same quarter of 2018, a decrease of 3.5%.

The decrease in salary expenses in the first quarter was due to the reduction in the number of employees in Pelephone, Bezeq International and yes.

Operating and general expenses in the first quarter of 2019 were NIS 812 million, compared to NIS 841 million in the same quarter of 2018, a decrease of 3.4%.

The decrease in operating and general expenses was primarily due to lower expenses in Pelephone.

Other operating income, net in the first quarter of 2019 was NIS 25 million, compared to operating expenses of NIS 23 million in the same quarter of 2018.

Other operating income was impacted by the recording of capital gains from the sale of real estate of NIS 44 million and the cancellation of part of a provision for the early retirement of employees of NIS 25 million in Bezeq Fixed-Line, which were partially offset by a provision of NIS 45 million for the early retirement of employees in yes.

Depreciation, amortization and impairment in the first quarter of 2019 was NIS 466 million, compared to NIS 525 million in the same quarter of 2018, a decrease of 11.2%. 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 in the first quarter of 2019 (see explanation of accounting policy in appendix to this release).

Operating profit in the first quarter of 2019 amounted to NIS 511 million, compared to NIS 462 million in the same quarter of 2018, an increase of 10.6%.

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EBITDA in the first quarter of 2019 amounted to NIS 977 million (EBITDA margin of 43.3%), compared to NIS 987 million (EBITDA margin of 41.8%) in the same quarter of 2018, a decrease of 1.0%.

Financing expenses in the first quarter of 2019 were NIS 99 million, compared to NIS 108 million in the same quarter of 2018, a decrease of 8.3%.

The decrease in financing expenses in 2019 was primarily due to the decrease in financing expenses in Bezeq Fixed-Line.

Net profit in the first quarter of 2019 amounted to NIS 300 million, compared to NIS 260 million in the same quarter of 2018, an increase of 15.4%. The increase in net profit was primarily due the aforementioned increase in operating profit and the decrease in financing expenses.

Cash flow from operating activities in the first quarter of 2019 was NIS 765 million, compared to NIS 909 million in the same quarter of 2018, a decrease of 15.8%. 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 first quarter of 2019 amounted to NIS 373 million, compared to NIS 368 million in the same quarter of 2018, an increase of 1.4%.

Free cash flow in the first quarter of 2019 was NIS 316 million, compared to NIS 423 million in the same quarter of 2018, a decrease of 25.3%. The decrease in free cash flow was primarily due to the aforementioned decrease in cash flow from operating activities.

Net financial debt of the Group was NIS 8.54 billion as of March 31, 2019 compared to NIS 8.94 billion as of March 31, 2018. As of March 31, 2019, the Group's net financial debt to Adjusted EBITDA ratio was 2.47, compared to 2.35 as of March 31, 2018.

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2019 Outlook

At of the date of publication of the report for the first quarter of 2019, there is no change to the Bezeq Group's outlook for 2019, as published in the Company's periodic report as of December 31, 2018.

Net profit attributable to shareholders:	Approximately NIS 900 million - NIS 1.0 billion
EBITDA:	Approximately NIS 3.9 billion
CAPEX*:	Approximately NIS 1.7 billion

Further to the Immediate Report published by the Company on May 6, 2019 regarding the sale of the "Sakia" property and the expected recording of a capital gain (the scope of which is still being examined by the Company) in the financial statements for the second quarter of 2019, it is clarified that this capital gain is not included in the Group's net profit and EBITDA forecast.

Regarding the Group's EBITDA forecast, note the updated definition of EBITDA as follows: "Earnings before interest, taxes, depreciation, amortization and ongoing losses from impairment of fixed and intangible assets."

Beginning January 1, 2019, in order to enable the proper presentation of the business operations, the Company presents ongoing losses from the impairment of fixed and intangible assets in yes and Walla under "Depreciation and Amortization", as well as ongoing losses from impairment of broadcasting rights under "Operating and General Expenses" (in the Income Statement). For this purpose, it is clarified that ongoing losses from impairment of assets will be reclassified under the same items in which expenses in respect of these assets were recorded in the past. The Company believes that in light of expectations of continued negative cash flow and negative valuation of yes and Walla and in light of the fact that the impairment is expected to continue in the future, the reclassification is more consistent with the method of presentation based on the nature of the expense and is more suitable for understanding the Company's business. It is further clarified that expenses in respect of an impairment loss resulting from a one-time adjustment of forecasts for the coming years, will be reclassified as "Other Operating Expenses" in the Income Statement. There is no change in the forecast itself in relation to EBITDA.

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 of the provision for early retirement of employees and the signing of collective labor agreements in the Group, including the collective labor agreement with DBS 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 the Periodic Report of 2018.

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

*CAPEX - payments for investments in fixed and intangible assets

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Bezeq Fixed-Line Results

Dudu Mizrahi, Bezeq CEO, commented, "In the first quarter, we posted good results in view of the challenging environment in the Israeli telecommunications market, and the heavy regulation applied to the Company. We continued to focus on significant streamlining measures whose benefits we should continue to see in the near future, along with investment in developing existing and new growth engines. In addition, we have taken steps to improve and focus our service and sales systems in the private and business divisions. During the quarter, we increased our efforts to operate an excellent broadband network based on a stable and high-quality infrastructure, while providing advanced broadband solutions in the customer's homes. Our BE routers have been installed in the homes of approximately 200,000 customers and serve as a basis for a range of advanced services that we will launch in the near future. As stated previously, we are willing and ready for an accelerated deployment of fiber optic cables nationwide. We continue to work on the matter with the Ministry of Communications, and hope that with the advent of a new communications minister, we will find the way to a fair arrangement that will allow the launch of the service."

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Revenues in the first quarter of 2019 were NIS 1.04 billion, compared to NIS 1.06 billion in the same quarter of 2018, a decrease of 1.9%.

The decrease in revenues was primarily due to a decrease in telephony revenues, which was partially offset by an increase in revenues from cloud & digital services.

Revenues from broadband Internet services (retail and wholesale) in the first quarter of 2019 were NIS 397 million, compared to NIS 396 million in the same quarter of 2018, an increase of 0.3%. The stability in revenues from broadband Internet services was due to growth in the number of wholesale broadband Internet lines, an increase in the average revenue per retail subscriber as well as an increase in revenues from Internet equipment, which was offset by a decrease in the number of retail broadband Internet lines.

Revenues from telephony services in the first quarter of 2019 were NIS 269 million, compared to NIS 302 million in the same quarter of 2018, a decrease of 10.9%.

The decrease in telephony revenues was due to a reduction of 5.7% in the average revenue per line as well as a decrease of 5.1% in the number of access lines.

Revenues from transmission and data communication services in the first quarter of 2019 were NIS 246 million, compared to NIS 247 million in the same quarter of 2018, a decrease of 0.4%.

Revenues from cloud & digital services in the first quarter of 2019 were NIS 71 million, compared to NIS 62 million in the same quarter of 2018, an increase of 14.5%. The increase in revenues from cloud & digital services was primarily due to an increase in revenues from cyber services and virtual private exchange (HIPT) services.

Operating expenses in the first quarter of 2019 were NIS 141 million, compared to NIS 140 million in the same quarter of 2018, an increase of 0.7%.

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