Bezeq Israel Telecommunication : Q1-2024 Investor Presentation

Bezeq Group

Q1-2024

Investor

Presentation

Forward-Looking Information and Statement (Disclaimer)

This presentation contains general data and information as well as forward looking statements about Bezeq - The Israeli Telecommunications Corp., Ltd. ("Bezeq"). Such statements, along with explanations and clarifications presented by Bezeq's representatives, include expressions of management's expectations about new and existing programs, opportunities, technology and market conditions. Although Bezeq believes its expectations are based on reasonable assumptions, these statements are subject to numerous risks and uncertainties. These statements should not be regarded as a representation that anticipated events will occur or that expected aspirations will be achieved. In addition, the realization and/or otherwise of the forward looking information will be affected by factors that cannot be assessed in advance, and which are not within the control of Bezeq, including the risk factors that are characteristic of its operations, developments in the general environment, external factors, and the regulation that affects Bezeq's operations.

This presentation contains partial information from the public reports of Bezeq under the Israeli Securities Law 5728-1968 (the "Securities Law"), which can be accessed on the Israeli Securities Authority's website, www.magna.isa.gov.il. A review of this presentation is not a substitute for a review of the detailed reports of Bezeq under the Securities Law and is not meant to replace or qualify them; rather, the presentation is prepared merely for the convenience of the reader, with the understanding that the detailed reports are being reviewed simultaneously. No representation is made as to the accuracy or completeness of the information contained herein.

The information included in this presentation is based on information included in Bezeq's public filings. However, some of the information may be presented in a different manner and/or breakdown and/or is differently edited. In any event of inconsistency between Bezeq's public filings and the information contained in this presentation, the information included in the public filings shall prevail.

The information contained in this presentation or which will be provided orally during the presentation thereof, does not constitute or form part of any invitation or offer to sell, or any solicitation of any invitation or offer to purchase or subscribe for, any securities of Bezeq or any other entity, nor shall the information or any part of it or the fact of its distribution form the basis of, or be relied on in connection with or relating to any action, contract, commitment or to the securities of Bezeq. The presentation does not constitute a recommendation or opinion or substitute for the discretion of any investor.

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Bezeq Group | Q1-2024 Summary

Strong execution in strategic	Core revenues (1) grew 2.1% to
growth drivers - 80% growth in	NIS 2.0 billion, mainly due to higher
fiber take-up, 6% increase in retail	core revenues in Bezeq Fixed-Line
Internet ARPU and 30% growth in	and despite the impact of the war
5G subscriber plans	on Pelephone roaming revenues

	36% increase in free cash	Upgrade in both domestic credit	Thus far, the effect of
	flow to NIS 468 million	rating agencies to ilAA and Aa2.il,	the war on the Bezeq
		with Stable outlook, driven by	Group is not material
		improved group financial ratios
	Bezeq Group is executing on its strategy while focusing on growth
	All results are compared to Q1-2023 unless otherwise stated
3	)1( Total Group revenues excluding Bezeq Fixed-Line telephony revenues, Pelephone interconnect fees and Bezeq International consumer revenues.
Core revenues were approx. 90% of total Group revenues.

Bezeq Group | Q1-2024 Summary

Core Revenues (2)

NIS 2.0 billion

2.1%

Adj. EBITDA (1)

NIS 917 million

Adjusted EBITDA margin of 40.7%

2.0%

Adj. Net Profit (1)

NIS 299 million

6.9%

Free Cash Flow

NIS 468 million

35.7%

Decrease in Net Debt

NIS 582 million

11.0%

All results are compared to Q1-2023 unless otherwise stated

4	(1)	After adjusting for other operating expenses/income, net, one-time losses/gains from impairment/increase in value of assets and stock-based compensation
(2)	Total Group revenues excluding Bezeq Fixed-Line telephony revenues, Pelephone interconnect fees and Bezeq International consumer revenues

Bezeq Group | Q1-2024 Summary (Cont'd)

Fiber Net Adds

70k

(retail and wholesale)

Fiber Subscribers

664k(1)

(retail and wholesale)

Retail Broadband ARPU

NIS 127

5.8%

Homes Passed

2.25million (1)

8.8%

Cellular subscribers

2.61 million

1.0%

5G subscriber plans

1.1m (1)

(43% of total subscribers)

11k

Net postpaid

subscriber adds (2)

Cellular ARPU (3)

NIS 43

Unchanged

Cellular Service Revenues (3) NIS 335 million

0.3%

Revenues

NIS 315 million

4.3%

TV subscribers

571k

1.6%

75% IP subscribers(1)

TV ARPU

NIS 173

6.5%

	All results are compared to Q1-2023 unless otherwise stated
	(1)	As of reporting date
	(2)	Compared to Q4-2023
5	(3)	Unless otherwise stated, Pelephone revenues and ARPU in this presentation are excl. interconnect fees

Bezeq's Compass |Technological & Business Roadmap

2020

Today

Mid-term

Migration to fiber

Launch of fiber project

• • 2.25m homes passed
  • Accelerated retail fiber take-up
  • 664k subscriber take-up (retail + wholesale)
  • 30% take-up rate
  • 25% increase in broadband ARPU(1)
• Completion of fiber roll-out
• 40% take-up rate (retail + wholesale)
• Retail ARPU - above NIS 140

Transition to 5G

5G Tender Award

• Over 1.1m subscribers
  (43% of total subscribers)
• Approx. 80% 5G subscriber plans
• Cellular ARPU - NIS 45-50

Migration to IP

Satellite to IP migration

422k IP(2) subscribers (75%)

• Completion of IP migration
• OpEx and CapEx savings
• TV ARPU - NIS 155-160

Technology upgrades and business focus enhance growth potential

6 (1) As compared to Q4-2020

(2) IP subscribers - the number of yes subscribers viewing IP broadcasting through the yes+ and STINGTV services. This includes subscribers that use satellite services as well

Bezeq Group | Q1-2024 Key Financial Highlights | NIS million

		Revenues				Adjusted EBITDA (1)					Adjusted Net Profit (1)
				2.3%						2.0%												6.9%
2,308	2,299	2,265	2,231	2,174	936	987	974	920	917	321	354	357	296	299
					41%	43%	43%	41%	41%
							41%
Q1-2023	Q2-2023	Q3-2023	Q4-2023	Q1-2024		Q1-2023	Q2-2023	Q3-2023Q4-2023	Q1-2024		Q1-2023Q2-2023	Q3-2023Q4-2023	Q1-2024
						% - Adjusted EBITDA margin
		CapEx					Free Cash Flow

	441		445	1.4%						35.7%
416	406	410						468
					345		406	313
18%18%		18%18%	20%20%		238
19%19%	18%
Q1-2023Q2-2023	Q3-2023	Q4-2023	Q1-2024		Q1-2023	Q2-2023Q3-2023Q4-2023Q1-2024
% - Capex/Sales

• Core revenues increased 2.1%)2(
• Revenues were mainly impacted by the second tranche of the MOC telephony reform in July 2023 and the decrease in Pelephone interconnect tariffs in June 2023
• Free cash flow was positively impacted by timing differences in working capital

7 )1( )2(

After adjusting for other operating expenses/income, net, one-time losses/gains from impairment/increase in value of assets and stock-based compensation Total Group revenues excl. Bezeq Fixed-Line telephony revenues, Pelephone interconnect fees and Bezeq International consumer revenues

Bezeq Group | Key Operational Metrics

ARPU (NIS)

185 185 182 175 173

120 122 124 125 127

Subscribers (end of period, in thousands)

2,585 2,593 2,618 2,618 2,611

43	45	47	42	43
41

1,488	1,473
1,031	1,028
580	579

1,454	1,442	1,419
1,029	1,028	1,019
576	574	571

	39	34	33	33
Q1-2023	Q2-2023	Q3-2023	Q4-2023	Q1-2024

6% increase in retail Internet ARPU

Telephony ARPL decreased due to second tranche of MOC tariff reductions

TV ARPU decreased mainly due to war impact and change in subscriber mix

474	477	471	467	470
Q1-2023	Q2-2023	Q3-2023	Q4-2023	Q1-2024

Y-o-Y increase in cellular subscribers

Moderate decrease in TV subscribers

Lower retail Internet subscribers due to decrease in copper subscribers

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TV

Wholesale Internet Infrastructure

Retail Internet Infrastructure

Telephony

Cellular

Bezeq Group | Financial Debt

Financial Debt (NIS billion)

						2.5
16.0
	1.6	1.6	1.6	1.6		2.0
14.0	1.4
12.0					1.5
10.0	7.7	7.7	7.7	7.0	8.1(1)	1.0
8.0
	2.4	2.3	2.7	1.8	3.3*	0.5
6.0	0.0
4.0	5.3	5.4
2.0	5.0	5.2	4.7	-0.5
0.0						-1.0
	Q1-2023	Q2-2023	Q3-2023	Q4-2023	Q1-2024

Cash and short-term investments			Net debt
Gross debt			Net Debt / Adjusted EBITDA

Decrease in net debt

• Decrease of NIS 582 million, or 11% y-o-y
• Net debt of NIS 4.7 billion - lowest since 2010

Further improvement in Net debt/Adjusted EBITDA(1) ratio

• Decreased to 1.4x from 1.6x

Debt ratings

• S&P Global Maalot and Midroog upgraded Bezeq's credit ratings due to the continued improvement in the Group's financial ratios

		Rating Agency	Rating	Outlook
	The Group maintains	S&P Global Maalot	ilAA	Stable
	Midroog	Aa2.il	Stable
	its high credit rating, while upgrading within
	the AA group
9	(1) The increase in gross debt and cash balances in Q1-2024 was due to debt raised in the first quarter of the year to cover Bezeq's financing needs in FY 2024

Bezeq Group | 2024 Guidance (Unchanged)

		Results 2023A	2024 Outlook Ambitions Mid-Term
			(2)
Adjusted	NIS 3.82 billion	NIS 3.8 billion
EBITDA (1)
Adjusted	NIS 1.33 billion	NIS 1.2 billion
net profit (1)
CapEx	NIS 1.71 billion	NIS 1.8-1.9 billion (3)
Fiber	2.07 million households	2.5 million households
Deployment	(homes passed) as of today	(homes passed)
	Financial	Maintain high credit rating within the AA group
	stability

10

(1) After adjusting for other operating expenses/income, net, one-time losses/gains from impairment/increase in value of assets and stock-based compensation

(2) The Company will report, as required, deviations of more/less than 10% of the financial amounts stated in the outlook

(3) CapEx includes a one-time increase due to two projects - building a new data center for the group and upgrading core infrastructure networks