Bezeq Israel Telecommunication : Transcript - Earnings Webcast

Bezeq Q1 2022 Financial Results Transcript

Tuesday, May 24th, 2022

"Bezeq" The Israel Telecommunication Corp., Ltd.

Event Transcript

Q1 2022 Financial Results

Tuesday, May 24th, 2022, 15:00 Israel Time

DISCLAIMER

This document includes a transcript of the conference call held on the above date regarding the Company's financial results for the second quarter of 2020, following the publication of the Company's financial statements at that date, as well as the publication of the Company's investor presentation filed under the Israeli Securities Law 1968 ("Securities Law").

This document includes statements made at that conference call and accordingly contains only partial information regarding the Company's financial results and the Company's periodic reports published under the Securities Law. The reports can be accessed at the Israeli Securities Authority's website, www.magna.isa.gov.il. A review of this transcript and/or the aforementioned investor presentation published by the Company is not a substitute for a review of the detailed reports of the Company under the Securities Law and is not meant to replace or qualify the full reports. The Company is not responsible for the accuracy or completeness of the information contained in this document. This transcript does not constitute an offer or invitation to purchase or subscribe for any securities of the Company, and neither this transcript nor anything contained herein shall form the basis of, or be relied upon in connection with any contract or commitment whatsoever.

Bezeq Q1 2022 Financial Results Transcript

Tuesday, May 24th, 2022

Q1 2022 Financial Results

Tobi Fischbein

Welcome everyone, and thank you for joining us on Bezeq's 2022 first quarter earnings call. I am Tobi Fischbein, Bezeq Group CFO.

With us from the Bezeq Group's senior management team we have: Mr. Gil Sharon, Bezeq's Chairman, Mr. Dudu Mizrahi, outgoing Bezeq's CEO and Mr. Ran Guron, CEO of Pelephone, Bezeq International and yes, and also our incoming Bezeq CEO.

Before we start, I would like to draw your attention to the Safe Harbor statement on Slide 2 of our Q1-2022 investor presentation which also applies to any statement made during today's call. We would like to inform you that this event is being recorded. After presenting our quarterly results, you will have the ability to ask questions by raising your hand virtually.

Please note that as previously announced, this will be Dudu's last call with investors as Bezeq's CEO, as he will be leaving Bezeq next month. Ran Guron will replace him as our new CEO, and Ilan Sigal was appointed to replace Ran as CEO of Pelephone, yes

• Bezeq International. We would like to express our deep appreciation for all the contribution, vision and insights that Dudu has brought to Bezeq over the years, which have been instrumental to what Bezeq is today. Dudu, we wish you all the best in your future endeavors.

Let me now turn the call over to our Chairman, Mr. Gil Sharon for his opening remarks. I will then continue the presentation on group financial highlights, followed by Dudu, who will be discussing Bezeq Fixed Line results and Ran will pick up with the results of our subsidiaries.

Gil Sharon

Thank you Tobi. I like to use this opportunity to thank Dudu for all his dedicated and hard work. Dudu has been with us for the last four years, bringing the company back to growth, leaving us with a terrific company, with excellent results and significant potential ahead of us. Moving forward, we are very excited about the prospects our newly structured management team will bring. I am confident that with Ran's vast experience and leadership, Bezeq will continue its course on the upward path Dudu has started and will lead the company to new heights.

The growth trend in revenues and profits that began in recent quarters is continuing. We presented excellent group financial results in the first quarter of the year, with growth in key parameters, attesting to the strategic plan presented six months ago with

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Bezeq Q1 2022 Financial Results Transcript

Tuesday, May 24th, 2022

a focus on growth. We successfully grew revenues in the group's core activities with growth of 4% in Bezeq Fixed-Line and 5% in Pelephone. Looking forward, we have built capabilities to develop and grow in the future while maintaining a solid financial base to ensure the sustained leadership of the group.

As we see on slide 3, we have deployed our broadband network to 1.25 million homes with 143 thousand customers already connected, resulting in an year-over-year ARPU increase of almost 7% to 110 shekels. We are well ahead of our target to reach 1.4 million homes passed by the end of the year.

Pelephone's total cellular subscribers amounted to 2.58 million, which is a 3.7% increase, of which 624 thousand of them are on 5G plans. The ARPU for cellular subscribers reached 57 shekels, a 7.5% year-over-year increase and up 3.6% sequentially.

The Group's robust financial results and accelerated deployment of fiber and 5G infrastructure are building a strong groundwork for future growth. We will continue to devote ourselves to maximizing our shareholders' return. In times of uncertainty in the global economy and capital markets, Bezeq offers investors solid, stable financial performance spanning wide consumer and business customer bases with sustainable demand for advanced telecom services, allowing us to generate strong cash flows and shareholder returns supported by our dividend policy reflecting about 3.5 to 4 percent yield.

Now, let me turn the call back to Tobi to discuss our detailed financial results.

Tobi Fischbein

Thank you, Gil. On this next slide we present the Group's financial highlights . Revenues in the first quarter of 2022 amounted to 2.26 billion shekels, up 1.5% year- over-year, mainly driven by the growth in Fixed-Line and Pelephone. Adjusted EBITDA in Q1 rose 4.4% to 958 million shekels, and adjusted net profit rose 7.7% to 322 million shekels, driven mainly by Pelephone's top and bottom line improvement. Free cash flow rose 76% to 570 million shekels, mainly due to timing differences in working capital in Pelephone and Bezeq International.

The next slide shows the Group's key operational metrics for the past year, which overall reflect positive trends in subscribers and ARPU in our main activity areas. I would like to point out the 7.5% increase in cellular ARPU to 57 shekels and the 7% increase in retail broadband ARPU to 110 shekels, as well as yes' relatively stable TV ARPU despite the change in subscriber mix.

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Bezeq Q1 2022 Financial Results Transcript

Tuesday, May 24th, 2022

Moving to the next slide, let me discuss Bezeq's financial strength and progress on debt reduction. By the end of March 31st 2022, our net debt decreased by 15% over the last year to 5.6 billion shekels which is the lowest level of net debt since 2010. Our net debt to EBITDA ratio is now 1.7.

The Group's financial stability enabled Bezeq to return to dividend distributions and for the first time in three and a half years, a dividend of NIS 240 million was distributed to shareholders this month. I would also like to highlight that the rating agencies recently reaffirmed the company's high credit rating with a Stable outlook, showing further evidence of the company's financial robustness.

Moving on to the next slide - we reaffirm Bezeq's 2022 outlook and continue to target adjusted EBITDA in the range of 3.6 to 3.7 billion shekels, adjusted net profit between 1 to 1.1 billion shekels, and Capex between 1.7 to 1.8 billion shekels.

Now Dudu will share with you updates on Fixed Line operations.

Dudu Mizrahi

Thanks Tobi. We finished another strong quarter with a 4.0% increase in overall revenues, which was the highest quarterly revenues since the end of 2015. The increase was driven by a 9% increase in broadband internet revenues as well as a 6.7% increase in revenues from transmission and data communications.

On the next slide, adjusted net profit saw an 11.7% decrease to 256 million shekels due to higher depreciation and financial expenses, and free cash flow decreased due to sales of real estate in the corresponding quarter.

The following slide shows our success in broadband internet. As previously mentioned, our broadband revenue jumped 9% to 434 million shekels, primarily due to the growth in retail broadband lines, which was up 2.3% year-over-year with ARPU reaching 110 shekels, representing a 6.8% increase year-over-year. Our average broadband speed increased significantly to 151 megabytes, an increase of 94% year-over-year. We expect our broadband speed to further strengthen the group's competitive advantage and benefit our customers.

In terms of fiber optics, as seen on the next slide, we continued to sweep the nation with our advanced network. Bezeq's fiber network has now reached over 1.25 million Israeli homes, with 143 thousand homes connected as of today. We continue to benefit from our full Wi-Fi broadband home Internet strategy with almost 700 thousand customers using our BE Router, representing 68% of total customers.

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Bezeq Q1 2022 Financial Results Transcript

Tuesday, May 24th, 2022

As you can see in the next slide, revenues from the business sector grew 6.7% to 286 million shekels and other revenues grew 17.2% year-over-year to 75 million shekels, due among other to the Blue-Raman submarine cable project with Google.

Moving forward to the next slide, we detailed our expenses and show an increase in salaries due to employee recruitment relating to the fiber project. Depreciation was up in the quarter due to Capex increases and operating expenses increased due to fiber project equipment and higher subcontractor expenses.

In summary, the nationwide deployment of fiber together with our customer premises strategy as well as our leading position in the business sector strengthened our position as the leading telecom operator in Israel.

On a personal note, after having spent the last four years as CEO, I am bidding the Group farewell. I would like to thank all the excellent professionals whom I've worked with over the years, both within the Company and outside it. I feel pleased to leave Bezeq at the present growth momentum. I leave behind a growing, stable and solid company with clear leadership in the telecommunications market.

With that, I'll now turn the call to Ran to talk about Bezeq's subsidiaries.

Ran Guron

Thanks Dudu. As you can see, it has been an excellent quarter for Pelephone and yes. Pelephone showed subscriber growth of 4%, growth in revenues from services and a significant improvement in all financial metrics. We now have 624 thousand 5G plan subscribers, contributing to higher ARPU. yes is now officially the largest Israel IPTV operator, with 265 thousand customers watching through IP broadcasting, of which 91 thousand of them are STINGTV customers. We recently signed a strategic agreement with Disney which will provide yes with a number of important marketing advantages in relation to the soon-to-be-launched Disney+ service in Israel.

The next slide marks our ambitious next steps set to transform Bezeq International into a growth-focused ICT company. First, we expect a reduction in Bezeq International's ISP consumer activities following the regulatory removal of the separation between broadband infrastructure and Internet access. We expect this to result in significant cost reductions along with lower Capex requirements at Bezeq International. In parallel, we plan to set up yes' ISP activity and make yes the group's triple-play arm combining fiber and TV. The launch of yes' ISP is expected to take place during the second half of the year.

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