☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
and translation of Registrant’s name into English)
Address of principal executive offices)
Title of each class | Trading Symbol | Name of each exchange on which registered |
Ordinary Shares, par value NIS 0.01 per share | (CEL) | New York Stock Exchange (“NYSE”) |
(Title of Class)
(Title of Class)
☐ Yes ☒ No
Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ | Emerging growth company ☐ |
☐ Yes ☒ No
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PART I | ||
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31 | ||
72 | ||
73 | ||
103 | ||
132 | ||
135 | ||
138 | ||
139 | ||
152 | ||
153 | ||
PART II | ||
153 | ||
153 | ||
153 | ||
155 | ||
155 | ||
155 | ||
156 | ||
156 | ||
156 | ||
157 | ||
PART III | ||
157 | ||
157 | ||
158 | ||
Financial Statements | F-1 |
Year Ended December 31, | ||||||||||||||||||||||||
2015 | 2016 | 2017* | 2018* | 2019 | 2019 | |||||||||||||||||||
(In NIS millions, except where indicated otherwise) | (In US$ millions) | |||||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||||||
Revenues | 4,180 | 4,027 | 3,871 | 3,688 | 3,708 | 1,073 | ||||||||||||||||||
Cost of revenues | 2,763 | 2,702 | 2,680 | 2,661 | 2,725 | 788 | ||||||||||||||||||
Selling and marketing expenses | 620 | 574 | 479 | 567 | 610 | 177 | ||||||||||||||||||
General and administrative expenses | 465 | 420 | 426 | 360 | 329 | 95 | ||||||||||||||||||
Other income (expenses), net | 22 | 21 | *42 | *1 | (20 | ) | (6 | ) | ||||||||||||||||
Operating profit | 310 | 310 | *328 | *101 | 24 | 7 | ||||||||||||||||||
Financing expense, net | 177 | 150 | *175 | *171 | 144 | 42 | ||||||||||||||||||
Tax benefit(tax on Income) | (36 | ) | (10 | ) | (40 | ) | 6 | 23 | 7 | |||||||||||||||
Losses of equity | - | - | - | - | (10 | ) | (3 | ) | ||||||||||||||||
Net income (loss) | 97 | 150 | 113 | (64 | ) | (107 | ) | (31 | ) | |||||||||||||||
Basic earnings (loss) per share (in NIS) | 0.95 | 1.47 | 1.11 | (0.58 | ) | (0.90 | ) | (0.26 | ) | |||||||||||||||
Diluted earnings(loss) per share (in NIS) | 0.95 | 1.47 | 1.10 | (0.58 | ) | (0.90 | ) | (0.26 | ) | |||||||||||||||
Weighted average ordinary shares used in calculation of basic earnings per share (in shares) | 100,589,458 | 100,604,578 | 100,654,935 | 107,499,543 | 118,376,455 | |||||||||||||||||||
Weighted average ordinary shares used in calculation of diluted earnings per share (in shares) | 100,589,530 | 100,698,306 | 100,889,661 | 107,499,543 | 118,376,455 |
(*)The results at and for the years 2017, 2018 have been reclassified regarding a change in accounting policy regarding long term credit transactions |
Statement of Financial Position Data: | ||||||||||||||||||||||||
Cash and cash equivalents | 761 | 1,240 | 527 | 1,202 | 1,006 | 291 | ||||||||||||||||||
Working capital | 625 | 1,074 | 692 | 1,269 | 933 | 270 | ||||||||||||||||||
Total assets | 6,278 | 6,662 | 6,087 | 6,749 | 7,162 | 2,072 | ||||||||||||||||||
Total equity | 1,185 | 1,340 | 1,441 | 1,677 | 1,887 | 547 | ||||||||||||||||||
Other Data: | ||||||||||||||||||||||||
Adjusted EBITDA(1) | 872 | 858 | *884 | *687 | 940 | 272 | ||||||||||||||||||
Capital expenditures | 396 | 382 | 550 | 647 | 562 | 163 | ||||||||||||||||||
Dividends declared per share | - | - | - | - | ||||||||||||||||||||
Net cash from operating activities | 836 | 781 | 774 | 770 | 1,036 | 300 | ||||||||||||||||||
Net cash used in investing activities | (96 | ) | (364 | ) | (644 | ) | (631 | ) | (560 | ) | (162 | ) | ||||||||||||
Net cash from (used in) financing activities | (1,136 | ) | 62 | (843 | ) | 537 | (672 | ) | (194 | ) | ||||||||||||||
Cellular Subscribers (in thousands)(2) | 2,835 | 2,801 | 2,817 | 2,851 | 2,744 | - | ||||||||||||||||||
Churn rate of cellular subscribers(4) | 42.0 | % | 42.4 | % | 45.8 | % | 43.2 | % | 48.8 | % | ||||||||||||||
Cellular ARPU (in NIS)(5) | 65 | 63 | 57 | 51 | 51 | 14 | ||||||||||||||||||
Internet customers (households) (end of period) (in thousands)(3) | 95 | 156 | 222 | 269 | 278 | - | ||||||||||||||||||
TV customers (households) (end of period) (in thousands) (3) | 63 | 111 | 170 | 219 | 258 |
(1) | Adjusted EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net (excluding gain from the sale of a subsidiary and expense related to employee retirement plans); income tax; depreciation and amortization and share based payments. We present adjusted EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with property, plant and equipment. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of our profitability or liquidity. Adjusted EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, adjusted EBITDA, as presented in this annual report, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated. |
Year Ended December 31, | ||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2019 | |||||||||||||||||||
(In NIS millions) | (In US$ millions) | |||||||||||||||||||||||
Net income (loss) | 97 | 150 | 113 | (64 | ) | (107 | ) | (31 | ) | |||||||||||||||
Financing expense, net | 177 | 150 | 175 | 171 | 144 | 42 | ||||||||||||||||||
Other expenses (income),net (excluding expense related to employee retirement plans and gain from the sale of a subsidiary ); | (3 | ) | 8 | (1 | ) | - | 10 | 3 | ||||||||||||||||
Losses of equity | 10 | 3 | ||||||||||||||||||||||
Tax benefit (tax on income) income | 36 | 10 | 40 | (6 | ) | (23 | ) | (7 | ) | |||||||||||||||
Depreciation and amortization | 562 | 534 | 555 | 584 | 898 | 260 | ||||||||||||||||||
Share based payments | 3 | 6 | 2 | 2 | 8 | 2 | ||||||||||||||||||
Adjusted EBITDA | 872 | 858 | 884 | 687 | 940 | 272 |
(2) | Cellular subscriber data refers to active subscribers. We use a six-month method of calculating our cellular subscriber base, which means that we add post-paid subscribers to our subscriber base upon their joining our services and prepaid subscribers upon charging a prepaid card and we deduct subscribers from our subscriber base after six months of no revenue generation and activity on our network (for prepaid subscribers, as of the first quarter of 2019, 'no activity' includes only incoming SMS within our network) and no data usage (as of the first quarter of 2019, 'no data usage' means less than 0.5 Gigabyte over a period of 6 months) or less than NIS 1 of accumulated revenues for M2M (machine to machine) subscribers. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. The 2017 cellular subscriber base includes subscribers added as part of our purchase of the operations of an Israeli Mobile Virtual Network Operator, or MVNO, during the third quarter of 2017. As of the third quarter of 2018, we add M2M subscribers to the cellular subscriber base only upon first use instead of at the time of joining our service as was done until the change. This change did not have a material effect on M2M prior subscriber data. The changes executed at the end of the first quarter 2019, resulted in the deletion of 153,000 subscribers from our cellular subscriber base. |
(3) | Internet and TV customers refer to active subscribers. Internet households receive end-to-end internet service, including infrastructure (based on the wholesale landline market) and connectivity services. |
(4) | Churn rate is defined as the total number of voluntary and involuntary permanent deactivations of cellular subscribers in a given period expressed as a percentage of the number of cellular subscribers at the beginning of the period. Involuntary permanent deactivations relate to cellular subscribers who have failed to pay their arrears for the period of six consecutive months. Voluntary permanent deactivations relate to cellular subscribers who terminated their use of our cellular services. Churn rate data is excluding the above mentioned removals of subscribers. |
(5) | Average monthly revenue per cellular subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of cellular subscribers during the period and by dividing the result by the number of months in the period. Revenues from inbound roaming services and hosting and network sharing services are included even though the number of cellular subscribers in the equation does not include the users of those roaming, hosting and network sharing services. Inbound roaming services, hosting and network sharing services are included because ARPU is meant to capture all service revenues generated by a cellular network. Revenues from repair services pursuant to a monthly subscription, or Subscription Repair Services, are included because they represent recurring revenues generated by cellular subscribers, but revenues from sales of handsets (which for purposes of this report may include other types of cellular end user equipment, such as tablets), non-subscription repair services carried out on a random basis, or Random Repair Service, and other services are not included. We and industry analysts treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber. The 2019 ARPU was positively affected by the elimination of subscribers during 2019. |
Year Ended December 31, | ||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2019 | |||||||||||||||||||
(In NIS millions, except number of subscribers and months) | (In US$ millions) | |||||||||||||||||||||||
Revenues | 4,180 | 4,027 | 3,871 | 3,688 | 3,708 | 1,073 | ||||||||||||||||||
less revenues from equipment sales | 1,048 | 994 | 952 | 904 | 932 | 270 | ||||||||||||||||||
less other revenues* | 869 | 881 | 949 | 1,061 | 1,102 | 319 | ||||||||||||||||||
Revenues used in cellular ARPU calculation | 2,263 | 2,152 | 1,971 | 1,723 | 1,674 | 484 | ||||||||||||||||||
Average number of cellular subscribers | 2,898,987 | 2,832,407 | 2,797,341 | 2,826,013 | 2,752,871 | 2,752,871 | ||||||||||||||||||
Months during period | 12 | 12 | 12 | 12 | 12 | 12 | ||||||||||||||||||
Cellular ARPU (in NIS, per month) | 65 | 63 | 57 | 51 | 51 | 15 |
* | Other revenues include revenues from other communications services mainly fixed-line revenues and repair services. |
• | refuse to approve our acquisition of Golan Telecom Ltd., or Golan, or set unfavorable conditions for such acquisition (see "Item 4. A. History and development of the Company – our history" below), or approve other mergers or acquisitions in the Israeli communications market, to which the Company is not a party, such as the recently published acquisition proposal of Partner Communications Company Ltd ("Partner") by Hot Telecommunication Systems Ltd ("Hot"), as it may prevent the approval of our acquisition of Golan or other acquisitions or mergers to which the Company may become a party, or result in the weakening of the Company's competitive standing, including loss of its leading position in the cellular market and related benefits of scale; |
• | approve the annulment or further relaxation of the structural separation requirements imposed on the Bezeq communications group, given its monopolistic or duopolistic powers in most areas in which we compete, and also on the Hot communications group (though to a lesser degree, given that Hot already has substantial leniencies despite its monopolistic and duopolistic powers), especially if carried out before an effective landline wholesale market, which includes both telephony and infrastructure, is effected on both Bezeq's and Hot's infrastructure. See also "– We face intense competition in all aspects of our business" below and "Item 4. Information on The Company – B. Business Overview "-Competition"; |
• | set unfavorable regulation regarding tariffs or influencing tariffs, including high tariffs for wholesale services, increasingly so in light of the rapidly growing demand for data capacity for both internet and television services; or fail to install sufficient mechanisms to prevent Bezeq and Hot from reducing their retail tariffs and thereby reducing the difference between the wholesale and retail tariffs ("margin squeeze"), or fail to enforce regulation with respect to the landline wholesale market adversely affecting our competitive capabilities; See also "Item 4. Information on The Company – B. Business Overview "-Competition" and "– Government Regulations – Fixed-line Segment – Landline"; |
• | award our competitors certain benefits and leniencies not available to us, including through waiving, easing or not enforcing requirements set in their licenses, or not making similar demands or not imposing similar restrictions or any regulation, for example, on foreign participants in the TV market. See also "Item 4. Information on the Company – B. Business Overview – Competition", "– Government Regulations – Cellular Segment” and thereunder: – Mobile Virtual Network Operators" and "Government Regulations – Fixed-line Segment"; |
• | setting different regulation for similar licenses in the various fields of the communications market, such as annulling Bezeq's obligation of a nationwide deployment while such obligation remains in the cellular market, due to the material economic burden such an obligation imposes. See also "– We face intense competition in all aspects of our business" below and "Item 4. Information on The Company – B. Business Overview "-Competition"; |
• | do not renew our licenses (or renew them on terms that are not favorable to us); |
• | do not renew the allocation of our frequencies (where applicable) or limit our usage thereof or demand that we return frequencies allocated to us or use less frequencies than previously allocated to us, or not allow us to obtain additional frequencies, as such become necessary, or do so under unfavorable terms, or demand that we change frequencies on an unreasonable timetable or bear the costs of such an exchange; |
• | de facto prevent us from participating in frequencies tenders by setting prerequisites which we cannot meet; conduct frequencies tenders before we are in need of additional frequencies or before we have the means to participate in such tenders; set unreasonable terms and conditions which may result in us having to pay sums which will further adversely affect our financial condition, or sums substantially higher than those paid by other contenders in the tender or in us not winning frequencies or winning a smaller quantity of frequencies than the quantity we require; or set deployment requirements for our network, using such new frequencies, requiring us to make substantial investments, without regard to their economic viability nor to our financial situation; see "As a result of substantial and continuing changes in our regulatory and business environment, our operating results, profitability and cash flow have decreased significantly in the past several years, with a loss for 2018. See "Further decline may adversely affect our financial condition" and "We may be adversely affected by the significant technological and other changes in the telecommunications industry "below and "Item 4. Information on the Company – B. Business Overview –– Network and Infrastructure – Cellular Segment – Spectrum allocation;" |
• | lower entry barriers and encourage additional competitors to enter the communications market , such as allowing new contenders to participate in the new frequencies tender and provide 5G services and reducing requirements for obtaining an internet infrastructure service provider license (as proposed in a public hearing), which may further increase the competition in the market; substantially widen the current ability to self-provide communications services; |
• | providing certain communications services currently purchased from licensed operators by the state or entities operating on its behalf; |
• | impose new safety or health-related requirements; |
• | impose additional restrictions or requirements with respect to the construction and operation of cell sites or the networks (see "We may not be able to obtain permits to construct and operate cell sites" below); |
• | refuse to approve other operators' investment in our subsidiary IBC Israel Broadband Company (2013) Ltd.'s, or IBC. See also "Item 4. Information on the Company – B. Business Overview – Network and Infrastructure – Fixed-line Segment – Fixed-line Infrastructure – Investment in IBC"; |
• | impose restrictions or demand we meet additional requirements on the provision of services or products we provide or regulate or otherwise intervene with the terms under which we advertise, market, price (including changes thereof) or provide them to our subscribers, credit terms, including in respect of existing agreements; |
• | allow other operators or other parties to provide services previously provided only by us to our subscribers; |
• | set higher service standards or costly requirements relating to the service we provide our customers, both in relation to our network quality and coverage and our customer service, including response times at our call centers; |
• | set a timetable for the implementation of new requirements in our license or other legislation which we cannot meet; |
• | impose a stricter policy or set stricter regulation with respect to privacy protection, such as with regard to data protection, collection, amelioration, segmentation or usage of data, including for commercial activities by us or for the benefit of third parties; |
• | impose regulation on our "over-the-top", or OTT, TV services, including the requirement to finance original productions, or applying such regulation to us and not to other OTT TV providers. See "– Item 4. Information on the Company – B. Business Overview – Government Regulations ― Fixed-line Segment – OTT TV"; and |
• | limit or prohibit the renewal of our licenses and allocation of additional frequencies to us, as we are included in the list of concentrated entities (being a subsidiary of Discount Investment Corporation Ltd., or DIC) published annually according to the Law for the Promotion of Competition and the Mitigation of Concentration, or the Concentration Law; |
• | impose unfavorable regulation on IBC's operations or competitive standing, in as much as same shall have an adverse effect on us as indirect shareholder or customer of IBC. |
• | tariffs maintained at their current level or decreasing even further, including as part of a bundle; |
• | failure to complete our acquisition of Golan (see "Item 4. A. History and development of the Company – our history" below), or other mergers or acquisitions in the communications market, to which the Company is not a party, such as the recently published acquisition proposal of Partner by Hot, as it may prevent the approval of our acquisition of Golan or other acquisitions or mergers to which the Company may become a party, or result in weakening of the Company's competitive standing, including loss of its leading position in the cellular market and related benefits of scale; |
• | an ineffective landline wholesale market, including the de facto exclusion of telephony wholesale services, services provided not in line with the wholesale market criteria and not enforced by the MOC; unfavorable pricing harming our ability to provide competitive bundles and compete with the Hot and Bezeq groups, or change of current regulation to a less favorable one, given our dependence on the landline wholesale market in supplying our landline infrastructure services; or further escalation of the competition by Bezeq and Hot, such as Hot continuing to decrease its retail services and lack of 'margin squeeze' prevention regulation and Bezeq commencing the sale of fiber-optic infrastructure service, given their dominance in the landline market, especially if the structural limitations on these groups are alleviated before an effective landline wholesale market is in effect; unfavorable regulation to IBC's competitive capabilities, in as much as same shall have an adverse effect on us as an indirect shareholder of IBC or as a customer of IBC, given our 15 year undertaking to purchase indefeasible right of use, or IRU to IBC's network at the agreed price, regardless of the fact that more favorable proposals may be available to us in the future. See also "Item 4. Information on The Company –B. Business Overview – Government Regulations – Fixed-line Segment – Landline"; |
• | annulment or further relaxation of the structural separation imposed on each of the Bezeq and Hot groups or further consolidation of Bezeq's subsidiaries and their operations as it will provide the Bezeq and Hot groups a competitive advantage, given their dominance in the landline telephony and infrastructure markets and TV market. More so, in respect of our triple and quatro offering, given the de facto creation of a unified company by Bezeq's subsidiaries with the strong financial support of Bezeq. See also "Item 4. Information on The Company –B. Business Overview – Competition - Communications groups and structural separation"; "-Government Regulations – Fixed-line Segment – Landline"; |
• | entrance of new competitors, including major global and local companies, to any of the markets we operate in, such as in the new frequencies tender allowing the entry of new 5G operators and as proposed in a public hearings proposing the lowering or regulatory requirements for the provision of internet infrastructure service, or such as Netflix, Amazon and other OTT participants entering the TV market, or complementary services becoming competitive to our services, or the entry of existing competitors to additional markets or segments where they are currently not or less active, or as a result of regulatory changes, allowing other operators to provide services currently provided only by us to our subscribers. See "Item 4. Information on The Company –B. Business Overview – Network and Infrastructure – Cellular Segment – Spectrum allocation" and "– Competition"; or if certain communications services currently purchased from licensed operators are provided by the state or by entities operating on its behalf; |
• | IBC's failure to deploy widespread landline infrastructure which we can procure, given the growth of our TV and internet services and the substantially more expensive wholesale alternative. Further, this may limit our broadband bandwidth offering in comparison to our competitors who have their own infrastructure, since currently our offering of such service is mainly dependent on the landline wholesale market services. See "Item 4. Information on the Company –B. Business Overview –– Competition – Fixed-Line Segment"; |
• | our inability or failure to purchase additional frequencies or to purchase frequencies in an amount equal to our competitors or in a sufficient amount, or to make the necessary investments in our networks or in our business in general, in order to maintain our competitive standing, given our financial situation or otherwise. See "- As a result of substantial and continuing changes in our regulatory and business environment, our operating results, profitability and cash flow have decreased significantly in the past several years, with a loss for 2018. Further decline may adversely affect our financial condition" and "We may be adversely affected by the significant technological and other changes in the telecommunications industry" below; |
• | regulatory or technological changes, such as implementation of an electronic SIM (e-SIM) in cellular end-user equipment, facilitating even further transfer of customers among operators; |
• | the continued increased competition in the handsets market may result in decreased handset sales. See also "-We may not be able to maintain current handsets sales revenues and profitability." below and "Item 4. Information on The Company –B. Business Overview – Competition – Cellular Segment"; |
• | some of our competitors may be able to obtain better access and terms of engagement with international suppliers or foreign carriers, than we do, due to their affiliation with international groups; or |
• | if our services are adversely affected by, or we are required to bear the costs of, a frequencies change or frequencies reduction, which do not affect our competitors, or if neighboring countries block or interfere with our services while our competitors' services remain uninterrupted. See "We may be adversely affected by the significant technological and other changes in the telecommunications industry" below; |
• | an adverse change to IBC's competitive standing, in as much as same shall have an adverse effect on us as an indirect shareholder of IBC or a customer of IBC. |
• | our founding shareholder, Koor Industries Ltd. (wholly owned by DIC), or Koor (or its transferee or transferees, if approved in advance by the Ministry of Communications as “founding shareholders”), must own at least 26% of each of our means of control; |
• | Israeli citizens and residents among our founding shareholders (or their approved transferees) must own at least 5% of our outstanding share capital and each of our other means of control; |
• | a majority of our directors must be Israeli citizens and residents; |
• | at least 10% of our directors must be appointed by Israeli citizens and residents among our founding shareholders; and |
• | we are required to have a security committee of our Board of Directors that deals with matters relating to state security. |
• | increasing our vulnerability to adverse economic, industry or business conditions, including increases in the Israeli Consumer Prices Index, or CPI, as approximately NIS 1,009 million ($292 million) is CPI linked; |
• | limiting our flexibility in planning for, or reacting to, changes in our industry and the economy in general; |
• | requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thus reducing the funds available for operations and future business development, such as purchasing additional frequencies and investing in the upgrade of our networks, as well as for dividend distribution; and |
• | limiting our ability to obtain, or resulting in less favorable terms and pricing for, additional financing to operate, develop and expand our business or for refinancing existing debt; |
• | weakening our competitive position |
o | Usage of the parties' relevant frequencies, management and operation by separate entities, or the Joint Corporations, possession of equal parts of the shared network active elements, investment in equal parts in future active elements and IRU of each sharing party to the other sharing parties and IRU by us to the other sharing parties and the Joint Corporations to our passive elements of the shared networks, services provided by us to the Joint Corporations, as a subcontractor and certain arrangements for separation of the parities and adding another sharing party. |
o | The agreements are for a term of ten years, and will be extended for additional periods, unless either party notifies otherwise. The termination of the Golan Agreement prior to the lapse of the first 10 years due to a breach by Golan will entitle us to liquidated damages of NIS 600 million plus VAT. In addition to standard termination causes, Xfone may terminate its agreement by prior written notice if it decides to cease operating in the cellular market in Israel. |
o | The average annual consideration to be received by us under the Golan agreement (starting with lower annual payments and increasing over the term) is expected to be in a range of approximately NIS 210-220 million plus VAT (and a lower sum due to Xfone's participation in the Sharing Agreements and division of investments and expenses among the three operators), depending on Golan's number of subscribers and their usage of the shared network and our 2G network. |
• | Purchaser Agreements - We and the Israel Infrastructure Fund, or IIF, entered into partnership agreements for the purchase of 70% of IBC's share capital by a jointly and equally owned limited partnership, or the Purchaser. The Purchaser Agreements contain an undertaking for an additional investment of up to NIS 200 million by both the Company and IIF, pro rata to their holdings in the Purchaser, over a period of 3 years (we have already provided IBC with the full additional investment obligation) and certain arrangements regarding a party's failure to make its share of the committed investment and regarding dead lock situations. |
• | Share Purchase Agreement, or SPA - The Purchaser, IBC, the Israeli Electric Company, or IEC and the other shareholders and main creditors of IBC entered an agreement for the purchase of 70% of IBC's share capital, through investment of the Purchaser in IBC, for a total amount of approximately NIS 110million (of which the Company paid half) (the "Consideration"), the majority of which was in the form of a shareholders' loan. The other 30% of IBC's issued and outstanding share capital are owned by IEC. The Consideration was used to settle generally all of IBC's debts (other than a certain amount to IEC). |
• | Shareholders Agreement - The Purchaser and IEC (holding 70% and 30% of IBC's share capital, respectively) entered into a shareholders agreement. The agreement regulates the management of IBC, including certain arrangements regarding funding of IBC and dilution (and anti-dilution in certain circumstances) of non-participating shareholders. |
• | IRU Agreement – We and IBC entered into an agreement granting us an indefeasible right of Use, or IRU to a 10-15% percentage of IBC's fiber optics 'home pass' (i.e. fiber-optic actually reaching / connected to the building; current undertaking of 15% and may be decreased to 10% under certain conditions), as shall be deployed by IBC in the next 15 years (and may be extended to additional periods with no additional consideration other than annual maintenance payments). The IRU consideration is subject to actual IBC's 'home pass' deployment (annual consideration for 2019 amounted to approximately NIS 18 million ), is expected to increase each quarter based on the actual addition of 'home passes' deployed during such quarter and shall be paid in 36 quarterly installations (9 years), in addition to annual maintenance payments. |
• | IEC Services Agreement - IBC and IEC entered into an agreement updating IBC's previous right of use and services agreement for IBC's fiber-optic network when deployed over IEC's infrastructure. The IEC Services Agreement includes improved pricing and arrangements for IBC's exclusive right to deploy its fiber-optics over the IEC's electricity network and other services provided by IEC to IBC in relation thereof. |
• | identifying new opportunities to maximize our advantages as a communications group, such as our successfully launched OTT TV services, internet infrastructure services through the landline wholesale services and our investment in fiber-optic through IBC and in IOT; |
• | focusing on the offering of bundles of services such as our successfully launched triple and quatro play offerings, as it strengthens customer retention and on enlarging customer purchases from us; |
• | entering network sharing and hosting agreements with Golan and Xfone, facilitating a more efficient cost structure in relation to our networks and operations thereof and investments therein; |
• | investing in IBC, selling our independent fiber-optic infrastructure in residential areas to IBC and entering an IRU agreement with IBC, in order to reduce our costs and dependency on Bezeq ; |
• | investing in our network to ensure our ability to offer quality and advanced cellular and fixed line services, and providing our customers with advanced services; |
• | taking aggressive efficiency measures through adjustments to our head count, reducing overhead expenses and improving work processes, in order to reduce costs and improve our agility; and |
• | actively pursuing mergers, acquisitions and similar opportunities. |
• | the license may be modified, cancelled, conditioned or restricted by the Ministry of Communications in certain instances, including: if required to ensure the level of services we provide; if a breach of a material term of the license occurs; if any of our managers or directors is convicted of a crime of moral turpitude and continues to serve; or if we and our 10% or greater shareholders fail to maintain combined shareholders’ equity of at least $200 million; it is prohibited for any of our office holders or anyone holding more than 5% of our means of control, to hold, directly or indirectly, more than 5% of the means of control in Bezeq or another cellular operator in Israel, or to serve as an office holder of one of our competitors, subject to certain exceptions requiring the prior approval of the Ministry of Communications; |
• | the direct and indirect holdings of DIC and Koor (or a transferee or transferees approved by the Ministry of Communications), in the capacity as our founding shareholders, may not fall below 26% of our means of control (with “means of control” defined for these purposes as voting rights, the right to appoint a director or general manager, the right to participate in distributions, or the right to participate in distributions upon liquidation); the direct and indirect holdings of our founding shareholders who are Israeli citizens and residents may not fall below 5% of our means of control (in March 2020, the MOC published a public hearing proposing to replace such requirement with other national security based requirements); at least 10% of our directors must be appointed by Israeli citizens and residents from among our founding shareholders and the majority of our directors must be Israeli citizens and residents; |
• | we or our office holders or a 5% or greater holder of any of our means of control may not commit an act or omission that adversely affects or limits competition in the cellular communications market; |
• | it is prohibited to acquire (alone or together with relatives or with other parties who collaborate on a regular basis) or transfer our shares, directly or indirectly (including by way of creating a pledge which if foreclosed, will result in the transfer of shares), in one transaction or a series of transactions, if such acquisition or transfer will result in a holding or transfer of 10% or more of any of our means of control, or the transfer of control over our company , without the prior approval of the Ministry of Communications. For the purpose of the license, “control” is defined as the direct or indirect ability to direct our operations whether this ability arises from our articles of association, from written or oral agreement or from holding any means of control or otherwise, other than from holding the position of director or officer; |
• | we are subject to the guidelines of Israel’s General Security Services, which may include requirements that certain office holders and holders of certain other positions be Israeli citizens and residents with security clearance and the Minister of Communications is entitled under our license to appoint a state employee with security clearance to act as an observer in all meetings of our Board of Directors and its committees. If our service is to be determined by the Israeli Government to be an “essential service”, the Prime Minister and the Ministry of Communications could impose additional limitations, including a heightened requirement of Israeli ownership of our ordinary shares; |
• | we are required to have agreements with a manufacturer of cellular network equipment for the duration of its intended operating period, which must include, among other things, a know-how agreement and an agreement guaranteeing the supply of spare parts for our network equipment for a period of at least seven years; we are required to interconnect our network to other public telecommunications networks in Israel, on equal terms and without discrimination and to provide national roaming services to Golan, Hot Mobile and Xfone; we generally may not give preference in providing infrastructure services to a license holder that is an affiliated company over other license holders; |
• | there are certain general types of payments that we may collect from our subscribers, certain procedures and requirements for charging and collecting payments, general mechanisms for setting and raising tariffs, including the basic airtime charging units and prior notifications we must provide the MOC and our customers prior to increasing tariffs and the Ministry of Communications is authorized to intervene in setting tariffs in certain instances; |
• | we must maintain a minimum standard of customer service, including, among other things, operation of call centers, maintenance of a certain service level (both coverage and performance) of our network, protection of the privacy of subscribers; and certain limitations and requirements regarding the process and documentation of our marketing and sale interaction with our customers; |
• | we may not transfer, pledge or encumber the license or any assets used for implementing the license without the prior approval of the Ministry of Communications; |
• | we are required to obtain insurance coverage for our cellular activities. In addition, the license imposes statutory liability for any loss or damage caused to a third party as a result of establishing, sustaining, maintaining or operating our cellular network. We have further undertaken to indemnify the State of Israel for any monetary obligation imposed on the State of Israel in the event of such loss or damage. For the purpose of guaranteeing our obligations under the license, we have deposited a bank guarantee in the amount of NIS80 million with the Ministry of Communications, which may be forfeited in the event that we violate the terms of our license; |
• | we must maintain and follow additional requirements as to: business continuity plan and a disaster recovery plan and network sharing implementation, under which we may be accountable for violations attributed to the other sharing partners; and |
• | we are required to provide the Ministry of Communications information and reports upon its request, as well as detailed annual reports regarding various aspects of our operations. |
• | building permits from the local planning and building committee or the local licensing authority (if no exemption is available); |
• | approvals for construction and operation from the Commissioner of Environmental Radiation of the Ministry of Environmental Protection; |
• | permits from the Civil Aviation Authority (in most cases); |
• | permits from the Israel Defense Forces (in certain cases); and |
• | other specific permits necessary where applicable, such as for cell sites on water towers or agricultural land. |
• | Under reasonable scenarios, no economic viability exists for one company's universal deployment. |
• | Bezeq will not be subject to universal deployment requirement in regards to deploying fiber-optics but would rather select the areas in which to deploy its fiber-optics and in those areas Bezeq will be obligated to provide service to all homes within 5 years. |
• | A trust established by the State of Israel for that purpose (the "Trust") will conduct tenders to subsidize deployment of fiber-optic by Bezeq's competitors in areas where Bezeq chooses not to deploy fiber-optic ("Non-Bezeq Areas"), based on economic viability and efficiency. The winner would be obligated to provide wholesale services to other competitors at wholesale rates. Bezeq may not participate in the tenders nor acquire wholesale service in those areas (though its subsidiaries may do so). The winner of the subsidy tender may use Bezeq's infrastructure in the Non-Bezeq Areas for rates significantly lower than the current wholesale rates. Only the winner will be entitled to the subsidy. |
• | Subsidy will be funded through additional 0.5% tax levied on all Israeli communications license holders revenues for the previous year (including Bezeq), whose annual revenues exceed NIS 10 million, as of 2022 and until all household in Israel are connected to fiber-optic. The funds will be managed by the Trust. |
• | Bezeq may not deploy fiber-optic in Non-Bezeq Areas for three years from the date of each respective subsidy tender for that area. Nonetheless, Bezeq may update its original deployment obligation by up to 10% and so long as such Non-Bezeq Area was not being chosen as an area to receive subsidy by the Fund. |
(1) | return to positive net income (excluding special and unusual items). |
(2) | reduce the Company’s net debt to EBITDA (excluding IFRS16 ramifications and special and unusual items) ratio to below 3 . |
(3) | prepare the Company to better cope with market conditions, the intense competition and future investments. |
• | Cutting expenses - annual reduction of appx. NIS 150 million from third quarter 2019 OPEX level (to be executed by the end of 2020), including through substantial reduction of expenses and payments to suppliers, substantial reduction in manpower and reduction of landline wholesale access fees. |
• | Cutting investments – reduction of the company CAPEX level to appx. NIS 450 – 500 million per annum, (to be fully executed by the end of 2020), excluding new frequencies related CAPEX which may require added investments. For additional details regarding such CAPEX see "Frequencies Tender" below. |
• | Capital raising of appx. NIS 400 million – completed in December 2019 (see "Item 5. Operating and Financial Review and Prospects. – B. Liquidity and Capital Resources – Issuances of equity securities" below). |
• | Factoring of customers' end-user equipment of appx. NIS 100 – 150 million. |
• | Debt reduction – Open market repurchases of the Company's debentures up to NIS 150 million. |
Year Ended December 31, | Change* | |||||||||||||||||||
2017 | 2018 | 2019 | 2018 vs. 2017 | 2019 vs. 2018 | ||||||||||||||||
Cellular subscribers at end of period(1) (in thousands) | 2,817 | 2,851 | 2,744 | 1.2 | % | (3.8 | )% | |||||||||||||
Internet-customers (households) (end of period) (in thousands) (2) | 222 | 269 | 278 | 21.2 | % | 3.3 | % | |||||||||||||
TV - households (end of period) (in thousands) (2) | 170 | 219 | 258 | 28.8 | % | 17.8 | % | |||||||||||||
Churn rate of cellular subscribers(1)(3) | 46 | % | 43 | % | 49 | % | - | - | ||||||||||||
Average monthly revenue per cellular subscriber (ARPU) (1)(4) (in NIS) | 57 | 51 | 51 | (10.5 | )% | (1.9 | )% | |||||||||||||
Operating income (in NIS millions) | 328 | 101 | 24 | (69.2 | )% | (76.2 | )% | |||||||||||||
Net income(loss) (in NIS millions) | 113 | (64 | ) | (107 | ) | na | na | |||||||||||||
Adjusted EBITDA(5) (in NIS millions) | 884 | 687 | 940 | (22.6 | )% | 34.6 | % | |||||||||||||
Operating income margin(6) | 8.4 | % | 2.7 | % | 0.6 | % | (5.6PP | ) | (2.1PP | ) | ||||||||||
Adjusted EBITDA margin(7) | 22.8 | % | 18.6 | % | 24.9 | % | (4.2pp | ) | 6.3pp |
* | pp denotes percentage points and this measure of change is calculated by subtracting the 2017 measure from the 2018 measure and the 2019 measure from the 2018 measure, respectively. |
(1) | Cellular subscriber data refers to active subscribers. We use a six-month method of calculating our cellular subscriber base, which means that we add post-paid subscribers to our subscriber base upon their joining our services and prepaid subscribers upon charging a prepaid card and we deduct subscribers from our subscriber base after six months of no revenue generation and activity on our network (for prepaid subscribers, as of the first quarter of 2019, 'no activity' includes only incoming SMS within our network) and no data usage (as of the first quarter of 2019, 'no data usage' means less than 0.5 Gigabyte over a period of 6 months) or less than NIS 1 of accumulated revenues for M2M (machine to machine) subscribers. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. The 2017 cellular subscriber base includes subscribers added as part of our purchase of the operations of an Israeli Mobile Virtual Network Operator, or MVNO, during the third quarter of 2017. As of the third quarter of 2018, we add M2M subscribers to the cellular subscriber base only upon first use instead of at the time of joining our service as was done until the change. This change did not have a material effect on M2M prior subscriber data. The changes executed at the end of the first quarter 2019, resulted in the deletion of 153,000 subscribers from our cellular subscriber base. |
(2) | TV and Internet customers (households) refer to active subscribers. Internet households receive end-to-end internet service, including infrastructure (based on the wholesale landline market) and connectivity services. |
(3) | Churn rate is defined as the total number of voluntary and involuntary permanent deactivations of cellular subscribers in a given period expressed as a percentage of the number of cellular subscribers at the beginning of such period. Involuntary permanent deactivations relate to cellular subscribers who have failed to pay their arrears for the period of six consecutive months. Voluntary permanent deactivations relate to cellular subscribers who terminated their use of our services. Churn rate data is excluding the above mentioned removals of subscribers. |
(4) | Average monthly revenue per cellular subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of cellular subscribers during the period and by dividing the result by the number of months in the period. Revenues from inbound roaming services and hosting and network sharing services are included even though the number of subscribers in the equation does not include the users of those roaming, hosting and network sharing services. Inbound roaming services, hosting and network sharing services are included because ARPU is meant to capture all service revenues generated by a cellular network. Revenues from sales of Subscription Repair Services are included because they represent recurring revenues generated by subscribers, but revenues from sales of handsets (which for purposes of this report may include other types of cellular end user equipment, such as tablets), Random Repair Services, and other services are not. We and industry analysts, treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber. The 2019 ARPU was positively affected by the elimination of subscribers during 2019. |
Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
(In NIS millions, except number of subscribers and months) | ||||||||||||
Revenues | 3,871 | 3,688 | 3,708 | |||||||||
less revenues from equipment sales | 952 | 904 | 932 | |||||||||
less other revenues not in ARPU* | 949 | 1,061 | 1,102 | |||||||||
Revenues used in ARPU calculation (in NIS millions) | 1,971 | 1,723 | 1,674 | |||||||||
Average number of subscribers | 2,797,341 | 2,826,013 | 2,752,871 | |||||||||
Months during period | 12 | 12 | 12 | |||||||||
ARPU (in NIS, per month) | 57 | 51 | 51 |
* | Other revenues include revenues from other communications services, mainly fixed-line revenues and repair services. |
(5) | Adjusted EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net (excluding gain from the sale of a subsidiary and expense related to employee retirement plans); income tax; depreciation and amortization; and share based payments. We present adjusted EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with fixed assets. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of our profitability or liquidity. Adjusted EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, adjusted EBITDA, as presented in this annual report, may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated. |
Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
(In NIS millions) | ||||||||||||
Net income(loss) | 113 | (64 | ) | (107 | ) | |||||||
Financing expenses, net | 175 | 171 | 144 | |||||||||
Taxes on income (tax benefit) | 40 | (6 | ) | (23 | ) | |||||||
Equity of investee | - | - | 10 | |||||||||
Operating income | 328 | 101 | 24 | |||||||||
Other expenses (income), net (excluding gain from the sale of a subsidiary and expense related to employee retirement plans) | (1 | ) | - | 10 | ||||||||
Depreciation and amortization | 555 | 584 | 898 | |||||||||
Share based payments | 2 | 2 | 8 | |||||||||
Adjusted EBITDA | 884 | 687 | 940 |
(6) | Operating income margin is defined as operating income as a percentage of total revenues for each of the applicable periods. |
(7) | Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of total revenues for each of the applicable periods. |
Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of revenues | 69.2 | % | 72.2 | % | 73.5 | % | ||||||
Gross profit | 30.8 | % | 27.8 | % | 26.5 | % | ||||||
Selling and marketing expenses | 12.4 | % | 15.3 | % | 16.5 | % | ||||||
General and administrative expenses | 11.0 | % | 9.8 | % | 8.9 | % | ||||||
Other (income) expenses, net | 0.2 | % | 0.7 | % | (0.5 | )% | ||||||
Operating income | 7.6 | % | 2.0 | % | 0.6 | % | ||||||
Financing expenses, net | 3.7 | % | 3.9 | % | 3.9 | % | ||||||
Income(loss) before income tax | 3.9 | % | 1.9 | % | (3.5 | )% | ||||||
Income tax | 1.0 | % | 0.2 | % | 0.6 | % | ||||||
Net income(loss) | 2.9 | % | 1.7 | % | (2.9 | )% |
Year Ended December 31, | Change | |||||||||||||||||||
2017 | 2018 | 2019 | 2018 vs. 2017 | 2019 vs. 2018 | ||||||||||||||||
(In NIS millions) | ||||||||||||||||||||
Revenues | 3,871 | 3,688 | 3,708 | (4.7 | )% | 0.5 | % |
2017 | 2018 | 2019 | ||||||||||||||||||||||
Revenues | % of Total Revenues | Revenues | % of Total Revenues | Revenues | % of Total Revenues | |||||||||||||||||||
(in NIS millions) | (in NIS millions) | (in NIS millions) | ||||||||||||||||||||||
Service revenues: | ||||||||||||||||||||||||
Cellular services | 1,777 | 45.9 | % | 1,581 | 42.9 | % | 1,541 | 41.5 | % | |||||||||||||||
Land-line communications services* | 1,004 | 25.9 | % | 1,068 | 29.0 | % | 1,111 | 30.0 | % | |||||||||||||||
Other services** | 138 | 3.6 | % | 135 | 3.7 | % | 124 | 3.3 | % | |||||||||||||||
Total service revenues | 2,919 | 75.4 | % | 2,784 | 75.5 | % | 2,776 | 74.9 | % | |||||||||||||||
Equipment revenues | 952 | 24.6 | % | 904 | 24.5 | % | 932 | 25.1 | % | |||||||||||||||
Total revenues | 3,871 | 100.0 | % | 3,688 | 100.0 | % | 3,708 | 100.0 | % |
* | Consists of international calling services, landline telephony services, transmission services, hubbing services, internet services (ISP and internet infrastructure services) and TV services. |
** | Consists of repair services fees. |
2017 | 2018 | 2019 | ||||||||||||||||||||||
Revenues | % of Total Revenues | Revenues | % of Total Revenues | Revenues | % of Total Revenues | |||||||||||||||||||
(in NIS millions) | (in NIS millions) | (in NIS millions) | ||||||||||||||||||||||
Individual | 2,702 | 69.8 | % | 2,579 | 69.9 | % | 2,561 | 69.1 | % | |||||||||||||||
Business | 992 | 25.6 | % | 946 | 25.6 | % | 991 | 26.7 | % | |||||||||||||||
Other* | 177 | 4.6 | % | 163 | 4.5 | % | 156 | 4.2 | % | |||||||||||||||
Total | 3,871 | 100.0 | % | 3,688 | 100.0 | % | 3,708 | 100.0 | % |
* | Mainly consists of revenues from inbound roaming services, hosting services and network sharing services. |
2017 | 2018 | 2019 | ||||||||||||||||||||||
Revenues | % of Total Revenues | Revenues | % of Total Revenues | Revenues | % of Total Revenues | |||||||||||||||||||
(in NIS millions) | (in NIS millions) | (in NIS millions) | ||||||||||||||||||||||
Pre-paid | 195 | 5.0 | % | 180 | 4.9 | % | 185 | 5.0 | % | |||||||||||||||
Post-paid | 3,499 | 90.4 | % | 3,344 | 90.7 | % | 3,367 | 90.8 | % | |||||||||||||||
Other* | 177 | 4.6 | % | 163 | 4.4 | % | 156 | 4.2 | % | |||||||||||||||
Total | 3,871 | 100.0 | % | 3,688 | 100.0 | % | 3,708 | 100.0 | % |
Year Ended December 31, | Change | |||||||||||||||||||
2017 | 2018 | 2019 | 2018 vs. 2017 | 2019 vs. 2018 | ||||||||||||||||
(In NIS millions) | ||||||||||||||||||||
Cellular service revenues | 1,929 | 1,730 | 1,679 | (10.3 | )% | (2.9 | )% | |||||||||||||
Cellular equipment revenues | 770 | 655 | 661 | (14.9 | )% | 0.9 | % | |||||||||||||
Total cellular revenues | 2,699 | 2,385 | 2,340 | (11.6 | )% | (1.9 | )% | |||||||||||||
Fixed-line service revenues | 1,166 | 1,215 | 1,258 | 4.2 | % | 3.5 | % | |||||||||||||
Fixed-line equipment revenues | 182 | 249 | 271 | 36.8 | % | 8.8 | % | |||||||||||||
Total Fixed-line revenues | 1,348 | 1,464 | 1,529 | 8.6 | % | 4.4 | % | |||||||||||||
Consolidation adjustments | (176 | ) | (161 | ) | (161 | ) | (8.5 | )% | - | |||||||||||
Consolidated revenues | 3,871 | 3,688 | 3,708 | (4.7 | )% | 0.5 | % |
Year Ended December 31, | Change | |||||||||||||||||||
2017 | 2018 | 2019 | 2018 vs. 2017 | 2019 vs. 2018 | ||||||||||||||||
(In NIS millions) | ||||||||||||||||||||
Cost of service revenues | 2,035 | 2,019 | 2,038 | (0.8 | )% | 0.9 | % | |||||||||||||
Cost of equipment revenues | 645 | 642 | 687 | (0.5 | )% | 7.0 | % | |||||||||||||
Total cost of revenues | 2,680 | 2,661 | 2,725 | (0.7 | )% | 2.4 | % | |||||||||||||
Gross profit | 1,191 | 1,027 | 983 | (13.8 | )% | (4.2 | )% |
Year Ended December 31, | Change | |||||||||||||||||||
2017 | 2018 | 2019 | 2018 vs. 2017 | 2018 vs. 2017 | ||||||||||||||||
(In NIS millions) | ||||||||||||||||||||
Selling and marketing expenses | 479 | 567 | 610 | 18.4 | % | 7.6 | % | |||||||||||||
General and administrative expenses | 426 | 360 | 329 | (15.5 | )% | (8.6 | )% | |||||||||||||
Total | 905 | 927 | 939 | 2.4 | % | 1.3 | % |
Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
(In NIS millions) | ||||||||||||
Other income (expenses), net | 42 | * | 1 | * | (20 | ) |
Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
(In NIS millions) | ||||||||||||
Financing expenses | (196 | ) | (190 | ) | (193 | ) | ||||||
Financing income | 21 | 19 | 49 | |||||||||
Financing expenses, net | (175 | ) | (171 | ) | (144 | ) |
Year Ended December 31, | Change | ||||||||||||||||
2017 | 2018 | 2019 | 2018 vs. 2017 | 2019 vs. 2018 | |||||||||||||
(In NIS millions) | |||||||||||||||||
Taxes on income(tax benefit) | 40 | (6 | ) | (23 | ) | na | 283 | % |
Year Ended December 31, | Change | ||||||||||||||||
2017 | 2018 | 2019 | 2018 vs. 2017 | 2019 vs. 2018 | |||||||||||||
(In NIS millions) | |||||||||||||||||
Net income (loss) | 113 | (64 | ) | (107 | ) | na | 67.2 | % |
• | 30,600,000 ordinary shares of the Company (par value NIS 0.01 per share, or ordinary shares). |
• | 7,038,000 Series 3 Options. Each Series 3 Option entitled the holder thereof to purchase one ordinary share at an exercise price of NIS 8.64, until April 1, 2020. As of February 29, 2020, Series 3 Options were exercised for a total consideration of approximately NIS 17.36 million. |
• | 6,426,000 Series 4 Options. Each Series 4 Option entitles the holder thereof to purchase one ordinary share at an exercise price of NIS 9.60, until September 30, 2020. As of February 29, 2020, Series 4 Options were exercised for a total consideration of approximately NIS 3.45 million. |
• | a negative pledge, subject to certain exceptions; |
• | a covenant not to distribute more than 95% of the profits available for distribution according to the Companies Law (“Profits”); provided that if our net leverage (defined as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding one-time events) exceeds 3.5:1, we will not distribute more than 85% of our Profits and if our net leverage exceeds 4.0:1, we will not distribute more than 70% of our Profits. Further if our net leverage exceeds 5.0:1, or exceeds 4.5:1 during four consecutive quarters, we will not distribute dividends. |
• | a limitation on our ability to voluntarily redeem the debentures prior to their stated maturity date to a minimum amount of NIS 100 million of each series of debentures and an undertaking to pay the holders of such debentures an additional annual interest of 1% in the event of such early redemption; |
• | a covenant to have the debentures rated by a rating agency (in as much as under our control); |
• | an obligation to pay additional interest of 0.25% for a two-notch downgrade in the debentures' rating and additional interest of 0.25% for each additional one-notch downgrade and up to a maximum addition of 1%, in comparison to the rating given to the debentures prior to their issuance; |
• | a covenant not to issue additional debentures of the relevant series if the financial covenants aren't met or if the additional issuance by itself, will cause a certain rating downgrade. |
• | cross default, excluding following an immediate repayment initiated in relation to a liability of NIS 150 million or less. The minimum amount required for triggering a cross default shall not apply to a cross default triggered by another series of debentures; |
• | failure of our main business to be cellular communications or loss of our cellular license for a period of over 60 days; |
• | suspension of trading of the debentures on the TASE over a period of 45 days; |
• | failure to comply with the above covenant regarding limitations on dividend distributions; |
• | failure to have the debentures rated over a period of 60 days; |
• | a petition or court order to withhold all legal proceedings against us or petition for creditors arrangement filed; |
• | the sale of a major part of our assets or merger (with certain exclusions); |
• | failure to publish financial reports when due; |
• | a net leverage in excess of 5.0:1, or in excess of 4.5:1 during four consecutive quarters; |
• | failure to comply with our negative pledge covenant; and |
• | any other event causing or expected to cause a material adverse effect (which shall not include any event that shall or is likely to cause our net leverage to increase to a ratio of under 5.0:1) on our business and posing real threat of a substantial damage to the debenture holders’ rights. |
• | breach of the above limitation on dividend distributions; |
• | the existence of a real concern that we shall not meet our material undertakings towards the debenture holders; |
• | the inclusion in our financial statements during a period of two consecutive quarters of a note regarding the existence of significant doubt as to our ability to continue as a going concern; and |
• | breach of our undertakings regarding the issuance of additional debentures. |
• | A principal amount of NIS 200 million ($58 million) was provided to us in June 2016, and bears an annual fixed interest of 4.6%. The loan's principal amount is payable in four equal annual payments on June 30 of each of the years 2018 through 2021 (inclusive). The interest will be paid in ten semi-annual installments on June 30 and December 31, of each calendar year commencing December 31, 2016 through and including June 30, 2021. As of December 31, 2019, the outstanding principal amount under this loan is NIS 100 million ($29 million). |
• | A principal amount of NIS 200 million ($58 million) was provided to us in June 2017, and bears an annual fixed interest of 5.1%. The loan's principal amount is payable in four equal annual payments on June 30 of each of the years 2019 through 2022 (inclusive). The interest will be paid in ten semi-annual installments on June 30 and December 31, of each calendar year commencing December 31, 2017 through and including June 30, 2022. As of December 31, 2019, the outstanding principal amount under this loan is NIS 150 million ($43million). |
Total | 2020 | 2021-2022 | 2023-2024 | 2025 and Beyond | ||||||||||||||||
Long-term debt obligations (including interest)(1) | 3,824 | 623 | 1,161 | 1,130 | 910 | |||||||||||||||
Operating lease obligations | 839 | 246 | 325 | 139 | 129 | |||||||||||||||
Purchase obligations | 402 | 317 | 85 | - | - | |||||||||||||||
Total | 5,065 | 1,186 | 1,571 | 1,269 | 1,039 |
(1) | Interest does not include any increase in interest that would be required based on increases in the Israeli CPI. |
• | cash flows attributed to the asset group; |
• | future cash flows for the asset group, including estimates of residual values, which incorporate our views of growth rates for the related business and anticipated future economic conditions; and |
• | period of time over which the assets will be held and used. |
• | Key assumptions used in the calculation of recoverable amounts are discount rate and terminal value growth rate. |
• | During the year ended December 31, 2017 management has updated estimates as follows: Towards the end of the Company's 2G and 3G frequencies (the "Frequencies") original amortization period, the Company's annual depreciation committee examined the estimated useful life of the Frequencies. Based on Company's estimate, the Company will continue to use the Frequencies at least for the next 10 years. |
Name | Age | Position | ||
Ami Erel* (2), (3), (4) | 73 | Chairman of the Board | ||
Mauricio Wior (2) | 63 | Vice Chairman of the Board | ||
Eran Saar** (3),(4) | 47 | Director | ||
Ephraim Kunda (1), (2), (4), (5) | 67 | Independent Director | ||
Gustavo Traiber*** (1), (2), (4) | 58 | Independent Director | ||
Shmuel Hauser*** (1), (2), (4), (5) | 64 | Independent / External Director | ||
Varda Liberman*** (1), (2), (3), (5) | Independent / External Director | |||
Nir Sztern**** | 49 | President and Chief Executive Officer | ||
Shlomi Fruhling | 47 | Chief Financial Officer | ||
Rafi Shauli***** | 48 | Vice President of Marketing, Television and Content | ||
Ron Shvili****** | 52 | Chief Technology Officer | ||
Nadav Amsalem | 46 | Vice President of Business Customers | ||
Sharon Amit******* | 53 | Vice President of Human Resources | ||
Amos Maor | 56 | Vice President of Sales and Service | ||
Liat Menahemi Stadler | 53 | Vice President of Legal Affairs and Corporate Secretary | ||
Teimuraz Romashvili | 41 | Vice President of Pre Paid Activity | ||
Ronnen Shles | 52 | Controller |
• | Have a substantial portion of pay “at risk” (i.e., pay that is not guaranteed); and |
• | Link “at risk” pay to performance objectives that are directly aligned to the Company’s short and long-term performance objectives as well as strategic initiatives. |
• | Drive the Company’s overall business strategy and results as they relate to long-term value creation; |
• | Pay for performance by linking total compensation to defined performance objectives, both at the Company level and for each executive officer individually; |
• | Attract and retain key executive officers by providing competitive total compensation opportunities, considering the Company's size, nature of operations and marketplace, while avoiding unnecessary risk taking by executive officers; and |
• | Align executive officer and investor interests by focusing executive officer behavior on driving long-term value creation. |
• | The multiple elements of our compensation packages for executive officers, including base salary, annual cash incentive and equity-based compensation program which vest over a number of years and provide a balance of short-term and long-term compensations with fixed and variable components that promote the long-term sustainability of our business; |
• | Equity-based compensation for our executive officers aligns the interests of the executive officers with those of our shareholders; |
• | Independent oversight by the Compensation Committee; |
• | Inclusion of claw-back provisions in the event of a material restatement of our financial statements for our financial performance based compensations; |
• | Effective management processes for developing strategic and annual work plans, and strong internal controls over financial reporting; |
• | The structure of our Annual Cash Bonus (as defined hereinafter) and equity-based compensation, which is based on a number of different performance measures to avoid employees placing undue emphasis on any particular performance measure at the expense of other aspects of the business; and |
• | The cap on our executive officers' Annual Cash Bonus and equity-based compensation, commensurable to objectives which do not motivate increased risk taking. |
• | Base salary; |
• | An Annual Cash Bonus award and possible Special Cash Bonuses; |
• | Equity-based compensation awards; and |
• | Termination arrangements. |
• | base salary – 30%-50% for our CEO and 40%-60% for other executive officers; |
• | Annual Cash Bonus - 25%-45% for our CEO and 20%-40% for other executive officers; and |
• | equity-based compensation* - 15%-45% for our CEO and 10%-40% for other executive officers. |
* The value of equity-based awards refers to their value at the date of grant (in accordance with acceptable accounting principles) per each vesting annum (calculated on a linear basis).
• | Vacation of up to 30 days per annum; |
• | Sick days of up to 30 days per annum; |
• | Convalescence pay equivalent to up to 10 days per annum; |
• | Monthly remuneration for an education fund, as allowed by applicable law; |
• | Contribution on behalf of the executive officer to a manager's insurance policy or a pension fund, as allowed by applicable law; and |
• | Contribution on behalf of the executive officer towards work disability insurance, as allowed by applicable law. |
• | Corporate performance objectives may include adjusted EBITDA,* net income, free cash flow*and other Company performance objectives which the Company decides to focus on in a specific year. Our CEO's corporate performance objectives were determined by our shareholders general meeting to be the Company's adjusted EBITDA target for the relevant year.** Corporate performance objectives weigh between 30% to 50% of the overall performance score of each executive officer and 80% for our CEO. In extreme cases, such as major changes in our market leading to annual work plan or budget adjustments, our Compensation Committee and Board of Directors may update the objectives to match such changes, during the first half of the relevant year. |
• | Quantitative individual performance objectives may include the budget for the unit relevant to the executive officer, revenues from sales by the unit, recruiting subscribers by the unit and quality of network. These objectives weigh between 30% and 50% of the overall performance score of each executive officer. |
• | Qualitative individual performance objectives may include corporate governance, risk management, leadership, response to major business changes, executing special projects, as per the CEO's evaluation of each executive officer and as per the evaluation of the CEO by the Compensation Committee and the Board of Directors. This component will weigh up to 20% of the overall performance score of each executive officer (including the CEO). |
• | Awards will vest linearly over a minimum period of three years beginning on the first anniversary of the grant date. The terms of such equity-based awards may include provision for acceleration of vesting in certain events, such as in the event of a merger, a consolidation, a sale of all or substantially all of our consolidated assets, change of controlling shareholder, or the sale or other disposition of all or substantially all of our outstanding shares. |
• | The exercise price of equity-based awards will be set so as to induce an incentive for long term value creation, but in any case, not lower than the higher of 5% above the average market price of the Company's share during the 30 day period preceding the date of grant, and the market price of the Company's share at the end of the trading day preceding the date of grant, and will be subject to customary adjustments including for dividend distributions. |
• | The value of equity-based awards at the date of grant (in accordance with acceptable accounting principles) per each vesting annum (calculated on a linear basis), in addition to the Target Bonus (whether or not actually paid), will not exceed 70% of our CEO's and 60% of our other executive officers' total cost of employment in that calendar year. We believe a grant date cap is more appropriate than an exercise date cap as it better aligns long term value creation objectives. |
• | The annual exercise of shares reserved for issuance upon the exercise of options of all the Company's executive officers will not dilute the Company's shareholders by more than 2% (in regards to option plans which contain a 'net exercise mechanism') of the Company's outstanding share capital for the year in which such options may be exercised. In addition, our board of directors committed to DIC that the Company will not issue options or shares pursuant to executive officers or employees' compensation, which may lead to a dilution of the Company's shareholders by more than 0.5% of the Company's outstanding share capital for the year in which such options may be exercised.. |
Name and Principal Position (1) | Salary Cost (2) | Bonus(3) | Equity-Based Compensation(4) | Total |
Nir Sztern, President and Chief Executive Officer | 1,947,967 | - | 1,947,967 | |
Shlomi Fruhling, Chief Financial Officer | 1,271,431 | - | 1,271,431 | |
Ron Shvili, Chief Technology Officer | 1,152,795 | - | 1,152,795 | |
Sharon Amit Vice President HR | 1,087,261 | - | 1,087,261 | |
Liat Menahemi Stadler Vice President of Legal Affairs and Corporate Secretary | 1,082,999 | - | 1,082,999 |
(1) | As of December 31, 2019. Mr. Sztern, Mr. Shvili and Ms. Amit have since than resigned their positions. Unless otherwise indicated herein, all Covered Executives are or were employed on a full-time (100%) basis. |
(2) | Salary cost includes the Covered Executive's gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers' Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, car, medical insurance and benefits, phone, convalescence or recreation pay and other benefits and perquisites consistent with our policies. |
(3) | Represents Annual Cash Bonuses approved by our compensation committee and board of directors to the Covered Executives with respect to the year ended December 31, 2019, based on our compensation policy. |
(4) | Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, 2019, based on the fair value of the applicable options on the date of grant thereof, in accordance with accounting guidance for equity-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note 20 to our consolidated financial statements included elsewhere in this report. |
• | a majority of the aggregate number of shares voted at the meeting by non-controlling shareholders and shareholders who do not have a personal interest in the matter (other than a personal interest that is not the result of the shareholder's connections with a controlling shareholder) are voted in favor of the election of the external director (disregarding abstentions); or |
• | the total number of shares of non-controlling shareholders and shareholders who do not have an applicable personal interest in the matter voted against the election of the external director does not exceed 2% of the aggregate voting rights in the company. |
• | information on the appropriateness of a given action brought for his or her approval or performed by virtue of his or her position; and |
• | all other important information pertaining to these actions. |
• | refrain from any conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs; |
• | refrain from any activity that is competitive with the company; |
• | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and |
• | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
• | other than in the ordinary course of business; |
• | that is not on market terms; or |
• | that is likely to have a material impact on the company’s profitability, assets or liabilities. |
• | an amendment to the articles of association; |
• | an increase in the company’s authorized share capital; |
• | a merger; and |
• | approval of related party transactions that require shareholders' approval. |
• | the securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance; |
• | some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and |
• | the transaction will increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights, or will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights. |
Number of Full-Time Equivalent Positions | ||||||||||||
Unit | December 2017 | December 2018 | December 2019 | |||||||||
Management and headquarters | 42 | 44 | 43 | |||||||||
Human resources | 99 | 100 | 88 | |||||||||
Marketing | 58 | 53 | 47 | |||||||||
Customers* | 2,443 | 2,482 | 2,365 | |||||||||
Finance | 128 | 154 | 148 | |||||||||
Technologies | 537 | 500 | 514 | |||||||||
Our subsidiaries**, excluding our wholly owned dealer | 51 | 60 | 60 | |||||||||
Total | 3,358 | 3,392 | 3,265 |
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner | Number | Percent | ||||||
Koor Industries Ltd., or Koor * | 78,477,620 | 52.93 | % | |||||
Menora Mivtachim Holdings Ltd.** | 9,271,818 | 6.25 | % | |||||
Directors and executive officers as a group (16 persons)*** | 242,000 | 0.16 | % |
* | Koor is a private company, wholly owned by Discount Investment Corporation Ltd., or DIC. DIC, a public Israeli company traded on the Tel Aviv Stock Exchange, is owned approximately 84% by Dolphin IL Investment Ltd., or Dolphin IL, and Tyrus S.A., both private companies controlled by various companies controlled by Mr. Eduardo Elzstain. |
** | Includes the holdings of Menora Mivtachim Holdings Ltd. and its affiliated entities.. |
*** | Includes 242,000 ordinary shares issuable upon the exercise of stock options that expired as of February 13, 2020. |
• | The agreement will be in force until December 31, 2018 and will be automatically extended by a one year term until terminated according to its terms. |
• | Koor will have the right to terminate the agreement at any time and receive all or part of the Transferred Shares. The Israeli Shareholders will not be able to transfer the Transferred Shares without Koor's approval and subject to additional terms, including the transferees assuming the Israeli Shareholder's obligation towards Koor pursuant to the Agreement, the transferees being "Israeli Shareholders" under the Company's cellular license and the MOC's prior approval of such transfer, if required. |
• | As long as such requirement exits in the Company's cellular license, the Israeli Shareholders will have the right to appoint 10% of our directors )currently – one director). The Israeli Shareholders will vote with Koor in all shareholders resolutions (including the nomination of directors suggested by Koor). The Israeli Shareholders will be considered as joint-holders with Koor in our shares according to the Israeli Securities Law and, therefore, joint controlling shareholders. |
• | The Transferred Shares (including all rights or income therefrom) will be pledged by a first-degree pledge in favor of Koor, and any realization of such pledge will be subject to the receipt of the MOC's approval, if required. |
• | In case of any dividend or other distribution (including rights by way of a rights offering), these will be transferred by the Israeli Shareholders to Koor. In case of other corporate actions, including conversion, sub-division, consolidation etc., Koor may notify the Israeli Shareholders, at its sole discretion, if such rights will be part of the Transferred Shares or shall be transferred to Koor. |
• | a breach of his or her duty of care to us or to another person; |
• | a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable grounds to assume that his or her act would not prejudice our interests; |
• | a financial liability imposed upon him or her in favor of another person concerning an act performed in the capacity as an office holder. |
• | reasonable litigation expenses, including attorney fees, incurred by the office holder as a result of an administrative enforcement proceeding instituted against him, including a payment imposed on the office holder in favor of an injured party as set forth in the Israeli Securities Law and expenses that the office holder incurred in connection with a relevant proceeding under the Israeli Securities Law, including reasonable legal expenses, which term includes attorney fees. |
• | a financial liability imposed on or incurred by an office holder in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court concerning an act performed in his or her capacity as an office holder. Such indemnification may be approved (i) after the liability has been incurred or (ii) in advance, provided that the undertaking is limited to types of events which our Board of Directors deems to be foreseeable in light of our actual operations at the time of the undertaking and limited to an amount or criterion determined by our Board of Directors to be reasonable under the circumstances, and further provided that such events and amounts or criteria are set forth in the undertaking to indemnify; |
• | reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding was concluded without the filing of an indictment against him or her and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; or in connection with an administrative enforcement proceeding or a financial sanction, including a payment imposed on the office holder in favor of an injured party as set forth in the Israeli Securities Law, and expenses that the office holder incurred in connection with a relevant proceeding under the Israeli Securities Law, including reasonable legal expenses, which term includes attorney fees; and |
• | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or charged to him or her by a court, in proceedings instituted by us or on our behalf or by another person, or in a criminal indictment from which he or she was acquitted, or a criminal indictment in which he or she was convicted for a criminal offense that does not require proof of intent, in each case relating to an act performed in his or her capacity as an office holder. |
• | a breach by the office holder of his or her duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
• | a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly; |
• | any act or omission done with the intent to derive an illegal personal benefit; or |
• | any fine or penalty levied against the office holder. |
• | a citizen or resident of the United States; |
• | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
• | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
As of December 31, | ||||||||||||||||||||||||
2017 | 2018 | 2019 | ||||||||||||||||||||||
Par Value | Fair Value | Par Value | Fair Value | Par Value | Fair Value | |||||||||||||||||||
(In NIS millions) | ||||||||||||||||||||||||
Forward contracts on foreign currency exchange rate (mainly US$– NIS) | 105 | (1 | ) | 203 | 4 | 128 | (2 | ) | ||||||||||||||||
Forward contracts on Israeli CPI rate | 500 | (17 | ) | 400 | (1 | ) | 360 | (3 | ) | |||||||||||||||
Options on the foreign currency exchange rate (mainly US$– NIS) | (105 | ) | 1 | (147 | ) | 0 | (68 | ) | 1 | |||||||||||||||
Total | 500 | (17 | ) | 456 | 3 | 420 | (4 | ) |
• | an increase of 1% of the Israeli CPI would result in an increase of approximately NIS 8 million in our financing expenses. |
• | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
• | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
• | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition and use of disposition of the Company’s assets that could have a material effect on the financial statements. |
2018 | 2019 | |||||||
(NIS in thousands) | ||||||||
Audit Fees | 2,450 | 2,300 | ||||||
Tax Fees and other | 263 | 165 | ||||||
Total | 2,713 | 2,465 |
Exhibit Number | Description |
4.7 | Shelf Prospectus Indenture dated March 7, 2012, between Cellcom and Strauss Lazar Trust Company (1992) Ltd. (2) | |
Exhibit Number | Description |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. |
(1) | Incorporated by reference to our registration statement on Form F-1 (registration no. 333-140030) filed with the SEC on January 17, 2007. |
(2) | Incorporated by reference to our annual report on Form 20-F for the year 2011 filed with the SEC on March 7, 2012. |
(3) | Incorporated by reference to our annual report on Form 20-F for the year 2014 filed with the SEC on March 16, 2015. |
(4) | Incorporated by reference to our annual report on Form 20-F for the year 2016 filed with the SEC on March 20, 2017. |
(5) | Incorporated by reference to our annual report on Form 20-F for the year 2017 filed with the SEC on March 26, 2018. |
(6) | Incorporated by reference to our registration statement on Form S-8 filed with the SEC on August 13, 2015. |
(7) | Incorporated by reference to our annual report on Form 20-F for the year 2017 filed with the SEC on March 26, 2018. |
Cellcom Israel Ltd. | ||||
By: | /s/ Avi Gabbay | |||
Name: | Avi Gabbay | |||
Title: | Chief Executive Officer |
Cellcom Israel Ltd. and Subsidiaries Consolidated Financial Statements As at December 31, 2019 (Audited) |
F-3 - F-5 | |
Consolidated Financial Statements | |
F-6 | |
F-7 | |
F-8 | |
F-9 | |
F-10 - F-11 | |
F-12 - F-93 |
/s/ Kesselman & Kesselman | |
Certified Public Accountants (Isr.) | |
A member firm of PricewaterhouseCoopers International Limited |
Cellcom Israel Ltd.
/s/ Kesselman & Kesselman | /s/ Somekh Chaikin |
Certified Public Accountants (Isr.) | Certified Public Accountants (Isr.) |
A member firm of PricewaterhouseCoopers International Limited | Member Firm of KPMG International |
Kesselman & Kesselman have served as the Company’s auditor since 2018. Tel Aviv, Israel March 18, 2019 | Somekh Chaikin have served as the Company’s auditor from 1994 to 2018. |
Cellcom Israel Ltd.
We have audited the accompanying consolidated statement of income, comprehensive income, changes in equity, and cash flows of Cellcom Israel Ltd. and subsidiaries (the Company) for the year ended December 31, 2017, and the related notes (collectively, the consolidated financial statements).
Convenience | ||||||||||||||||
translation into | ||||||||||||||||
US dollar (Note 2D) | ||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||
2018 | 2019* | 2019* | ||||||||||||||
Note | NIS millions | NIS millions | US$ millions | |||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | 9 | 1,202 | 1,006 | 291 | ||||||||||||
Current investments, including derivatives | 404 | 473 | 137 | |||||||||||||
Trade receivables | 10 | 1,152 | 1,142 | 330 | ||||||||||||
Current tax assets | 30 | 11 | 3 | 1 | ||||||||||||
Other receivables | 10 | 84 | 69 | 20 | ||||||||||||
Inventory | 11 | 94 | 66 | 19 | ||||||||||||
Total current assets | 2,947 | 2,759 | 798 | |||||||||||||
Trade and other receivables | 10 | 852 | 782 | 227 | ||||||||||||
Property, plant and equipment, net | 12 | 1,652 | 1,432 | 414 | ||||||||||||
Intangible assets and others, net | 13 | 1,298 | 1,294 | 374 | ||||||||||||
Investments in equity accounted investees | 8 | - | 150 | 43 | ||||||||||||
Right-of-use assets, net | 14 | - | 745 | 216 | ||||||||||||
Total non- current assets | 3,802 | 4,403 | 1,274 | |||||||||||||
Total assets | 6,749 | 7,162 | 2,072 | |||||||||||||
Liabilities | ||||||||||||||||
Current maturities of debentures and of loans from financial institutions | 19 | 620 | 509 | 147 | ||||||||||||
Current taxation liabilities | 30 | - | 6 | 2 | ||||||||||||
Current maturities of lease liabilities | 14 | - | 226 | 65 | ||||||||||||
Trade payables and accrued expenses | 15 | 696 | 687 | 199 | ||||||||||||
Provisions | 16 | 105 | 99 | 29 | ||||||||||||
Other payables, including derivatives | 17 | 257 | 299 | 86 | ||||||||||||
Total current liabilities | 1,678 | 1,826 | 528 | |||||||||||||
Long-term loans from financial institutions | 19 | 334 | 300 | 87 | ||||||||||||
Debentures | 19 | 2,911 | 2,511 | 727 | ||||||||||||
Long-term lease liabilities | 14 | - | 533 | 154 | ||||||||||||
Provisions | 16 | 20 | 22 | 6 | ||||||||||||
Other long-term liabilities | 18 | 16 | 4 | 1 | ||||||||||||
Liability for employee rights upon retirement, net | 20 | 14 | 19 | 5 | ||||||||||||
Deferred tax liabilities | 30 | 99 | 60 | 17 | ||||||||||||
Total non- current liabilities | 3,394 | 3,449 | 997 | |||||||||||||
Total liabilities | 5,072 | 5,275 | 1,525 | |||||||||||||
Equity attributable to owners of the Company | 21 | |||||||||||||||
Share capital | 1 | 2 | 1 | |||||||||||||
Share premium | 325 | 623 | 180 | |||||||||||||
Receipts on account of share options | 10 | 24 | 7 | |||||||||||||
Retained earnings | 1,339 | 1,236 | 358 | |||||||||||||
Non-controlling interests | 2 | 2 | 1 | |||||||||||||
Total equity | 1,677 | 1,887 | 547 | |||||||||||||
Total liabilities and equity | 6,749 | 7,162 | 2,072 | |||||||||||||
Date of approval of the consolidated financial statements: March 23, 2020. | ||||||||||||||||
* See Note 2 (F) regarding initial application of IFRS 16, Leases. |
Convenience | ||||||||||||||||||||
translation into US | ||||||||||||||||||||
dollar (Note 2D) | ||||||||||||||||||||
Year ended | Year ended | Year ended | Year ended | |||||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||||
2017 | 2018 | 2019* | 2019* | |||||||||||||||||
Note | NIS millions | NIS millions | NIS millions | US$ millions | ||||||||||||||||
Revenues | 24 | 3,871 | 3,688 | 3,708 | 1,073 | |||||||||||||||
Cost of revenues | 25 | (2,680 | ) | (2,661 | ) | (2,725 | ) | (788 | ) | |||||||||||
Gross profit | 1,191 | 1,027 | 983 | 285 | ||||||||||||||||
Selling and marketing expenses | 26 | (479 | ) | (567 | ) | (610 | ) | (177 | ) | |||||||||||
General and administrative expenses | 27 | (426 | ) | (360 | ) | (329 | ) | (95 | ) | |||||||||||
Other income (expenses), net | 28 | 42 | ** | 1 | ** | (20 | ) | (6 | ) | |||||||||||
Operating profit | 328 | 101 | 24 | 7 | ||||||||||||||||
Financing income | 21 | ** | 19 | ** | 49 | 14 | ||||||||||||||
Financing expenses | (196 | ) | (190 | ) | (193 | ) | (56 | ) | ||||||||||||
Financing expenses, net | 29 | (175 | ) | (171 | ) | (144 | ) | (42 | ) | |||||||||||
Share in losses of equity accounted investees | - | - | (10 | ) | (3 | ) | ||||||||||||||
Profit (loss) before taxes on income | 153 | (70 | ) | (130 | ) | (38 | ) | |||||||||||||
Tax benefit (Taxes on income) | 30 | (40 | ) | 6 | 23 | 7 | ||||||||||||||
Profit (loss) for the year | 113 | (64 | ) | (107 | ) | (31 | ) | |||||||||||||
Attributable to: | ||||||||||||||||||||
Owners of the Company | 112 | (62 | ) | (107 | ) | (31 | ) | |||||||||||||
Non-controlling interests | 1 | (2 | ) | - | - | |||||||||||||||
Profit (loss) for the year | 113 | (64 | ) | (107 | ) | (31 | ) | |||||||||||||
Earnings (loss) per share | 21 | |||||||||||||||||||
Basic earnings (loss) per share (in NIS) | 1.11 | (0.58 | ) | (0.90 | ) | (0.26 | ) | |||||||||||||
Diluted earnings (loss) per share (in NIS) | 1.10 | (0.58 | ) | (0.90 | ) | (0.26 | ) | |||||||||||||
Weighted-average number of shares used in the calculation of basic earnings (loss) per share (in shares) | 100,654,935 | 107,499,543 | 118,376,455 | 118,376,455 | ||||||||||||||||
Weighted-average number of shares used in the calculation of diluted earnings (loss) per share (in shares) | 100,889,661 | 107,499,543 | 118,376,455 | 118,376,455 | ||||||||||||||||
* See Note 2(F) regarding initial application of IFRS 16, Leases. | ||||||||||||||||||||
** Reclassified – see Note 2(F) regarding voluntary change in accounting policy |
Convenience | ||||||||||||||||
translation into US | ||||||||||||||||
dollar (Note 2D) | ||||||||||||||||
Year ended | Year ended | Year ended | Year ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2017 | 2018 | 2019 | 2019 | |||||||||||||
NIS millions | NIS millions | NIS millions | US$ millions | |||||||||||||
Profit (loss) for the year | 113 | (64 | ) | (107 | )* | (31 | )* | |||||||||
Other comprehensive income items that after initial recognition in comprehensive income were or will be transferred to profit or loss | ||||||||||||||||
Changes in fair value of cash flow hedges transferred to profit or loss, net of tax | 1 | - | - | - | ||||||||||||
Total other comprehensive income for the year that after initial recognition in comprehensive income was or will be transferred to profit or loss, net of tax | 1 | - | - | - | ||||||||||||
Other comprehensive income items that will not be transferred to profit or loss | ||||||||||||||||
Re-measurement of defined benefit plan, net of tax | - | (1 | ) | (4 | ) | (1 | ) | |||||||||
Total other comprehensive loss for the year that will not be transferred to profit or loss, net of tax | - | (1 | ) | (4 | ) | (1 | ) | |||||||||
Total other comprehensive income (loss) for the year, net of tax | 1 | (1 | ) | (4 | ) | (1 | ) | |||||||||
Total comprehensive income (loss) for the year | 114 | (65 | ) | (111 | ) | (32 | ) | |||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||
Owners of the Company | 113 | (63 | ) | (111 | ) | (32 | ) | |||||||||
Non-controlling interests | 1 | (2 | ) | - | - | |||||||||||
Total comprehensive income (loss) for the year | 114 | (65 | ) | (111 | ) | (32 | ) | |||||||||
* See Note 2(F) regarding initial application of IFRS 16, Leases. |
Attributable to owners of the Company | Non-controlling interests | Total equity | Convenience translation into US dollar (Note 2D) | |||||||||||||||||||||||||||||||||
Share capital | Share premium | Receipts on account of share options | Capital reserve | Retained earnings | Total | |||||||||||||||||||||||||||||||
NIS millions | US$ millions | |||||||||||||||||||||||||||||||||||
Balance as of January 1, 2017 | 1 | - | - | (1 | ) | 1,322 | 1,322 | 18 | 1,340 | |||||||||||||||||||||||||||
Comprehensive income for the year | ||||||||||||||||||||||||||||||||||||
Profit for the year | - | - | - | - | 112 | 112 | 1 | 113 | ||||||||||||||||||||||||||||
Other comprehensive income for the year, net of tax | - | - | - | 1 | - | 1 | - | 1 | ||||||||||||||||||||||||||||
Transactions with owners, recognized directly in equity | ||||||||||||||||||||||||||||||||||||
Share based payments | - | - | - | - | 2 | 2 | - | 2 | ||||||||||||||||||||||||||||
Derecognition of non-controlling interests due to loss of control in a consolidated company | - | - | - | - | - | - | (15 | ) | (15 | ) | ||||||||||||||||||||||||||
Balance as of December 31, 2017 | 1 | - | - | - | 1,436 | 1,437 | 4 | 1,441 | ||||||||||||||||||||||||||||
Effect of initial application of IFRS 9* | - | - | - | - | (36 | ) | (36 | ) | - | (36 | ) | |||||||||||||||||||||||||
Balance as of January 1, 2018 after initial application | 1 | - | - | - | 1,400 | 1,401 | 4 | 1,405 | ||||||||||||||||||||||||||||
Comprehensive loss for the year | ||||||||||||||||||||||||||||||||||||
Loss for the year | - | - | - | - | (62 | ) | (62 | ) | (2 | ) | (64 | ) | ||||||||||||||||||||||||
Other comprehensive loss for the year, net of tax | - | - | - | - | (1 | ) | (1 | ) | - | (1 | ) | |||||||||||||||||||||||||
Transactions with owners, recognized directly in equity | ||||||||||||||||||||||||||||||||||||
Share based payments | - | - | - | - | 2 | 2 | - | 2 | ||||||||||||||||||||||||||||
Equity offering | - | 259 | 17 | - | - | 276 | - | 276 | ||||||||||||||||||||||||||||
Exercise of share options | - | 66 | (7 | ) | - | - | 59 | - | 59 | |||||||||||||||||||||||||||
Balance as of December 31, 2018 | 1 | 325 | 10 | - | 1,339 | 1,675 | 2 | 1,677 | 485 | |||||||||||||||||||||||||||
Comprehensive loss for the year, net of tax | ||||||||||||||||||||||||||||||||||||
Loss for the year* | - | - | - | - | (107 | ) | (107 | ) | - | (107 | ) | (31 | ) | |||||||||||||||||||||||
Other comprehensive loss for the year, net of tax | - | - | - | - | (4 | ) | (4 | ) | - | (4 | ) | (1 | ) | |||||||||||||||||||||||
Transactions with owners, recognized directly in equity | ||||||||||||||||||||||||||||||||||||
Share based payments | - | - | - | - | 8 | 8 | - | 8 | 3 | |||||||||||||||||||||||||||
Equity offering (see Note 21) | 1 | 283 | 25 | - | - | 309 | - | 309 | 90 | |||||||||||||||||||||||||||
Expiration of share options | - | 10 | (10 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Exercise of share options | - | 5 | (1 | ) | - | - | 4 | - | 4 | 1 | ||||||||||||||||||||||||||
Balance as of December 31, 2019 | 2 | 623 | 24 | - | 1,236 | 1,885 | 2 | 1,887 | 547 |
Convenience | ||||||||||||||||
translation into US | ||||||||||||||||
dollar (Note 2D) | ||||||||||||||||
Year ended | Year ended | Year ended | Year ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2017 | 2018 | 2019* | 2019* | |||||||||||||
NIS millions | NIS millions | NIS millions | US$ millions | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Profit (loss) for the year | 113 | (64 | ) | (107 | ) | (31 | ) | |||||||||
Adjustments for: | ||||||||||||||||
Depreciation and amortization | 555 | 584 | 898 | 260 | ||||||||||||
Share based payments | 2 | 2 | 8 | 2 | ||||||||||||
Gain on sale of property, plant and equipment, intangible assets and others | (1 | ) | - | (8 | ) | (2 | ) | |||||||||
Gain on sale of shares in a consolidated company | (10 | ) | - | - | - | |||||||||||
Net change in fair value of investment property | - | - | 6 | 2 | ||||||||||||
Income tax expense (tax benefit) | 40 | (6 | ) | (23 | ) | (7 | ) | |||||||||
Financing expenses, net | 175 | ** | 171 | ** | 144 | 42 | ||||||||||
Other expenses | - | - | 3 | 1 | ||||||||||||
Share in losses of equity accounted investees | - | - | 10 | 3 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Change in inventory | (6 | ) | (24 | ) | 28 | 8 | ||||||||||
Change in trade receivables (including long-term amounts) | 101 | ** | 166 | ** | 80 | 23 | ||||||||||
Change in other receivables (including long-term amounts) | (191 | ) | (21 | ) | 13 | 4 | ||||||||||
Change in trade payables, accrued expenses and provisions | (27 | ) | (26 | ) | (27 | ) | (8 | ) | ||||||||
Change in other liabilities (including long-term amounts) | 28 | 11 | 23 | 6 | ||||||||||||
Payments for derivative hedging contracts, net | (3 | ) | - | (10 | ) | (3 | ) | |||||||||
Income tax paid | (44 | ) | (23 | ) | (12 | ) | (4 | ) | ||||||||
Income tax received | 42 | - | 10 | 3 | ||||||||||||
Net cash from operating activities | 774 | 770 | 1,036 | 299 | ||||||||||||
Cash flows used in investing activities | ||||||||||||||||
Acquisition of property, plant, and equipment | (346 | ) | (356 | ) | (324 | ) | (94 | ) | ||||||||
Acquisition of intangible assets and others | (237 | ) | (237 | ) | (233 | ) | (67 | ) | ||||||||
Acquisition of equity accounted investee | - | - | (16 | ) | (5 | ) | ||||||||||
Change in current investments, net | (77 | ) | (56 | ) | (49 | ) | (14 | ) | ||||||||
Receipts from other derivative contracts, net | - | 3 | 9 | 3 | ||||||||||||
Proceeds from sale of property, plant and equipment, intangible assets and others | 1 | 1 | 181 | 52 | ||||||||||||
Grant of long-term loans to equity accounted investees | - | - | (141 | ) | (41 | ) | ||||||||||
Interest received | 12 | 14 | 13 | 4 | ||||||||||||
Proceeds from sale of shares in a consolidated company, net of cash disposed | 3 | - | - | - | ||||||||||||
Net cash used in investing activities | (644 | ) | (631 | ) | (560 | ) | (162 | ) |
Convenience | ||||||||||||||||
translation into US | ||||||||||||||||
dollar (Note 2D) | ||||||||||||||||
Year ended | Year ended | Year ended | Year ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2017 | 2018 | 2019* | 2019* | |||||||||||||
NIS millions | NIS millions | NIS millions | US$ millions | |||||||||||||
Cash flows used in financing activities | ||||||||||||||||
Payments for derivative contracts, net | (3 | ) | (15 | ) | (2 | ) | (1 | ) | ||||||||
Receipt of long-term loans from financial institutions | 200 | - | 150 | 43 | ||||||||||||
Payments for long-term loans from financial institutions | - | (78 | ) | (212 | ) | (61 | ) | |||||||||
Repayment of debentures | (864 | ) | (556 | ) | (504 | ) | (145 | ) | ||||||||
Proceeds from issuance of debentures, net of issuance costs | - | 997 | - | - | ||||||||||||
Repurchase of own debentures | - | - | (10 | ) | (3 | ) | ||||||||||
Dividend paid | (1 | ) | - | - | - | |||||||||||
Interest paid | (175 | ) | (126 | ) | (151 | ) | (43 | ) | ||||||||
Acquisition of non-controlling interests | - | (19 | ) | - | - | |||||||||||
Equity offering (see Note 21) | - | 275 | 309 | 89 | ||||||||||||
Proceeds from exercise of share options | - | 59 | 4 | 1 | ||||||||||||
Payment of principal of lease liabilities | - | - | (256 | ) | (74 | ) | ||||||||||
Net cash from (used in) financing activities | (843 | ) | 537 | (672 | ) | (194 | ) | |||||||||
Changes in cash and cash equivalents | (713 | ) | 676 | (196 | ) | (57 | ) | |||||||||
Cash and cash equivalents as at the beginning of the year | 1,240 | 527 | 1,202 | 348 | ||||||||||||
Effects of exchange rate changes on cash and cash equivalents | - | (1 | ) | - | - | |||||||||||
Cash and cash equivalents as at the end of the year | 527 | 1,202 | 1,006 | 291 |
A. | Statement of compliance |
B. | Functional and presentation currency |
C. | Basis of measurement |
D. | Convenience translation into U.S. dollars ("dollars" or "$") |
E. | Use of estimates and judgments |
F. | Changes in the accounting policies |
1. | Initial application of new standards, amendments to standards and interpretations |
A. | IFRS 16, Leases |
(1) | retain the definition and/or assessment of whether an arrangement is a lease in accordance with current guidance with respect to agreements that exist at the date of initial implementation; |
(3) | exclude initial direct costs from measurement of the right-of-use asset at the date of initial application; |
(4) | use hindsight when determining the lease term if the contract includes an extension or termination option; |
(5) | assess whether a contract is onerous in accordance with IAS 37 immediately before the date of initial implementation instead of assessing impairment of right-of-use assets. |
F. | Changes in the accounting policies (cont'd) |
1. | Initial application of new standards, amendments to standards and interpretations (cont'd) |
A. | IFRS 16, Leases (cont'd) |
F. | Changes in the accounting policies (cont'd) |
1. | Initial application of new standards, amendments to standards and interpretations (cont'd) |
A. | IFRS 16, Leases (cont'd) |
● | Cell and switches sites | 4 years |
● | Office buildings, warehouses, service centers and retail stores | 3 years |
● | Motor vehicles | 2 years |
F. | Changes in the accounting policies (cont'd) |
1. | Initial application of new standards, amendments to standards and interpretations (cont'd) |
A. | IFRS 16, Leases (cont'd) |
According to IAS 17 | The change | According to IAS 16 | ||||||||||
NIS millions | ||||||||||||
Trade and other receivables (including long-term amounts) | 2,088 | 2 | 2,090 | |||||||||
Right-of-use assets and Investment property | - | 826 | 826 | |||||||||
Lease liabilities | - | 830 | 830 | |||||||||
Trade payables and accrued expenses | 696 | (2 | ) | 694 |
F. | Changes in the accounting policies (cont'd) |
1. | Initial application of new standards, amendments to standards and interpretations (cont'd) |
B. | IFRS 9 (2014), Financial Instruments |
According to the previous policy | Effect of the standard | According to IFRS 9 | ||||||||||
NIS millions | ||||||||||||
Trade and other receivables (including long-term amounts) (1) | 2,175 | (12 | ) | 2,163 | ||||||||
Debentures, including current maturities (2) | (2,900 | ) | (34 | ) | (2,934 | ) | ||||||
Deferred tax liabilities | (131 | ) | 10 | (121 | ) | |||||||
Retained earnings | (1,436 | ) | 36 | (1,400 | ) |
1) | The standard includes a new ‘expected credit loss’ model, which following its application, the amount of the provision for impairment of all the financial assets decreased by an amount of NIS 12 million as at January 1, 2018. |
2) | According to the standard, in cases that a change in terms or exchange of financial liabilities is immaterial and does not lead to de-recognition, the new cash flows should be discounted at the original effective interest rate, with the difference between the present value of the financial liability having the new terms and the present value of the original financial liability being recognized in profit or loss. As a result of applying the standard, the carrying amount of a Series of debentures whose terms were changed and for which a new effective interest rate was calculated at the time of the change in terms according to IAS 39, was recalculated from the date of the change in terms using the original effective interest rate. Accordingly, the balance of the liability decreased by the amount of NIS 34 million. |
F. | Changes in the accounting policies (cont'd) |
1. | Initial application of new standards, amendments to standards and interpretations (cont'd) |
C. | Amendment to IAS 28, Investments in Associates and Joint Venture: Long-Term Interests in Associates or Joint Ventures |
D. | IFRIC 23, Uncertainty Over Income Tax Treatments |
F. | Changes in the accounting policies (cont'd) |
2. | Voluntary change in accounting policy |
Year ended December 31, 2017 | Year ended December 31, 2018 | |||||||
NIS millions | NIS millions | |||||||
Increase in other income | 31 | 27 | ||||||
Decrease in financing income | (31 | ) | (27 | ) |
G. | Exchange rates and known Consumer Price Indexes are as follows: |
Exchange rates of US$ | Consumer Price Index (points)* | |||||||
As of December 31, 2019 | 3.456 | 224.67 | ||||||
As of December 31, 2018 | 3.748 | 224.00 | ||||||
As of December 31, 2017 | 3.467 | 221.35 | ||||||
Change during the year: | ||||||||
Year ended December 31, 2019 | (7.79 | )% | 0.30 | % | ||||
Year ended December 31, 2018 | 8.10 | % | 1.20 | % | ||||
Year ended December 31, 2017 | (9.83 | )% | 0.30 | % |
A. | Basis of consolidation |
2. | Non-controlling interests |
A. | Basis of consolidation (cont'd) |
3. | Loss of control |
4. | Investment in associates and joint ventures (equity accounted investees) |
5. | Transactions eliminated on consolidation |
B. | Foreign currency transactions |
C. | Financial instruments |
• | It is held within a business model whose objective is to hold assets so as to collect contractual cash flows; and |
• | The contractual terms of the financial asset give rise to cash flows representing solely payments of principal and interest on the principal amount outstanding on specified dates. |
C. | Financial instruments (cont'd) |
• | The stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management's strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets; |
• | How the performance of the business model and the financial assets within the model is evaluated and reported to the entity’s key management people; |
• | The risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; |
• | Contingent events that would change the timing or amount of the cash flows; |
• | Terms that may change the stated interest rate, including variable interest; |
• | Extension or prepayment features; and |
• | Terms that limit the Group's claim to cash flows from specified assets. |
C. | Financial instruments (cont'd) |
% | ||||
Communications network | 5-15 | |||
Control and testing equipment | 15-25 | |||
Equipment and infrastructure for television services | 15-33 | |||
Vehicles, Computers, Furniture and Landline communications equipment | 6-33 |
F. | Intangible assets and others (cont'd) |
(2) Development
F. | Intangible assets and others (cont'd) |
% | ||||||||
Licenses and Frequencies | 4-7 | (mainly 4) | ||||||
Information systems | 25 | |||||||
Software | 15-25 | |||||||
Customer acquisition costs | 33-50 |
G. | Investment property |
1. | Use in the production or supply of goods or services or for administrative purposes; or |
2. | Sale in the ordinary course of business. |
H. | Inventory |
I. | Impairment |
• | Significant financial difficulty of the issuer or borrower; |
• | A breach of contract such as a default or payments being past due; |
• | The restructuring of a loan or payment due to the Group on terms that the Group would not consider otherwise; |
• | It is probable that the borrower will enter bankruptcy or other financial reorganization; or |
• | The disappearance of an active market for a security because of financial difficulties. |
J. | Employee benefits |
(1) | Post-employment benefits |
(2) | Termination benefits |
(3) | Short-term benefits |
(4) | Share-based payment and restricted stock unit transactions |
K. | Provisions |
L. | Revenue |
(a) | The parties to the contract have approved the contract (in writing, orally or according to other customary business practices) and they are committed to satisfying the obligations attributable to them; |
(b) | The Group can identify the rights of each party in relation to the goods or services that will be transferred; |
(c) | The Group can identify the payment terms for the goods or services that will be transferred; |
(d) | The contract has a commercial substance (i.e. the risk, timing and amount of the entity’s future cash flows are expected to change as a result of the contract); and |
(e) | It is probable that the consideration, to which the Group is entitled to in exchange for the goods or services transferred to the customer, will be collected. |
L. | Revenue (cont'd) |
A. | Determination of Fair Value A number of the Group's accounting policies and disclosures require the determination of fair value, of certain assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. |
1. | Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the appropriate interest rate at the reporting date. |
2. | Current investments and derivatives The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using market interest rates appropriate for similar instruments, including the adjustment required for the parties' credit risks. The fair value of investments in debt securities and investments in equity instruments are based on quoted market prices. |
3. | Investment property The fair value of investment property is estimated using the comparison technique, with the valuation model being based on the price per square meter of comparable properties, as arising from observable transactions in an active market. |
4. | Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. |
5. | Share-based payment transactions Fair value of employee stock options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior) and the risk-free interest rate (based on government bonds). Service conditions attached to the transactions are not taken into account in determining fair value. |
B. | Fair Value Hierarchy When determining the fair value of an asset or liability, the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows: |
• | Level 1: quoted prices (unadjusted) in active markets for identical instruments. |
• | Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. |
• | Level 3: inputs that are not based on observable market data (unobservable inputs). |
● | Cellular segment - the segment includes the cellular communications services, cellular equipment and supplemental services. |
● | Fixed-line segment - the segment includes landline telephony services, internet services, television services, transmission services, landline equipment and supplemental services. |
Year ended December 31, 2019* | ||||||||||||||||||||
NIS millions | ||||||||||||||||||||
Cellular | Fixed-line | Reconciliation for consolidation | Consolidated | Reconciliation of subtotal Adjusted segment EBITDA to loss for the year | ||||||||||||||||
External revenues | 2,326 | 1,382 | - | 3,708 | ||||||||||||||||
Inter-segment revenues | 14 | 147 | (161 | ) | - | |||||||||||||||
Adjusted segment EBITDA According to IAS 17*** | 380 | 285 | 665 | |||||||||||||||||
Impact of IFRS 16 | 247 | 28 | 275 | |||||||||||||||||
Adjusted segment EBITDA According to IFRS 16*** | 627 | 313 | 940 | |||||||||||||||||
Depreciation and amortization | (898 | ) | ||||||||||||||||||
Tax benefit | 23 | |||||||||||||||||||
Financing income | 49 | |||||||||||||||||||
Financing expenses | (193 | ) | ||||||||||||||||||
Other expenses | (10 | ) | ||||||||||||||||||
Share based payments | (8 | ) | ||||||||||||||||||
Share in losses of equity accounted investees | (10 | ) | ||||||||||||||||||
Loss for the year | (107 | ) |
Year ended December 31, 2018 | ||||||||||||||||||||
NIS millions | ||||||||||||||||||||
Cellular | Fixed-line | Reconciliation for consolidation | Consolidated | Reconciliation of subtotal Adjusted segment EBITDA to loss for the year | ||||||||||||||||
External revenues | 2,371 | 1,317 | - | 3,688 | ||||||||||||||||
Inter-segment revenues | 14 | 147 | (161 | ) | - | |||||||||||||||
Adjusted segment EBITDA*** | 418 | ** | 269 | 687 | ||||||||||||||||
Depreciation and amortization | (584 | ) | ||||||||||||||||||
Tax benefit | 6 | |||||||||||||||||||
Financing income | 19 | ** | ||||||||||||||||||
Financing expenses | (190 | ) | ||||||||||||||||||
Share based payments | (2 | ) | ||||||||||||||||||
Loss for the year | (64 | ) |
Year ended December 31, 2017 | ||||||||||||||||||||
NIS millions | ||||||||||||||||||||
Cellular | Fixed-line | Reconciliation for consolidation | Consolidated | Reconciliation of subtotal Adjusted segment EBITDA to profit for the year | ||||||||||||||||
External revenues | 2,685 | 1,186 | - | 3,871 | ||||||||||||||||
Inter-segment revenues | 14 | 162 | (176 | ) | - | |||||||||||||||
Adjusted segment EBITDA*** | 626 | ** | 258 | 884 | ||||||||||||||||
Depreciation and amortization | (555 | ) | ||||||||||||||||||
Taxes on income | (40 | ) | ||||||||||||||||||
Financing income | 21 | ** | ||||||||||||||||||
Financing expenses | (196 | ) | ||||||||||||||||||
Other income | 1 | |||||||||||||||||||
Share based payments | (2 | ) | ||||||||||||||||||
Profit for the year | 113 |
A. | Presented hereunder is a list of the Group’s significant subsidiaries: |
The Group’s ownership interest in | |||||||||||||
the subsidiary for the year ended December 31 | |||||||||||||
Principal location of the subsidiary's activity | 2018 | 2019 | |||||||||||
Name of subsidiary | |||||||||||||
Cellcom Fixed Line Communication L.P. | Israel | 100 | % | 100 | % | ||||||||
Dynamica Cellular Ltd. | Israel | 100 | % | 100 | % |
B. | In 2017, following the Ministry of Communication's requirement to unify the unified licenses held by each communications group into one unified license, the Company completed a reorganization of its subsidiaries, following which all the Company's fixed-line operation under the unified license are unified under the Company's wholly owned subsidiary Cellcom Fixed Line Communications, Limited Partnership. |
December 31, | ||||
2019 | ||||
NIS millions | ||||
Investments in equity accounted investees: | ||||
Purchase of share capital | 16 | |||
Shareholder loans | 141 | |||
Share in losses of equity accounted investees | (10 | ) | ||
Accumulated Interest | 6 | |||
Other | (3 | ) | ||
150 |
December 31, | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Bank balances | 50 | 56 | ||||||
Call deposits | 1,152 | 950 | ||||||
1,202 | 1,006 |
December 31, | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Current | ||||||||
Trade Receivables* | ||||||||
Open accounts | 423 | 402 | ||||||
Checks and credit cards receivables | 141 | 191 | ||||||
Accrued income | 122 | 136 | ||||||
Current maturity of long-term receivables | 466 | 413 | ||||||
1,152 | 1,142 | |||||||
Other Receivables | ||||||||
Prepaid expenses | 66 | 60 | ||||||
Others | 18 | 9 | ||||||
84 | 69 | |||||||
1,236 | 1,211 | |||||||
Non-current | ||||||||
Trade receivables* | 370 | 309 | ||||||
Rights of use of communications lines | 342 | 323 | ||||||
Deposits and other receivables | 22 | 20 | ||||||
Loan to a customer | 114 | 120 | ||||||
Other | 4 | 10 | ||||||
852 | 782 | |||||||
2,088 | 1,993 |
A. | Composition |
December 31, | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Handsets | 69 | 38 | ||||||
Accessories | 14 | 8 | ||||||
Spare parts | 11 | 20 | ||||||
94 | 66 |
B. | In 2019, the Group tested slow moving inventory for impairment and wrote down inventory to its net realizable value by the amount of NIS 3 million (2018 - NIS 4 million). The write-down is included in Cost of revenues. |
Communications | Control and testing | Landline communications | Vehicles, Computers, furniture and other | Leasehold | ||||||||||||||||||||
network | equipment | equipment* | equipment* | improvements | Total | |||||||||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | NIS millions | NIS millions | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance at January 1, 2018 | 4,989 | 58 | 224 | 278 | 113 | 5,662 | ||||||||||||||||||
Additions | 265 | 5 | 144 | 14 | 2 | 430 | ||||||||||||||||||
Disposals | (180 | ) | - | - | (91 | ) | (15 | ) | (286 | ) | ||||||||||||||
Balance at December 31, 2018 | 5,074 | 63 | 368 | 201 | 100 | 5,806 | ||||||||||||||||||
Additions | 205 | 1 | 110 | 14 | 1 | 331 | ||||||||||||||||||
Disposals** | (300 | ) | - | (69 | ) | (21 | ) | (19 | ) | (409 | ) | |||||||||||||
Balance at December 31, 2019 | 4,979 | 64 | 409 | 194 | 82 | 5,728 | ||||||||||||||||||
Accumulated Depreciation | ||||||||||||||||||||||||
Balance at January 1, 2018 | 3,692 | 49 | 74 | 172 | 77 | 4,064 | ||||||||||||||||||
Depreciation for the year | 258 | 5 | 64 | 38 | 9 | 374 | ||||||||||||||||||
Disposals | (179 | ) | - | - | (91 | ) | (14 | ) | (284 | ) | ||||||||||||||
Balance at December 31, 2018 | 3,771 | 54 | 138 | 119 | 72 | 4,154 | ||||||||||||||||||
Depreciation for the year | 252 | 3 | 94 | 26 | 8 | 383 | ||||||||||||||||||
Disposals** | (147 | ) | - | (55 | ) | (20 | ) | (19 | ) | (241 | ) | |||||||||||||
Balance at December 31, 2019 | 3,876 | 57 | 177 | 125 | 61 | 4,296 | ||||||||||||||||||
Carrying amounts | ||||||||||||||||||||||||
At January 1, 2018 | 1,297 | 9 | 150 | 106 | 36 | 1,598 | ||||||||||||||||||
At December 31, 2018 | 1,303 | 9 | 230 | 82 | 28 | 1,652 | ||||||||||||||||||
At December 31, 2019 | 1,103 | 7 | 232 | 69 | 21 | 1,432 |
* | Reclassified |
** | The disposals includes the disposal of independent fiber-optic infrastructure in residential areas as a result of the sale to IBC, for additional details see Note 8. |
Licenses and Frequencies | Information systems | Software | Customer acquisition costs | Goodwill | Customer relationships and other | Total | ||||||||||||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | NIS millions | NIS millions | NIS millions | ||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||
Balance at January 1, 2018 | 552 | 325 | 45 | 120 | 809 | 314 | 2,165 | |||||||||||||||||||||
Additions | - | 71 | 8 | 138 | - | 1 | 218 | |||||||||||||||||||||
Disposals | - | (100 | ) | (12 | ) | - | - | - | (112 | ) | ||||||||||||||||||
Balance at December 31, 2018 | 552 | 296 | 41 | 258 | 809 | 315 | 2,271 | |||||||||||||||||||||
Additions | - | 84 | 9 | 138 | - | - | 231 | |||||||||||||||||||||
Disposals | - | (65 | ) | (13 | ) | - | - | (6 | ) | (84 | ) | |||||||||||||||||
Balance at December 31, 2019 | 552 | 315 | 37 | 396 | 809 | 309 | 2,418 | |||||||||||||||||||||
Accumulated Amortization | ||||||||||||||||||||||||||||
Balance at January 1, 2018 | 401 | 141 | 27 | 27 | - | 309 | 905 | |||||||||||||||||||||
Amortization for the year | 15 | 74 | 8 | 80 | - | 3 | 180 | |||||||||||||||||||||
Disposals | - | (100 | ) | (12 | ) | - | - | - | (112 | ) | ||||||||||||||||||
Balance at December 31, 2018 | 416 | 115 | 23 | 107 | - | 312 | 973 | |||||||||||||||||||||
Amortization for the year | 15 | 78 | 7 | 126 | - | 3 | 229 | |||||||||||||||||||||
Disposals | - | (60 | ) | (12 | ) | - | - | (6 | ) | (78 | ) | |||||||||||||||||
Balance at December 31, 2019 | 431 | 133 | 18 | 233 | - | 309 | 1,124 | |||||||||||||||||||||
Carrying amounts | ||||||||||||||||||||||||||||
At January 1, 2018 | 151 | 184 | 18 | 93 | 809 | 5 | 1,260 | |||||||||||||||||||||
At December 31, 2018 | 136 | 181 | 18 | 151 | 809 | 3 | 1,298 | |||||||||||||||||||||
At December 31, 2019 | 121 | 182 | 19 | 163 | 809 | - | 1,294 |
Cash generating unit | Cash generating unit | |||||||
Cellular segment | Fixed-line segment | |||||||
Pre-tax discount rate | 9.3 | % | 9.3 | % | ||||
Terminal value growth rate | 1.5 | % | 1.5 | % | ||||
Market share | 25.0 | % | N/ | R | ||||
ARPU | NIS 54.5 | N/ | R |
• | The discount rate and the terminal value growth rate are denominated in real terms. |
• | The cash generating units have cash flows for 5 years, as included in their discounted cash flow model. |
• | The long-term growth rate has been determined as 1.5% which represents, among others, the natural population growth rate. |
• | The pre-tax discount rate is estimated and calculated using several assumptions, among others, cash generating units's Cost of Equity, risk premium for normative debt leveraging of the Group and estimates of the normative leverage ratio for the industry. |
• | ARPU (Average revenue per user) in terminal year (except revenue from hosting services and national roaming services). |
Cash generating unit | Cash generating unit | |||||||
Cellular segment | Fixed-line segment | |||||||
Pre-tax discount rate | 9.8 | % | 12.6 | % | ||||
Terminal value growth rate | 0.9 | % | N/R | |||||
Market share | 24.6 | % | N/R | |||||
ARPU | NIS 53.9 | N/R |
Cell and switches sites | Buildings | Motor vehicles | Total | Investment | ||||||||||||||||||||
Right-of-use Assets | Property | Total | ||||||||||||||||||||||
NIS Millions | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance as at January 1, 2019 | 626 | 153 | 23 | 802 | 24 | 826 | ||||||||||||||||||
Additions, changes in agreements and evaluation | 135 | 24 | 30 | 189 | - | 189 | ||||||||||||||||||
Disposals | (24 | ) | (1 | ) | (5 | ) | (30 | ) | - | (30 | ) | |||||||||||||
Balance as at December 31, 2019 | 737 | 176 | 48 | 961 | 24 | 985 | ||||||||||||||||||
Amortizations and losses from impairment | ||||||||||||||||||||||||
Balance as at January 1, 2019 | - | - | - | - | - | - | ||||||||||||||||||
Amortization | 177 | 53 | 22 | 252 | - | 252 | ||||||||||||||||||
Changes in fair value of investment property | - | - | - | - | 6 | 6 | ||||||||||||||||||
Disposals | (5 | ) | (1 | ) | (5 | ) | (11 | ) | - | (11 | ) | |||||||||||||
Changes in agreements and other | (3 | ) | (1 | ) | (3 | ) | (7 | ) | - | (7 | ) | |||||||||||||
Balance as at December 31, 2019 | 169 | 51 | 14 | 234 | 6 | 240 | ||||||||||||||||||
Balance as at January 1, 2019 | 626 | 153 | 23 | 802 | 24 | 826 | ||||||||||||||||||
Balance as at December 31, 2019 | 568 | 125 | 34 | 727 | 18 | 745 |
Cell and switches sites | Buildings | Motor vehicles | Total | |||||||||||||
NIS Millions | ||||||||||||||||
Balance as at January 1, 2019 | 622 | 183 | 25 | 830 | ||||||||||||
Additions, changes in agreements and evaluation | 141 | 30 | 33 | 204 | ||||||||||||
Disposals | (18 | ) | - | (1 | ) | (19 | ) | |||||||||
Finance expenses for lease liabilities | 19 | 4 | 1 | 24 | ||||||||||||
Payments for leases | (193 | ) | (65 | ) | (22 | ) | (280 | ) | ||||||||
Balance as at December 31, 2019 | 571 | 152 | 36 | 759 | ||||||||||||
Book Value | ||||||||||||||||
Current maturities of lease liabilities | 148 | 61 | 17 | 226 | ||||||||||||
Long-term lease liabilities | 423 | 91 | 19 | 533 | ||||||||||||
Balance as at December 31, 2019 | 571 | 152 | 36 | 759 |
December 31, | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Trade payables | 288 | 345 | ||||||
Accrued expenses | 408 | 342 | ||||||
696 | 687 |
Dismantling and restoring | Other contractual | |||||||||||||||
sites | Litigations | obligations | Total | |||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | |||||||||||||
Balance as at January 1, 2018 | 21 | 49 | 42 | 112 | ||||||||||||
Provisions made during the year | - | 21 | 12 | 33 | ||||||||||||
Provisions reversed during the year | (1 | ) | (7 | ) | (12 | ) | (20 | ) | ||||||||
Balance as at January 1, 2019 | 20 | 63 | 42 | 125 | ||||||||||||
Provisions made during the year | 2 | 12 | 4 | 18 | ||||||||||||
Provisions reversed during the year | - | (17 | ) | (5 | ) | (22 | ) | |||||||||
Balance as at December 31, 2019 | 22 | 58 | 41 | 121 | ||||||||||||
Non-current | 22 | - | - | 22 | ||||||||||||
Current | - | 58 | 41 | 99 | ||||||||||||
22 | 58 | 41 | 121 |
December 31, | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Employees and related liabilities | 116 | 109 | ||||||
Liability for voluntary retirement plan * | - | 45 | ||||||
Government institutions | 32 | 25 | ||||||
Interest payable | 63 | 55 | ||||||
Accrued expenses | 4 | 5 | ||||||
Deferred revenue | 41 | 55 | ||||||
Derivative financial instruments | 1 | 5 | ||||||
257 | 299 |
December 31, | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Long-term trade payables | 12 | - | ||||||
Deferred revenue | 4 | 3 | ||||||
Other | - | 1 | ||||||
16 | 4 |
December 31, | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Non- current liabilities | ||||||||
Debentures | 2,911 | 2,511 | ||||||
Long-term loans from financial institutions | 334 | 300 | ||||||
3,245 | 2,811 | |||||||
Current liabilities | ||||||||
Current maturities of debentures | 492 | 409 | ||||||
Current maturities of loans from financial institutions | 128 | 100 | ||||||
620 | 509 |
December 31, 2018 | December 31, 2019 | ||||||||||||||||||||||||
NIS millions | NIS millions | ||||||||||||||||||||||||
Currency | Nominal interest rate | Year of maturity | Face value | Carrying amount | Face value | Carrying amount | |||||||||||||||||||
Debentures (Series F)** - linked to the Israeli CPI | NIS | 4.60 | % | 2017-2020 | 429 | 444 | 214 | 223 | |||||||||||||||||
Debentures (Series G)** - unlinked | NIS | 6.99 | % | 2017-2019 | 86 | 86 | - | - | |||||||||||||||||
Debentures (Series H) - linked to the Israeli CPI | NIS | 1.98 | % | 2018-2024 | 836 | 777 | 722 | 682 | |||||||||||||||||
Debentures (Series I) - unlinked | NIS | 4.14 | % | 2018-2025 | 724 | 701 | 643 | 626 | |||||||||||||||||
Debentures (Series J) - linked to the Israeli CPI | NIS | 2.45 | % | 2021-2026 | 103 | 104 | 103 | 104 | |||||||||||||||||
Debentures (Series K) - unlinked | NIS | 3.55 | % | 2021-2026 | 711 | 705 | 711 | 706 | |||||||||||||||||
Debentures (Series L) - unlinked | NIS | 2.50 | % | 2023-2028 | 614 | 586 | 603 | 579 | |||||||||||||||||
Total Debentures | 3,503 | 3,403 | 2,996 | 2,920 |
• | a Net Leverage* exceeding 5, or exceeding 4.5 during four consecutive quarters, shall constitute an event of default; As of December 31, 2019, the Net Leverage is 2.03. |
• | not to distribute more than 95% of the profits available for distribution according to the Israeli Companies law (“Profits”); provided that if the Net Leverage* exceeds 3.5:1, the Company will not distribute more than 85% of its Profits and if the Net Leverage* exceeds 4:1, the Company will not distribute more than 70% of its Profits. Failure to comply with this covenant shall constitute an event of default; |
• | cross default, excluding following an immediate repayment initiated in relation to a liability of NIS 150 million or less, shall constitute an event of default; |
• | a negative pledge, subject to certain exceptions. Failure to comply with this covenant shall constitute an event of default; |
• | an obligation to pay additional interest of 0.25% for two-notch downgrade in the debentures' rating and additional interest of 0.25% for each additional one-notch downgrade and up to a maximum addition of 1%, in comparison to the rating given to the debentures prior to their issuance; |
• | failure to have the debentures rated over a period of 60 days, shall constitute an event of default. |
December 31, 2018 | December 31, 2019 | ||||||||||||||||||||||||
NIS millions | NIS millions | ||||||||||||||||||||||||
Currency | Nominal interest rate | Year of maturity | Face value | Carrying amount | Face value | Carrying amount | |||||||||||||||||||
Loan from financial institution | NIS | 4.60 | % | 2018-2021 | 150 | 150 | 100 | 100 | |||||||||||||||||
Loan from financial institution | NIS | 5.10 | % | 2019-2022 | 200 | 200 | 150 | 150 | |||||||||||||||||
Loan from bank | NIS | 4.90 | % | 2018-2019 | 112 | 112 | - | - | |||||||||||||||||
Loan from bank | NIS | 4.00 | % | 2021-2024 | - | - | 150 | 150 | |||||||||||||||||
Total loans | 462 | 462 | 400 | 400 |
Loans | Debentures | Derivatives | Interest payable | Put options to non-controlling interests | Total | |||||||||||||||||||
NIS millions | ||||||||||||||||||||||||
Balance as at January 1, 2018 | (540 | ) | (2,900 | ) | (17 | ) | (54 | ) | (11 | ) | (3,522 | ) | ||||||||||||
Effect of initial application of IFRS 9 | - | (34 | ) | - | - | - | (34 | ) | ||||||||||||||||
Balance as at January 1, 2018 | (540 | ) | (2,934 | ) | (17 | ) | (54 | ) | (11 | ) | (3,556 | ) | ||||||||||||
Changes from financing cash flows | ||||||||||||||||||||||||
Payments for derivative contracts, net | - | - | 15 | - | - | 15 | ||||||||||||||||||
Repayment of debentures and long-term loans from financial institutions | 78 | 556 | - | - | - | 634 | ||||||||||||||||||
Proceeds from issuance of debentures, net of issuance costs | - | (997 | ) | - | - | - | (997 | ) | ||||||||||||||||
Interest paid | - | - | - | 126 | - | 126 | ||||||||||||||||||
Acquisition of non-controlling interests | - | - | - | - | 19 | 19 | ||||||||||||||||||
Total net financing cash flows | 78 | (441 | ) | 15 | 126 | 19 | (203 | ) | ||||||||||||||||
Financing expenses (income) recognized in profit or loss | - | (28 | ) | 1 | (135 | ) | (8 | ) | (170 | ) | ||||||||||||||
Balance as at December 31, 2018 | (462 | ) | (3,403 | ) | (1 | ) | (63 | ) | - | (3,929 | ) | |||||||||||||
Changes from financing cash flows | ||||||||||||||||||||||||
Payments for derivative contracts, net | - | - | 2 | - | - | 2 | ||||||||||||||||||
Repayment of debentures and long-term loans from financial institutions | 212 | 504 | - | - | - | 716 | ||||||||||||||||||
Receipt of long-term loans from financial institutions | (150 | ) | - | - | - | - | (150 | ) | ||||||||||||||||
Repurchase of own debentures | - | 10 | - | - | - | 10 | ||||||||||||||||||
Interest paid | - | - | - | 127 | - | 127 | ||||||||||||||||||
Total net financing cash flows | 62 | 514 | 2 | 127 | - | 705 | ||||||||||||||||||
Financing expenses recognized in profit or loss | - | (31 | ) | (6 | ) | (119 | ) | - | (156 | ) | ||||||||||||||
Balance as at December 31, 2019 | (400 | ) | (2,920 | ) | (5 | ) | (55 | ) | - | (3,380 | ) |
A. | Post-employment benefit plans - defined contribution plan |
B. | Post-employment benefit plans - defined benefit plan |
C. | As of December 31, 2019 the Group's liability for adaptation grants to employees is NIS 8 million (2018 - NIS 8 million). |
2017 | 2018 | 2019 | ||||||||||
NIS | ||||||||||||
Issued and paid at January 1 | 1,006,046 | 1,010,446 | 1,161,968 | |||||||||
Equity offering | - | 121,212 | 306,000 | |||||||||
Exercise of share options | 4,400 | 30,310 | 4,917 | |||||||||
Issued and paid at December 31 | 1,010,446 | 1,161,968 | 1,472,885 |
• | 30,600,000 ordinary shares of the Company (par value NIS 0.01 per share, or ordinary shares). |
• | 7,038,300 Series 3 Options. Each Series 3 Option entitles the holder thereof to purchase one ordinary share at an exercise price of NIS 8.64, until April 1, 2020. Until December 31, 2019, 491,717 of Series 3 Options were exercised for a total consideration of NIS 4 million. (2,011,998 of Series 3 Options have already been exercised, as at March 23, 2020) |
• | 6,426,000 Series 4 Options. Each Series 4 Option entitles the holder thereof to purchase one ordinary share at an exercise price of NIS 9.60, until September 30, 2020. Until December 31, 2019, no options were exercised from Series 4. (359,676 of Series 4 Options have already been exercised, as at March 23, 2020) |
The first portion includes a total of 967,993 options at exercise price of NIS 14.2, the second a quantity of 937,030 at a exercise price of NIS 14.99, third portion includes a total of 805,570 options at an exercise price of NIS 16.10, fourth portion includes a total of 762,509 options at a exercise price of NIS 17.25 and Fifth portion a total of 680,370 options at an exercise price of NIS 17.25. The fair value of the options granted was calculated at an estimated average value of NIS 2.8 per option. The assumptions of their basis were calculated at fair value: an average of a risk-free interest rate - 0.35%, a weighted average life expectancy - 4.8 years and expected volatility - 40%. The value of the benefit program is approx. NIS 12 million and will be recorded over 5 years.
Number of | Contractual | Adjusted exercise price per share as | |||||||||||
Grant date/ | instruments | Instruments | Vesting | life of | of December 31, | ||||||||
Employees entitled | In thousands | conditions | conditions | options | 2019 | ||||||||
Share options granted in August 2015 to senior employees | 2,660 | Each option is exercisable into one share of NIS 0.1 par value, at the market price exercised at net exercise mechanism | Three equal installments over three years of employment | 4.5 years | NIS 25.65 | ||||||||
Share options granted in November 2016 to senior employees | 63 | Each option is exercisable into one share of NIS 0.1 par value, at the market price exercised at net exercise mechanism | Three equal installments over three years of employment | 4.5 years | NIS 29.97 | ||||||||
Share options granted in May 2019 to senior employees | 2,944 | Each option is exercisable into one share of NIS 0.1 par value, at the market price exercised at net exercise mechanism | four equal installments over four years of employment | 5 years | NIS 15.66 | ||||||||
Restricted stock units (RSU) granted in may 2019 to senior employees | 686 | At fixed dates, the RSU is exercisable into one share of NIS 0.1 par value | four equal installments over four years of employment | 5 years | - | ||||||||
Restricted stock units (RSU) granted in may 2019 to non-profit organization | 333 | At fixed dates, the RSU is exercisable into one share of NIS 0.1 par value | two equal installments over two years | 2 years | - |
Weighted average | Weighted average | Weighted average | ||||||||||||||||||||||
Number of | of exercise price | Number of | of exercise price | Number of | of exercise price | |||||||||||||||||||
options | (NIS) | options | (NIS) | options | (NIS) | |||||||||||||||||||
2017 | 2018 | 2019 | ||||||||||||||||||||||
Balance as at January 1 | 2,764,334 | 24.7 | 963,335 | 28.0 | 780,332 | 25.9 | ||||||||||||||||||
Granted during the year | - | - | - | - | 2,944,197 | 15.66 | ||||||||||||||||||
Forfeited during the year | (146,334 | ) | 38.9 | (159,000 | ) | 36.6 | (160,729 | ) | 16.96 | |||||||||||||||
Exercised during the year | (1,654,335 | ) | 25.6 | (24,333 | ) | 25.6 | - | - | ||||||||||||||||
Total options outstanding as at December 31 | 963,665 | 27.9 | 780,332 | 25.9 | 3,563,800 | 17.8 | ||||||||||||||||||
Total of exercisable options as at December 31 | 106,000 | 44.9 | 766,332 | 25.8 | 759,332 | 25.8 |
1. | The weighted average of the remaining contractual life of options outstanding as at December 31, 2019 is 3.4 years. |
2. | The fair value of employee stock options was measured using the Black and Scholes model. The model assumptions include the share price at the measurement date, expected volatility based on historical volatility in the company's shares, life of instruments based on past experience and risk-free interest rate. |
2017 | 2018 | 2019 | ||||||||||
Fair value of share options and assumptions: | ||||||||||||
Fair value at grant date | - | - | 3.26 | |||||||||
Fair value assumptions: | ||||||||||||
Share price at grant date NIS | - | - | 15.05 | |||||||||
Exercise price NIS | - | - | 15.66 | |||||||||
Expected volatility (weighted average) | - | - | 34.7 | % | ||||||||
Option life (expected weighted average life) | - | - | 2.75 | |||||||||
Risk free interest rate | - | - | 0.7 | % |
Number of RSU | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
Balance as at January 1 | - | - | - | |||||||||
Granted during the year | - | - | 1,019,400 | |||||||||
Forfeited during the year | - | - | (32,659 | ) | ||||||||
Exercised during the year | - | - | - | |||||||||
Total RSU outstanding as at December 31 | - | - | 986,741 | |||||||||
Total of exercisable RSU as at December 31 | - | - | 759,332 |
2017 | 2018 | 2019 | ||||||||||
Fair value of restricted stock units: | ||||||||||||
Fair value of restricted stock units at grant date | - | - | 15.05 | |||||||||
Salary expenses arising from share-based payments (NIS millions) | 2 | 3 | 8 | |||||||||
December 31, | December 31, | |||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Trade receivables including long-term amounts | 1,522 | 1,451 | ||||||
Loans and other receivables including long-term amounts | 138 | 293 | ||||||
Investment in debt securities and deposits | 362 | 428 | ||||||
Cash and cash equivalents in banks | 1,202 | 1,006 | ||||||
Derivative financial instrument | 6 | 1 | ||||||
3,230 | 3,179 |
December 31, | December 31, | |||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Receivables from subscribers | 1,318 | 1,235 | ||||||
Receivables from distributors and other operators | 160 | 156 | ||||||
Investment in government of Israel debt securities | 80 | 92 | ||||||
Investment in institutional debt securities | 282 | 306 | ||||||
Deposits | - | 30 | ||||||
Cash and cash equivalents in banks | 1,202 | 1,006 | ||||||
Investments in equity accounted investees | - | 145 | ||||||
Other | 188 | 209 | ||||||
3,230 | 3,179 |
Gross | Impairment | Gross | Impairment | |||||||||||||
2018 | 2019 | |||||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | |||||||||||||
Not past due | 3,138 | 28 | 3,108 | 35 | ||||||||||||
Past due less than one year | 126 | 35 | 111 | 32 | ||||||||||||
Past due more than one year | 162 | 133 | 146 | 119 | ||||||||||||
3,426 | 196 | 3,365 | 186 |
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Balance at January 1 | 187 | 196 | ||||||
Effect of initial application of IFRS 9 | 12 | - | ||||||
Balance as at January 1 after of initial application | 199 | 196 | ||||||
Write-off lost debts | (40 | ) | (39 | ) | ||||
Doubtful debt expenses | 37 | 29 | ||||||
Balance at December 31 | 196 | 186 |
December 31, 2019 | Carrying | Contractual | More than | |||||||||||||||||||||||||
amount | Cash flows | 1st year | 2nd year | 3rd year | 4-5 years | 5 years | ||||||||||||||||||||||
NIS millions | ||||||||||||||||||||||||||||
Debentures* | (2,974 | ) | (3,389 | ) | (507 | ) | (466 | ) | (454 | ) | (1,052 | ) | (910 | ) | ||||||||||||||
Long-term loans from financial institutions* | (401 | ) | (435 | ) | (116 | ) | (148 | ) | (93 | ) | (78 | ) | - | |||||||||||||||
Trade and other payables | (884 | ) | (884 | ) | (884 | ) | - | - | - | - | ||||||||||||||||||
Forward exchange contracts on foreign currencies | (2 | ) | (2 | ) | (2 | ) | - | - | - | - | ||||||||||||||||||
Forward exchange contracts on CPI | (3 | ) | (3 | ) | (3 | ) | - | - | - | - | ||||||||||||||||||
Other long-term liabilities | (1 | ) | (1 | ) | - | (1 | ) | - | - | - | ||||||||||||||||||
Lease liabilities | (759 | ) | (839 | ) | (246 | ) | (183 | ) | (142 | ) | (139 | ) | (129 | ) | ||||||||||||||
(5,024 | ) | (5,553 | ) | (1,758 | ) | (798 | ) | (689 | ) | (1,269 | ) | (1,039 | ) |
December 31, 2018 | Carrying | Contractual | More than | |||||||||||||||||||||||||
amount | Cash flows | 1st year | 2nd year | 3rd year | 4-5 years | 5 years | ||||||||||||||||||||||
NIS millions | ||||||||||||||||||||||||||||
Debentures* | (3,466 | ) | (4,008 | ) | (610 | ) | (506 | ) | (466 | ) | (988 | ) | (1,438 | ) | ||||||||||||||
Long-term loans from financial institutions* | (462 | ) | (503 | ) | (147 | ) | (141 | ) | (135 | ) | (80 | ) | - | |||||||||||||||
Trade and other payables | (815 | ) | (815 | ) | (815 | ) | - | - | - | - | ||||||||||||||||||
Forward exchange contracts on CPI | (1 | ) | (1 | ) | (1 | ) | - | - | - | - | ||||||||||||||||||
Other long-term liabilities | (13 | ) | (13 | ) | (13 | ) | - | - | - | - | ||||||||||||||||||
(4,757 | ) | (5,340 | ) | (1,586 | ) | (647 | ) | (601 | ) | (1,068 | ) | (1,438 | ) |
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||
In or linked | In or linked | |||||||||||||||||||||||
to foreign | to foreign | |||||||||||||||||||||||
currencies | Linked | currencies | Linked | |||||||||||||||||||||
(mainly USD) | to CPI | Unlinked | (mainly USD) | to CPI | Unlinked | |||||||||||||||||||
NIS millions | NIS millions | |||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||
Cash and cash equivalents | 13 | - | 1,189 | 14 | - | 992 | ||||||||||||||||||
Current investments, including derivatives | 20 | 171 | 177 | 13 | 186 | 182 | ||||||||||||||||||
Trade receivables | 56 | - | 1,096 | 43 | - | 1,099 | ||||||||||||||||||
Other receivables | - | 1 | 1 | - | - | 4 | ||||||||||||||||||
Non- current assets | ||||||||||||||||||||||||
Long-term receivables | - | 57 | 449 | - | 60 | 393 | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current maturities of debentures and of loans from financial institutions | - | (328 | ) | (292 | ) | - | (331 | ) | (178 | ) | ||||||||||||||
Trade payables and accrued expenses | (182 | ) | - | (514 | ) | (171 | ) | - | (516 | ) | ||||||||||||||
Other current liabilities, including derivatives | - | (20 | ) | (164 | ) | (2 | ) | (48 | ) | (306 | ) | |||||||||||||
Current maturities of lease liabilities | - | - | - | (6 | ) | (216 | ) | (4 | ) | |||||||||||||||
Non- current liabilities | ||||||||||||||||||||||||
Long-term loans from financial institutions | - | - | (334 | ) | - | - | (300 | ) | ||||||||||||||||
Debentures | - | (998 | ) | (1,914 | ) | - | (679 | ) | (1,832 | ) | ||||||||||||||
Other non-current liabilities | (12 | ) | - | - | - | - | (20 | ) | ||||||||||||||||
Long-term lease liabilities | - | - | - | (15 | ) | (509 | ) | (9 | ) | |||||||||||||||
(105 | ) | (1,117 | ) | (306 | ) | (124 | ) | (1,537 | ) | (495 | ) |
December 31, 2019 | ||||||||||||||||
Currency/ linkage receivable | Currency/ linkage payable | Notional Value | Fair value | |||||||||||||
NIS millions | ||||||||||||||||
Instruments not used for hedging | ||||||||||||||||
Forward exchange contracts on foreign currencies | USD | NIS | 128 | (2 | ) | |||||||||||
Forward exchange contracts on CPI | CPI | NIS | 360 | (3 | ) | |||||||||||
Foreign currency put options | NIS | USD | (68 | ) | 1 |
December 31, 2018 | ||||||||||||||||
Currency/ linkage receivable | Currency/ linkage payable | Notional Value | Fair value | |||||||||||||
NIS millions | ||||||||||||||||
Instruments not used for hedging | ||||||||||||||||
Forward exchange contracts on foreign currencies | USD | NIS | 203 | 4 | ||||||||||||
Forward exchange contracts on CPI | CPI | NIS | 400 | (1 | ) | |||||||||||
Foreign currency put options | NIS | USD | (147 | ) | - | |||||||||||
Embedded derivative in lease contracts | USD | NIS | 15 | 1 |
Equity | Net income | |||||||||||
Change | NIS millions | NIS millions | ||||||||||
December 31, 2019 | ||||||||||||
Increase in the CPI of | 2.0 | % | (15 | ) | (15 | ) | ||||||
Increase in the CPI of | 1.0 | % | (8 | ) | (8 | ) | ||||||
Decrease in the CPI of | (1.0 | )% | 8 | 8 | ||||||||
Decrease in the CPI of | (2.0 | )% | 15 | 15 | ||||||||
December 31, 2018 | ||||||||||||
Increase in the CPI of | 2.0 | % | (11 | ) | (11 | ) | ||||||
Increase in the CPI of | 1.0 | % | (6 | ) | (6 | ) | ||||||
Decrease in the CPI of | (1.0 | )% | 2 | 2 | ||||||||
Decrease in the CPI of | (2.0 | )% | 1 | 1 | ||||||||
Carrying amount | ||||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Fixed rate instruments | ||||||||
Financial assets | 355 | 656 | ||||||
Financial liabilities | (3,865 | ) | (3,320 | ) | ||||
(3,510 | ) | (2,664 | ) | |||||
Variable rate instruments | ||||||||
Financial assets | 1,179 | 995 |
Equity | Profit or loss | |||||||||||||||||||||||||||||||
1.0% increase | 1.0% decrease | 0.5% increase | 0.5% decrease | 1.0% increase | 1.0% decrease | 0.5% increase | 0.5% decrease | |||||||||||||||||||||||||
NIS millions | NIS millions | |||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||
Fair value sensitivity (net) | (12 | ) | 12 | (6 | ) | 6 | (12 | ) | 12 | (6 | ) | 6 |
Equity | Profit or loss | |||||||||||||||||||||||||||||||
1.0% increase | 1.0% decrease | 0.5% increase | 0.5% decrease | 1.0% increase | 1.0% decrease | 0.5% increase | 0.5% decrease | |||||||||||||||||||||||||
NIS millions | NIS millions | |||||||||||||||||||||||||||||||
December 31, 2018 | ||||||||||||||||||||||||||||||||
Fair value sensitivity (net) | (10 | ) | 10 | (5 | ) | 5 | (10 | ) | 10 | (5 | ) | 5 |
(1) | Financial instruments measured at fair value for disclosure purposes only |
December 31, 2018 | December 31, 2019 | |||||||||||||||
| Book value | Fair value* | Book value | Fair value* | ||||||||||||
| NIS millions | NIS millions | ||||||||||||||
Debentures including current maturities and accrued interest | (3,466 | ) | (3,585 | ) | (2,973 | ) | (2,954 | ) | ||||||||
Long-term loans from financial institutions including current maturities and accrued interest | (462 | ) | (479 | ) | (401 | ) | (406 | ) |
(2) | Fair value hierarchy of financial instruments measured at fair value |
December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | |||||||||||||
Financial assets at fair value through profit or loss | ||||||||||||||||
Current investments in debt securities, shares and deposits | 472 | - | - | 472 | ||||||||||||
Derivatives | - | 1 | - | 1 | ||||||||||||
Total assets | 472 | 1 | - | 473 | ||||||||||||
Financial liabilities at fair value through profit or loss | ||||||||||||||||
Derivatives | - | (5 | ) | - | (5 | ) | ||||||||||
Total liabilities | - | (5 | ) | - | (5 | ) |
December 31, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | |||||||||||||
Financial assets at fair value through profit or loss | ||||||||||||||||
Current investments in debt securities and shares | 398 | - | - | 398 | ||||||||||||
Derivatives | - | 6 | - | 6 | ||||||||||||
Total assets | 398 | 6 | - | 404 | ||||||||||||
Financial liabilities at fair value through profit or loss | ||||||||||||||||
Derivatives | - | (1 | ) | - | (1 | ) | ||||||||||
Total liabilities | - | (1 | ) | - | (1 | ) |
(3) | Details regarding fair value measurement at Level 2 |
Financial instrument | Valuation method for determining fair value | |
Forward contracts | Fair value measured on the basis of discounting the difference between the forward price in the contract and the current forward price for the residual period until redemption using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks. | |
Foreign currency options | Fair value is measured based on the Black-Scholes formula. |
(4) | Offset of financial assets and financial liabilities |
December 31, 2019 | |||||||||||||||
Note | Gross amounts of recognized financial assets (liabilities) | Gross amounts of financial assets (liabilities) recognized and offset in the consolidated statements of financial position | Net amounts of financial assets (liabilities) presented in the consolidated statements of financial position | ||||||||||||
NIS millions | NIS millions | NIS millions | |||||||||||||
Financial assets | |||||||||||||||
Trade receivables | 9 | 136 | (89 | ) | 47 | ||||||||||
Financial liabilities | |||||||||||||||
Trade payables and accrued expenses | 13 | (108 | ) | 89 | (19 | ) |
December 31, 2018 | |||||||||||||||
Note | �� | Gross amounts of recognized financial assets (liabilities) | Gross amounts of financial assets (liabilities) recognized and offset in the consolidated statements of financial position | Net amounts of financial assets (liabilities) presented in the consolidated statements of financial position | |||||||||||
NIS millions | NIS millions | NIS millions | |||||||||||||
Financial assets | |||||||||||||||
Trade receivables | 9 | 160 | (125 | ) | 35 | ||||||||||
Financial liabilities | |||||||||||||||
Trade payables and accrued expenses | 13 | (144 | ) | 125 | (19 | ) |
December 31, 2019 | ||||||||
Profit or loss | Equity | |||||||
NIS millions | NIS millions | |||||||
Increase of 5% | 2 | 2 | ||||||
Increase of 10% | 3 | 3 | ||||||
Decrease of 5% | (2 | ) | (2 | ) | ||||
Decrease of 10% | (3 | ) | (3 | ) |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Revenues from equipment | 952 | 904 | 932 | |||||||||
Revenues from services: | ||||||||||||
Cellular services | 1,777 | 1,581 | 1,541 | |||||||||
Land-line communications services | 1,004 | 1,068 | 1,111 | |||||||||
Other services | 138 | 135 | 124 | |||||||||
Total revenues from services | 2,919 | 2,784 | 2,776 | |||||||||
Total revenues | 3,871 | 3,688 | 3,708 |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
According to source of income: | ||||||||||||
Cost of equipment sold | 645 | 642 | 695 | |||||||||
Cost of revenues from services | 2,035 | 2,019 | 2,030 | |||||||||
2,680 | 2,661 | 2,725 | ||||||||||
According to its components: | ||||||||||||
Cost of equipment sold | 645 | 642 | 695 | |||||||||
Rent and related expenses | 281 | 271 | 64 | |||||||||
Salaries and related expenses | 224 | 217 | 213 | |||||||||
Fees to communications operators | 767 | 783 | 763 | |||||||||
Cost of content | 212 | 223 | 267 | |||||||||
Depreciation and amortization | 412 | 390 | 601 | |||||||||
Royalties and fees | 86 | 84 | 85 | |||||||||
Other | 53 | 51 | 37 | |||||||||
Total cost of revenues from services | 2,035 | 2,019 | 2,030 | |||||||||
2,680 | 2,661 | 2,725 |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Salaries and related expenses | 241 | 277 | 278 | |||||||||
Commissions | 88 | 85 | 83 | |||||||||
Advertising and public relations | 36 | 38 | 46 | |||||||||
Depreciation and amortization | 33 | 86 | 155 | |||||||||
Other | 81 | 81 | 48 | |||||||||
479 | 567 | 610 |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Salaries and related expenses | 124 | 81 | 73 | |||||||||
Depreciation and amortization | 110 | 108 | 142 | |||||||||
Rent and maintenance | 51 | 46 | 3 | |||||||||
Data processing and professional services | 36 | 34 | 33 | |||||||||
Allowance for doubtful accounts | 46 | 37 | 29 | |||||||||
Other | 59 | 54 | 49 | |||||||||
426 | 360 | 329 |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Interest income from installment sale transactions | 31 | * | 27 | * | 24 | |||||||
Expenses of voluntary retirement plan | - | (26 | ) | (45 | )** | |||||||
Capital gain from the sale of an indirect subsidiary of the Company and other | 11 | - | 1 | |||||||||
Other Income (Expenses), net | 42 | 1 | (20 | ) |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Interest income from installment sale transactions | * | * | * | |||||||||
Net change in fair value of financial assets measured at fair value through profit or loss | 14 | 12 | 36 | |||||||||
Financing income from loans | - | 3 | 11 | |||||||||
Other | 7 | 4 | 2 | |||||||||
Financing income | 21 | 19 | 49 | |||||||||
Interest expenses and linkage expenses to CPI on long-term liabilities | (147 | ) | (138 | ) | (123 | ) | ||||||
Net change in fair value of derivatives | (8 | ) | (7 | ) | (12 | ) | ||||||
Discount amortization | (32 | ) | (26 | ) | (27 | ) | ||||||
Financing expenses of lease liabilities | - | - | (24 | ) | ||||||||
Other | (9 | ) | (19 | ) | (7 | ) | ||||||
Financing expenses | (196 | ) | (190 | ) | (193 | ) | ||||||
Net financing expenses recognized in profit or loss | (175 | ) | (171 | ) | (144 | ) |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Current tax expense (income) | ||||||||||||
Current year | 27 | 14 | 19 | |||||||||
Adjustments for prior years, net | (1 | ) | 1 | (3 | ) | |||||||
26 | 15 | 16 | ||||||||||
Deferred tax expense (income) | ||||||||||||
Creation and reversal of temporary differences | 14 | (21 | ) | (39 | ) | |||||||
Change in tax rate | - | - | - | |||||||||
14 | (21 | ) | (39 | ) | ||||||||
Tax on income (tax benefit) | 40 | (6 | ) | (23 | ) |
C. | Income tax in respect of other comprehensive income (loss) |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Before tax | 1 | (2 | ) | (5 | ) | |||||||
Tax (benefit) expenses | - | 1 | 1 | |||||||||
Net of tax | 1 | (1 | ) | (4 | ) |
D. | Reconciliation between the theoretical tax on the pre-tax profit (loss) and the tax expense (income) |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Profit (loss) before taxes on income | 153 | (70 | ) | (130 | ) | |||||||
Primary tax rate of the Group | 24.0 | % | 23.0 | % | 23.0 | % | ||||||
Tax calculated according to the Group’s primary tax rate | 37 | (16 | ) | (30 | ) | |||||||
Additional tax (tax saving) in respect of: | ||||||||||||
Non-deductible expenses | 5 | 6 | 8 | |||||||||
Taxes in respect of previous years | (1 | ) | 1 | (3 | ) | |||||||
Other differences | (1 | ) | 3 | 2 | ||||||||
Income tax expenses (tax income) | 40 | (6 | ) | (23 | ) |
Allowance for doubtful debts | Property, plant and equipment and intangible assets | Carry forward tax deductions and losses | Other | Total | ||||||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | NIS millions | ||||||||||||||||
Balance of deferred tax asset (liability) as at January 1, 2019 | 45 | (196 | ) | 17 | 35 | (99 | ) | |||||||||||||
Changes recognized in profit or loss | (2 | ) | 11 | 30 | (1 | ) | 38 | |||||||||||||
Changes recognized in other comprehensive income | - | - | - | 1 | 1 | |||||||||||||||
Balance of deferred tax asset (liability) as at December 31, 2019 | 43 | (185 | ) | 47 | 35 | (60 | ) | |||||||||||||
Deferred tax asset | 43 | 5 | 47 | 42 | 137 | |||||||||||||||
Offset of balances | (137 | ) | ||||||||||||||||||
Deferred tax asset in the consolidated statements of financial position as at December 31, 2019 | - | |||||||||||||||||||
Deferred tax liability | - | (190 | ) | - | (7 | ) | (197 | ) | ||||||||||||
Offset of balances | 137 | |||||||||||||||||||
Deferred tax liability in the consolidated statements of financial position as at December 31, 2019 | (60 | ) |
Allowance for doubtful debts | Property, plant and equipment and intangible assets | Carry forward tax deductions and losses | Other | Total | ||||||||||||||||
NIS millions | NIS millions | NIS millions | NIS millions | NIS millions | ||||||||||||||||
Balance of deferred tax asset (liability) as at January 1, 2018 | 43 | (197 | ) | - | 23 | (131 | ) | |||||||||||||
Changes recognized in profit or loss | (1 | ) | 1 | 17 | 4 | 21 | ||||||||||||||
Changes recognized in equity | 3 | - | - | 7 | 10 | |||||||||||||||
Changes recognized in other comprehensive income | - | - | - | 1 | 1 | |||||||||||||||
Balance of deferred tax asset (liability) as at December 31, 2018 | 45 | (196 | ) | 17 | 35 | (99 | ) | |||||||||||||
Deferred tax asset | 45 | 5 | 17 | 37 | 104 | |||||||||||||||
Offset of balances | (104 | ) | ||||||||||||||||||
Deferred tax asset in the consolidated statements of financial position as at December 31, 2018 | - | |||||||||||||||||||
Deferred tax liability | - | (201 | ) | - | (2 | ) | (203 | ) | ||||||||||||
Offset of balances | 104 | |||||||||||||||||||
Deferred tax liability in the consolidated statements of financial position as at December 31, 2018 | (99 | ) |
A. | The Group has commitments regarding the license it was granted in 1994, including: |
1. | Not to pledge any of the assets used to execute the license without the advance consent of the Ministry of Communications. |
2. | The Company's shareholders' joint equity, combined with the Company's equity, shall not amount to less than US$ 200 million. Regarding this stipulation, a shareholder holding less than 10% of the rights to the Company's equity is not taken into account. |
B. | As at December 31, 2019, the Group has commitments to purchase equipment for the communications networks, end user equipment, systems and software maintenance, and content and related services, in a total amount of approximately NIS 402 million. |
C. | Between 2003 and 2019, the Group entered into a number of agreements with TI Sparkle Ireland Telecommunications Ltd. (formerly Mediterranean Nautilus Ltd.) and TI Sparkle (Israel) Ltd. (formerly Mediterranean Nautilus (Israel) Ltd.), (or collectively TI Sparkle), for the purchase of rights of use of certain telecommunications capacities on TI Sparkle's communications cables, as well as maintenance and operation services relating to these cables. Over the last few years the Group has increased the capacity purchased for significantly lower prices, as well as reduced maintenance costs. The term of the agreement with respect to capacity purchased from TI Sparkle is in effect until May 2027. The Group has the option to extend the agreements until May 2032. The remainder of the obligation under all existing agreements as of December 31, 2019 is NIS 45 million. |
D. | In March and April 2017 the Sharing Agreements came into effect – (1) the 4G network sharing and 2G and 3G hosting services agreement with Xfone (which commenced operating in the cellular market in April 2018), (2) the 3G and 4G network sharing and 2G hosting services agreement with Golan (originally entered into with Electra and adopted by Golan, after being acquired by Electra) and (3) an agreement combining the 4G network sharing arrangements of the Xfone agreement and the Golan agreement into one three-way agreement. |
• | usage of the parties' relevant frequencies, management and operation by separate entities, or the Joint Corporations, possession of equal parts of the shared network active elements, investment in equal parts in future active elements and IRU of each sharing party to the other sharing parties and IRU by us to the other sharing parties and the Joint Corporations to our passive elements of the shared networks, services provided by us to the Joint Corporations, as a subcontractor and certain arrangements for separation of the parities and adding another sharing party. |
• | The agreements are for a term of ten years, and will be extended for additional periods, unless either party notifies otherwise. The termination of the Golan Agreement prior to the lapse of the first 10 years due to a breach by Golan will entitle us to liquidated damages of NIS 600 million plus VAT. In addition to standard termination causes, Xfone may terminate its agreement by prior written notice if it decides to cease operating in the cellular market in Israel. |
• | The average annual consideration to be received by us under the Golan agreement (starting with lower annual payments and increasing over the term) is expected to be in a range of approximately NIS 210-220 million plus VAT (and a lower sum due to Xfone's participation in the Sharing Agreements and division of investments and expenses among the three operators), depending on Golan's number of subscribers and their usage of the shared network and our 2G network. |
• | The consideration for us under the Xfone agreement includes substantially similar arrangements (mutatis mutandis to its sharing and hosting agreement), but during a period of up to five years beginning April 2018, Xfone will be entitled to replace its payments for IRU to the passive network and operating costs with a monthly payment per subscriber, but in any case not less than certain minimum annual amounts (ranging between approximately NIS 20 million in the first year and approximately NIS 110 million in the fifth year). |
• | Under the Golan Agreement (which replaces the former national roaming services agreement) in April 2017, the company provided a loan to Golan in the sum of NIS 130 million which half include interest of 1.85% and linked to CPI and the other half include interest of 3.5% unlinked. The loan is for a period of 10 years to be repaid in 6 semi-annual equal installments beginning the 8th year of the Term (interest and CPI differentials to be accrued, will be paid as of the 6th year). The loan is guaranteed by a second degree floating charge on Golan's assets and rights (excluding certain exceptions). |
E. | In October 2016, the Company entered into an agreement with Apple Sales International for the purchase and distribution of iPhone handsets in Israel. The agreement is in force until May 2020. Under the terms of the agreement, the Company has committed to purchase a minimum quantity of iPhone products over the agreement's period, which represents a significant portion of our total cellular handsets purchase amounts over that period. |
F. | In May 2016, the Company entered into several agreements aiming to provide the Company with a comprehensive CRM SAAS solution, on a cloud 'software as a service', or SAAS, basis, which, when completed, will gradually replace all the Company current CRM systems with one CRM solution that will serve both the Company cellular and fixed-line segments. These agreements include the following main agreements: |
G. | In July 2018, the Company entered a collective employment agreement with its employees' representatives and the Histadrut (an Israeli union labor) for a three year period until the end of 2020 (the "2018 Agreement"), which is similar to the Company's previous collective employment agreement (which expired at the end of 2017) and includes certain nonmaterial additions. |
H. | In July 2019, the Company completed an investment transaction in IBC, composed of several agreements, or the Transaction, which in addition to standard and customary conditions, include the following: |
• | Purchaser Agreements - The Company and the Israel Infrastructure Fund, or IIF, entered into partnership agreements for the purchase of 70% of IBC's share capital by a jointly and equally owned limited partnership, or the Purchaser. The Purchaser Agreements contain an undertaking for an additional investment of up to NIS 200 million by both the Company and IIF, pro rata to their holdings in the Purchaser, over a period of 3 years (the Company have already provided IBC with the full additional investment obligation) and certain arrangements regarding a party's failure to make its share of the committed investment and regarding dead lock situations. |
• | Share Purchase Agreement, or SPA - The Purchaser, IBC, the Israeli Electric Company, or IEC and the other shareholders and main creditors of IBC entered an agreement for the purchase of 70% of IBC's share capital, through investment of the Purchaser in IBC, for a total amount of approximately NIS 110 million (of which the Company paid half) (the "Consideration"), the majority of which was in the form of a shareholders' loan (the loans include an interest between 4% to 6% above the most senior debt). The other 30% of IBC's issued and outstanding share capital are owned by IEC. The Consideration was used to settle generally all of IBC's debts (other than a certain amount to IEC). |
• | Shareholders Agreement - The Purchaser and IEC (holding 70% and 30% of IBC's share capital, respectively) entered into a shareholders agreement. The agreement regulates the management of IBC, including certain arrangements regarding funding of IBC and dilution (and anti-dilution in certain circumstances) of non-participating shareholders. |
• | IRU Agreement – The Company and IBC entered into an agreement granting to the company an indefeasible right of Use, or IRU to a 10-15% percentage of IBC's fiber optics 'home pass' (i.e. fiber-optic actually reaching / connected to the building; current undertaking of 15% and may be decreased to 10% under certain conditions), as shall be deployed by IBC in the next 15 years (and may be extended to additional periods with no additional consideration other than annual maintenance payments). The IRU consideration is subject to actual IBC's 'home pass' deployment is expected to increase each quarter based on the actual addition of 'home passes' deployed during such quarter and shall be paid in 36 quarterly installations (9 years), in addition to annual maintenance payments. To ensure the payment in this agreement, the company provided a bank guarantee in amount of NIS 36 million. |
• | IEC Services Agreement - IBC and IEC entered into an agreement updating IBC's previous right of use and services agreement for IBC's fiber-optic network when deployed over IEC's infrastructure. The IEC Services Agreement includes improved pricing and arrangements for IBC's exclusive right to deploy its fiber-optics over the IEC's electricity network and other services provided by IEC to IBC in relation thereof. |
A. | Consumer claims |
Claim amount | Number of claims | Total claims amount (NIS millions) |
Up to NIS 100 million | 14 | 470 |
NIS 100-500 million | 1 | 405 |
Above NIS 1 billion | 1 | 15,000 |
Unquantified claims | 14 | - |
Against the Group and other defendants together without specifying the amount claimed from the Group | 4 | 785 |
Against the Group and other defendants together, in which the amount claimed from the Group has been quantified | 1 | 3 |
Unquantified claims against the Group and other defendants | 7 | - |
B. | Employees, subcontractors, suppliers, authorities and others claims |
C. | Liens and guarantees |
A. | In October 2018, regulations setting procedures for the construction, changes and replacement of radio access devices exempt from building permits, were enacted. Although these regulations reflect previous judicial limitations placed upon the Company's ability to make changes and replace radio access devices prior to their enactment, they also introduce a new licensing procedure that may further reduce the Company's ability to construct new radio access devices based on such exemption. |
B. | A policy document regarding landline wholesale services published by the Ministry of Communications in 2012 provided for the creation of an effective wholesale telecommunications access market in Israel and the gradual annulment of the structural separation in the Bezeq and Hot groups and its replacement with an accounting separation and change of the supervision on Bezeq retail tariffs to maximum tariffs rather than the current setting of fixed tariffs, generally depending on the development of a wholesale market and the state of competition in the market, and with relation to television services, if there is a reasonable possibility of providing a basic package of television services through the internet by providers without a national landline infrastructure. |
C. | In July 2019, the Israeli Ministry of Communications published a frequencies tender including for 5G services. The tender is to include 30MHz in the 700MHz frequencies band, 60MHz in the 2600MHz frequencies band and 300 MHz in the 3500-3800 MHz frequencies band. The frequencies shall be allocated for a period of 10-15 years. The tender will be open for MNOs only, other than 100MHz in the 3500-3600 MHz frequencies band which will be open for any contender. New contenders may only provide specific 5G services. MNOs sharing a network shall provide a joint bid (subject to the tender committee's prior approval) The tender further sets maximum frequency allocation per network / new contender, coverage, timeline and quality requirements for winning certain frequencies. The tender also includes certain leniencies and performance based incentives. |
D. | In November 2019, a joint team of the Israeli Communications and Treasury Offices and the Competition Authority, tasked with examining the need for updating fiber-optic deployment and service obligations of landline operators who own their own infrastructure (and under current regulation are required to universally deploy each network they deploy) and the need for deployment incentives in areas where no deployment obligations be determined, after economic viability tests, published its recommendations for public hearing. These recommendations include the following: |
o | Under reasonable scenarios, no economic viability exists for one company's universal deployment. |
o | Bezeq will not be subject to universal deployment requirement in regards to deploying fiber-optics but would rather select the areas in which to deploy its fiber-optics and in those areas Bezeq will be obligated to provide service to all homes within 5 years. |
o | A trust established by the State of Israel for that purpose (the "Trust") will conduct tenders to subsidize deployment of fiber-optic by Bezeq's competitors in areas where Bezeq chooses not to deploy fiber-optic ("Non-Bezeq Areas"), based on economic viability and efficiency. The winner would be obligated to provide wholesale services to other competitors at wholesale rates. Bezeq may not participate in the tenders nor acquire wholesale service in those areas (though its subsidiaries may do so). The winner of the subsidy tender may use Bezeq's infrastructure in the Non-Bezeq Areas for rates significantly lower than the current wholesale rates. Only the winner will be entitled to the subsidy. |
o | Subsidy will be funded through additional 0.5% tax levied on all Israeli communications license holders revenues for the previous year (including Bezeq), whose annual revenues exceed NIS 10 million, as of 2022 and until all household in Israel are connected to fiber-optic. The funds will be managed by the Trust. |
o | Bezeq may not deploy fiber-optic in Non-Bezeq Areas for three years from the date of each respective subsidy tender for that area. Nonetheless, Bezeq may update its original deployment obligation by up to 10% and so long as such Non-Bezeq Area was not being chosen as an area to receive subsidy by the Fund. |
o | Bezeq's obligations regarding its already existing infrastructure shall remain unchanged. |
o | Adoption of the recommendations requires, among others, changes to applicable legislation and licenses. |
o | Hot Telecom L.P.'s universal deployment obligations are still under examination of the joined team. |
E. | The MOC has informed the Company that it has received an instruction from the International Telecommunications Union to commence a process to accord the frequencies used by Israeli cellular operators with European standards. As a result, the Company and another cellular operator that use some frequencies according to American standards, were required by the MOC to migrate to frequencies compatible with international standardization for our region. In March 2020 the MOC determined such replacement shall be effected as follows: phase 1 - our current 2x10 850MHZ frequencies will be reduced and replaced with other 2x5 MHz 850MHZ frequencies on June 1, 2020; phase 2 - at a later date to be determined and as soon as possible, the Company will be awarded 2x5 MHz in the 800 frequencies; phase 3 - at a later date to be determined, the aforesaid 850MHz and 800MHz frequencies will be replaced with other 2x10 MHz in the 800 frequencies; additional frequencies may be allocated to us for limited periods during the transition period. The MOC noted that the Company may use an interim leniency (currently until March 2021) to the Planning and Building Law, allowing, under certain conditions, replacement of cell sites without obtaining a building permit. The MOC will further consider allocating partial 800MHz or 900 MHz frequencies tender revenues, if such tenders are executed, to expedite such frequencies replacement. |
December 31, | December 31, | |||||||
2018 | 2019 | |||||||
NIS millions | NIS millions | |||||||
Current assets | 3 | 5 | ||||||
Current liabilities | 1 | 2 | ||||||
Long-term loans for equity accounted investees (including current maturity)* | - | 147 |
B. | Transactions with related and interested parties executed in the ordinary course of business at regular commercial terms: |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Income: | ||||||||||||
Revenues | 13 | 12 | 30 | |||||||||
Expenses: | ||||||||||||
Cost of revenues and other | 16 | 13 | 10 |
C. | Key management personnel compensation |
Year ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
NIS millions | NIS millions | NIS millions | ||||||||||
Short-term employee benefits | 6 | 4 | 4 | |||||||||
Share-based payments | 1 | 1 | - | |||||||||
7 | 5 | 4 |
December 31, | ||||
2018 | ||||
NIS millions | ||||
Less than one year | 283 | |||
Between one and five years | 435 | |||
More than five years | 23 | |||
741 |
a. | Office buildings and warehouses - there are lease agreements for periods of up to 14 years. |
b. | Switching stations- there are lease agreements for switching station locations for periods of up to 18 years. |
c. | Cell sites- there are lease agreements for cell sites for periods of up to 21 years. |
d. | Service centers, retail stores and stands - there are lease agreements for service and installation centers and stands for periods of up to 13 years. |
e. | Motor vehicles - lease for a period of 3 years. |