Bezeq Israeli Telecomunictn : GROUP REPORTS THIRD QUARTER 2018 FINANCIAL RESULTS

BEZEQ GROUP REPORTS

THIRD QUARTER 2018 FINANCIAL RESULTS

Tel Aviv, Israel - November 20, 2018 - Bezeq - The Israel Telecommunication Corp., Ltd. (TASE: BEZQ), Israel's leading telecommunications provider, today announced its financial results for the three months ended September 30, 2018. Details regarding the investor conference call and webcast to be held today are included later in this press release.

Bezeq Group (consolidated) Q3 2018 Q3 2017 % change (NIS millions) Revenues 2,301 2,415 (4.7%) Operating profit 429 544 (21.1%) EBITDA* 976 980 (0.4%) EBITDA margin 42.4% 40.6% Net profit 234 322 (27.3%) Diluted EPS (NIS) 0.08 0.12 (33.3%)
Cash flow from operating activities* Payments for investments Free cash flow 1	883 412 374 982 (10.1%) 353 16.7% 677 (44.8%)
Net debt/EBITDA (end of period) 2	2.42 2.29

* As of 1.1.2018, the Company has early adopted accounting standard IFRS 16 "Leases". The impact of the implementation of the accounting standard on EBITDA and cash flow from operating activities in the third quarter of 2018 w as an increase of NIS 105 million and NIS 102 million, respectively.

1 Free cash flow is defined as cash flow from operating activities less net payments for investments and as of 2018, w ith the implementation of accounting standard IFRS 16, less payments for leases.

2 EBITDA in this calculation refers to the trailing tw elve months.

Shlomo Rodav, Bezeq's Chairman, stated, "We continue to advance the implementation of a new strategic plan for the Bezeq Group, which encompasses activities in all subsidiary companies. The plan addresses the challenges facing the Group and the future requirements emerging in the telecommunications market, alongside the complex regulatory restrictions imposed on the Company. We recently started negotiations with labor unions in the subsidiaries for improved efficiency in yes, Pelephone and Bezeq International, given the situation of these companies, investments needed in infrastructure, and the level of market competition. At the same time, we continue to push forward the early retirement plan in Bezeq Fixed-Line pursuant to the collective labor agreement. We are also performing an orderly review for the establishment of ultra-high-speed broadband Internet based on fiber optics and are discussing this with the regulator. Bezeq has an excellent telecommunications infrastructure, which provides high speeds for households in Israel, from Kiryat Shmona in the north to Eilat in the south. As in the past, Bezeq remains the only company that can advance Israel towards the next generation network due to the Company's excellence and its nationwide deployment."

Yali Rothenberg, CPA, Bezeq Group's Chief Financial Officer commented, "The results of the quarter reflect the impact of the growing competitive environment, with the Company commencing several significant processes that will bear fruit over time. Since the beginning of 2018 profitability has remained stable as reflected in the adjusted EBITDA (excluding the effect of IFRS 16) due to the decrease in operating expenses, among other factors."

Bezeq Group Results (Consolidated)

Revenues in the third quarter of 2018 were NIS 2.30 billion, compared to NIS 2.42 billion in the same quarter of 2017, a decrease of 4.7%. The decrease in revenues was due to lower revenues in all key Group segments.

Salary expenses in the third quarter of 2018 were NIS 494 million, compared to NIS 502 million in the same quarter of 2017, a decrease of 1.6%.

Operating expenses in the third quarter of 2018 were NIS 815 million, compared to NIS 956 million in the same quarter of 2017, a decrease of 14.7%. The decrease in operating expenses was primarily due to the early adoption of accounting standard IFRS 16 whereby rental expenses relating to assets rented through operating leases are capitalized. In addition, lower expenses were recorded in terminal equipment, marketing and general expenses.

Other operating income/expenses, net in the third quarter of 2018 amounted to expenses of NIS 16 million, compared to income of NIS 23 million in the same quarter of 2017. This item was impacted by the recording of capital gains from the sale of real estate of NIS 1 million in the third quarter of 2018 compared with NIS 45 million in the corresponding quarter in Bezeq Fixed-line.

Depreciation expenses in the third quarter of 2018 were NIS 547 million, compared to NIS 436 million in the same quarter of 2017, an increase of 25.5%. The increase in depreciation expenses was primarily due to the amortization of right-of-use assets resulting from the early adoption of accounting standard IFRS 16 beginning January 1, 2018.

Profitability metrics in the third quarter of 2018 were impacted by the aforementioned decrease in revenues and the decrease in capital gains in Bezeq Fixed-Line.

Operating profit in the third quarter of 2018 was NIS 429 million, compared to NIS 544 million in the same quarter of 2017, a decrease of 21.1%. EBITDA in the third quarter of 2018 was NIS 976 million (EBITDA margin of 42.4%), compared to NIS 980 million (EBITDA margin of 40.6%) in the same quarter of 2017, a decrease of 0.4%.

Financing expenses in the third quarter of 2018 were NIS 109 million, compared to NIS 94 million in the same quarter of 2017, an increase of 16.0%. The increase in financing expenses was primarily due to the early adoption of accounting standard IFRS 16 beginning January 1, 2018.

Tax expenses in the third quarter of 2018 were NIS 85 million, compared to NIS 128 million in the same quarter of 2017, a decrease of 33.6%. The decrease in tax expenses was primarily due to a reduction in profitability as well as a decrease in the corporate tax rate from 24% to 23% in 2018.

Net profit in the third quarter of 2018 was NIS 234 million, compared to NIS 322 million in the same quarter of 2017, a decrease of 27.3%. The decrease in net profit was primarily due to the aforementioned decrease in operating profit partially offset by the decrease in tax expenses.

Cash flow from operating activities in the third quarter of 2018 was NIS 883 million, compared to NIS 982 million in the same quarter of 2017, a decrease of 10.1%. The decrease in cash flow from operating activities was primarily due to the decrease in profitability and changes in working capital in yes and Pelephone.

Payments for investments (Capex) in the third quarter of 2018 was NIS 412 million, compared to NIS 353 million in the same quarter of 2017, an increase of 16.7%.

Free cash flow in the third quarter of 2018 was NIS 374 million, compared to NIS 677 million in the same quarter of 2017, a decrease of 44.8%. The decrease in free cash flow was due to the aforementioned decrease in cash flow from operating activities and increase in investments.

Net financial debt of the Group was NIS 9.02 billion as of September 30, 2018 compared to NIS 8.97 billion as of September 30, 2017. As of September 30, 2018, the Group's net financial debt to EBITDA ratio was 2.42, compared to 2.29 as of September 30, 2017.

2018 Outlook

Below is the Bezeq Group's outlook for 2018, as published in the Company's periodic report as of December 31, 2017 and is unchanged as at the date of publication of the report for the third quarter of the year 2018:

Net profit attributable to shareholders:	Approximately NIS 1.0 billion
EBITDA:	Approximately NIS 3.9 billion
Free cash flow*:	Approximately NIS 1.5 billion

The projected data includes the effect of early implementation of IFRS 16 as of January 1, 2018 of NIS 400 million on EBITDA and a negligible amount on the net profit.

The forecasts do not include effects from realization of the Company's rights in the "Sakia" property, which depend on the fulfillment of various conditions regarding the sale of the property. The actual results may differ from these assessments, depending on the date of recording the capital gain in respect of the sale of the asset, the final amount of the capital gain, which depends on the amounts of fees and levies that will apply to the Company in respect of the sale of the asset and on the date of receipt of the payments for the sale of the property.

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, including that the forecasts do not include the effects of the provision for early retirement of employees and/or the signing of collective labor agreements in the Group and cancellation of the Group's structural separation, including the effects of mergers within the Group and everything involved. 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 2018. Actual results might differ from these estimates taking note of changes that may occur in the foregoing, in business conditions, and the effects of regulatory decisions, technology changes, developments in the structure of the telecommunications market, and so forth, or if one or more of the risk factors listed in the periodic report of 2017.

*Cash flow from operating activities less net payments for investments and leases.

Bezeq Fixed-Line Results

Dudu Mizrahi, Bezeq CEO, commented, "Upon taking up office, I discovered a company that was effectuating far-reaching improvement in all aspects of corporate governance and compliance. All of us are working hard for a better tomorrow - identifying and developing new growth engines, leveraging the Company's assets, and improving efficiency of the work processes. We will continue to provide the most advanced services with the most innovative technology, while maintaining the highest service level in the industry. We are busy formulating an outline to launch ultra-high-speed broadband services, out of deep commitment to bringing the most advanced telecommunications infrastructures to our customers in Israel. Subject to agreements with the regulator, we will continue to invest significant sums toward this purpose, as was done in the past with the launch of the NGN network, which remains one of the only examples worldwide of a high-speed access network with nationwide deployment." ------------------------------------------------------------------------------------------------------------------------------------

Revenues in the third quarter of 2018 were NIS 1.043 billion, compared to NIS 1.061 billion in the same quarter of 2017, a decrease of 1.7%. The decrease was primarily due to decrease in telephony revenues, which was partially offset by an increase in revenues from broadband Internet and cloud & digital services.

Revenues from broadband Internet services (retail and wholesale) in the third quarter of 2018 were NIS 401 million, compared to NIS 386 million in the same quarter of 2017, an increase of 3.9%. The increase in revenues from broadband Internet services was primarily due to growth of 3.4% in the number of Internet lines, which reached 1.66 million subscribers as well as an increase of 3.3% in the average revenue per retail subscriber.

Revenues from telephony services in the third quarter of 2018 were NIS 282 million, compared to NIS 318 million in the same quarter of 2017, a decrease of 11.3%. The decrease in telephony revenues was due to a reduction of 5.6% 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 third quarter of 2018 were NIS 243 million, compared to NIS 244 million in the same quarter of 2017, a decrease of 0.4%.

Revenues from cloud & digital services in the third quarter of 2018 totaled NIS 69 million, compared to NIS 57 million in the same quarter of 2017, an increase of 21.1%. 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 third quarter of 2018 were NIS 143 million, compared to NIS 183 million in the corresponding quarter of 2017, a decrease of 21.9%. The decrease in operating expenses was primarily due to a reduction in the rental expenses of buildings and car rentals that were recognized as an asset due to the early adoption of accounting standard IFRS 16 as of January 1, 2018. In addition, lower expenses were recorded in advertising and interconnect fees to telecom operators.