SUBJECT
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SECTION
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PAGE
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Part One: Description of the General Development of the Company’s Business
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1
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1 | |
2
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3 | |
3
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4 | |
4
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5 | |
Part Two: Other Information
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5
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6 | |
6
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8 | |
Part Three: Description of the Group’s Business According to Area of Activity
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7
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10 | |
7.1
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10 | |
7.2
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14 | |
7.3
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17 | |
8
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17
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8.1
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17 | |
8.2
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23 | |
8.3
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26 | |
Part Four: Matters Pertaining to the Group’s Activity as a Whole
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9
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27 | |
10
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27 | |
11
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31 | |
12
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40 | |
13
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47 | |
14
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52 | |
15
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57 | |
16
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61 | |
17
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63 | |
18
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66 | |
19
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70 | |
20
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70 | |
21
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74 | |
22
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96 | |
23
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97 | |
24
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100 | |
25
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105 | |
26
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106 | |
27
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119 |
1. |
The Group’s Activity and Description of the Development of its Business
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1.1. |
General
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1.2. |
The structure of the Group’s material holdings
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(1) |
Dynamica operates a chain of physical stores and a website for selling cellular handsets, and a wide variety of electronic products and appliances. Dynamica also provides warranty and repair services for cellular equipment and it
markets the Group’s telecommunications services.
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(2) |
Golan provides cellular services through a MVNO license, as well as an international operators service through a fully owned subsidiary.
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(3) |
The chart does not include the Group’s holdings in IBC and the IBC partnership. For details about the Group’s holdings in IBC, see Section 17.1 below.
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(4) |
The chart does not include the Group’s holdings in C.M.G. Network Limited Partnership - the joint corporation through which Cellcom shares the radio network with Xfone.
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1.3. |
Structural changes, mergers and material acquisitions
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2. |
Areas of activity
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2.1. |
Mobile communications
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2.2. |
Fixed-line communications
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3. |
Investments in the Company’s equity and transactions in its shares
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3.1. |
Issue of shares and warrants to the public by the Group
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3.1.1. |
On December 5, 2019, the Israeli public was offered 30,600,000 ordinary shares, 7,038,000 options (Series 3) and 6,426,000 options (Series 4). The securities were offered to the public by a shelf offering report of the Company dated
December 5, 2019, in the framework of which the public was offered up to 36,267,600 ordinary shares par value NIS 0.01 each, up to 8,341,548 options (Series 3) exercisable into ordinary shares, and up to 7,616,196 options (Series 4)
exercisable into ordinary shares. For additional details see the Company’s current report on Form 6-K dated December 5, 2019.
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3.1.2. |
In May 2020 the Israeli public was offered 220,000 options (Series 4). The securities were offered to the public by a shelf offering report of the Company dated May 11, 2020, in the framework of which the public was offered up to
2,711,950 options (Series 4) exercisable into ordinary shares of the Company. For additional details see the Company’s current report on Form 6-K dated May 12, 2020.
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3.2. |
Some of the related parties in the Company performed transactions in the Company’s shares during the Reporting period, as reported by the Company in its current reports.
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4. |
Distribution of dividends
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4.1. |
In 2019 and 2020, and until the date of the Report, the Company did not distribute any dividends to its shareholders.
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4.2. |
As of December 31, 2020, the Company has distributable profits (as defined in Section 302 of the Companies Law) in the amount of NIS 1,088 million.
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4.3. |
The Company has a dividends distribution policy whereby it shall set itself a goal to distribute to its shareholders at least 75% of its annual profit after tax, on a quarterly basis, provided the distribution of dividends does not
adversely affect the Group’s cash needs and the plans that were approved by the board of directors, all subject to the restrictions set forth in law and in contractual restrictions that the Company has assumed/shall assume (as set forth
in Section 4.4 below). Notwithstanding the foregoing, the Company’s board of directors may, at its discretion, not distribute dividends or distribute dividends in scope different than the foregoing.
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4.4. |
For details about the Company’s undertakings towards lending entities and holders of the Company’s debentures with respect to compliance with financial covenants and restrictions on distribution that could affect its ability to
distribute dividends, see Section 18.5 below.
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5. |
Financial information regarding the Company’s areas of activity
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5.1.1. |
Below the Company’s financial data according to areas of activity for the year ended December 31, 2020 (in NIS millions):
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Mobile communications
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Fixed-line communications
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Consolidated adjustments*
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Consolidated
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Revenues from external sales
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2,349
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1,327
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-
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3,676
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Revenues from other areas of activity
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15
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153
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(168)
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-
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Total revenues
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2,364
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1,480
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(168)
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3,676
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Costs not attributed to revenues from other areas of activity
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(2,252)
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(1,447)
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-
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(3,699)
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Costs constituting revenues from other areas of activity
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(153)
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(15)
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168
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-
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Total costs
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(2,405)
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(1,462)
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168
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(3,699)
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Variable costs**
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(1,292)
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(643)
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Fixed costs**
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(1,113)
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(819)
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Total costs
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(2,405)
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(1,462)
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168
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(3,699)
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Profit (loss) from activity
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(41)
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18
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-
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(23)
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Adjusted EBITDA
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525
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393
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-
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918
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Total assets
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3,728
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2,123
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1,306
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7,157
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Total liabilities
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624
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364
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4,289
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5,277
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5.1.2. |
Below is the Company’s financial data according to areas of activity for the year ended December 31, 2019 (in NIS millions):
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Mobile communications
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Fixed-line communication
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Consolidated adjustments*
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Consolidated
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Revenues from external sales
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2,326
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1,382
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-
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3,708
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Revenues from other areas of activity
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14
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147
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(161)
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-
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Total revenues
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2,340
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1,529
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(161)
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3,708
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Costs not attributed to revenues from other areas of activity
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(2,145)
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(1,539)
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-
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(3,684)
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Costs constituting revenues from other areas of activity
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(147)
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(14)
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161
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-
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Total costs
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(2,292)
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(1,553)
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161
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(3,684)
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Variable costs**
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(1,123)
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(746)
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Fixed costs**
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(1,169)
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(807)
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Total costs
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(2,292)
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(1,553)
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161
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(3,684)
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Profit (loss) from activity
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48
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(24)
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-
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24
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Adjusted EBITDA
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627
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313
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-
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940
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Total assets
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3,228
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2,157
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1,777
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7,162
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Total liabilities
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421
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399
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4,455
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5,275
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5.1.3. |
Below is the Company’s financial data according to areas of activity for the year ended December 31, 2018 (in NIS millions):
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Mobile communication
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Fixed-line communications
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Consolidated adjustments*
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Consolidated
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Revenues from external sales
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2,371
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1,317
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-
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3,688
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Revenues from other areas of activity
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14
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147
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(161)
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-
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Total revenues
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2,385
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1,464
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(161)
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3,688
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Costs not attributed to revenues from other areas of activity
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(2,173)
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(1,414)
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-
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(3,587)
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Costs constituting revenues from other areas of activity
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(147)
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(14)
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161
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-
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Total costs
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(2,320)
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(1,428)
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161
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(3,587)
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Variable costs**
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(1,126)
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(713)
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Fixed costs**
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(1,194)
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(715)
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Total costs
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(2,320)
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(1,428)
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161
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(3,587)
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Profit from ordinary activity
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65
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36
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-
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101
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Adjusted EBITDA
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48
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269
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-
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687
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Total assets
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2,723
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2,306
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1,720
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6,749
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Total liabilities
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460
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365
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4,247
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5,072
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6. |
General environment and the effect of external factors on the Group’s activity
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6.1. |
Regulation and dependency on licenses
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6.2. |
Competition
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6.3. |
Technological changes and technological dependency
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6.4. |
Environmental risks
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6.5. |
The Coronavirus spread
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7. |
Mobile communications
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7.1. |
Structure of the area of activity and changes to the scope of activity in the area
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(1) |
The developments in the markets of the area of activity, or changes in the characteristics of its customers
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(2) |
Technological changes that could affect the area of activity
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(3) |
The critical success factors in the area of activity and the changes applicable thereto
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• |
A nationwide deployment of a quality and advanced cellular network, including the ability to maintain the network at a high level and to continuously make significant investments in the cellular infrastructure, both for purpose of
optimal coverage across the country and for purpose of being able to provide large capacity to the customers and to enable technologically advanced services;
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The ability to offer competitive prices;
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Extensive and varied distribution channels;
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The ability to deal with the effects of regulatory decisions;
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Quality, fair, and efficient customer service, including the ability to offer technical support and customer service through a variety of physical, telephonic and digital channels;
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A well-known and leading brand;
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Managing a wide range of communication services for homes and businesses under one roof, and the ability to provide the customers with a comprehensive response;
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Professional and skilled manpower;
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(4) |
Main entry and exit barriers
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The need to obtain a general license from the Israeli Ministry of Communications for providing cellular telecommunication services, while complying with the conditions set forth in the Communication Law and obtaining a right from the
state to use the appropriate frequencies, which involves high financial costs;
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The need for financial means in large scopes and vast knowledge for purpose of making the significant investments that are required in the technological infrastructure, the establishment of a network and a countrywide deployment of
sites, a broad operating apparatus, sales apparatus, and support and service;
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The intense competition in the cellular telecommunications market in Israel and the saturation of the industry’s penetration rate. For additional details see Section 11.3 below;
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Burdensome regulation and oversight in the area of mobile communications, compliance with which and with the changes made thereto may require substantial investments. For additional details see Section 6.21.4 below;
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The need for constructing cell sites (which are also known as cellular antennas) with countrywide deployment, which involves many difficulties due to the difficulty in renting space for constructing cell sites and the licensing of the
sites, which frequently encounters opposition from the local authorities and in whose territory the site is established and from their inhabitants. For additional details see Section 21.4 below.
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The Israeli Minister of Communications’ approval for ceasing the provision of the service, which may be contingent upon an arrangement for continued provision of the service that is provided to the customers by the operator asking to
exit the area.
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The Cellular License sets forth restrictions, inter alia on transferring shares from corporations that hold such license and on transferring or charging assets that are used by the Group for
fulfilling the terms of the license.
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Material investments that require a long time for a return on investment.
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7.2. |
Products and services
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(a) |
Cellular calling (voice) service in Israel and related services, such as: Call waiting, caller ID, voicemail, tracking, conference calls;
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(b) |
Message delivery and receipt service (SMS) and multimedia messages (MMS);
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(c) |
Surfing and data communication services - internet surfing services;
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(d) |
Roaming services for its subscribers when outside Israel, and roaming services for visitors to Israel, who may use the Company’s cellular network;
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(e) |
Value-added services, such as: Cyberattack protection, anti-virus and anti-spam services, backup services, “music-on-hold” services, workforce management applications, car fleet management, etc.;
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(f) |
Internet of things (IOT) services – advanced end to end solutions in the area of IOT (such as “smart city” solutions);
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(g) |
Repair services for equipment - in consideration for monthly payment that entitles the customer to repair services, or in consideration for a non-recurring payment upon the repair.
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7.3. |
Breakdown of revenues of the products and services
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2020
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2019
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2018
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Revenues
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Rate (*)
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Revenues
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Rate (*)
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Revenues
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Rate (*)
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Cellular communication services (**)
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1,558
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42.4%
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1,555
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41.9%
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1,595
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43.2%
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Equipment
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704
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19.2%
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661
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17.8%
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655
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17.8%
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8. |
Fixed-line communications
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8.1. |
Structure of the area of activity, changes in the scope of activity, developments in the markets of the area, and changes in the characteristics of its customers
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(1) |
Technological changes that could affect the area of activity
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(2) |
The critical success factors in the area of activity and the changes applicable thereto
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• |
The ability to offer reliable telecommunication services at competitive prices, while adjusting to the frequent changes in the fixed-line communications market, with an emphasis on responding to the increasing need for bandwidth.
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• |
Accessibility to a quality and advanced network with a broad deployment, including the ability to reduce dependency on external fixed-line infrastructure owners.
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• |
The ability to deal with regulatory decisions.
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• |
Quality and efficient customer service, including the ability to offer technical support and customer service through a variety of physical, telephonic and digital channels.
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• |
The ability to offer a wide range of services for home and business.
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• |
The ability to make substantive investments.
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• |
Extensive and varied distribution channels.
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• |
A well-known and leading brand.
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• |
Professional and skilled manpower.
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(3) |
Main entry and exit barriers
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8.2. |
Products and services
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a. |
Internet (connectivity and infrastructure)
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b. |
Multi-channel OTT television services
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c. |
International operator services
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d. |
Fixed-line local telephone services
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e. |
Transmission services
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f. |
Internet of Things (IOT)
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g. |
Information system and communication solutions
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8.3. |
Breakdown of the revenue of the products and services
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2020
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2019
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2018
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Revenue
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Rate (*)
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Revenue
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Rate (*)
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Revenue
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Rate (*)
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Revenue from the triple plan (internet, television, and domestic operator)
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826
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22.5%
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773
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20.8%
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705
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19.1%
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9. |
Customers
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Type of customer
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2020
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2019
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2018
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Private customers
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2,556
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69.5%
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2,561
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69.1%
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2,579
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69.9%
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Business customers
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940
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25.6%
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991
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26.7%
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946
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25.6%
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Other
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180
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4.9%
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156
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4.2%
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163
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4.5%
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Total
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3,676
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100%
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3,708
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100%
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3,688
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100%
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10. |
Marketing and distribution
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10.1. |
Sale and customer service
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a. |
Physical points of sale
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b. |
Call centers
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c. |
Business customers
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d. |
Independent service and online sales
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e. |
Service through technicians
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f. |
Providing service to people with disabilities
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10.2. |
Marketing
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11. |
Competition
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11.1. |
Telecommunication groups and structural separation
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11.2. |
The Group’s coping with competition in the telecommunications market and factors that affect its competitive standing
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11.3. |
Competition in the mobile telecommunications market
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11.4. |
Competition in the fixed-line telecommunications market
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a. |
Internet infrastructure services
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b. |
Internet connectivity services
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c. |
International calls services
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d. |
Fixed-line telephony services (domestic operator)
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e. |
Other fixed-line services
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f. |
Multi-channel OTT television services
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12. |
Fixed property, land, and facilities
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12.1. |
General
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12.2. |
Networks
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a. |
4G (LTE) Network - launched in 2014. Allows downloading and uploading data at a rate of up to approximately 150 megabits per second and approximately 50 megabits per second, respectively, and including the 4G frequencies subject
of the 2020 frequencies tender, at a rate of up to approximately 400 megabits per second and 70 megabits per second, respectively. The majority of data traffic on the Group’s networks is through this network, which covers most of Israel’s
population. Upon activation of the VOLTE (Voice Over LTE) service, which allows making calls on the 4G Network, a gradual transition shall begin for calls from the 3G Network to this network. Further to the Group winning the frequency
tender, as described in Section 13.5 below, the Group intends to continue the deployment of the additional 4G frequencies network in order to continue allowing its customers a data transfer service at the highest rate possible. The
Group’s 4G Network is shared with Xfone (in MOCN configuration). For additional details regarding the network sharing agreement with Xfone, see Section 23.1 below.
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b. |
3G Network (UMTS/HSPA+) - As of the Report date, the majority of calls traffic on the Group’s networks is through this network. The network allows fully interactive multimedia services by downloading and uploading data at a rate
of up to approximately 42 megabits per second and 5 megabits per second, respectively. This network, which supports services that sometimes require a high data transfer rate, allows supporting 4G by way of dividing the traffic.
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c. |
2G Network (GSM/GPRS/EDGE) - a network that also covers most of Israel’s population and allows voice calls, data transfer and multimedia services, but at speeds lower than those possible through the 3G and 4G Networks. This
network allows certain support of the above 3G and 4G Networks.
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d. |
5G network (NR 5G) - The 5G network is based on an advanced technological standard (78N), which allows uploading and downloading data at higher rates (up to 1.3 gigabits per second and 50 megabits per second, respectively, on a
frequency bandwidth of 100 megahertz). The network is expected to facilitate more widespread use of technologies in the area of the internet of things (IOT). In 2020 the Group began to deploy the network in selected areas, and it intends
to continue such deployment in the next few years.
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12.3. |
Real Estate
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a. |
The Group’s headquarters in Netanya - In 2003, the Group engaged in a lease agreement of an asset with an area of approximately 58,000 sqm, including approximately 32,000 sqm to be used
for the Group’s offices and including approximately 26,000 sqm used as an underground parking. The agreement ends in December 2022, while the Group has an option to extend it for two additional periods of approximately 5 years each. Since
2015 the Group has been leasing part of the asset (as of the Report date approximately a quarter of its area) under a sublease for a period of up to three years. The sub-tenants have the option to extend the sublease for additional
similar periods, under certain circumstances set forth in agreements with them.
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b. |
Technological-logistical center in Netanya - In 2010 the Group engaged in a lease agreement with respect to a property with an area of approximately 11,000 sqm, which serves as the Group’s
technological-logistical center. The lease agreement ends in December 2022, while the Group has an option to extend the lease agreement until July 2026. Should the Group not exercise such option, it must pay compensation of approximately
NIS 8 million. Since 2015, the Group has been renting out part of the property (as of the Report date approximately 6,100 sqm) under subleases for periods of between 5 to 6 years. The sub-tenants have the option to extend the sublease for
an additional period, under certain conditions set forth in agreements with them.
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c. |
Properties in Haifa, Tel Aviv, and Rosh HaAyin - The Group is leasing a property in Haifa with an area of approximately 8,900 sqm, a property in Tel Aviv with an area of approximately
1,500 sqm, and a property in Rosh HaAyin with an area of approximately 3,050 sqm. The properties in Haifa, Tel Aviv, and Rosh HaAyin serve the Group as offices, call service centers and warehouses for servers and equipment. The Haifa
lease agreement ends in December 2021, while the Group has an option to extend it for two additional periods of approximately two years each. The Tel Aviv lease agreement ends at the end of 2023, while the Group has an option to extend it
for two additional option periods of two and a half years each. The Rosh HaAyin lease agreement ends in December 2021, while the Group has an option to extend it for three additional periods of approximately two years each. The Group
rents parts of the Haifa and Rosh HaAyin properties to subtenants.
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d. |
Service centers and points of sale - As of the Financial Statements date, the Group is leasing approximately 70 service centers, points of sale, and additional installations that serve the
Group for purpose of sales and providing services to its customers. According to most, the lease agreements are for periods of approximately 3 years with a variable option to extend for additional periods. The
Group is constantly acting to reduce and close points of sale the activity of which are a loss, and on the other hand to open points that improve the network’s deployment and increase sales.
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e. |
Switches and cell sites - The Group leases sites from various factors (both from local authorities and from government bodies such as the Israel Land Authority and from private entities),
for the purpose of establishing, maintaining, and operating cell sites that serve its cellular telecommunication network. The lease agreements in this context are mostly for periods of between two and five years, with an option to extend
for similar periods and with an option to terminate under certain circumstances. In certain agreements the landlord may terminate the contract at any time and for any reason whatsoever, subject to prior warning. On the basis of past
experience, the Group encountered difficulties in extending the leases in approximately 5% of cell sites, which sometimes requires the Group to pay higher rent in order to leave its installations in the same regions or find alternative
sites.
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f. |
Storage of equipment and telecommunication servers - The Group is leasing areas all over Israel used for storing equipment, telecommunication servers, and additional telecommunication
equipment for purpose of providing the fixed-line service. In addition, the Group is leasing storage space for its servers and relevant equipment in London and Frankfurt.
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g. |
Permission agreement with the Israel Land Authority - In June 2013, the Group renewed its permission agreement with the Israel Land Authority, for the use of land in order to establish and
operate Small and Very Small Transmission Handsets as such are defined in National Zoning Plan 36. The agreement ended in December 2019, and currently the Group is conducting negotiations on the terms of a new agreement. The license
agreement sets forth that subject to prior approval from the Israel Land Authority, the Group may establish and operate transmission handsets on the land, including on land leased to third parties, for the duration of the license period.
Similarly, it was determined that specific licenses and contracts to be executed following the license agreement, shall under certain circumstances be cancelable by the Israel Land Authority, subject to prior notice. In addition, the
Group undertook to vacate all facilities installed in the licenses areas at the end of the agreement period, unless the license agreement is extended.
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13. |
Intangible Assets
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|
13.1. |
Goodwill - Goodwill in the Company is created when allocating surplus costs following the acquisition of subsidiaries. Goodwill is examined at least once a year for purpose of examining devaluation. Goodwill is not methodically
reduced. Total goodwill in the Company’s books as of December 31, 2020, is approximately NIS 1,563 million, out of which NIS 831 million for goodwill attributed to the mobile sector and NIS 732 million for goodwill attributed to the
fixed-line sector. For additional details see Note 14 to the Financial Statements.
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|
13.2. |
Customer relations and brand - Upon the acquisition of the subsidiary Golan, intangible assets of customer relations and brand were identified, totaling NIS 110 million and NIS 35 million, respectively. These assets are lowered
over a period of 6 and 10 years, respectively.
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|
13.3. |
Cost of customer acquisition - The Company capitalizes incremental costs for purpose of achieving a contract with customers, while the Company is expected to return these costs according to IFRS 15. The Company subtracts these assets according to the average customer churn rate.
|
|
13.4. |
Licenses - For details about licenses held by the Group for purpose of providing services in the mobile and fixed-line communications field, see Section 21.3 below.
|
|
13.5. |
Rights to use frequencies in the area of mobile communications
|
|
• |
2X5 MHz in the 850 MHz frequency band that are used for the Group’s 3G network.
|
|
• |
2X25 MHz in the 1800 MHz frequency band, used for the Group’s joint 4G Network and 2G Network. 2X3 MHz from these frequencies were allocated to the Group in a 4G tender (in 2014) for a period of only 10 years, unlike other frequencies
allocated to the Group in the past for the Cellular License period, and 2X5 were originally allocated to Golan, and upon the completion of its acquisition by the Group, they were allocated to Cellcom until the end of 2023.
|
|
• |
2X10 MHz in the 2100 MHz frequency band used for the Group’s 3G Network.
|
|
• |
In the framework of the joint network, use is made of 2X5 MHz in the 1800 MHz frequency band, which were allocated to Xfone.
|
|
• |
In the 2020 Tender (as defined below) the Group was allocated 5 MHz in the 700 MHz frequency band, for a period of 15 years; 10 MHz in the 2,600 MHz frequency band for a period of 15 years; and 80 MHz in the 3,500-3,600 MHz frequency
band for a period of 10 years;
|
|
13.6. |
Trademarks
|
|
13.7. |
The GSM Association - The Group is a member of the global GSM Association, which gathers various cellular operators from all around the world that use the GSM technology. As a member of the Association, the Group may use the
Association’s intellectual property rights, including use of the Association’s logo and its trademark.
|
|
13.8. |
Software rights - In addition, the Group uses computer software and systems, some of them under licenses that it purchased and some that were developed by the Group. A considerable part of such licenses are limited in time and
are renewed from time to time.
|
14. |
Human capital
|
|
14.1. |
Below is a description of the Group’s organization structure as of the Report date:
|
|
14.2. |
Employee headcount
|
31-Dec-2020
|
31-Dec-2019
|
31-Dec-2018
|
|
Management and HQ
|
42
|
51
|
54
|
Human resources
|
133
|
159
|
176
|
Marketing and television
|
34
|
38
|
42
|
Customers*
|
2,144
|
2,314
|
2,666
|
Finances
|
89
|
104
|
109
|
Engineering
|
297
|
335
|
331
|
Information systems
|
181
|
205
|
199
|
Subsidiaries**
|
35
|
59
|
60
|
Total
|
2,954
|
3,265
|
3,637
|
|
14.3. |
Material changes in the employee list during the period described in the Report
|
|
14.4. |
Training
|
|
14.5. |
Terms of employment
|
|
14.6. |
Collective employment agreements
|
|
14.7. |
Employee compensation plans
|
|
a. |
Performance-based compensation for employees - some of the Group’s employees are entitled to an annual grant that is based on the Group’s performance and their personal performance.
|
|
b. |
Capital compensation for employees - in March 2015 the Company adopted an option plan and/or restricted share units for employees, officers, and service providers.
|
|
c. |
Compensation of officers policy – on August 12, 2020, the general meeting of the Company’s shareholders, upon the recommendation of the compensation committee and approval of the Company’s board of directors, ratified the
compensation policy for the officers of the Company, and its update.
|
15. |
Vendors
|
|
15.1. |
Cellular network equipment
|
|
(1) |
In April 2014, the Group entered into a framework agreement with NSN Israel, a member of the Nokia Networks Group, an international networks manufacturer, for the purchase of an LTE network that supports the LTE-Advanced technology
(4.5G) and ancillary services. This agreement also applies to the purchase of equipment and services provided according to the Group’s previous agreement with NSN Israel in connection with the core system, radio access network, and
ancillary services and products for the Group’s GSM/GPRS/EDGE/UMTS/HSPA networks. Under the agreement, the Group is entitled to purchase maintenance services annually until March 2030. In 2020, the Group bought network core components
from NSN to transmit calls through using a 4G network (VOLTE) and radio access equipment for its joint network with Xfone to support new frequencies (4G and 5G) won in the 2020 tender.
|
|
(2) |
In September 2005, the Group entered into agreement with LM Ericsson Israel Ltd. for the purchase of a radio access network and ancillary products and services with UMTS technologies. In December 2011, the Group engaged with LM
Ericsson Israel Ltd. to purchase upgraded UMTS/HSPA products and ancillary products. Under the agreement, the Group may purchase maintenance services annually until 2026.
|
|
(3) |
The Group uses the intelligent platform of Telcordia Technologies Inc. (acquired by Ericsson), which provides services to the Group’s cellular networks and allows it, at minimal cost, to internally develop sophisticated services with a
short time-to-market that are customized to the Israeli market requirements.
|
|
15.2. |
End-user equipment
|
|
(4) |
In October 2016, the Group entered into agreement with Apple Sales International for the purchase and distribution of iPhones handsets in Israel. The agreement is in effect until March 2021.
|
|
(5) |
For details regarding the Group’s engagement with Samsung, see the description of primary vendors above in this Section 15.
|
|
15.3. |
Internet infrastructure
|
|
(6) |
Between 2013 and 2020, the Group executed multiple agreements with TI Sparkle and Tamares Telecom Ltd., for purchasing rights to use certain capacities in the submarine optical cable that connects the Israeli Internet with the global
Internet, in addition to maintenance and operating services for said infrastructure. The rights of use for most of the capacities purchased by the Group shall be in effect until 2032.
|
|
(7) |
The Group entered into with agreements with Bezeq and Hot, the Israeli market’s primary Internet infrastructure providers, to provide connectivity services to the Group. Because of the increased demand for broadband bandwidth among
Group customers in recent years, the Group is occasionally required to increase the capacities it purchases from Bezeq and Hot, albeit at a lower growth rate than previously required thanks to efficient and advanced technologies and the
alternative of purchasing Internet infrastructure services from Bezeq and Hot in the framework of the Wholesale Market and the supply of Internet services to customers through IBC’s fiber-optic network.
|
|
(8) |
Since 2015, the Group has been purchasing bit-stream access (BSA) Internet infrastructure services from Bezeq according to the terms of the Wholesale Market regulating both the service specifications and the service prices, which
include a fixed component and a component based on the capacity required by the Group for its customers. The scope of BSA service procurement from Bezeq has increased over the years, according to the increase in the Group’s
engagements with customers who purchase Internet infrastructure services from the Group, and the increase in the demand by the Group’s customers for greater bandwidth (capacity), although the pace has been lower in recent years due to
alternatives as set forth above. For more details regarding the terms of the Wholesale Market, see Section 21.5(2) below.
|
|
(9) |
For the agreement between the Group and IBC to purchase indefeasible rights of use (IRU) for IBC’s fiber-optic infrastructure, see Section 17.1 below.
|
|
(10) |
In February 2015, the Group executed an agreement with Bynet Data Communications Ltd. for the purchase of a transmission network and IP manufactured by Cisco Systems Inc. (“Cisco”). In 2020, the
Company engaged with Cisco to upgrade this network. The Group also purchases maintenance services from Cisco for the system and for other IP systems.
|
|
15.4. |
Other vendors in the fixed-line communications area
|
|
(11) |
In June 2004, the Group entered into an agreement with Nortel Networks Israel (Sales and Marketing) Ltd. (currently, with Ribbon Communications that acquired Nortel’s operations) for the purchase of an international communications
switch that is used to provide international call services, as well as equipment and ancillary services.
|
|
(12) |
BroadSoft, Inc. supplies the Group with a system to provide advanced fixed-line cloud-based telephone operator services to business customers.
|
|
15.5. |
Equipment and content for the OTT television services
|
|
(13) |
In 2019, the Group entered into an agreement with Kaltura Europe Ltd., for the purchase of a new cloud-based content management platform for the Group’s OTT television services (that replaced Ericsson LM’s system for OTT TV services
the Group used until the end of 2020). Among others, the new platform enables, inter alia, integration, management, distribution, analysis and protection of the content.
|
|
(14) |
In 2013, the Group engaged with Vubiquity Management Ltd. (later acquired by Amdocs Israel Ltd.), a leading global provider of multi-platform video services and solutions, to provide international content and content operation services
for the Group’s OTT television service. The agreement is in effect until the end of 2022. The agreement may be renewed by additional one-year periods, unless either party terminates it sooner with prior notice.
|
|
(15) |
In October 2014, January 2016, and December 2016, the Group engaged with REG Group Ltd., One Sports Television Services Ltd., and Charlton Ltd., respectively, to purchase the broadcasting rights for the sports channels they operate
exclusively; each agreement was made for 5 to 6 years.
|
|
(16) |
The Group engages with Israeli copyright organizations for arranging the use of content in the music services and Cellcom tv service. The consideration paid to the royalties organizations varies and is set according to the market
standards, based on the scope of using the rights on Cellcom services.
|
|
(17) |
In October 2014 and July 2017, the Group engaged with Keshet Broadcast Ltd. (“Keshet”), Reshet Noga Ltd. (“Reshet”), and the Israeli Broadcasting
Corporation (the “Broadcasting Corporation”) respectively, in the framework of which the Group received a license to use content of Keshet, Reshet, and the Broadcasting Corporation on Cellcom tv;
the agreements were made for 5 to 7 years; the agreements with Reshet and Keshet include consideration arrangements, based on the number of Cellcom tv subscribers.
|
|
15.6. |
Information systems
|
|
(1) |
In July 2020, the Group signed an agreement with Amdocs Israel Ltd. (“Amdocs”), in the framework of which Amdocs and the Group shall jointly perform work to develop a CRM system that shall be
owned and maintained by the Group, to replace the other CRM systems the Group uses and subsequently reduce the Group’s costs.
|
|
(2) |
The Group uses an Avaya system for managing incoming calls into the Group’s customer service call centers.
|
|
(3) |
The Group uses ERP solutions provided by SAP.
|
16. |
Working capital
|
|
16.1. |
Customer credit
|
|
16.2. |
Credit from vendors
|
|
16.3. |
Below is data on vendor credit and customer credit in 2018, 2019, and 2020:
|
2020
|
2019
|
2018
|
||||
Credit in NIS millions
|
Average credit days
|
Credit in NIS millions
|
Average credit days
|
Credit in NIS millions
|
Average credit days
|
|
Customers for sale of end-user equipment (*)
|
469
|
235
|
663
|
280
|
768
|
329
|
Customers for services (*)
|
382
|
65
|
467
|
66
|
417
|
66
|
Vendors
|
768
|
68
|
687
|
65
|
696
|
65
|
|
16.4. |
Below is data on the Group’s working capital, in NIS millions:
|
As of December 31, 2020
|
As of December 31, 2019
|
As of December 31, 2018
|
|
Current assets
|
2,299
|
2,759
|
2,947
|
Current liabilities
|
1,929
|
1,826
|
1,678
|
Surplus current assets to current liabilities
|
370
|
933
|
1,269
|
17. |
Investments
|
|
17.1. |
Agreements related to the transaction for the Group’s investment in IBC – In July 2019, the Group completed the investment transaction in IBC. As stated above, IBC is a communications company that provides communications
infrastructure services in Israel by deploying fiber-optics, including on IEC’s electric grid infrastructure. The IBC investment transaction is made up of multiple agreements, the primary of which are:
|
|
a. |
Partnership agreements – The Group engaged with IIF – Israel Infrastructures Fund (“IIF”) to establish a jointly owned limited partnership, held in equal
shares, which shall purchase 70% of IBC’s shares (in this Section, the “Partnership”). The Partnership’s agreements include undertakings on behalf of the Group and IIF, to invest up to NIS 200
million in the Partnership over three years pro rata to their holdings, and provisions on resolving deadlock situations. As of the Report date, the Group has fulfilled all its undertakings related to the additional investment.
|
|
b. |
Share purchase agreement – The Partnership, Israel Electric Corporation (“IEC”), IBC and the shareholders and other primary creditors of IBC engaged under
agreement in the framework of which the Partnership acquired 70% of IBC’s issued and paid-up share capital by investing NIS 110 million in IBC by the Partnership (of which the Group paid half) (the “Consideration”),
most of the amount was granted to IBC as a shareholders’ loan (loans extended at interest rates of 4%-6% above the most senior debt). According to the share purchase agreement, IEC shall hold the remaining 30% of IBC’s issued and paid-up
share capital.
|
|
c. |
Shareholders agreement – The Partnership engaged under a shareholders agreement with IEC that sets forth IBC’s management, including certain provisions on financing IBC and dilution (or
non-dilution under certain circumstances) of the shareholders not participating in financing.
|
|
d. |
Agreement to purchase an IRU on IBC’s fiber-optic infrastructure – Under the agreement, the Group undertook to purchase an indefeasible right of use (IRU) from IBC on IBC’s infrastructure lines,
at the rate of 10% to 15%14 of customer households in buildings connected to IBC’s fiber-optic infrastructure (“Home Pass”).
All based on deployment of fiber-optic infrastructure by IBC in the next 15 years (including an option to extend the period of use of lines by additional periods under certain conditions, for no additional consideration except the annual
maintenance fee). The IRU consideration varies according to actual deployment of Home Pass infrastructure by IBC and is likely to increase every quarter according to the new infrastructure deployed in that quarter. The IRU consideration
shall be paid in 36 quarterly instalments (9 years), plus an annual maintenance fee. The IRU agreement reduced the Company’s expenditure by using IBC’s infrastructure instead of Bezeq and Hot’s infrastructures in 2019-2020, as well as its
investments (in practice during such years and projected in the future) in deploying an independent fiber-optic infrastructure in residential areas. For the Group’s estimates on the effect of this agreement on the Company’s competitive
position, see Section 11.4 above. As of 2019 and 2020, the cumulative amount of the Home Pass is approximately 300,000 and 560,000, respectively. As of December 31, 2020, the Group has approximately 93,000 customers on the IBC
infrastructure and as of the publication date of this Report approximately 105,000 customers.
|
|
e. |
Services agreement with IEC – IEC and IBC executed an agreement to update IBC’s current agreement regarding the right of use and services for IBC’s fiber-optic infrastructure deployed on IEC’s
infrastructure. The services agreement with IEC includes updated and improved pricing and arrangements with respect to IBC’s exclusive right to deploy a fiber-optic network on IEC’s electric grid and with respect to other services
provided by IEC to IBC in such regard.
|
|
f. |
In March 2020, IBC entered into an agreement with an Israeli financial institution, under which the financial institution provided IBC a credit facility of up to NIS 350 million, to be repaid by
December 31, 2032. The credit facility was provided to IBC in order to facilitate its business activity, including the continued deployment of fiber-optic infrastructure in Israel. The agreement includes the standard commercial terms
and restrictions. The Partnership also agreed to invest an additional amount of NIS 50 million in IBC by the end of 2021, out of which the Partnership has invested NIS 10 million as of the Report date and the balance of the amount was
replaced by Hot 's Investment in IBC as detailed below.
|
|
17.2. |
Agreements related to the transaction for the investment of Hot in IBC – In September 2020, the Group and IIF entered into investment agreements with Hot (together with entities affiliated with it) to invest in IBC.
Further to the standard and acceptable terms, the transaction includes an undertaking to substantially increase the deployment of IBC’s fiber-optic network in the forthcoming years and the following main points:
|
|
a. |
Investment agreements – Between the IBC partnership and Hot, in the framework of which Hot shall become an equal partner in the IBC partnership (whereby each shall indirectly hold 23.3% of IBC’s
share capital) by making an investment materially equal to the investment made by each of the Group and IIF until the date of completing the transaction. Furthermore, the investment agreements include additional corporate governance
rights and other mechanisms.
|
|
b. |
An agreement to purchase an IRU on IBC’s fiber-optic infrastructure – Between IBC and Hot, whereby Hot undertakes to purchase an indefeasible right of use on IBC’s fiber-optic network.
|
|
c. |
Services agreements – Between IBC and Hot, whereby IBC agrees to purchase some services from Hot and may choose to purchase other services.
|
|
17.3. |
Sale of the Group’s independent fiber-optic infrastructure in residential areas to IBC – In July 2019, the Group and IBC completed a transaction to sell the Group’s independent fiber-optic infrastructure in residential areas to
IBC, in consideration for NIS 181 million. The sale consideration was financed entirely with the shareholders’ loans provided to IBC by the partnership, as set forth in Section 17.1. Upon completing the transaction, the IRU agreement,
including the Group’s undertaking to purchase an indefeasible right of use for a certain percentage of households in the buildings connected to IBC’s Home Pass fiber-optic infrastructure (as set forth above) also applies to the
fiber-optic infrastructure IBC acquired from the Group.
|
|
17.4. |
The Golan acquisition transaction – On August 26, 2020, a transaction was completed to purchase Golan’s entire issued and paid-up share capital by Cellcom, in consideration for NIS 613 million. For more information, see Note 7
to the Financial Statements.
|
18. |
Financing
|
|
18.1. |
Average and effective interest rates
|
2020
|
2019
|
2018
|
||||
Average interest
|
Effective interest
|
Average interest
|
Effective interest
|
Average interest
|
Effective interest
|
|
Off-bank sources – index-linked
|
2.38%
|
4.33%
|
2.76%
|
4.39%
|
2.98%
|
4.42%
|
Off-bank sources – unlinked
|
3.42%
|
4.15%
|
3.69%
|
4.25%
|
4.12%
|
4.64%
|
Bank sources – unlinked
|
4.00%
|
4.00%
|
4.38%
|
4.38%
|
4.90%
|
4.90%
|
Total liabilities
|
3.18%
|
4.19%
|
3.42%
|
4.30%
|
3.69%
|
4.56%
|
|
18.2. |
The Company’s debentures
|
|
18.3. |
Credit and loans from banking corporations and financial corporations
|
|
18.3.1. |
In May 2015, the Company executed an agreement with two institutional investors (in this Subsection: the “Lenders”), in the framework of which the Lenders provided the Company, subject to
standard terms, two deferred loans in a total amount of NIS 400 million, unlinked (the “Loan Agreement”). On December 31, 2020, the balance of the loans totaled to approximately NIS 150 million:
|
|
(1) |
The first loan, for NIS 200 million, was provided to the Company in June 2016, at fixed annual interest of 4.6%. Repayment of principal is made in four equal annual installments, beginning on June 30, 2018, and until full repayment on
June 30, 2021. The interest is paid in semiannual installments from December 31, 2016, and until June 30, 2021. The principal balance for this loan, as of December 31, 2020, is NIS 50 million.
|
|
(2) |
The second loan, for NIS 200 million, was provided to the Company in June 2017, at fixed annual interest of 5.1%. Repayment of principal is made in four equal annual installments, during the years 2019 to 2022 (inclusive). The interest
is paid in semiannual installments starting on December 31, 2017, and until June 30, 2022. The principal balance on this loan, as of December 31, 2020, is NIS 100 million.
|
|
18.3.2. |
In August 2015, the Company engaged with an Israeli banking corporation (in this Subsection: the “Lender”) under a deferred loan agreement in the amount of NIS 140 million, subject to certain
conditions, unlinked. The loan was provided to the Company in December 2016 and bears fixed annual interest at the rate of 4.9%. Under the terms of the loan, repayment of principal is made in five equal annual installments in the years
2018 to 2022 (inclusive). Interest is paid in semiannual installments starting on June 30, 2017, and until June 30, 2022. In April 2019, the Company performed early repayment for the entire loan.
|
|
18.3.3. |
The Group occasionally engages with financial corporations in its ordinary course of business, for immaterial amounts, under framework agreements for obtaining various banking services, such as credit facilities, hedging transactions,
and factoring transactions.
|
|
18.3.4. |
On December 31, 2018, December 31, 2019, and December 31, 2020, the balance of loans provided to the Group (including current maturities) was approximately NIS 462 million, approximately NIS 400 million, and approximately NIS 188
million, respectively.
|
|
18.4. |
Restrictions on procuring credit
|
|
18.5. |
Guarantees and charges
|
|
18.6. |
Credit rating
|
|
18.7. |
Raising additional sources
|
19. |
Taxation
|
20. |
Environmental risks and management thereof
|
|
20.1. |
Non-ionizing radiation
|
|
20.2. |
Constructing cell sites
|
|
20.3. |
End-user equipment
|
|
20.4. |
Material events or matters relating to environmental protection
|
|
20.5. |
Material legal or administrative proceedings relating to environmental protection
|
|
20.6. |
The Group’s environmental risk management policy
|
21. |
Limitations and control on the Group’s activity
|
|
21.1. |
Communications law
|
|
(1) |
The Communications Law – Under the Communications Law, providing cellular services, fixed-line telephone services, international telephone services, and connectivity and infrastructure
services, requires a license. For details regarding the fixed-line telephone service license and the unified licenses granted to the Group under the Communications Law, see Sections 21.3(1) and 21.3 (2) below.
|
|
(2) |
The Telegraph Ordinance – The Telegraph Ordinance governs the use of the electromagnetic spectrum, and applies, inter alia, to the Group’s use of radio frequencies in its infrastructure.
Setting up and operating a system that uses radio frequencies requires a license according to the Telegraph Ordinance, and the use of radio frequencies is subject to designating and allocating a suitable frequency. The Telegraph Ordinance
imposes licensing fees and frequency designation and allocation fees. Because of the current shortage of radio frequencies for public use in Israel (including because many frequencies are allocated to military use), the Israeli Ministry
of Communications limits the number of licenses to use frequencies and incentivizes efficient use of frequencies. Therefore, because of the above shortage of frequencies, the Israeli Ministry of Communications allows cellular network
sharing between MNOs, including joint use of operator frequencies.
|
|
21.2. |
Rate regulation
|
|
21.3. |
The Group’s communication licenses
|
|
(1) |
General license to provide radio telephone mobile services
|
|
• |
The Minister of Communications and the authorized entity under the Telegraph Ordinance can revoke, suspend, or limit the Company’s Cellular License, inter alia, in these instances: a change to
the license is required in order to guarantee the level of services provided thereunder; breach of a material term of the license; one of the Company’s executives or directors is convicted of an offense involving moral turpitude and
continues holding office; the aggregate equity of the Company, together with the aggregate equity of its shareholders each holding 10% or more of its share capital falls below $200 million17; am officer of the Company or a person holding more than 5% of the means of control in the Company is not entitled to hold more than 5% of the means of control in Bezeq or another cellular operator in
Israel, directly or indirectly, or act as an officer in one of the Company’s competitors (subject to exceptions that require the Israeli Ministry of Communications’ prior consent);
|
|
• |
The total holdings, directly or indirectly, of the founding shareholders or their alternates (as defined in the license) shall not fall below 26% in each of the means of control in the Company (for this purpose, “means of
control” means the voting power at the general meeting of the Company or the corresponding organ in another corporation, the right to appoint a director or general manager, the right to participate in the profits of the corporation,
and the right to participate in the Company’s surplus assets after settling its debts in liquidation); the total holdings, directly or indirectly, of Israeli entities (as the term is defined in the Cellular License),18 that are considered founding shareholders or their alternates shall be no less than 5% of the total issued share capital and each of the means of
control of the Company;19 at least 10% of the Company’s directors were appointed by Israeli entities; and most of the Group’s directors are Israeli
citizens and residents;
|
|
• |
The Company, its officers, or anyone holding more than 5% of the means of control of the Company may not be party to any arrangement with Bezeq or another cellular operator in Israel that are intended to or that could limit or
restrict competition in the cellular sector;
|
|
• |
Acquisition (by an individual himself or together with a relative or another person acting with him on a regular basis), or the transfer, directly or indirectly, in a single transaction or more, of means of control at the rate of 10%
or more in the Company or which results in transfer of control in it, including by the creation of a charge by a shareholder of the Company or by a shareholder in a related party thereof, whereby realizing the charge shall cause a change
of ownership to 10% or more of any means of control in the Company, requires the prior consent of the Minister of Communications;20 for the purposes of the
Cellular License, “control” means the ability to direct the Company’s activity, directly or indirectly, including any ability according to the Company’s articles or a written or oral agreement or the possession of means of control in
another corporation, and excluding ability deriving solely from filling the position of director or other functionary of the Company.
|
|
• |
The Company must act in accordance with the instructions of the Israeli Security Agency, which could require officers and certain functionaries to be Israeli citizens and residents and have security clearance. Furthermore, the Minister
of Communications is entitled to appoint a state employee with security clearance to serve as an observer at meetings of the board of directors and its committees. If the Government of Israel finds that the service the provided by the
Company is an “essential service”, the Prime Minister and the Minister of Communications may impose other restrictions, including an increased demand for Israeli ownership of Company shares.
|
|
• |
Throughout the activity period, the Company must have agreements with a cellular network equipment manufacturer, including, inter alia, a knowledge transfer agreement and an agreement to
guarantee a supply of spare parts for the network equipment for at least seven (7) years; the Group must work to obtain interconnectivity between the network and other public communications networks in Israel, at equal terms, without
discrimination, and to provide Hot Mobile and Xfone with domestic roaming services; the Company must avoid expressing a preference in providing infrastructure services to license holders that are considered companies with a link (as such
term is defined in the relevant regulations) over other license holders.
|
|
• |
The license details the types of payments the Company may charge from subscribers, procedures, and certain subscriber billing and collection procedures and requirements, mechanisms, and rules for setting and raising the rates, and
reports the Group must notify its customers of before changing the rates. The license also authorizes the Minister to interfere with the rates in certain instances.
|
|
• |
The license requires the Company to meet a minimal customer service level, including customer service call centers, maintaining a certain service level for the network (both in terms of coverage and in terms of performance), protecting
the privacy of service recipients, and certain restrictions and requirements on the process and documentation of sales and marketing to Company customers.
|
|
• |
The license sets restrictions on selling, renting, or mortgaging the assets used to perform the license without the prior consent of the Minister of Communications.
|
|
• |
Under the license, the Group must procure an insurance policy to cover its activity in the cellular area. The license also includes provisions on the Group’s statutory liability for any loss or damage to any third party, resulting from
the establishment, existence, maintenance, and operation of its cellular network. The Group also agreed to indemnify the State for any financial liability imposed on the State in the event of such a loss or damage. To secure the Group’s
undertakings under the license, the Group provided a bank guarantee in favor of the Israeli Ministry of Communications. If the Cellular License terms are violated, the guarantee can be forfeited.
|
|
• |
The Company must meet these terms as well: Adopting a business continuity plan and a disaster recovery plan and a plan for managing defense against cyber attacks.
|
|
• |
The Group must submit information and reports to the Israeli Ministry of Communications at the Israeli Ministry’s request and detailed annual reports on various aspects of the Group’s activity.
|
|
(2) |
The Unified License
|
|
21.4. |
Wireless communication provisions
|
|
(1) |
General
|
|
(2) |
Building permits
|
|
(3) |
Summary
|
|
(4) |
Indemnity undertaking under the Planning and Building Law
|
|
(5) |
Permits under the Radiation Law
|
|
(6) |
Non-ionizing Radiation Information Regulations
|
|
(7) |
Network and site sharing agreement
|
|
21.5. |
Provisions in the area of fixed-line communications
|
|
(1) |
Fiber-optic network
|
|
a. |
Bezeq shall not be subject to universal deployment requirements with respect to deploying fiber-optic infrastructure, rather it shall be granted the option to inform the Israeli Ministry with respect to the areas in which it desires to
deploy infrastructure within five months of January 1, 2021, and in such areas Bezeq shall be required to provide service to all households within 6 years; Hot shall also not be subject to a universal deployment duty with respect to
deploying fiber-optic infrastructure, from the date determined for Bezeq’s duty to deploy as set forth in the license. Notwithstanding, in July 2020 the Minister of Communications set a minimum deployment duty for Hot at a rate of 30% and
a duty to meet a 1:1 deploying ratio between the periphery and the center of the country, should Hot decide to deploy an ultra-broadband network that is not based on its existing access network;
|
|
b. |
The State of Israel shall conduct tenders for subsidizing fiber-optic deployment by Bezeq’s competitors in areas where Bezeq chooses not to deploy fiber-optics (“Incentive Areas”), based on the
ratio of the number of households in the Incentive Areas and funds in the Incentive Fund (as defined below) to be allocated within the framework of the tenders. In the first three years during which there is an obligation to pay into the
Incentive Fund, the Minister of Communications shall be entitled to order that no more than 15% of the households in the Incentive Areas shall be located in certain geographical areas as the Minister may instruct. Bezeq and any
corporation linked to it may not participate in tenders. The Minister of Communications may set a reduced tariff for use of Bezeq’s existing physical infrastructure in Incentive Areas;
|
|
c. |
The subsidy shall be financed by imposing an additional mandatory payment at the rate of 0.5% of the most recent annual revenues net interconnectivity and usage payments by certain communications license holders in Israel (including
Bezeq), for which the most recent annual revenues exceeded NIS 10 million, from 2021 and until the date on which the deployment duty was determined for each Incentive Area (“Incentive Fund”);
|
|
d. |
Bezeq and a corporations linked to it are not entitled to deploy fiber-optics in Incentive Areas for 5 years from the date of determining the deployment duty in the winner’s license, except deployment for business customers to whom
they are entitled to deploy infrastructures also during that period. However, Bezeq is entitled to update its original deployment undertaking by up to a rate of 10%, so long as funds in the Incentive Fund have not yet been allocated to
the relevant Incentive Area;
|
|
e. |
The provisions of the amendment do not preclude license holders other than Bezeq or corporations linked to it from deploying a fiber-optic network or providing telecommunication services on it in Bezeq’s deployment areas, or in
Incentive Areas for which funds were not allocated out of the Incentive Fund.
|
|
(2) |
Development of the Wholesale Market
|
|
(3) |
Regulation of OTT multichannel television services
|
|
(4) |
With respect to building permits, an exemption from building permits and the applicability of the Radiation Law to communications facilities constructed as part of fixed-line communications networks, see Section 21.4 above.
|
|
21.6. |
Consumer protection legislation
|
|
21.7. |
Privacy protection law
|
|
21.8. |
Provisions in the area of labor law
|
|
21.9. |
Sanctions by virtue of regulatory provisions – administrative proceedings and financial sanctions
|
22. |
Material agreements
|
|
22.1. |
Agreement for investment in IBC – For details regarding the Company’s investment in IBC, including the partnership agreements with IIF, the IRU purchase agreements, and services agreement with IEC, see Section 6.17.1 above.
|
|
22.2. |
Agreement for Hot’s investment in IBC – For details regarding Hot’s investment agreement with IBC, including the agreement to purchase IRUs and the service agreement, see Section 6.17.2 above.
|
|
22.3. |
Agreement for the acquisition of Golan – For details regarding the binding letter of intent and the completion of the transaction for acquiring Golan, see Note 7 to the Financial Statements.
|
|
22.4. |
Engagements with vendors – For details regarding the Group’s engagements with material vendors that the Group depends for purchase, operation, and maintenance of communications equipment, information systems, content, and
end-user equipment, see Section 15 above.
|
|
22.5. |
Debt and credit agreements – For details regarding the Company’s credit agreements that it uses to finance its activity, and for details regarding the Debentures issued by the Company, see Section 6.18 above.
|
|
22.6. |
Collective employment agreements – For details regarding the Group’s collective employment agreements with the workers unions and the Histadrut, see Section 14.6 above.
|
|
22.7. |
Network sharing agreements – For details regarding network sharing agreements, see Section 6.23.1 below.
|
23. |
Cooperation agreements
|
|
23.1. |
Network sharing agreements – In March and April 2017, the Group’s network sharing agreements came into effect:
|
|
a. |
Sharing agreement for the 3G and 4G network and hosting services for the 2G network with Golan starting April 2017 (the “Golan Agreement”). This agreement came to an end in light of completing
the Golan acquisition at the end of August 2020.
|
|
b. |
Sharing agreement for the 4G network and hosting services for 2G and 3G networks with Xfone (in this Section, the “Xfone Agreement” or the “Sharing Agreement”).
Xfone started operating in the cellular market in April 2018.
|
|
c. |
An agreement that incorporates the relevant 4G network sharing arrangements set forth in the Xfone Agreement and in the Golan Agreement, into an agreement between the Group, Golan and Xfone (in this Section, the “Triple Agreement”). This agreement also came to an end in light of completing the Golan acquisition at the end of August 2020.
|
|
23.2. |
The Sharing Agreement with Xfone
|
|
a. |
Arrangements for using the parties’ relevant frequencies; management and operation using a joint corporation (the “Joint Corporation”)25; equal ownership of the shared network’s active components; arrangements for future investments in the shared network’s active components; arrangements for an indefeasible right of use (IRU) of these
components, of each sharing party towards the other sharing parties; the grant of an indefeasible right of use (IRU) from the Group to Xfone and to the Joint Corporation with respect to the shared network’s passive components;
arrangements for services the Group shall provide the Joint Corporation as a subcontractor; arrangements for the parties’ separation; and arrangements for adding an additional joint party.
|
|
b. |
The agreement period – The agreement is made for 10 years. This period shall be extended by additional periods, unless one of the parties announces otherwise. In addition to standard causes, Xfone may terminate the agreement by
prior written notice, should it decide to shut down its cellular market operations in Israel.
|
|
c. |
The consideration – The annual consideration to be received by the Group during the agreement period within the framework of the Xfone Agreement is made up of three components: (1) payment for the IRU on the passive components
of the shared network; (2) payment for Xfone’s share in the cost of the active components of the shared network prior to the sharing agreement, and its share of the cost of the active components to be purchased for the shared network
after the sharing agreement comes into effect; and (3) payment for participation in the regular operating costs of the shared network and the Group’s 2G and 3G networks, according to the number of Xfone subscribers and their use of the
shared network and of the Group’s 2G and 3G networks. Nevertheless, starting in April 2018, and for up to 5 years, Xfone shall be entitled to exchange its payments to the Group for the indefeasible right of use (IRU) on the passive
components of the shared network and its share of the regular operating costs of the shared network and the Group’s 2G and 3G network, with a monthly payment based on the number of subscribers that shall be no lower than variable annual
minimum numbers, at the range of NIS 20 million in the first year to NIS 110 million in the fifth year (“Settlement of Accounts Mechanism during the Penetration Period”)
|
|
23.3. |
The sharing agreement with Golan
|
|
23.4. |
Roaming agreements – Roaming agreements enable the customers of Operator A to receive cellular network services from Operator B when the customers of Operator A are outside Operator A’s coverage area, but within Operator B’s
coverage area (incoming and outgoing roaming services).
|
24. |
Legal proceedings
|
|
24.1. |
Material pending legal proceedings: Hereunder are details of pending legal proceedings, in which the claimed amount is substantial or may have significant implications on the Group’s activity:
|
Date of filing the claim
|
Proceeding type, parties, instance of court and original amount of the claim
|
Details
|
November 2010
|
Motion for approval of class certification filed by the plaintiff, Sharon Lin, to the District Court in Tel Aviv against the Company, arguing
that the Company unlawfully charged its customers for third party content services.
The class action amount was estimated by the plaintiff at NIS 300,000,000.
|
In the end of October 2020, the District Court held a hearing regarding this motion and two additional certification motions concerning the
content services, with respect to which hearings were consolidated (see details below).
|
May
2011
|
Motion for approval of class certification filed by the plaintiff, Shlomi Cohen, to the District Court in Tel Aviv against the Company,
arguing that the Company violated the provisions of its license, by engaging in price discrimination towards its customers.
The amount claimed was estimated by the plaintiff at NIS 150 million.
|
In December 2019, the motion for approval of class certification was dismissed by the District Court in Tel Aviv. In February 2020, the
plaintiffs filed an appeal on the decision to the Supreme Court. A hearing on the appeal was held in February 2021, and is awaiting judgment.
|
February
2013
|
Motion for approval of class certification filed to the District Court for the Central District by plaintiffs Eliasaf Gerst and Vered Sidi,
against a corporation that was formerly part of the Group (currently Cellcom Partnership), arguing that it violated the Consumer Protection Law the provisions of its license, with respect to the obligation to end the engagement on time.
The class action claim amount was estimated at approx. NIS 72 million.
|
In January 2017, the motion was partially certified as a class action, with respect to Company customers who asked to be disconnected from
the service and were not disconnected within the timeframe stipulated by law, even if the Company mistakenly thought the customer had retracted its disconnection notice. The main argument in the claim whereby the Group is obligated to
disconnect the customer immediately upon request, without any attempt to retain the customer, was rejected and in March 2019 an appeal filed by the plaintiffs to the Supreme Court was also dismissed, and the case was sent back down to
the District Court.
|
Date of filing the claim
|
Proceeding type, parties, instance of court and original amount of the claim
|
Details
|
July
2014
|
Motion for approval of class certification filed by the plaintiff, the Israel Consumers Council, against the Group, two additional cellular
operators and a content provider, arguing that the invoices, the legal proceedings and/or the amounts collected as a result thereof by the content provider are unlawful.
The class action amount was estimated in the amount of NIS 300 million.
|
At the end of October 2020, a hearing was held at the District Court on this motion and two additional certification motions concerning the
content services, with respect to which the hearing was consolidated. The court recommended that the plaintiff not insist this motion be heard.
In December 2020, the plaintiff informed the court that it insists on the motion being heard.
|
November
2016
|
Motion for approval of class certification filed to the District Court in Tel Aviv by the plaintiff, Tal Butler, arguing unlawful interest
collection on end equipment in a loan transaction, in which the effective interest exceeded the amount permitted under the provisions of the Law for Regulating Non-bank Loans and/or without indicating the interest rate in violation of the
Consumer Protection Law and its regulations.
The claim amount was estimated at NIS 73,237,500.
|
In the court-hearing held in November 2020, and at the court’s recommendation, the plaintiff withdrew the cause of action for interest in
excess of the legally permissible amount.
|
September
2017
|
Motion for approval of class certification filed to the District Court for the Central District by the plaintiff, law firm Raanan Bashan,
against the Company and one of its subsidiaries, arguing that the waiting times at the Group’s telephone call centers do not meet the licensing requirements.
The class action amount was estimated at approx. NIS 88 million.
|
The court referred the parties to mediation proceedings. The parties have commenced mediation proceedings.
|
November
2019
|
Motion for approval of class certification filed by the Israel Consumers Council to the District Court in Tel Aviv against the Company and
two additional cellular operators, arguing that the Company unlawfully charged its customers for third party content services.
The class action amount was estimated at NIS 400 million.
|
At the end of October 2020, a hearing was held at the District Court regarding this motion and two additional certification motions regarding
the content services, with respect to which hearings were consolidated.
The court recommended the plaintiff not insist on hearing this motion.
In December 2020, the plaintiff informed the court it agrees to its recommendation to strike the motion.
|
Date of filing the claim
|
Proceeding type, parties, instance of court and original amount of the claim
|
Details
|
April
2020
|
Motion for approval of class certification filed to the District Court in Tel Aviv by the plaintiff, Mor Hirsch, arguing that the Group
misled its customers about the content of a package for internet browsing abroad and breached its agreement with them.
The class action amount was estimated at approx. NIS 82 million.
|
The Company has submitted its response to the court.
|
July
2020
|
Motion for approval of class certification filed to the District Court in Tel Aviv by the plaintiff, Daniel Daniel, arguing that service
charges were updated in violation of the provisions of the law, the license and the agreement.
The class action amount was estimated at NIS 100 million.
|
The Company has not yet submitted its response to the court.
|
January
2021
|
Motion for approval of class certification filed to the District Court in Tel Aviv by the plaintiff, Chacham Yitzhak, arguing that the
Company does not inform repair service subscribers who own water and dust proof phones, that once phones are repaired, they will no longer be water and dust proof, contrary to the provisions of the law and the agreement.
The class action amount was estimated at over NIS 50 million.
|
The Company has not yet submitted its response to the court.
|
February
2021
|
Motion for approval of class certification filed to the District Court in Tel Aviv by the plaintiff, Armon Arie, claiming that the Company
did not provide a human response as required by law and the terms of its license for callers to its call center.
The class action amount was estimated at NIS 150 million.
|
The Company has not yet submitted its response to the court.
|
|
24.2. |
Material legal proceedings that ended during the period of the Report:
|
Date of filing the claim
|
Proceeding type, parties, instance of court and original amount of the claim
|
Details
|
Date of filing the claim
|
Proceeding type, parties, instance of court and original amount of the claim
|
Details
|
Filed in March 2018 and ended in July 2020
|
Motion for approval of class certification filed to the District Court for the Central District by the plaintiff, Sima Rahmani, arguing that
Xiaomi Redmi Note 4 cellular handsets have a limitation on calls to emergency call centers.
The class action amount was estimated at NIS 65 million.
|
In July 2020, the applicant withdrew the motion at the court’s recommendation.
|
Filed in April 2018 and ended in September 2019
|
Motion for approval of class certification filed to the District Court for the Central District by the plaintiff, Eli Lavi, arguing there is
no warning that repeat entry of an incorrect access code in iPhones leads to permanent shutdown of the handset and blocks access to content stored on the handset.
The class action amount was estimated at NIS 52 million.
|
In September 2019, the applicant withdrew the claim at the court’s recommendation.
|
Filed in May 2018 and ended in July 2020
|
Motion for approval of class certification filed to the District Court for the Central District by the plaintiff, Minka Chava, arguing that
the Group, in violation of its license, failed to send out voice messages regarding increased rates for subscribers to “kosher” programs.
The class action amount was estimated at NIS 88 million.
|
In July 2020, the court approved a settlement agreement in the claim, under which it paid the class an insignificant amount as compensation
for customers who did not receive notice as described.
|
Filed in June 2020 and ended in August 2020
|
Motion for approval of class certification filed to the District Court in Haifa by the plaintiff, Beck Leistner, arguing that the Group does
not include in its agreements a tariff for a certain added value service.
The class action amount was estimated at NIS 178 million.
|
The claim was struck for inactivity.
|
25. |
Goals, business strategy and anticipated development in the forthcoming year
|
|
25.1. |
Offering comprehensive solutions for the provision of mobile and fixed-line communications services – The Group offers its private and business customers a wide range of cellular and fixed-line
communications services and it intends to continue to leverage its leading status and large market share in order to further deepen the supply of services to its customers. For these purposes, the Group makes great efforts to provide its
customers with a high-quality service and support experience, and invests in developing service infrastructures, including expansion and constant improvement of digital channels.
|
|
25.2. |
Investment, development and upgrade of the Group’s communications networks – The Group acts to sustain high-quality networks which support advanced solutions which meet customer needs. In this
context, in the field of mobile communications, the Group acts to maintain, upgrade and expand the capacity and coverage of its cellular networks within expansion of the 4G network and deployment of the 5G network. In the area of
fixed-line communications, the Group is acting to maintain and update its transmission/fiber-optic network as needed, as well as to significantly expand deployment of IBC’s fiber-optic network, in an expedited manner, so that the Group
can be transformed from an entity that is dependent on the infrastructures of others in the area of fixed-line communication, to a partner in an expansive and independent fixed-line infrastructure.
|
|
25.3. |
Optimization of expense structure - The Group acts, on an ongoing basis, to increase the efficiency and suitability of its costs structure, while constantly striving to maintain and improve the
quality of customer service, all as a lever for increasing income and improving profitability.
|
26. |
Discussion of risk factors
|
|
26.1. |
Macro risk factors
|
|
26.1.1. |
Financial risks – The Group is exposed to exchange rate fluctuations, since a significant part of its expenses are generally in USD while its revenues are in NIS. In addition, the Group is
exposed to changes in the Consumer Price Index with respect to some series of debentures it has issued, since they are linked to the Index, whereby any increase in the Index increases the Company’s obligations and its financing expenses.
The Group is acting to minimize exposure to financial risks through protective financial transactions.
|
|
26.1.2. |
Regional conflict – In general, armed conflict, terrorist activity or political instability in the region of the State of Israel could adversely impact the Group’s revenues, including revenues
from roaming services for incoming tourists. These types of negative influences may also be realized due to an increase in international community criticism against Israel, including the “name and shame list” published from time to time
by the UN’s Human Rights Council.
|
|
26.1.3. |
Spread of the coronavirus – For information on the impact of the spread of the coronavirus on the Group’s activities, see Section 1.5 of the Board of Directors Report.
|
|
26.1.4. |
Cyber-attacks – Over the past few years, there has been an increase in the frequency, scope and potential for harm of cyber-attacks against companies, including the Group. Cyber-attacks can cause
failures in equipment, loss, discovery, access, use, vandalization, destruction or appropriation of information, including sensitive personal information about customers or employees, or expensive content and technical and promotional
information, as well as disturbances in Group and customer activities. Inability to operate the Group’s networks and systems, suppliers or service providers, even for a limited time, can lead to substantial expenses (even beyond the
Group’s insurance coverage), loss of market share to other operators, legal claims and proceedings as well as harming the Group’s reputation and can have a substantial negative impact on the results of the Group’s activities and its
financial situation.
|
|
26.2. |
Industry risks
|
|
26.2.1. |
Aggressive competition - The communications market is highly competitive in many areas. The trends detailed in Section 11 above have led to high churn rates, an increase in costs associated with
acquiring and retaining customers, continued price erosion, and an adverse effect on the Group’s income and profitability. The Israeli Ministry of Communications continues to act to reduce barriers to expanded competition in the different
areas of telecommunications, inter alia through a more lenient licensing policy. The present level of competition in most of the markets in which the Group is active, as well as proposals for
aggressive pricing plans by the Group’s competitors, are expected to continue.
|
|
(1) |
Tariffs remaining at the present level, or an additional decrease thereof, including as part of a service package;
|
|
(2) |
A service offer by the Group’s competitors in the fixed-line communications market, which does not meet the criteria of the Wholesale Market, without any enforcement measures on the part of the Israeli Ministry of Communications, or
pricing or regulatory changes which would harm the Group’s ability to offer competitive service packages;
|
|
(3) |
Increased competition by the Bezeq and Hot groups, due to their dominance in the fixed-line market. Thus, for example, if Bezeq and/or Hot were to act to reduce the margin between wholesale and retail service (“Margin Squeeze”),
without regulatory intervention to prevent such “squeezing”, or if Bezeq and/or Hot were to begin selling internet infrastructure services using fiber-optics;
|
|
(4) |
Cancellation or easing of the structural separation imposed on the Bezeq and Hot groups, or continued consolidation of the activities of the subsidiaries of the Bezeq group;
|
|
(5) |
The entrance of new competitors, including international companies, to the markets in which the Group operates or activities by competitors in the same market according to materially different regulation, which would weigh on the
Group;
|
|
(6) |
If supplementary services were to become competitive to the Group’s services, or the entrance of existing competitors to areas in which they did not previously operate or operated partially until now;
|
|
(7) |
A substantial expansion of the current capacity to supply independent communications services, including through unlicensed third parties; supply of better coverage than that supplied by cellular operators with infrastructure, through
the use of a number of networks; companies shall be able to supply cellular service not designated for the general public throughout Israel;
|
|
(8) |
Failure of IBC to deploy fixed-line infrastructure. As of the date of the Report, the Group is dependent on the fixed-line Wholesale Market. The band width included in the Group’s proposals, in comparison to competitors with their own
infrastructures, may be limited due to growth of the Group’s television and internet services;
|
|
(9) |
The Group’s inability to purchase additional frequencies in a quantity equal to those purchased by its competitors, or in an insufficient quantity. Alternatively, inability to execute the required investment in networks or in the
Group’s business in general, in order to maintain its competitive status;
|
|
(10) |
Regulatory or technological changes making it easier for customers to transfer between operators;
|
|
(11) |
The Group’s competitors’ ability to obtain access and preferable terms of engagement with international suppliers or foreign operators, due to association with international groups or due to exclusivity arrangements;
|
|
(12) |
Transfer to different frequencies, which would adversely impact the Group’s services, or requiring the Group to bear the expenses of frequency changes or reductions, which would not affect competitors;
|
|
(13) |
Malfunctions and/or cyber-attacks which would harm the supply of telecommunications services by the Group, as well as its image.
|
|
26.2.2. |
Legislative changes and strong regulatory intervention - Legislative changes, regulatory intervention in the telecommunications market and the Group’s activities and judicial decisions could
have a material adverse effect on the results of the Group’s activities, inter alia, due to:
|
|
(1) |
Cancelling or easing of the structural separation obligation applicable to Bezeq and Hot;
|
|
(2) |
Different regulation regarding Wholesale Market rates which is unfavorable to the Group, including high tariffs for wholesale services (particularly in light of the rapidly increasing demand for increased data capacity for internet and
television services). In addition, a mechanism that fails to prevent Bezeq and Hot from reducing their retail tariffs in order to minimize the gap between wholesale and retail tariffs (“Margin Squeeze”). In addition, non-enforcement of
Wholesale Market regulation, which would adversely impact the Group’s competitive capabilities;
|
|
(3) |
Easing restrictions and granting benefits to the Group’s competitors;
|
|
(4) |
Allocation of frequencies held by the Group to other companies and/or a demand to return frequencies allocated to the Group and/or a requirement that the Group use fewer frequencies than those allocated to it and/or a limitation on the
use of frequencies and/or non-allocation of additional frequencies (if requested) and/or allocation of frequencies under terms that are unfavorable to the Group and/or under terms that are less favorable and/or in a lesser quantity than
other operators and/or a demand to replace frequencies in an unreasonable time frame or a need to bear the replacement costs;
|
|
(5) |
Conditions for deployment of the Group’s network when using new frequencies, which would require the Group to make significant investments, without regard to economic feasibility or the Group’s financial situation;
|
|
(6) |
Reduction of barriers to entry and encouraging additional competitors to enter the telecommunications market, such as reducing licensing requirements or granting permits to supply communications services, which may increase competition
in the market;
|
|
(7) |
Substantial expansion of the current capacity to supply independent communications services, including through unlicensed third parties; supply of better coverage than that supplied by cellular operators with infrastructure, through
use of a number of networks; enabling companies to supply cellular service not designated for the general public throughout Israel;
|
|
(8) |
Additional requirements with respect to health or safety; additional requirements or limitations with respect to construction of the cell sites and networks;
|
|
(9) |
Additional limitations or requirements on the supply of services and products and/or intervention in the conditions of marketing, advertising, their price and supply, including with respect to existing agreements;
|
|
(10) |
Setting a higher standard of service, both with respect to network quality and coverage, as well as customer service, including response times;
|
|
(11) |
A time frame for implementation of new licensing requirements or the implementation of other legislation which cannot be met;
|
|
(12) |
A stricter privacy protection policy, including with respect to the Group’s commercial activities or for the benefit of third parties;
|
|
(13) |
Imposing regulations on the Group’s OTT television service, including an obligation to finance original productions or imposing such regulations on the Group but not on other OTT suppliers;
|
|
(14) |
Limitation or prohibition against license renewal and allocation of additional frequencies, inter alia, since the Group is included in the list of concentrated entities (since it is a
subsidiary of Discount Investment Corporation Ltd.), published under the Concentration Law.
|
|
(15) |
Regulation unfavorable to IBC’s activities and competitive status, which could adversely impact the Group as an indirect shareholder or customer of IBC.
|
|
26.2.3. |
A significant drop in profitability due to material changes in the regulatory and business environment – As a result of material and continuous changes in the Group’s regulatory and business
environment, the results of operations, profitability and cash-flows have been substantially hurt in the past few years, and in 2018, 2019 and 2020, losses were even recorded. Continuation of this trend could have an adverse effect on the
Group’s financial situation. The main factors which led to the continuous decline in the Group’s results over the past few years have been regulatory developments designed to increase competition in the Israeli communications market,
which caused significant erosion in the prices collected for cellular services.
|
|
26.2.4. |
Site licensing – Construction and operation of cell sites necessitates the receipt of building permits from different planning and construction committees, a process which requires, inter alia, receipt of approvals from government entities and regulatory bodies. The difficulties encountered by the Group (as well as by its competitors) in obtaining the necessary permits and
approvals, particularly building permits, including due to the public’s fear of radiation from the sites, can have a negative impact on the Group’s existing infrastructure and the continued development of its cellular network. In
addition, failure to obtain approvals on time could harm the quality targets for cellular service set forth in the Group’s license, lead to customer loss, and thereby impact negatively on the Group’s business results.
|
|
26.2.5. |
Non-ionizing radiation from end equipment and sites - End equipment and cellular sites, of varying kinds, emit non-ionizing radiation. Construction and operation of cell sites is conditioned
upon receipt of a construction and operation permit from the Radiation Commissioner. The Group is acting to ensure that the levels of radiation emitted from the end equipment sold by it and its cellular sites does not exceed the level
permissible under the Israeli Ministry of Environmental Protection guidelines (which were determined in accordance with international standards).
|
|
26.2.6. |
Dependence on licenses – The Group provides communications services in accordance with licenses granted by the Israeli Ministry of Communications, which are subject to change and extension from
time to time. There is no certainty that the Group’s licenses shall be extended by the Israeli Ministry of Communications. Should the licenses be extended, they may be extended under conditions that are unfavorable to the Group. For
further information on exposure to interpretation and implementation of the license provisions by the Israeli Ministry of Communications, see Section 21.1 above.
|
|
26.2.7. |
Technological changes and dependence on technology - The communications market is characterized by rapid, significant technological changes, which require investment in advanced technology in
order to remain competitive.
|
|
26.2.8. |
Decline in revenues from end equipment – The sale of end user equipment accounts for a considerable part of the Group’s income and profitability. In recent years, additional competitors have
entered the field, and increased competition in the market in a manner that caused erosion of the Group’s profits. . Similarly, the increase in sales in digital channels, which are characterized by lower profitability. Such trend going on
or additional changes in this market, inter alia those detailed below, may have a substantial adverse effect on profitability from end equipment and the Group’s profitability:
|
|
(1) |
Entry of additional domestic or international competitors to the field;
|
|
(2) |
Changes in distribution channels or customer buying habits;
|
|
(3) |
Inability to continue marketing the products of certain suppliers, which constitute a significant share of the Group’s sales (such as marketing of Samsung and Apple handsets, which as of the Report date constitute the majority of the
Group’s sales);
|
|
(4) |
New legislation, regulatory and judicial decisions, which impact on the Group’s ability to market end equipment and profit from it.
|
|
26.2.9. |
Times of emergency – There are legislative provisions and provisions in the Cellular License which, in times of emergency, grant parties authorized by law, power to take measures necessary for
guarantee state security and public welfare, including: obligating the Group to provide service or construct a communications facility for the security forces, provision of the Group’s engineering equipment and facilities, and even
control of the Group’s systems.
|
|
26.2.10. |
Legal proceedings - The Group is party to legal proceedings filed against it from time to time, including: (a) claims on consumer and privacy matters: scope and size of the Group’s
activities, number of services supplied, quantity of information processed, changes in the Group’s activities and pricing programs, frequent changes in regulations and the applicable law, involvement of thousands of service and sales
representatives in customer relations as well as cyber-attacks, all increase the risk of service failures, damage or infiltration to the Company’s systems, lack of compatibility between programs, prices and the processed information
based on which the Group acts, all despite the Group’s efforts to minimize the above risk. The Group’s exposure to legal proceedings whose cause of action is based on consumer and privacy matters as above, including within motions for
certification of class action claims against the Group, is in material amounts; (b) claims by employees, subcontractors, suppliers, authorities and others – the Group employs thousands
of employees and therefore is exposed to claims by them, including class actions. In addition, the Group is exposed to third party claims in connection with commercial disputes, and claims by state authorities including the Israeli
Ministry of Communications and planning and building claims (as detailed in Section 21.3(2) above); and (c) intellectual property claims – the Group is at risk for intellectual property
right claims, in connection with its services including television services and other content services (including video, photos and music), which the Group purchases from external suppliers. Such proceedings could require the Group to
engage in complex and expensive proceedings, regardless of whether or not the arguments brought against the Group are justified, and limit its ability to use certain content, insofar as such proceedings shall be decided against it.
|
|
26.3. |
Special Risks
|
|
26.3.1. |
Debt rate – The Group has procured debt of a substantial scope, which reduces the resources available to it for the need of current activities and investments and increases its exposure to market
changes and makes it difficult to respond quickly to industry changes and conditions in the competitive market, including by procuring additional debt. For further details on the Group’s debt, see Section 18 above, and Comment 19 to the
Company’s consolidated financial statements as of December 31, 2019.
|
|
26.3.2. |
Dependency on suppliers - The Group is dependent on a number of suppliers that provide it with communications equipment, information systems, content and end equipment, including operating and
maintenance services for the equipment. The Group’s business results could be adversely affected if any of the suppliers fails to supply its products or services at the level of quality or in the timeframe required, or under conditions
that are unfavorable to the Group; supplies its services under preferential conditions to the Group’s competitors; is unable to manufacture products or content that are successful or in demand in the absence of an equal value alternative;
decides to increase the price of its services or content (such as suppliers of sports content).
|
|
26.3.3. |
Network sharing agreement – Consideration from the Group’s network sharing agreement with Xfone is material to the results of the Group’s activities. If the agreement is terminated or its terms
are changed such that payments to the Group under the agreement are materially reduced or payments are not made to the Group under the agreement over a period of time, for any reason whatsoever, it may lead to a material adverse effect on
the results of the Group’s activities. For details regarding breach of the Sharing Agreement by Xfone, notification of termination of the agreement by Xfone and legal proceedings the Company has initiated, see Section 23.1 above.
|
|
26.3.4. |
Group investments in new businesses – The Group has invested, and is expected to continue to invest, in the development of new businesses in order to expand its capacities and supply of new
products, such as its investment in IBC, the purchase of Golan and sale of internet products and services (IOT).
|
|
26.3.5. |
Employee unionization – Employee unionization could limit the Group’s current activities, including its ability to make organizational and personnel changes, and require significant management
attention. In addition, disputes with the representative body of the employee union could lead to the adoption of organizational measures, and have a negative impact on the Group’s services and customer service. Such changes could fail or
be executed in a manner materially different than planned, and as a result lead to savings that are lower than planned. For further details on employee unionization within the Group, see Section 14.6 above.
|
|
26.4. |
Risk Factor Table
|
Type of risk
|
Risk factors
|
Extent of impact on Group’s business
|
||
Major impact
|
Moderate impact
|
Minor impact
|
||
Macro risks
|
Financial risks
|
X
|
||
Regional conflict
|
X
|
|||
Spread of coronavirus
|
X
|
|||
Cyber attacks
|
X
|
|||
Industry risks
|
Aggressive competition
|
X
|
||
Legislative changes and strong regulatory intervention
|
X
|
|||
A significant drop in profitability due to material changes in the regulatory and business environment
|
X
|
|||
Site licensing
|
X
|
|||
Dependency on licenses
|
X
|
|||
Technological changes and dependency on technology
|
X
|
|||
Decline in end equipment revenues
|
X
|
|||
Times of emergency
|
X
|
|||
Legal proceedings
|
X
|
|||
Risks unique to the Group
|
High debt rate
|
X
|
||
Dependency on suppliers
|
X
|
|||
Network sharing agreements
|
X
|
|||
Group investments in new businesses
|
X
|
|||
Employee unionization
|
X
|
27. |
Definitions
|
“Xfone”
|
-
|
Marathon 018 Xfone Ltd.
|
“Bezeq” or “Bezeq Group”
|
-
|
Bezeq the Israeli Telecommunication Corp. Ltd. and its subsidiaries.
|
“Golan”
|
-
|
Golan Telecom Ltd.
|
“Dynamica”
|
-
|
Dynamica Communications Chain Stores Ltd.
|
“Financial Statements”
|
-
|
The Company’s consolidated financial statements as of December 31, 2020, which are included in Chapter C of this Periodic Report.
|
“Board of Directors’ Report”
|
-
|
The board of directors’ report on the corporation’s state of affairs as of December 31, 2020, which is included in Chapter B of the Periodic Report.
|
“Hot” or “Hot Group”
|
-
|
Hot – Telecommunications Systems Ltd. and its subsidiaries.
|
“Hot Mobile”
|
-
|
Hot Mobile Ltd.
|
“IRU Agreement”
|
-
|
Indefeasible Right of Use Agreement
|
“Company”
|
-
|
Cellcom Israel Ltd.
|
“Consumer Protection Law”
|
-
|
The Consumer Protection Law, 5741-1981, and the regulations promulgated thereunder.
|
“Radiation Law”
|
-
|
The Non-Ionizing Radiation Law, 5766-2006.
|
“Concentration Law”
|
-
|
The Law for Promotion of Competition and Reduction of Concentration, 5774-2013.
|
“Planning and Building Law”
|
-
|
Planning and Building Law, 5725-1965.
|
“Communications Law”
|
-
|
Communications (Telecommunications and Broadcasting) Law, 5742-1982.
|
“Triple”
|
-
|
A “triple” package, which includes internet services (connectivity and infrastructure), fixed-line telephone services and television services or other composition as it may be from time
to time.
|
“IPCS”
|
-
|
International Phone Call Service (international operator).
|
“Virtual Operator” or “MVNO”
|
-
|
A cellular operator that does not possess infrastructure and frequencies, and purchases hosting services from an operator with infrastructure.
|
“Cellcom” or the “Group”
|
-
|
The Company and the Subsidiaries.
|
“Cellcom tv”
|
-
|
Internet television services (OTT) including television channel broadcasts, video on demand (VOD) services, and other advanced features.
|
“Pelephone”
|
-
|
Pelephone Communications Ltd.
|
“Telegraph Ordinance”
|
-
|
The Wireless Telegraph Ordinance [New Version], 5732–1972
|
“Partner”
|
-
|
Partner Communications Company Ltd.
|
“End Equipment”
|
-
|
Different types of mobile phones, Bluetooth and accessories, tablets, laptop computers, modems, speakers, smart watches, and other electronic accessories.
|
“Unified License”
|
-
|
A general license for providing telecommunications services that allows providing different kinds of services, granted to Cellcom Fixed Lines Communications Limited Partnership.
|
“Wholesale Market”
|
-
|
As detailed in Section 6.23.5 (2).
|
“Cellcom Partnership”
|
-
|
Cellcom Fixed Line Communications Limited Partnership.
|
“IBC Partnership”
|
-
|
IBC Unlimited Holdings Limited Partnership.
|
“GSM”
|
-
|
Digital cellular network technology commonly - used in most countries in the world.
|
“GPRS”
|
-
|
Data communications standard using GSM network, which enables content transfer and internet access.
|
“EDGE”
|
-
|
Data communications standard using GSM network, which is an upgrade of GPRS.
|
“HSPA”
|
-
|
High Speed Packet Access – a wireless cellular communications protocol designated for a spatial communications network that connects between municipal networks and local networks.
|
“HSPA +”
|
-
|
Upgrade of HSPA technology.
|
“IBC”
|
-
|
IBC Israel Broadband Company (2013) Ltd.
|
“IOT Solutions”
|
-
|
Internet of Things solutions, which enable connection of different end products to the internet, such as “smart city” solutions.
|
“LTE”
|
-
|
Radio technology standard – mobile phone which enables fast-paced data transfer.
|
“MNO”
|
-
|
Mobile Network Operator, cellular communications operator with infrastructure and frequencies.
|
“OTT”
|
-
|
Over The Top, technology that uses public internet infrastructure to supply video on demand television services.
|
“UMTS”
|
-
|
Universal Mobile Telecommunication System, or worldwide mobile telephone system, 3G cellular telephone technology. HSPA technology using UMTS network constitutes one of the dominant 3G
standards.
|
“VOB”
|
-
|
Voice Over Broadband, IP telephone service on fixed-line broadband access.
|
“IP”
|
-
|
Internet Protocol, internet protocol which enables coherence between voice, data and video on the same network.
|
“VOIP”
|
-
|
Voice Over IP, general term for different technologies and systems for voice transfer using IP networks, such as the internet.
|
“RSUs”
|
-
|
Restricted Share Units.
|
“SAR Level”
|
-
|
For mobile phones held near the body, the level of non-ionizing radiation emitted from the phone is measured based on the level of specific absorption by living tissue, the Specific
Absorption Rate.
|
“SDH”
|
-
|
Synchronous Digital Hierarchy, technological standard for the transfer of data using optic media.
|
“Ethernet Carrier”
|
-
|
Network for transfer of transmission and data using IP technology.
|
The Board of Directors’ Report
on the State of the
Corporation’s Affairs
December 31, 2020
|
1. |
Brief description of the Company, its business, and its activity during the Report Period
|
|
1.1. |
General
|
|
1.1.1. |
The cellular communications area (cellular segment) - In the framework of this area of activity, the Group provides its customers with a wide range of cellular telecommunication services in Israel, under licenses it was
granted by the Ministry of Communications. Similarly, the Group provides overseas roaming services to its customers and to customers of foreign operators who are visiting Israel. In addition, the Company sells related services and
equipment and equipment repair services to its customers. The cellular segment also includes the Company’s revenues arising from the collaboration agreement with Marathon 018 Xfone Ltd. (“Xfone”).
For details see Note 32 to the Financial Statements.
|
|
1.1.2. |
The fixed-line communications area (fixed-line segment) - In the framework of this area of activity, the Group provides internet connectivity services, internet infrastructure (based on the fixed-line wholesale market and
IBC’s fiber-optic infrastructure), internet based television services (“Cellcom tv”), international telephony services, fixed-line telephony services (“Domestic
Operator Services”) for the business and private sectors, and transmission services for business customers and for telecommunication operators on the basis of the Group’s independent infrastructure. The communication services
are provided under licenses it was granted by Ministry of Communications (except for the internet television services that do not require a license). Similarly, the Group provides additional services such as: Conferencing services,
server hosting services, cloud information security services and IOT solutions. In addition, the Group offers equipment and equipment repair services to its customers.
|
|
1.2. |
A review of the Company’s management regarding the results of the Group’s activity for 2020 and material processes that were conducted that year:
|
|
1.3. |
Material events during the Report Period and thereafter
|
|
1.3.1. |
On May 12, 2020, a public offering was completed of NIS 222,000,000 par value of debentures and 2,220,000 warrants (Series 4) of the Company, under the Company’s shelf offering report dated May 11, 2020, the immediate gross proceeds
of which amounted to approximately NIS 201 million. For additional details about the results of such offering, see the Company’s notice on the offering results in the shelf offering report dated May 12, 2020 (reference no:
2020-02-046623) which is hereby included by way of reference, and Note 20 to the Financial Statements .
|
|
1.3.2. |
In August 2020, the Company completed the acquisition of all the issued share capital of Golan Telecom Ltd. (“Golan”). For additional details see Note 7 to the Financial Statements.
|
|
1.3.3. |
With respect to the Group and its partner in the joint cellular network, Xfone, winning a frequencies tender that includes 5G frequencies, which was published by the Ministry of Communications in July 2019, see Section 13.5 in
Chapter A of this Periodic Report and Note 34 to the Financial Statements.
|
|
1.3.4. |
With respect to the completion of an investment agreement with Hot - Telecommunication Systems Ltd. (“Hot”), whereby Hot would turn into an equal partner in the IBC Partnership, see Section
17.2 in Chapter A of this Periodic Report and Note 32 to the Financial Statements.
|
|
1.3.5. |
With respect to the court’s decision, whereby it approved the offering of an investment group led by Mega Or Holdings Ltd. for the purchase of DIC’s Pledged Shares, subject to additional approvals insofar as required under law See
Regulation 21A in Chapter D of this Periodic Report and Note 1 to the Financial Statements.
|
|
1.3.6. |
On December 2, 2020, the Company completed a private placement by way of expanding a series of debentures (Series L) in scope of NIS 400 million par value, in consideration for approximately NIS 391 million. For additional details
see the Company’s immediate report dated December 1, 2020 (reference no: 2020-02-122566), which is hereby included by way of reference.
|
|
1.3.7. |
With respect to a dispute and legal proceedings that the Company initiated against Xfone, including due to partial payment of payments due to the Company under the collaboration agreement between the companies and the notice of
termination of the cooperation agreement, see Section 23.2 in Chapter A to this Periodic Report and Note 32 to the Financial Statements.
|
|
1.4. |
Procedure for de-registration of the Company’s shares from trading on NYSE
|
|
1.5. |
The Coronavirus spread
|
2. |
Financial position
|
Section
|
As of December 31
|
Board of directors’ explanation
|
|
2020
|
2019
|
||
Current assets
|
2,299
|
2,759
|
The decrease in the current assets as of December 31, 2020, compared to the current assets as of December 31, 2019, mainly derived from a
decrease in the cash section as a result of completing the Golan acquisition transaction, and a decrease in the customers section that derived from a decrease in customers for selling equipment and terminating inter-company balances
with Golan (in light of its initial consolidation).
|
Non-current assets
|
4,858
|
4,403
|
The increase in non-current assets as of December 31, 2020, compared to non-current assets as of December 31, 2019, mainly derived from an
increase in intangible assets for allocating surplus costs deriving from the acquisition of Golan. This increase was partially offset against a decrease in the long-term balance of customers for selling equipment and terminating
inter-company balances with Golan (in light of its initial consolidation).
|
Total assets
|
7,157
|
7,162
|
|
Current liabilities
|
1,929
|
1,826
|
The increase in current liabilities as of December 31, 2020, compared to the current liabilities as of December 31, 2019, mainly derived
from an increase in the suppliers section and provisions section as a result of Golan’s consolidation, and an increase in the suppliers balance as a result of an increase in investments in the cellular network toward the end of 2020.
|
Non-current liabilities
|
3,348
|
3,449
|
The decrease in non-current liabilities as of December 31, 2020, compared to non-current liabilities as of December 31, 2019, mainly
derived from a decrease in liabilities for leases and a decrease in long-term loans due to ongoing repayments. This decrease was partially offset against an increase in liabilities for debentures.
|
Total liabilities
|
5,277
|
5,275
|
|
Equity
|
1,880
|
1,887
|
The decrease mainly derived rom the Company’s net loss that was mostly offset against the proceeds of issuing capital.
|
Total liabilities and equity
|
7,157
|
7,162
|
3. |
Analysis of the operating results
|
|
3.1. |
Below is an analysis of the Company’s operating results for 2018, 2019 and 2020 (in NIS millions):
|
Section
|
As of December 31
|
Board of directors’ explanation
|
||
2020
|
2019
|
2018
|
||
In NIS millions
|
Revenues from services
|
2,798
|
2,776
|
2,784
|
The increase in 2020 compared to 2019 mainly derived from Golan’s revenue from four months of activity and from an increase in revenue from
the fixed-line segment, which was partially offset by a decrease in revenue from roaming services as a result of the Coronavirus Crisis. The decrease in 2019 compared to 2018 mainly derived from a 2.9% decrease in revenue from services
in the cellular segment, as a result of a decrease in revenues from cellular services, due to the ongoing erosion of the prices of these services, in light of intense competition in the cellular market. On the other hand, the fixed-line
segment experienced growth of 3.5%, which mainly derived from an increase in revenues from the internet and television services that was partially offset by the decrease in revenues from international call services.
|
Revenues from equipment
|
878
|
932
|
904
|
The decrease in 2020 compared to 2019 mainly derived from a decrease in revenue from equipment in the fixed-line segment that was partially
offset from an increase in equipment sales in the cellular segment as a result of an increase in sales on the Company’s website and sales to business customers. The increase in 2019 compared to 2018 mainly derived from an increase in
the scope of equipment sales in the fixed-line segment.
|
Total revenues
|
3,676
|
3,708
|
3,688
|
|
Cost of revenues
|
(2,800)
|
(2,725)
|
(2,661)
|
The increase in 2020 compared to 2019 mainly derived from an increase in the cost of the equipment that was sold in the cellular segment,
the first-time consolidation of Golan, and an increase in costs of connectivity fees as a result of an increase in call minutes. This increase was partially offset against a decrease in the wholesale market costs as a result of a
retrospective update of Bezeq’s tariffs. The increase in 2019 compared to 2018 mainly derived from an increase in the costs of equipment sold in the fixed-line segment, an increase in the cost of content in the television services, and
an increase in costs related to the internet services as a result of increased use.
|
Section
|
As of December 31
|
Board of directors’ explanation
|
||
2020
|
2019
|
2018
|
||
In NIS millions
|
Gross profit
|
876
|
983
|
1,027
|
|
Gross profit rate from total revenues
|
23.8%
|
26.5%
|
27.8%
|
|
General and administrative sale and marketing costs
|
(937)
|
(939)
|
(927)
|
The decrease in 2020 compared to 2019 mainly derived from a decrease in salary costs as a result of the temporary closure of the frontal
sale points and putting employees on unpaid leave due to the Coronavirus over the course of the year, and from the Company’s streamlining of manpower as a result of employees retiring in the framework of the voluntary retirement plan,
which was implemented in Q4 of 2019. This decrease was offset against an increase in the Company’s depreciation and devaluation costs and from Golan’s first-time consolidation. The increase in 2019 compared to 2018 mainly derived from
an increase in depreciation costs from assets that were capitalized for the costs of acquiring customers, and it was partially offset against a decrease in salary costs and costs for bad debt.
|
Other (costs) revenues, net
|
38
|
(20)
|
1
|
In 2020 the other revenue was from revenue from interest for selling equipment at credit and other revenue from performing contracting work
of deploying the fiber optics network vis-à-vis other costs in 2019, mainly for a voluntary retirement plan for employees.
The increase in 2019 compared to 2018 mainly derived from costs for a voluntary retirement plan, which was partially offset against a
recorded profit from selling fiber-optic infrastructure in residential areas to IBC.
|
Section
|
As of December 31
|
Board of directors’ explanation
|
||
2020
|
2019
|
2018
|
||
In NIS millions
|
Operating (Loss)profit
|
(23)
|
24
|
101
|
|
Financing costs, net
|
(172)
|
(144)
|
(171)
|
The increase in 2020 compared to 2019 mainly derived from losses in the 2020 investments portfolio compared to profits in the previous year
that was partially offset by a decrease in interest costs for Company debentures as a result of a decrease in the average debt. The decrease in 2019 compared to 2018 derived from financing revenues for profits in the Company’s tradable
investments portfolio and a decrease in offset interest costs, inter alia from an increase in the financing costs as a result of implementing IFRS 16 starting from January 1, 2019.
|
Share in the losses of investee companies
|
(14)
|
(10)
|
-
|
|
Loss before taxes on revenue
|
(209)
|
(130)
|
(70)
|
|
Tax revenues (costs)
|
39
|
23
|
6
|
The increase in 2020 compared to 2019, and in 2019 compared to 2018 mainly derived from an increase in losses for tax purposes and a
recognition of deferred taxes for expected tax benefits.
|
profit (loss) for the period
|
(170)
|
(107)
|
(64)
|
|
3.2. |
Below is a summary of the reports on the total profit for each quarter of 2020 (in NIS millions):
|
Section
|
Q1
|
Q2
|
Q3
|
Q4
|
Annual
|
Revenue from services
|
682
|
683
|
695
|
738
|
2,798
|
Revenue from equipment
|
210
|
172
|
261
|
235
|
878
|
Total revenue
|
892
|
855
|
956
|
973
|
3,676
|
Cost of revenue
|
644
|
664
|
744
|
748
|
2,800
|
Gross profit
|
248
|
191
|
212
|
225
|
876
|
Rate of gross profit from total revenue
|
27.8%
|
22.3%
|
22.2%
|
23.1%
|
23.8%
|
Sale and marketing, administrative, and general costs
|
235
|
220
|
227
|
255
|
937
|
Other revenue (costs), net
|
5
|
7
|
9
|
17
|
38
|
Operating profit (loss)
|
18
|
(22)
|
(6)
|
(13)
|
(23)
|
Financing costs, net
|
64
|
34
|
32
|
42
|
172
|
Share of investee companies’ losses
|
(5)
|
(2)
|
(2)
|
(5)
|
(14)
|
Losses before taxes on revenue
|
(51)
|
(58)
|
(40)
|
(60)
|
(209)
|
Tax revenue
|
8
|
12
|
3
|
16
|
39
|
Total comprehensive loss for the period
|
(43)
|
(46)
|
(37)
|
(44)
|
(170)
|
|
3.3. |
Below is analysis of operating results during quarters (in NIS millions):
|
Q4 2020
|
Q4 2019
|
Explanation
|
|
Revenue from services
|
738
|
694
|
The increase in revenues mainly as aresult of Golan's initial consolidation and an increase in Internet and tv revenues, which was partially offset by a decrease in revenues from
the roaming services due to Corona crisis
|
Revenue from equipment
|
235
|
238
|
Decrease in sales of equipmemt in the fixed segment that partially ofset from an increase in revenue from handsets in the cellular segment
|
Total revenue
|
973
|
932
|
|
Cost of revenue
|
748
|
692
|
The increase mainly resulted from Golan initial consolidation and an increase in the costs of connectivity fees as a result of an increase in usage.
|
Gross profit
|
225
|
240
|
|
Rate of gross profit from total revenue
|
23.1%
|
25.8%
|
|
Sale and marketing, administrative, and general costs
|
255
|
226
|
The increase was due to initial consolidation and an increase in advertising expenses.
|
Other revenue (costs), net
|
17
|
(41)
|
The fourth quarter of 2019 included a provision of the voluntary retirement program of employees.
|
Operating profit (loss)
|
(13)
|
(27)
|
|
Financing costs, net
|
42
|
34
|
The fourth quarter of 2019 included profit from the investment portfolio.
|
Share of investee companies’ losses
|
(5)
|
(6)
|
|
Losses before taxes on revenue
|
(60)
|
(67)
|
|
Tax revenue
|
16
|
13
|
|
Total loss for the period
|
(44)
|
(54)
|
|
3.4. |
Below is central financial data according to segments of activity (in NIS millions):
|
Cellular
|
Fixed-line
|
Inter-segment adjustments
|
||||||
2020
|
2019
|
Change in %
|
2020
|
2019
|
Change in %
|
2020
|
2019
|
|
Revenue from services
|
1,660
|
1,679
|
(1.1)%
|
1,306
|
1,258
|
3.8%
|
(168)
|
(161)
|
Revenue from equipment
|
704
|
661
|
6.5%
|
174
|
271
|
(35.8)%
|
-
|
-
|
Total revenue
|
2,364
|
2,340
|
1.0%
|
1,480
|
1,529
|
(3.2)%
|
(168)
|
(161)
|
Adjusted EBITDA2
|
525
|
627
|
(16.2)%
|
393
|
313
|
16.4%
|
-
|
-
|
Adjusted EBITDA as a percentage of total revenue
|
22.2%
|
26.8%
|
(17.2)%
|
26.6%
|
20.5%
|
29.8%
|
Cellular
|
Fixed-line
|
Inter-segment adjustments
|
||||||
2019
|
2018
|
Change in %
|
2019
|
2018
|
Change in %
|
2019
|
2018
|
|
Revenues from services
|
1,679
|
1,730
|
(2.9)%
|
1,258
|
1,215
|
3.5%
|
(161)
|
(161)
|
Revenues from equipment
|
661
|
655
|
0.9%
|
271
|
249
|
8.8%
|
-
|
-
|
Total revenue
|
2,340
|
2,385
|
(1.9)%
|
1,529
|
1,464
|
4.4%
|
(161)
|
(161)
|
Adjusted EBITDA2
|
627
|
418
|
50.0%
|
313
|
269
|
16.4%
|
-
|
-
|
Adjusted EBITDA as a percentage of total revenue
|
26.8%
|
17.5%
|
53.1%
|
20.5%
|
18.4%
|
11.4%
|
4. |
Operational and financial indicators (KPIs) –
|
|
4.1. |
As of the Report date, the Company’s management is assisted by financial performance indicators that are not based on accepted accounting rules, for evaluating, tracking, and presenting the
Company’s financial performance. These indicators do not constitute a substitute for the information included in the Company’s financial statements. Below are the details of the indicators:
|
Indicator
|
Calculation/components
|
Details of the indicator’s purposes
|
Data
|
Adjusted EBITDA
|
Represents the net profit before: Interest (net financing costs), taxes, other revenues (costs) that are not part of the Company’s current activity, depreciation and amortization,
profits (losses) from affiliated companies and share-based payments.
|
The Company presents this indicator as an additional performance indicator, since it believes that it enables operational performance comparisons between periods and between companies,
while neutralizing potential discrepancies arising from differences in the capital structure, taxes, age of fixed assets and amortization costs therefor. The adjusted EBITDA does not take into account the requirement of the debt service
and additional obligations, including capital investments, and therefore it does not necessarily indicate the amounts to be available for the Company’s use. In addition, no comparison can be made between the adjusted EBITDA and the
indicators that are similarly referred to and that are reported by other companies due to a change in the calculation of these indicators.
|
See Section 4.2 below.
|
Available cashflow
|
Net cash deriving from current activity plus the proceeds from selling fixed assets or investments, which are related to the day-to-day business, and less cash used for investment
activity in fixed assets or other assets, less payments for leases. The free cash flow does not include investments in subsidiaries.
|
The Company presents this indicator as an additional performance indicator, since it believes that it enables comparisons between the cash production rate from the operational activity
and periods, while neutralizing potential discrepancies arising from differences in the capital structure and debt. The free cash flow does not take into account the requirements of the debt service and additional financing activity,
and therefore it does not necessarily indicate the amounts to be available for the Company’s use. In addition, no comparison can be made between the free cash flow and the indicators that are similarly referred to and that are reported
by other companies due to a change in the calculation of these indicators.
|
See Section 4.3 below.
|
|
4.2. |
Below are details on the adjustments between the Company’s net profit and adjusted EBITDA in 2020, 2019 and 2018 (in NIS millions):
|
Indicator
|
For the one year period ended December 31
|
||
2020
|
2019
|
2018
|
|
Net profit (loss)
|
(170)
|
(107)
|
(64)
|
Taxes on revenues (tax benefit)
|
(39)
|
(23)
|
(6)
|
Financing costs, net
|
172
|
144
|
171
|
Other revenues (costs), net
|
(3)
|
10
|
-
|
Depreciation and amortization
|
924
|
898
|
584
|
Losses from affiliated companies
|
14
|
10
|
-
|
Share-based payment
|
20
|
8
|
2
|
Adjusted EBITDA
|
918
|
940
|
687
|
|
4.3. |
Below are details on the data regarding the Company’s free cash flow in the reporting periods (in NIS millions):
|
Section
|
2020
|
2019
|
2018
|
Net cash deriving from operating activities(*)
|
704
|
756
|
769
|
Cash used for investment activities
|
(454)
|
(546)
|
(588)
|
Sale of fiber-optic network (***)
|
-
|
181
|
-
|
Free cash flow
|
250
|
391
|
181
|
|
4.4. |
As of the Report date, the Company’s management is assisted by operational performance indicators that are not based on accepted accounting rules, for evaluating, tracking, and presenting
each segments operational performance. Below are the details of the indicators for 2020, 2019 and 2018:
|
Indicator
|
For the one year period ended December 31
|
Company’s explanations
|
||
2020
|
2019
|
Change in %
|
||
No. of cellular subscribers at the end of the period (in thousands)3
|
3,204
|
2,744
|
16.8%
|
The increase in the list of subscribers in 2020 derives from the inclusion of Golan subscribers after the completion of its acquisition.
|
Churn rate of cellular subscribers (in %)4
|
40.2%
|
48.8%%
|
(17.6) %
|
|
Average monthly revenues per cellular subscriber (ARPU)5 (in NIS)
|
47.3
|
50.7
|
(6.7)%
|
The erosion of ARPU mainly derives as a result of the decrease in roaming revenues following the Coronavirus Crisis.
|
Indicator
|
For the one year period ended December 31
|
Company’s explanations
|
||
2019
|
2018
|
Change in %
|
||
No. of cellular subscribers at the end of the period (in thousands)
|
2,744
|
2,851
|
(3.8)%
|
The decrease in 2019 mainly derived from erasing 153,000 subscribers from the Company’s subscription list at the end of Q1 2019, due to a change in the counting method of the Company’s
cellular subscribers list. The erased subscribers yielded negligible revenue for the Company. The Company’s subscription list, when neutralizing such erasure, increased by approximately 46,000 net subscribers.
|
Churn rate of cellular subscribers (in %)
|
48.8%
|
43.2%
|
13.0%
|
|
Average monthly revenues per cellular subscriber (ARPU) (in NIS)
|
50.7
|
51.3
|
(1.2)%
|
The decrease in ARPU, arises inter alia from the ongoing erosion of cellular services tariffs, as a result of intense competition in the
cellular market.
|
Indicator
|
For the one year period ended December 31
|
Company’s explanations
|
||||
2020
|
2019
|
2018
|
Change in % 2019-2020
|
Change in % 2018-2019
|
||
Internet infrastructure - no. of subscribers (households) as of the end of the period (in thousands)6
|
293
|
278
|
269
|
5.4%
|
3.3%
|
The increase in the number of subscribers is a result of the Group’s continued growth in this area.
|
Television - no. of subscribers at the end of the period (in thousands)7
|
252
|
258
|
219
|
(2.3)%
|
17.8%
|
The decrease in the number of subscribers derived from a change to the way the subscribers list is counted and the erasure of 17,000 subscribers as a result thereof.
|
5. |
First implementation of International Financial Reporting Standard No. 16 (IFRS 16)
|
6. |
Liquidity
|
|
6.1. |
Below are the board of directors’ explanations on the Company’s liquidity situation for 2018, 2019 and 2020 (in NIS millions):
|
Section
|
2020
|
2019
|
2018
|
Board of directors’ explanation
|
Cash flow from current activities
|
960
|
1,036
|
770
|
The decrease in 2020 compared to 2019 derived from an increase in the Company’s net loss for 2020, cash flow costs for the voluntary retirement plan, and an increase in payments for
rights to use the fiber optics infrastructure. The increase in 2019 compared to 2018 derived from an increase in the depreciation and amortization costs as a result of implementing IFRS 16.
|
Cash flow from investment activities
|
(982)
|
(560)
|
(631)
|
The increase in 2020 compared to 2019 mainly derived from acquiring Golan. The decrease in 2019 compared to 2018 mainly derived from the sale of the Company’s fiber-optic infrastructure
to an affiliated company, which was offset against an investment in an affiliated company.
|
Cash flow (used) derived from financing activities
|
(265)
|
(672)
|
537
|
The decrease in 2020 compared to 2019 mainly derived from receipts from exercising options from capital issues and as a result of a public issue and private placement of the Company’s
debentures that were conducted in 2020, as set forth in Sections 1.3.1 and 1.3.6 above.
The cash flow in 2019 derives from the repayment of debentures and loans, and from payments for a lease that are classified as cash flow from financing activity as a result of
implementing IFRS 16, which were offset against the issue of capital that was made this year. The positive financing cash flow in 2018 is a result of the issue of debentures and capital that were made that year, which were offset
against the repayment of debentures and loans.
|
Balance of cash and cash equivalents as of the end of the period
|
719
|
1,006
|
1,202
|
7. |
Financing sources
|
|
7.1. |
Credit from banks and financial institutions
|
|
7.2. |
The current maturities balance for this credit as of December 31, 2020, amounted to approximately NIS 138 million, compared to current maturities of approximately NIS 100 million as of December 31, 2019. In October 2020 the Company
made early repayment of part of a loan form a banking corporation, of approximately NIS 113 million, which was provided to the Company in March 2019.
|
|
7.3. |
Liability certificates in circulation – see Chapter C below.
|
|
7.4. |
Vendor credit - See Section 16.2 in Chapter A of this Periodic Report.
|
|
7.5. |
Customer credit - See Section 16.1 in Chapter A of this Periodic Report.
|
8. |
Proforma data included in the proforma report
|
9. |
The Company’s involvement in the community and donations
|
10. |
Code of ethics
|
11. |
Exposure to market risks and their management
|
12. |
Directors with accounting and financial expertise
|
13. |
Independent directors
|
14. |
Disclosure regarding on the Company’s internal auditor
|
|
14.1. |
Details of the internal auditor: CPA Itzhak Ravid has been serving as the Company’s internal auditor since March 14, 2017. Mr. Ravid has a BA in Accounting and Economics from Tel Aviv University, serves as managing partner in
the accounting firm Raveh-Ravid & Co., and has 30 years of experience in the field of internal auditing.
|
|
14.2. |
Manner of appointment: The appointment of Mr. Itzhak Ravid was approved on March 14, 2017, at the Company’s board of directors, after receiving the audit committee’s approval. After an in-depth examination of his education and
years-long experience, the board of directors found that Mr. Itzhak Ravid is suitable to serve as the Company’s internal auditor, inter alia considering the type of company, its size, the scope
of its activity, and its complexity.
|
|
14.3. |
Identity of the organizational supervisor over the internal auditor: According to the provisions of Article 60 to the Company’s articles of association, the organizational supervisor over the internal auditor is Mr. Avi
Gabbay, the Company’s CEO.
|
|
14.4. |
The working plan of the internal auditor: The working plan of the internal auditor is on an annual basis. The working plan is determined according to the nature of the Company’s business activity and the probability of
malfunctions and exposures in its business activity, based on a risk assessment survey that the internal auditor conducts every 5 years. The audit plan is prepared in collaboration with the senior management and audit committee, which
approves the working plan. The Company’s current audit plan for 2021 was approved by the audit committee and board of directors in December 2020 and March 2021, respectively.
|
|
14.5. |
Auditing of the Company’s material investee corporations: The internal auditor’s audit plan includes reference to the Company’s material investee corporations.
|
|
14.6. |
Scope of internal auditor’s employment: In 2019 and 2020 the scope of the internal auditor’s work was 6,000 hours. The scope of the work was determined by the audit committee, considering the Company’s structure, its
complexity and its nature. A deviation from the scope of hours is approved by the audit committee.
|
|
14.7. |
Preparation of the audit: The internal auditor and staff under him are required to perform the auditing work while adhering to criteria necessary for performing an audit that is professional, reliable, autonomous and
independent of the audited entity.
|
|
14.8. |
Free access to the internal auditor: The internal auditor has free access as stated in Section 9 of the Internal Audit Law, including constant and unmediated access to the Company’s information systems, including to financial
data.
|
|
14.9. |
Accountability of the internal auditor: The audit reports are submitted in writing to the Company’s CEO and to the members of the audit committee and are discussed in the Company’s audit committee.
|
|
14.10. |
Internal auditor compensation: The Company’s board of directors set this at NIS 255 per work hour (plus VAT), multiplied by the number of hours to be invested according to the audit plan, as approved by the Company’s competent
organs. The compensation of the internal auditor does not change and is not dependent on the auditing results, and therefore, in the opinion of the Company’s board of directors, the internal auditor exercising his professional judgement
is not affected by the manner in which he is compensated.
|
15. |
Disclosure regarding the Company’s auditor
|
|
15.1. |
Identity of the auditor
|
|
15.2. |
In 2018 the Auditing CPAs and KPMG served as joint CPAs.
|
|
15.3. |
Fees of the Auditing CPA
|
|
15.3.1. |
Below are details on the costs for the salary paid to the Auditing CPAs (in NIS thousands):
|
Year
|
For auditing and tax services
|
For other services
|
||
Amount
|
Hours
|
Amount
|
Hours
|
|
2018
|
2,450
|
18,035
|
263
|
1,936
|
2019
|
2,300
|
14,500
|
165
|
1,000
|
2020
|
2,304
|
12,370
|
419
|
1,096
|
|
15.3.2. |
The auditing services include the audit of the Company’s annual financial statements. The tax services include professional services provided for purpose of the Company complying with the requirement of the tax authorities, including
auditing original and amended tax returns, tax planning, and consulting, except in connection with auditing. The other services include inter alia assistance in preparing and auditing documents
submitted to the SEC, accounting consulting in connection with the accounting treatment during the Company’s ordinary course of business, consulting on the implications of implementing new accounting standards, and other accounting
matters that occur from time to time, as well as special reports that require the approval of an auditing CPA with respect to conditions for complying with various tenders that the Group participates in.
|
16. |
Details in connection with debentures in circulation
|
|
16.1. |
Details in connection with liability certificates in circulation, as of December 31, 2020, are attached as an annex to the board of directors’ report.
|
|
16.2. |
As of the Report Date, as determined by the Company’s board of directors, there are no warning signs as such are defined in Regulation 10(b)(14) of the Report Regulations, and the Company is in compliance with all financial criteria
and the additional terms and obligations set forth in the trust deeds to the liability certificates that it issued.
|
17. |
Material and highly material evaluations
|
Identifying the subject of evaluation:
|
The value of the cellular and fixed-line segments use for purpose of examining a devaluation in goodwill set forth in the consolidated annual financial statements as of December 31,
2020, according to International Accounting Standard 36.
|
Timing of the evaluation:
|
31-Dec-2020
Evaluation executed on March 16, 2021
|
The value of the evaluation’s subject that was determined right before the evaluation date:
|
NIS 1,759 million bookkeeper’s value of the fixed-line segment, goodwill of NIS 732 million.
NIS 3,105 million bookkeeper’s value of the cellular segments, goodwill of NIS 831 million.
|
The value of the evaluation’s subject that was determined according to the evaluation:
|
NIS 2,152 million value of the fixed-line segment.
NIS 3,944 million value of the cellular segment.
|
Details about the appraiser:
|
The evaluation was conducted by BDO Consulting and Management Ltd. which is part of the international BDO network. The work was conducted by a team led by CPA Moti Dattelkramer, a
managing partner who has a BA in economics and computer science, with more than 10 years of experience in business consulting. The team specializes in evaluation work, allocation of PPA cost balances, due diligence, devaluation
examinations, and more.
|
Is there an indemnification agreement with the appraiser?
|
The Company undertook to indemnify the appraiser in an amount exceeding three time his fees unless he acted negligently or maliciously. In such cases the indemnification shall not
apply.
|
The evaluation model under which the appraiser acted:
|
Cash flow capitalization method.
|
The assumptions under which the appraiser made the evaluation, according to the evaluation model:
|
Capitalization rate after tax - 7. 5%
Growth rate - 1.5%
With respect to additional assumptions of the appraiser, see details in the work attached as an annex to this board of directors report.
|
Identifying the subject of evaluation:
|
The allocation of a purchase price for Golan’s shares for assets and its obligations as of the acquisition date (end of August 2020).
|
Timing of the evaluation:
|
The evaluation as of the acquisition date, August 26, 2020.
|
Value of the consideration for which the allocation of the purchase price was performed:
|
The total consideration for the acquisition that was attributed in the framework of the work is NIS 613 million.
|
Details about the appraiser:
|
The work was conducted by BDO Consulting and Management Ltd. which is part of the international BDO network. The work was conducted by a team led by CPA Moti Dattelkramer, a managing
partner who has a BA in economics and computer science, with more than 10 years of experience in business consulting. The team specializes in evaluation work, allocation of PPA cost surpluses, due diligence, devaluation examinations,
and more.
|
Is there an indemnification agreement with the appraiser?
|
The Company undertook to indemnify the appraiser in an amount exceeding his fees unless he acted negligently or maliciously. In such cases the indemnification shall not apply.
|
The assumptions under which the appraiser made the evaluation, according to the evaluation model:
|
With respect to intangible assets, those are examined according to the income approach;
With respect to other balance sheet sections, no discrepancies were found between the fair value and the value in the books of the acquired company
|
Mr. Avi Gabbay
|
Mr. Doron Cohen
|
|||
CEO of the Company
|
Chairman of the Board of Directors
|
1. |
Details Regarding Liability Certificates in Circulation:
|
Series (**)
|
Date of issue
|
Par value on the issue date (in NIS millions)
|
Par value on December 31, 2020
|
Par value on December 31, 2020, including linkage
|
Accrued interest
|
Financial statements balance as of December 31, 2020
|
Stock market value
|
Type of interest
|
Payment dates of principal
|
Payment dates of interest(1)
|
Terms of linkage
|
Convertible
|
Right to early redemption
|
Series H(2)
|
July 8, 2014;
February 3, 2015*;
February 11, 2015*;
|
949.624
|
608.299
|
579.297
|
5.907
|
585.204
|
621.738
|
Annual interest of 1.98%.
|
From July 5, 2018, until July 5, 2024 (including)
|
On January 5 and July 5, every year from 2015 until 2024 (including)
|
Linked (principal and interest) to the Consumer Price Index.
|
No
|
Subject to certain terms
|
Series I(2)
|
July 8, 2014;
February 3, 2015*;
February 11, 2015*;
March 28, 2016.
|
804.010
|
562.807
|
550.231
|
11.427
|
561.658
|
596.575
|
Annual interest of 4.14%.
|
Eight annual payments: Three equal annual payments of 10% from the principal amount on July 5 of 2018 until 2020 (including), and five equal annual payments of 14% from the principal
amount on July 5 of 2021 until 2025 (including).
|
On January 5 and July 5, every year from 2015 until 2025 (including)
|
Not Linked
|
No
|
Subject to certain terms
|
Series J
|
September 25, 2016
|
103.267
|
104.192
|
103.700
|
1.252
|
104.952
|
107.687
|
Annual interest of 2.45%.
|
On July 5 of 2021 until 2026 (including).
|
On January 5 and July 5, every year from 2017 until 2026 (including)
|
Linked (principal and interest) to the Consumer Price Index
|
No
|
Subject to certain terms
|
Series K
|
September 25, 2016;
July 1, 2018*;
December 10, 2018*
|
710.634
|
710.634
|
706.926
|
12.372
|
719.298
|
741.120
|
Annual interest of 3.55%.
|
On July 5 of 2021 until 2026 (including).
|
On January 5 and July 5, every year from 2017 until 2026 (including)
|
Not Linked
|
No
|
Subject to certain terms
|
Series L(4)(5)(6)
|
January 24, 2018;
December 10, 2018*;
May 12, 2020*, December 1, 2020*
|
1,235.937
|
1,224.979
|
1,158.924
|
30.289
|
1,189.213
|
1,199.744
|
Annual interest of 2.50%.
|
On January 5 of 2023 until 2028 (including).
|
On January 5 every year from 2019 until 2028 (including)
|
Not Linked
|
No
|
Subject to certain terms
|
Total
|
3,803.472
|
3,210.911
|
3,099.078
|
61.247
|
1,160.325
|
3,266.864
|
(1) |
Semi-annual payments, except for Series L.
|
(2) |
In February 2016, according to the exchange offer of the Company’s debentures (Series H and I) in some of the Company’s debentures (Series D and E), respectively, the Company replaced a principal of approximately NIS 555 million from
the Company’ debentures (Series D) with a principal of approximately NIS 844 million of the Company’s debentures (Series H) and a principal of approximately NIS 272 million from the Company’s debentures (Series E) with a principal of
approximately NIS 335 million of the Company’s debentures (Series I). The Company’s debentures (Series D and E) were fully paid in July and January 2017, respectively.
|
(3) |
In December 2019, the Company acquired Company debentures (Series L) of approximately NIS 10 million.
|
(4) |
In May 2020, the Company issued debentures (Series L) with a par value of approximately NIS 222 million.
|
(5) |
In December 2020, the Company issued debentures (Series L) with a par value of approximately NIS 400 million.
|
2. |
Details regarding the trustee:
|
Series
|
Name of the trust company
|
Name of responsible person for the liability certificate
|
Contac
|
Address for delivery of documents
|
Series H
|
Mishmeret Trust Services Company Ltd.
|
CPA Ram Sabati
|
email: office@mtrust.co.il
Tel: 03-6374354
|
48 Menachem Begin Road, Tel Aviv
6618001,
|
Series I
|
Mishmeret Trust Services Company Ltd.
|
CPA Ram Sabati
|
email: office@mtrust.co.il
Tel: 03-6374354
|
48 Menachem Begin Road, Tel Aviv
6618001
|
Series J
|
Mishmeret Trust Services Company Ltd.
|
CPA Ram Sabati
|
email: office@mtrust.co.il
Tel: 03-6374354
|
48 Menachem Begin Road, Tel Aviv
6618001
|
Series K
|
Mishmeret Trust Services Company Ltd.
|
CPA Ram Sabati
|
email: office@mtrust.co.il
Tel: 03-6374354
|
48 Menachem Begin Road, Tel Aviv
6618001
|
Series L
|
Strauss Lazer, Trust Company (1992) Ltd.
|
Orit Lazer
|
email: ori@slcpa.co.il
Tel: 03-6237777
|
17 Yitzchak Sadeh Street, Tel Aviv 5613824
|
3. |
Details regarding the rating of liability certificates:
|
Series
|
Name of rating company
|
Rating as of the issue date
|
Rating as of the Report date
|
Additional ratings between the issue and Report date
|
Details regarding the intention of the rating company to change the rating
|
|
Rating dates(1)
|
The rating
|
|||||
Series H
|
Maalot Standard & Poor’s Ltd. (“Maalot”)
|
A+
|
A
|
06/2014, 08/2014, 01/2015, 09/2015, 03/2016, 08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020(1)
|
A+, A
|
In August 2019, Maalot updated the Company’s rating forecast from A+ with a negative outlook to a rating of A with a negative outlook.
|
Series I
|
Maalot
|
A+
|
A
|
06/2014, 08/2014, 01/2015, 09/2015, 03/2016, 08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020(1)
|
A+, A
|
|
Series J
|
Maalot
|
A+
|
A
|
08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020(1)
|
A+, A
|
|
Series K
|
Maalot
|
A+
|
A
|
08/2016, 06/2017, 01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020(1)
|
A+, A
|
|
Series L
|
Maalot
|
A+
|
A
|
01/2018, 06/2018, 08/2018, 12/2018, 03/2019, 08/2019, 05/2020, 08/2020, 11/2020(1)
|
A+, A
|
4. |
Additional undertakings:
|
|
4.1. |
The Company’s debentures (Series H to L) are not secured and include, in addition to accepted terms and undertakings, the following undertakings:
|
|
a. |
A negative pledge undertaking, subject to certain exceptions. Failure to comply with this undertaking shall be deemed a cause for acceleration.
|
|
b. |
An undertaking not to distribute more than 95% of the profits suitable for distribution under the Companies Law (the “Profits”); provided that (1) should the Company’s net debt to EBITDA6 ratio exceed the ratio of 3.5:1, the Company shall not distribute more than 85% of the Profits; (2) should the Company’s net debt to EBITDA ratio exceed
4:1, the Company shall not distribute more than 70 of the Profits; and (3) should the Company’s net debt to EBITDA ration exceed 5:1, or 4.5:1 during four consecutive quarters, the Company shall not distribute dividends.
|
|
c. |
And undertaking to rate the debentures through a rating company (insofar as this is under the Company’s control).
|
|
d. |
An undertaking to pay additional interest of 0.25% for a two-point decrease in the rating of the debentures Series H to K, and 0.5% for a two point decrease in the rating of debentures Series L, and additional interest of 0.25% for
any one point decrease in the rating of the debentures until the maximum addition of 1%, compared to their rating before their issue.
|
|
e. |
The Company’s undertaking not to issue additional debentures of any series should the Company not meet the financial criteria, or if such issue would cause a decrease in the rating of the debentures.
|
|
4.2. |
In addition, the Company’s debentures include events of default, including:
|
|
a. |
Accelerating a different debt of the Company (cross default) by a non-supplier lender, except with respect to a debt of NIS 150 million or less. Such debt acceleration restriction shall not apply to a cross default caused by a
different series of Company debentures.
|
|
b. |
A case where the Company shall cease to be active in the cellular communications area and/or ceased to hold its RTM License for a period exceeding 60 days.
|
|
c. |
Trading suspension of the debentures on the Tel Aviv Stock Exchange, for a period exceeding 45 days.
|
|
d. |
Making a distribution that does not comply with the Company’s undertaking with respect to the restrictions on distributing profits.
|
|
e. |
Failure to rate the debentures for a period exceeding 60 days.
|
|
f. |
A court request or order to stay proceedings against the Company or submitting a motion for a creditors settlement.
|
|
g. |
Selling a substantive part of the Company’s assets or a merger (except for certain exceptions).
|
|
h. |
Failure to publish financial statements on time.
|
|
i. |
A net debt to EBITDA ratio that exceeds 5:1, or that exceeds 4.5:1 during four consecutive quarters.
|
|
j. |
Failure to comply with the Company’s undertaking not to create any pledges.
|
|
k. |
A material deterioration in the Company’s business compared to the condition thereof on the issue date of the debentures, and real concern that the Company would not be able to repay the debentures on time.
|
|
l. |
A substantial concern that the Company shall not meet, its material obligations towards the debenture holders.
|
|
m. |
Including a note in the Company’s financial statements regarding a concern of the Company continued existence as a “going concern” for a period of two consecutive quarters.
|
|
n. |
Violating the Company’s undertaking with respect to the issue of additional debentures.
|
Cellcom Israel Ltd.
Statements
As at December 31, 2020
(Audited)
|
F-2
|
|
Consolidated financial statements
|
|
F-4
|
|
F-5
|
|
F-6
|
|
F-7
|
|
F-8
|
|
F-10
|
The accompanying financial statements are a non-binding translation into English of
the original financial statements published in Hebrew. The version in Hebrew is the
approved text.
|
Tel-Aviv, Israel
|
Kesselman & Kesselman
|
March 17, 2021
|
Certified Public Accountants (lsr.)
|
A member firm of PricewaterhouseCoopers International Limited
|
The accompanying financial statements are a non-binding translation into English of
the original financial statements published in Hebrew. The version in Hebrew is the
approved text.
|
Tel Aviv, Israel
|
Kesselman & Kesselman
|
March 17, 2021
|
Certified Public Accountants (Isr.)
|
A member firm of PricewaterhouseCoopers International Limited
|
Convenience
|
||||||||||||||||
translation into
|
||||||||||||||||
US dollar (Note 2D)
|
||||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2019
|
2020
|
2020
|
||||||||||||||
Note
|
NIS millions
|
US$ millions
|
||||||||||||||
Current assets
|
||||||||||||||||
Cash and cash equivalents
|
9
|
1,006
|
719
|
224
|
||||||||||||
Current investments and deposits
|
10
|
473
|
429
|
133
|
||||||||||||
Trade receivables
|
11
|
1,142
|
985
|
306
|
||||||||||||
Current tax assets
|
31
|
3
|
2
|
-
|
||||||||||||
Other receivables
|
11
|
32
|
*
|
39
|
12
|
|||||||||||
Deferred expenses - rights of use
|
32C
|
|
37
|
*
|
52
|
16
|
||||||||||
Inventory
|
12
|
66
|
73
|
23
|
||||||||||||
|
2,759
|
2,299
|
714
|
|||||||||||||
Non-current assets | ||||||||||||||||
Trade and other receivables
|
11
|
459
|
*
|
183
|
57
|
|||||||||||
Deferred expenses - rights of use
|
32C
|
|
323
|
*
|
315
|
98
|
||||||||||
Property, plant and equipment, net
|
13
|
1,432
|
1,402
|
436
|
||||||||||||
Intangible assets and others, net
|
14
|
1,294
|
2,188
|
681
|
||||||||||||
Investments in equity accounted investees
|
8
|
150
|
131
|
41
|
||||||||||||
Right of use assets, net
|
15
|
745
|
639
|
199
|
||||||||||||
|
4,403
|
4,858
|
1,512
|
|||||||||||||
|
7,162
|
7,157
|
2,226
|
|||||||||||||
Current liabilities
|
||||||||||||||||
Current maturities of debentures and loans from financial institutions
|
20
|
509
|
514
|
160
|
||||||||||||
current taxation liabilities
|
31
|
6
|
-
|
-
|
||||||||||||
Current maturities of lease liabilities
|
15
|
226
|
214
|
66
|
||||||||||||
Trade payables and accrued expenses
|
16
|
687
|
768
|
239
|
||||||||||||
Provisions
|
17
|
99
|
176
|
55
|
||||||||||||
Other payables, including derivatives
|
18
|
299
|
257
|
80
|
||||||||||||
|
1,826
|
1,929
|
600
|
|||||||||||||
Non-current liabilities | ||||||||||||||||
Long-term loans from financial institutions
|
20
|
300
|
50
|
16
|
||||||||||||
Debentures
|
20
|
2,511
|
2,723
|
847
|
||||||||||||
Long-term lease liabilities
|
15
|
533
|
457
|
142
|
||||||||||||
Provisions
|
17
|
22
|
30
|
9
|
||||||||||||
Other long-term liabilities
|
19
|
4
|
41
|
13
|
||||||||||||
Liability for employee rights upon retirement, net
|
21
|
19
|
11
|
4
|
||||||||||||
Deferred tax liabilities
|
31
|
60
|
36
|
11
|
||||||||||||
|
3,449
|
3,348
|
1,042
|
|||||||||||||
|
5,275
|
5,277
|
1,642
|
|||||||||||||
Equity
|
22
|
|||||||||||||||
Equity attributable to owners of the Company
|
1,885
|
1,880
|
584
|
|||||||||||||
Non-controlling interests
|
2
|
-
|
-
|
|||||||||||||
|
1,887
|
1,880
|
584
|
|||||||||||||
|
7,162
|
7,157
|
2,226
|
March 17, 2021 | ||||||
Date of approving the
financial statements
|
Doron Cohen
Chairman of the board
|
Avi Gabbay
CEO
|
Shai Amsalem
CFO
|
|
Convenience
|
|||||||||||||||||||
|
translation into US
|
|||||||||||||||||||
|
dollar (Note 2D)
|
|||||||||||||||||||
|
For year ended December 31,
|
Year ended December 31,
|
||||||||||||||||||
|
2018
|
2019
|
2020
|
2020
|
||||||||||||||||
|
Note
|
NIS millions
|
US$ millions
|
|||||||||||||||||
|
||||||||||||||||||||
Revenues
|
25
|
3,688
|
3,708
|
3,676
|
1,144
|
|||||||||||||||
Cost of revenues
|
26
|
(2,661
|
)
|
(2,725
|
)
|
(2,800
|
)
|
(871
|
)
|
|||||||||||
|
||||||||||||||||||||
Gross profit
|
1,027
|
983
|
876
|
273
|
||||||||||||||||
|
||||||||||||||||||||
Selling and marketing expenses
|
27
|
(567
|
)
|
(610
|
)
|
(580
|
)
|
(180
|
)
|
|||||||||||
General and administrative expenses
|
28
|
(323
|
)*
|
(300
|
)*
|
(330
|
)
|
(103
|
)
|
|||||||||||
Credit losses
|
|
(37
|
)*
|
(29
|
)*
|
(27
|
)
|
(9
|
)
|
|||||||||||
Other income (expenses), net
|
29
|
1
|
(20
|
)
|
38
|
12
|
||||||||||||||
|
||||||||||||||||||||
Operating profit (loss)
|
101
|
24
|
(23
|
)
|
(7
|
)
|
||||||||||||||
|
||||||||||||||||||||
Financing income
|
19
|
49
|
10
|
3
|
||||||||||||||||
Financing expenses
|
(190
|
)
|
(193
|
)
|
(182
|
)
|
(57
|
)
|
||||||||||||
Financing expenses, net
|
30
|
(171
|
)
|
(144
|
)
|
(172
|
)
|
(54
|
)
|
|||||||||||
|
||||||||||||||||||||
Share in losses of equity accounted investees
|
-
|
(10
|
)
|
(14
|
)
|
(4
|
)
|
|||||||||||||
|
||||||||||||||||||||
Loss before taxes on income
|
(70
|
)
|
(130
|
)
|
(209
|
)
|
(65
|
)
|
||||||||||||
|
||||||||||||||||||||
Tax benefit
|
31
|
6
|
23
|
39
|
12
|
|||||||||||||||
Loss for the year
|
(64
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
||||||||||||
Attributable to:
|
||||||||||||||||||||
Owners of the Company
|
(62
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
||||||||||||
Non-controlling interests
|
(2
|
)
|
-
|
-
|
-
|
|||||||||||||||
Loss for the year
|
(64
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
||||||||||||
|
||||||||||||||||||||
Loss per share
|
22
|
|||||||||||||||||||
Basic loss per share (in NIS)
|
(0.58
|
)
|
(0.90
|
)
|
(1.11
|
)
|
(0.35
|
)
|
||||||||||||
|
||||||||||||||||||||
Diluted loss per share (in NIS)
|
(0.58
|
)
|
(0.90
|
)
|
(1.11
|
)
|
(0.35
|
)
|
||||||||||||
|
||||||||||||||||||||
Weighted-average number of shares used in the calculation of basic loss per share (in shares)
|
107,499,543
|
118,376,455
|
153,751,724
|
153,751,724
|
||||||||||||||||
|
||||||||||||||||||||
Weighted-average number of shares used in the calculation of diluted loss per share (in shares)
|
107,499,543
|
118,376,455
|
153,751,724
|
153,751,724
|
Convenience
|
||||||||||||||||
translation into US
|
||||||||||||||||
dollar (Note 2D)
|
||||||||||||||||
Year ended
|
||||||||||||||||
For year ended December 31,
|
December 31,
|
|||||||||||||||
2018
|
2019
|
2020
|
2020
|
|||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||
Loss for year
|
(64
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
||||||||
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
|
-
|
-
|
(2
|
)
|
(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
|
-
|
-
|
(2
|
)
|
(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
|
)
|
2
|
1
|
||||||||||
Total other comprehensive loss for the year that will not be transferred to profit or loss, net of tax
|
(1
|
)
|
(4
|
)
|
2
|
1
|
||||||||||
Total other comprehensive loss for the year, net of tax
|
(1
|
)
|
(4
|
)
|
-
|
-
|
||||||||||
Total comprehensive loss for the year
|
(65
|
)
|
(111
|
)
|
(170
|
)
|
(53
|
)
|
||||||||
Total comprehensive loss attributable to:
|
||||||||||||||||
Owners of the Company
|
(63
|
)
|
(111
|
)
|
(170
|
)
|
(53
|
)
|
||||||||
Non-controlling interests
|
(2
|
)
|
-
|
-
|
-
|
|||||||||||
Total comprehensive loss for the year
|
(65
|
)
|
(111
|
)
|
(170
|
)
|
(53
|
)
|
Equity attributed to the Company’s shareholders
|
|
|||||||||||||||||||||||||||||||||||
Share capital
|
share premium
|
receipts on account of share options
|
Capital reserve
|
retained earnings
|
Total
|
Non-controlling interest |
Total equity
|
Convenience translation into US dollar
(Note 2D)
|
||||||||||||||||||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||||||||||||||||||||||
Balance as of January 1, 2018 before initial application of IFRS 9
|
1
|
-
|
-
|
-
|
1,436
|
1,437
|
4
|
1,441
|
||||||||||||||||||||||||||||
Effect of initial application of IFRS 9
|
-
|
-
|
-
|
-
|
(36
|
)
|
(36
|
)
|
-
|
(36
|
)
|
|||||||||||||||||||||||||
Balance as of January 1, 2018
|
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 payment
|
-
|
-
|
-
|
-
|
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
|
||||||||||||||||||||||||||||
Comprehensive loss for year
|
||||||||||||||||||||||||||||||||||||
Loss for year
|
-
|
-
|
-
|
-
|
(107
|
)
|
(107
|
)
|
-
|
(107
|
)
|
|||||||||||||||||||||||||
Other comprehensive loss for the year, net of tax
|
-
|
-
|
-
|
-
|
(4
|
)
|
(4
|
)
|
-
|
(4
|
)
|
|||||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||||||
Share based payment
|
-
|
-
|
-
|
-
|
8
|
8
|
-
|
8
|
||||||||||||||||||||||||||||
Equity offering
|
1
|
283
|
25
|
-
|
-
|
309
|
-
|
309
|
||||||||||||||||||||||||||||
Expiration of share options
|
-
|
10
|
(10
|
)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
Exercise of share options
|
-
|
5
|
(1
|
)
|
-
|
-
|
4
|
-
|
4
|
|||||||||||||||||||||||||||
Balance as of December 31, 2019
|
2
|
623
|
24
|
-
|
1,236
|
1,885
|
2
|
1,887
|
587
|
|||||||||||||||||||||||||||
Comprehensive loss for year
|
||||||||||||||||||||||||||||||||||||
Loss for year
|
-
|
-
|
-
|
-
|
(170
|
)
|
(170
|
)
|
-
|
(170
|
)
|
(53
|
)
|
|||||||||||||||||||||||
Other comprehensive profit (loss) for the year, net of tax
|
-
|
-
|
-
|
(2
|
)
|
2
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||||||
Share based payment
|
-
|
-
|
-
|
-
|
20
|
20
|
-
|
20
|
6
|
|||||||||||||||||||||||||||
Equity offering
|
5
|
-
|
-
|
5
|
-
|
5
|
2
|
|||||||||||||||||||||||||||||
Deduction of non-controlling interest due to loss of control in subsidiaries
|
-
|
-
|
-
|
-
|
-
|
-
|
(2
|
)
|
(2
|
)
|
(1
|
)
|
||||||||||||||||||||||||
Exercise of share options
|
-
|
169
|
(29
|
)
|
-
|
-
|
140
|
-
|
140
|
43
|
||||||||||||||||||||||||||
Balance as of December 31, 2020
|
2
|
792
|
-
|
(2
|
)
|
1,088
|
1,880
|
-
|
1,880
|
584
|
Convenience
|
||||||||||||||||
translation into US
|
||||||||||||||||
dollar (Note 2D)
|
||||||||||||||||
Year ended
|
||||||||||||||||
For year ended December 31,
|
December 31,
|
|||||||||||||||
2018
|
2019
|
2020
|
2020
|
|||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||
Cash flows from operating activities:
|
||||||||||||||||
Loss for year
|
(64
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
||||||||
Adjustments for:
|
||||||||||||||||
Depreciation and amortization
|
584
|
898
|
924
|
287
|
||||||||||||
Share-based payments
|
2
|
8
|
20
|
6
|
||||||||||||
Gain on sale of property, plant and equipment, intangible assets and others
|
-
|
(8
|
)
|
-
|
-
|
|||||||||||
Net change in fair value of investment property
|
-
|
6
|
7
|
2
|
||||||||||||
Tax benefit
|
(6
|
)
|
(23
|
)
|
(39
|
)
|
(12
|
)
|
||||||||
Financing expenses, net
|
171
|
144
|
172
|
53
|
||||||||||||
Other expenses
|
-
|
3
|
7
|
2
|
||||||||||||
Share in losses of equity accounted investees
|
-
|
10
|
14
|
4
|
||||||||||||
Changes in operating assets and liabilities:
|
||||||||||||||||
Change in inventory
|
(24
|
)
|
28
|
(7
|
)
|
(2
|
)
|
|||||||||
Change in trade receivables (including long-term amounts)
|
166
|
80
|
125
|
39
|
||||||||||||
Change in other receivables (including long-term amounts)
|
(39
|
)*
|
(20
|
)*
|
(50
|
)
|
(15
|
)
|
||||||||
Change in receivables (including long-term receivables)
|
18
|
*
|
33
|
*
|
-
|
-
|
||||||||||
Change in trade payables, accrued expenses and provisions
|
(26
|
)
|
(27
|
)
|
53
|
16
|
||||||||||
Change in other liabilities (including long-term amounts)
|
11
|
23
|
(51
|
)
|
(15
|
)
|
||||||||||
Payments for derivative hedging contracts, net
|
-
|
(10
|
)
|
(3
|
)
|
(1
|
)
|
|||||||||
Income tax paid
|
(23
|
)
|
(12
|
)
|
(9
|
)
|
(3
|
)
|
||||||||
Income tax received
|
-
|
10
|
-
|
-
|
||||||||||||
Net cash from operating activities
|
770
|
1,036
|
993
|
308
|
||||||||||||
Cash flows used in investing activities
|
||||||||||||||||
Acquisition of property, plant, and equipment
|
(356
|
)
|
(324
|
)
|
(296
|
)
|
(92
|
)
|
||||||||
Acquisition of intangible assets and others
|
(237
|
)
|
(233
|
)
|
(203
|
)
|
(63
|
)
|
||||||||
Acquisition of equity accounted investee
|
-
|
(157
|
)*
|
(3
|
)
|
(1
|
)
|
|||||||||
Change in current investments, net
|
(56
|
)
|
(49
|
)
|
89
|
27
|
||||||||||
Receipts from other derivative contracts, net
|
3
|
9
|
1
|
-
|
||||||||||||
Proceeds from sale of property, plant and equipment, intangible assets and others
|
1
|
181
|
-
|
-
|
||||||||||||
Interest received
|
14
|
13
|
5
|
2
|
||||||||||||
Acquisition of subsidiary, less cash purchased
|
-
|
-
|
(608
|
)
|
(189
|
)
|
||||||||||
Net cash used in investing activities
|
(631
|
)
|
(560
|
)
|
(1,015
|
)
|
(316
|
)
|
Convenience
|
||||||||||||||||
translation into US
|
||||||||||||||||
dollar (Note 2D)
|
||||||||||||||||
Year ended
|
||||||||||||||||
For year ended December 31,
|
December 31,
|
|||||||||||||||
2018
|
2019
|
2020
|
2020
|
|||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||
Cash flows used in financing activities
|
||||||||||||||||
Payments for derivative contracts, net
|
(15
|
)
|
(2
|
)
|
(6
|
)
|
(2
|
)
|
||||||||
Receipt of long-term loans from financial institutions
|
-
|
150
|
-
|
-
|
||||||||||||
Payments for long-term loans from financial institutions
|
(78
|
)
|
(212
|
)
|
(212
|
)
|
(66
|
)
|
||||||||
Repayment of debentures
|
(556
|
)
|
(504
|
)
|
(417
|
)
|
(130
|
)
|
||||||||
Proceeds from issuance of debentures, net of issuance costs
|
997
|
-
|
583
|
181
|
||||||||||||
Repurchase of own debentures
|
-
|
(10
|
)
|
-
|
-
|
|||||||||||
Interest paid
|
(126
|
)
|
(151
|
)
|
(130
|
)
|
(40
|
)
|
||||||||
Acquisition of non-controlling interest
|
(19
|
)
|
-
|
-
|
-
|
|||||||||||
Equity offering
|
275
|
309
|
5
|
2
|
||||||||||||
Proceeds from exercise of share options
|
59
|
4
|
140
|
44
|
||||||||||||
Payment of principal of lease liabilities
|
-
|
(256
|
)
|
(228
|
)
|
(71
|
)
|
|||||||||
Net cash from (used in) financing activities
|
537
|
(672
|
)
|
(265
|
)
|
(82
|
)
|
|||||||||
Changes in cash and cash equivalents
|
676
|
(196
|
)
|
(287
|
)
|
(90
|
)
|
|||||||||
Cash and cash equivalents as at the beginning of the year
|
527
|
1,202
|
1,006
|
314
|
||||||||||||
Effects of exchange rate changes on cash and cash equivalents
|
(1
|
)
|
-
|
-
|
-
|
|||||||||||
Cash and cash equivalents as at the end of the year
|
1,202
|
1,006
|
719
|
224
|
|
A. |
Cellcom Israel Ltd. ("the Company") is a company incorporated and domiciled in Israel and its official address is 10 Hagavish Street, Netanya 4250708, Israel. The consolidated financial statements
of the Group as at December 31, 2020, comprise the Company and its subsidiaries (together referred to as the "Group") and the Group’s holdings in included entities. The Group operates and maintains a cellular mobile telephone
system in Israel and provides cellular telecommunications services, landline telephony services, internet services, international calls services, television over the internet services and transmission services. The Company is
controlled by Koor Industries Ltd. (directly and through agreements with other shareholders of the Company), a wholly owned subsidiary of Discount Investment Corporation Ltd. ("DIC."). In November 2020, the court approved the
sale of approx. 82.26% of the shares of DIC (under receivership) to a group of investors led by Mega Or Holdings Ltd., subject to obtaining approvals required under applicable law. In March 2021, the MOC approved the transfer of
the Company's means of control as aforesaid. As per the approval, upon completion of such transfer, Mega Or shall hold up to 29.9% of DIC's share capital and it shall be considered a "founding shareholder" alongside Koor
industries Ltd. and as an "Israeli shareholder", as such terms are defined in the Company's cellular license. The Company's shares are traded on the Tel Aviv Stock Exchange (TASE). With respect to delisting the Company’s shares
from the New York Stock Exchange see Note 36 hereunder.
|
|
B. |
Update on the Corona virus measures and possible implication
|
A. |
Statement of compliance
|
B. |
Functional and presentation currency
|
C. |
Basis of measurement
|
D. |
Convenience translation into U.S. dollars ("dollars" or "$")
|
E. |
Use of estimates and judgments
|
F. |
Exchange rates and known Consumer Price Indexes are as follows:
|
Exchange rates
of US$
|
Consumer Price
Index (points)*
|
|||||||
As of December 31, 2020
|
3.215
|
223.34
|
||||||
As of December 31, 2019
|
3.456
|
224.67
|
||||||
As of December 31, 2018
|
3.748
|
224.00
|
||||||
Change during the year:
|
||||||||
Year ended December 31, 2020
|
(6.97
|
)%
|
(0.59
|
)%
|
||||
Year ended December 31, 2019
|
(7.79
|
)%
|
0.30
|
%
|
||||
Year ended December 31, 2018
|
8.10
|
%
|
1.20
|
%
|
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
|
C. |
Financial instruments (cont'd)
|
|
• |
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.
|
|
• |
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;
|
C. |
Financial instruments (cont'd)
|
|
• |
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.
|
D. |
Property, plant and equipment
|
D. |
Property, plant and equipment (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
|
E. |
Rights of use of communications lines and right of use of fiber-optic infrastructure
|
E. |
Rights of use of communications lines and right of use of fiber-optic infrastructure (cont'd)
|
F. |
Intangible assets and others
|
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
|
||||
Customer relationship and brand
|
10-16
|
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
|
I. |
Impairment (cont'd)
|
(1) |
Non-derivative financial assets (cont'd)
|
|
1. |
Significant financial difficulty of the issuer or borrower;
|
|
2. |
A breach of contract such as a default or payments being past due;
|
|
3. |
The restructuring of a loan or payment due to the Group on terms that the Group would not consider otherwise;
|
|
4. |
It is probable that the borrower will enter bankruptcy or other financial reorganization; or
|
|
5. |
The disappearance of an active market for a security because of financial difficulties.
|
J. |
Employee benefits
|
(1) |
Post-employment benefits
|
(2) |
Termination benefits
|
(3) |
Employee 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)
|
L. |
Revenue (cont'd)
|
M. |
Cost of revenues
|
N. |
Advertising expenses
|
O. |
Lease payments
|
O. |
Lease payments (cont'd)
|
● |
Cell and switches sites
|
4 years
|
|
●
|
Office buildings, warehouses, service centers and retail stores
|
3 years
|
|
●
|
Motor vehicles
|
2-3 years
|
O. |
Lease payments (cont'd)
|
P. |
Financing income and expenses
|
Q. |
Taxes on income
|
R. |
Earnings per share
|
A. |
Determination of Fair Value
|
B. |
Fair Value Hierarchy
|
|
• |
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, 2020
|
||||||||||||||||||||
NIS millions
|
||||||||||||||||||||
Cellular
|
Fixed-line
|
Reconciliation for Consolidation
|
Consolidated
|
Reconciliation of subtotal adjusted segment EBITDA to loss for year
|
||||||||||||||||
Externals revenues
|
2,349
|
1,327
|
-
|
3,676
|
||||||||||||||||
Inter-segment revenues
|
15
|
153
|
(168
|
)
|
-
|
|||||||||||||||
* Adjusted Segment EBITDA
|
525
|
393
|
918
|
|||||||||||||||||
Depreciation and amortization
|
(924
|
)
|
||||||||||||||||||
Tax benefit
|
39
|
|||||||||||||||||||
Financing income
|
10
|
|||||||||||||||||||
Financing expenses
|
(182
|
)
|
||||||||||||||||||
Other income
|
3
|
|||||||||||||||||||
Share based payments
|
(20
|
)
|
||||||||||||||||||
Share in losses of accounted investees
|
(14
|
)
|
||||||||||||||||||
Loss for year
|
(170
|
)
|
Year ended December 31, 2019
|
||||||||||||||||||||
NIS millions
|
||||||||||||||||||||
Cellular
|
Fixed-line
|
Reconciliation for Consolidation
|
Consolidated
|
Reconciliation of subtotal adjusted segment EBITDA to loss for year
|
||||||||||||||||
Externals revenues
|
2,326
|
1,382
|
-
|
3,708
|
||||||||||||||||
Intersectoral revenues
|
14
|
147
|
(161
|
)
|
-
|
|||||||||||||||
* Adjusted Segment EBITDA
|
627
|
313
|
940
|
|||||||||||||||||
Depreciation and amortization
|
(898
|
)
|
||||||||||||||||||
Share-based payments
|
(8
|
)
|
||||||||||||||||||
Other income
|
(10
|
)
|
||||||||||||||||||
Financing income
|
49
|
|||||||||||||||||||
Financing expenses
|
(193
|
)
|
||||||||||||||||||
Share in losses of accounted investees
|
(10
|
)
|
||||||||||||||||||
Tax benefits
|
23
|
|||||||||||||||||||
Loss for 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 year
|
||||||||||||||||
Externals revenues
|
2,371
|
1,317
|
-
|
3,688
|
||||||||||||||||
Intersectoral revenues
|
14
|
147
|
(161
|
)
|
-
|
|||||||||||||||
* Adjusted Segment EBITDA
|
418
|
269
|
687
|
|||||||||||||||||
Depreciation and amortization
|
(584
|
)
|
||||||||||||||||||
Share-based payments
|
(2
|
)
|
||||||||||||||||||
Financing income
|
19
|
|||||||||||||||||||
Financing expenses
|
(190
|
)
|
||||||||||||||||||
Tax benefit
|
6
|
|||||||||||||||||||
Loss for year
|
(64
|
)
|
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 |
2020
|
2019
|
|||||||
Name of subsidiary
|
|||||||||
Cellcom Fixed Line Communication L.P.
|
Israel
|
100
|
%
|
100
|
%
|
||||
Dynamica Cellular Ltd.
|
Israel
|
100
|
%
|
100
|
%
|
||||
Golan Telecom Ltd.
|
Israel
|
100
|
%
|
-
|
B. |
Business combination - Purchase of Golan Telecom Ltd.
|
|
1. |
In light of the Golan Acquisition, management fee expenses were cancelled, that were attributed to Electra Consumer Products (1971) Ltd. (the former controlling shareholder in Golan), as were salary expenses for the
allocation of options to officers in Golan, that were recognized in Golan’s financial statements.
|
|
2. |
These pro forma data include cancellation of intercompany transactions between Golan and Cellcom, that include, inter alia, interest expenses accrued in the pro forma period between Golan and Cellcom for a loan taken from
Cellcom, cancellation of revenues for the cooperation agreement registered in Cellcom, cancellation of accounting registrations performed in Golan’s financial statements for the cooperation agreement before the Acquisition date,
this to reflect Golan’s financial results after the completion of the transaction and as expressed in the Company’s consolidated financial statements.
|
|
3. |
The pro form data do not include nonrecurring expenses that were recognized in Golan’s statements in 2020, that derive from the completion of the Golan Acquisition transaction, such as bonus and commission payments to
consultants and registering a provision for the Return Amount as provided in Section a. above.
|
|
4. |
The pro forma data include a statutory tax rate at the rate of 23% on Golan’s profit before tax and on the pro forma adjustments that were performed.
|
C. |
Recognized assets, net, that were purchased
|
Values recognized at initial consolidation
|
||||
ILS millions
|
||||
Assets:
|
||||
Cash and cash equivalents
|
5
|
|||
Current investments and deposits
|
70
|
|||
Trade receivables
|
40
|
|||
Property and other intangible assets
|
70
|
|||
Customer relations (included in the intangible assets section)
|
110
|
|||
Brand (included in the intangible assets section)
|
35
|
|||
Right of use assets
|
14
|
|||
Liabilities:
|
||||
Lease liabilities
|
(14
|
)
|
||
Trade payables
|
(233
|
)
|
||
Provisions
|
(82
|
)
|
||
Loan from Cellcom
|
(136
|
)
|
||
Deferred tax liabilities
|
(20
|
)
|
||
Total recognized assets, net
|
(141
|
)
|
||
Goodwill
|
754
|
|||
Total consideration
|
613
|
ILS millions
|
||||
Consideration paid
|
(613
|
)
|
||
Cash in Golan
|
5
|
|||
Total
|
(608
|
)
|
C. |
Recognized assets, net, that were purchased (cont'd)
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Investments in equity accounted investees:
|
||||||||
Purchase of share capital
|
160
|
157
|
||||||
Share in losses of equity accounted investees
|
(18
|
)
|
(4
|
)
|
||||
Other
|
(11
|
)
|
(3
|
)
|
||||
131
|
150
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Current balances in banks
|
92
|
56
|
||||||
Demand deposits
|
627
|
950
|
||||||
719
|
1,006
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Current investments
|
-
|
443
|
||||||
Deposits
|
429
|
30
|
||||||
429
|
473
|
|
As of December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
NIS millions
|
|||||||
|
||||||||
Current
|
||||||||
|
||||||||
Trade Receivables *
|
||||||||
Open accounts
|
337
|
402
|
||||||
Chacks and credit cards receivables
|
231
|
191
|
||||||
Accrued income
|
93
|
136
|
||||||
Current maturity of long-term receivables
|
324
|
413
|
||||||
|
985
|
1,142
|
||||||
Other Receivables
|
||||||||
Prepaid expenses
|
29
|
23
|
||||||
Other
|
10
|
9
|
||||||
|
39
|
32
|
||||||
|
1,024
|
1,174
|
||||||
Non-current
|
||||||||
Trade Receivables *
|
176
|
309
|
||||||
Deposits and other receivables
|
-
|
20
|
||||||
Loan to a customer
|
-
|
120
|
||||||
Other
|
7
|
10
|
||||||
|
183
|
459
|
||||||
|
1,207
|
1,633
|
A. |
Composition
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Handsets
|
45
|
38
|
||||||
Accessories
|
10
|
8
|
||||||
Spare parts
|
18
|
20
|
||||||
73
|
66
|
B. |
The Group is testing slow moving inventory for impairment. In the framework of the test conducted in 2020 impairment was credited in the amount of ILS 6 million (2019 - ILS 3 million). The write-down is included in Cost of
revenues.
|
|
Communication network
|
Network control and testing equipment
|
Television equipment and infrastructure
|
Vehicles, computers, furniture and other equipment
|
Leasehold improvements
|
Total
|
||||||||||||||||||
NIS millions
|
||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||
Balance as of January 1, 2019
|
5,074
|
63
|
368
|
201
|
100
|
5,806
|
||||||||||||||||||
Additions
|
205
|
1
|
110
|
14
|
1
|
331
|
||||||||||||||||||
Disposals
|
(300
|
)
|
-
|
(69
|
)
|
(21
|
)
|
(19
|
)
|
(409
|
)
|
|||||||||||||
Balance as of December 31, 2019
|
4,979
|
64
|
409
|
194
|
82
|
5,728
|
||||||||||||||||||
Additions
|
167 |
1
|
123
|
19
|
2
|
312
|
||||||||||||||||||
Business combination
|
78
|
-
|
-
|
1
|
1
|
80
|
||||||||||||||||||
Discontinunce of consolidation
|
-
|
-
|
-
|
(2
|
)
|
-
|
(2
|
)
|
||||||||||||||||
Deductions
|
(17
|
)
|
-
|
(53
|
)
|
(43
|
)
|
(22
|
)
|
(135
|
)
|
|||||||||||||
Balance as of December 31, 2020
|
5,207
|
65
|
479
|
169
|
63
|
5,983
|
||||||||||||||||||
Accumulated depreciation
|
||||||||||||||||||||||||
Balance as of January 1, 2019
|
3,771
|
54
|
138
|
119
|
72
|
4,154
|
||||||||||||||||||
Depreciation for the year
|
252
|
3
|
94
|
26
|
8
|
383
|
||||||||||||||||||
Deduction of depreciation
|
(147
|
)
|
-
|
(55
|
)
|
(20
|
)
|
(19
|
)
|
(241
|
)
|
|||||||||||||
Balance as of December 31, 2019
|
3,876
|
57
|
177
|
125
|
61
|
4,296
|
||||||||||||||||||
Depreciation for the year
|
237
|
2
|
114
|
25
|
8
|
386
|
||||||||||||||||||
Business combination
|
34
|
-
|
-
|
1
|
-
|
35
|
||||||||||||||||||
Discontinunce of consolidation
|
-
|
-
|
-
|
(1
|
)
|
-
|
(1
|
)
|
||||||||||||||||
Deduction of depreciation
|
(17
|
)
|
-
|
(53
|
)
|
(43
|
)
|
(22
|
)
|
(135
|
)
|
|||||||||||||
Balance as of December 31, 2020
|
4,130
|
59
|
238
|
107
|
47
|
4,581
|
||||||||||||||||||
Amortized balance as of January 1, 2019
|
1,303
|
9
|
230
|
82
|
28
|
1,652
|
||||||||||||||||||
Amortized balance as of December 31, 2019
|
1,103
|
7
|
232
|
69
|
21
|
1,432
|
||||||||||||||||||
Amortized balance as of December 31, 2020
|
1,077
|
6
|
241
|
62
|
16
|
1,402
|
|
Licenses and frequencies
|
Information systems
|
Software
|
Customer acquisition cost
|
Goodwill
|
Customer relations and other
|
Total
|
|||||||||||||||||||||
NIS millions
|
||||||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||||||
Balance as of January 1, 2019
|
552
|
296
|
41
|
258
|
809
|
315
|
2,271
|
|||||||||||||||||||||
Additions
|
-
|
84
|
9
|
138
|
-
|
-
|
231
|
|||||||||||||||||||||
Deductions
|
-
|
(65
|
)
|
(13
|
)
|
-
|
-
|
(6
|
)
|
(84
|
)
|
|||||||||||||||||
Balance as of December 31, 2019
|
552
|
315
|
37
|
396
|
809
|
309
|
2,418
|
|||||||||||||||||||||
Additions
|
38
|
64
|
2
|
131
|
-
|
-
|
235
|
|||||||||||||||||||||
Business combination
|
45
|
-
|
8
|
62
|
754
|
146
|
1,015
|
|||||||||||||||||||||
Discontinunce of consolidation
|
-
|
(14
|
)
|
-
|
(3
|
)
|
-
|
-
|
(17
|
)
|
||||||||||||||||||
Deductions
|
-
|
(62
|
)
|
(8
|
)
|
-
|
-
|
(70
|
)
|
|||||||||||||||||||
Balance as of December 31, 2020
|
635
|
303
|
39
|
586
|
1,563
|
455
|
3,581
|
|||||||||||||||||||||
Accumulated depreciation
|
||||||||||||||||||||||||||||
Balance as of January 1, 2019
|
416
|
115
|
23
|
107
|
-
|
312
|
973
|
|||||||||||||||||||||
Depreciation for the year
|
15
|
78
|
7
|
126
|
-
|
3
|
229
|
|||||||||||||||||||||
Deduction of depreciation
|
-
|
(60
|
)
|
(12
|
)
|
-
|
-
|
(6
|
)
|
(78
|
)
|
|||||||||||||||||
Balance as of December 31, 2019
|
431
|
133
|
18
|
233
|
-
|
309
|
1,124
|
|||||||||||||||||||||
Depreciation for the year
|
16
|
94
|
6
|
132
|
-
|
7
|
255
|
|||||||||||||||||||||
Business combination
|
45
|
-
|
2
|
43
|
-
|
-
|
90
|
|||||||||||||||||||||
Discontinunce of consolidation
|
-
|
(6
|
)
|
-
|
(1
|
)
|
-
|
-
|
(7
|
)
|
||||||||||||||||||
Deduction of depreciation
|
-
|
(62
|
)
|
(7
|
)
|
-
|
-
|
-
|
(69
|
)
|
||||||||||||||||||
Balance as of December 31, 2020
|
492
|
159
|
19
|
407
|
-
|
316
|
1,393
|
|||||||||||||||||||||
Amortized balance as of January 1, 2019
|
136
|
181
|
18
|
151
|
809
|
3
|
1,298
|
|||||||||||||||||||||
Amortized balance as of December 31, 2019
|
121
|
182
|
19
|
163
|
809
|
-
|
1,294
|
|||||||||||||||||||||
Amortized balance as of December 31, 2020
|
143
|
144
|
20
|
179
|
1,563
|
139
|
2,188
|
Cash generating unit
|
Cash generating unit
|
|||||||
Cellular segment
|
Fixed-line segment
|
|||||||
Pre-tax discount rate
|
9.1
|
%
|
9.2
|
%
|
||||
Terminal value growth rate
|
1.5
|
%
|
1.5
|
%
|
||||
Market share
|
30.0
|
%
|
N/
|
R
|
||||
ARPU
|
NIS 52.5
|
N/
|
R
|
|
1. |
The discount rate and the terminal value growth rate are denominated in real terms.
|
|
2. |
The cash generating units have cash flows for 5 years, as included in their discounted cash flow model.
|
|
3. |
The long-term growth rate has been determined as 1.5% which represents, among others, the natural population growth rate.
|
|
4. |
The pre-tax discount rate is estimated and calculated using several assumptions, among others, cash generating units' Cost of Equity, risk premium for normative debt leveraging of the Group and estimates of the normative
leverage ratio for the industry.
|
|
5. |
ARPU (Average revenue per user) in terminal year (except revenue from hosting services and national roaming services), in NIS.
|
Cash generating unit
|
Cash generating unit
|
|||||||
Cellular segment
|
Fixed-line segment
|
|||||||
Pre-tax discount rate
|
10.8
|
%
|
10.7
|
%
|
||||
Terminal value growth rate
|
(1.16
|
)%
|
(0.1
|
)%
|
||||
Market share
|
28.1
|
%
|
N/
|
R
|
||||
ARPU
|
NIS 50.5
|
N/
|
R
|
A. |
From January 1, 2019, the Group implements IFRS 16, Leases. The Group's mainly leases are assets used for cell and switches sites, buildings and motor vehicles.
|
B. |
Right-of-use Assets and Investment Property
|
Cell and switches sites
|
Buildings
|
Motor vehicles
|
Total
|
|||||||||||||||||||||
Right of use assets
|
Investment property
|
Total
|
||||||||||||||||||||||
NIS millions
|
||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||
Balance as of January 1, 2019
|
626
|
153
|
23
|
802
|
24
|
826
|
||||||||||||||||||
Additions, changes in agreements and revaluation
|
135
|
24
|
30
|
189
|
-
|
189
|
||||||||||||||||||
Deductions for ended agreements
|
(24
|
)
|
(1
|
)
|
(5
|
)
|
(30
|
)
|
-
|
(30
|
)
|
|||||||||||||
Balance as of December 31, 2019
|
737
|
176
|
48
|
961
|
24
|
985
|
||||||||||||||||||
Additions, changes in agreements and revaluation
|
94
|
6
|
29
|
129
|
2
|
131
|
||||||||||||||||||
Business combination
|
-
|
16
|
1
|
17
|
-
|
17
|
||||||||||||||||||
Deductions for ended agreements
|
(65
|
)
|
(6
|
)
|
(10
|
)
|
(81
|
)
|
-
|
(81
|
)
|
|||||||||||||
Balance as of December 31, 2020
|
766
|
192
|
68
|
1,026
|
26
|
1,052
|
||||||||||||||||||
Cumulated depreciation and devaluation
|
||||||||||||||||||||||||
Balance as of January 1, 2019
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Depreciation for year
|
177
|
53
|
22
|
252
|
-
|
252
|
||||||||||||||||||
Change in fair value of real estate for investment
|
-
|
-
|
-
|
-
|
6
|
6
|
||||||||||||||||||
Deductions for ended agreements
|
(5
|
)
|
(1
|
)
|
(5
|
)
|
(11
|
)
|
-
|
(11
|
)
|
|||||||||||||
Changes in agreements and revaluation
|
(3
|
)
|
(1
|
)
|
(3
|
)
|
(7
|
)
|
-
|
(7
|
)
|
|||||||||||||
Balance as of December 31, 2019
|
169
|
51
|
14
|
234
|
6
|
240
|
||||||||||||||||||
Depreciation for year
|
168
|
52
|
21
|
241
|
-
|
241
|
||||||||||||||||||
Change in fair value of real estate for investment
|
-
|
-
|
-
|
-
|
7
|
7
|
||||||||||||||||||
Business combination
|
-
|
5
|
1
|
6
|
-
|
6
|
||||||||||||||||||
Deductions for ended agreements
|
(59
|
)
|
(6
|
)
|
(10
|
)
|
(75
|
)
|
-
|
(75
|
)
|
|||||||||||||
Changes in agreements and revaluation
|
(3
|
)
|
(3
|
)
|
-
|
(6
|
)
|
-
|
(6
|
)
|
||||||||||||||
Balance as of December 31, 2020
|
275
|
99
|
26
|
400
|
13
|
413
|
||||||||||||||||||
Amortized cost balance as of January 1, 2019
|
626
|
153
|
23
|
802
|
24
|
826
|
||||||||||||||||||
Amortized cost balance as of December 31, 2019
|
568
|
125
|
34
|
727
|
18
|
745
|
||||||||||||||||||
Amortized cost balance as of December 31, 2020
|
491
|
93
|
42
|
626
|
13
|
639
|
Cell and switches sites
|
Buildings
|
Motor vehicles
|
Total
|
|||||||||||||
NIS millions
|
||||||||||||||||
Balance as of January 1, 2019
|
622
|
183
|
25
|
830
|
||||||||||||
Additions for new contracts, changes in agreements and revaluation
|
141
|
30
|
33
|
204
|
||||||||||||
Deductions for ended agreements
|
(18
|
)
|
-
|
(1
|
)
|
(19
|
)
|
|||||||||
Financing expenses
|
19
|
4
|
1
|
24
|
||||||||||||
Payments for lease
|
(193
|
)
|
(65
|
)
|
(22
|
)
|
(280
|
)
|
||||||||
Balance as of December 31, 2019
|
571
|
152
|
36
|
759
|
||||||||||||
Additions for new contracts, changes in agreements and revaluation
|
94
|
8
|
31
|
133
|
||||||||||||
Deductions for ended agreements
|
(6
|
)
|
-
|
(1
|
)
|
(7
|
)
|
|||||||||
Financing expenses
|
21
|
3
|
1
|
25
|
||||||||||||
Business combination
|
-
|
13
|
1
|
14
|
||||||||||||
Payments for lease
|
(168
|
)
|
(63
|
)
|
(22
|
)
|
(253
|
)
|
||||||||
Balance as of December 31, 2020
|
512
|
113
|
46
|
671
|
||||||||||||
Current maturities of liabilities for leases
|
148
|
61
|
17
|
226
|
||||||||||||
Liabilities for long-term leases
|
423
|
91
|
19
|
533
|
||||||||||||
Balance as of December 31, 2019
|
571
|
152
|
36
|
759
|
||||||||||||
Current maturities of liabilities for leases
|
135
|
56
|
23
|
214
|
||||||||||||
Liabilities for long-term leases
|
377
|
57
|
23
|
457
|
||||||||||||
Balance as of December 31, 2020
|
512
|
113
|
46
|
671
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Trade payables
|
334
|
345
|
||||||
Accrued expenses
|
434
|
342
|
||||||
768
|
687
|
Dismantling and
restoring
sites
|
Legal claims
|
Other contractual liabilities
|
Total
|
|||||||||||||
NIS millions
|
||||||||||||||||
Balance as of January 1, 2019
|
20
|
63
|
42
|
125
|
||||||||||||
Provisions created in the year
|
2
|
12
|
4
|
18
|
||||||||||||
Provisions cancelled in the year
|
-
|
(17
|
)
|
(5
|
)
|
(22
|
)
|
|||||||||
Balance as of January 1, 2020
|
22
|
58
|
41
|
121
|
||||||||||||
Provisions created in the year
|
8
|
12
|
1
|
21
|
||||||||||||
Business combination
|
-
|
3
|
79
|
82
|
||||||||||||
Provisions cancelled in the year
|
-
|
(14
|
)
|
(4
|
)
|
(18
|
)
|
|||||||||
Balance as of December 31, 2020
|
30
|
59
|
117
|
206
|
||||||||||||
Non-current
|
30
|
-
|
-
|
30
|
||||||||||||
Current
|
-
|
59
|
117
|
176
|
||||||||||||
30
|
59
|
117
|
206
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Employees and related liabilities
|
113
|
109
|
||||||
Provision for voluntary retirement plan
|
-
|
45
|
||||||
Government institutions
|
32
|
25
|
||||||
Interest payable
|
62
|
55
|
||||||
Accrued expenses
|
1
|
5
|
||||||
Deferred revenue
|
41
|
55
|
||||||
Derivative financial instruments
|
8
|
5
|
||||||
257
|
299
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Long-term liabilities
|
38
|
-
|
||||||
Deferred revenue
|
2
|
3
|
||||||
Other
|
1
|
1
|
||||||
41
|
4
|
|
A. |
This note provides information about the contractual terms of the Group's debentures and long-term loans from financial institutions, which are measured at amortized cost. For more information about
the Group’s exposure to interest rate, foreign currency and liquidity risks, see Note 24.
|
|
December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
NIS millions
|
|||||||
Noncurrent liabilities
|
||||||||
Debentures
|
2,723
|
2,511
|
||||||
Long-term loans from financial institutions
|
50
|
300
|
||||||
|
2,773
|
2,811
|
||||||
Current liabilities
|
||||||||
Current maturities of debentures
|
376
|
409
|
||||||
Current maturities of loans from financial institutions
|
138
|
100
|
||||||
|
514
|
509
|
|
1. |
Debentures
|
December 31, 2020
|
December 31, 2019
|
||||||||||||||||||||||||
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
|
-
|
- |
214
|
223
|
|||||||||||||||||
Debentures (Series H) - linked to the Israeli CPI
|
NIS
|
1.98
|
%
|
2018-2024
|
608
|
579
|
722
|
682
|
|||||||||||||||||
Debentures (series I) - unlinked
|
NIS
|
4.14
|
%
|
2018-2025
|
563
|
550
|
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
|
707
|
711
|
706
|
|||||||||||||||||
Debentures (series L) - unlinked
|
NIS
|
2.50
|
%
|
2023-2028
|
1,225
|
1,159
|
603
|
579
|
|||||||||||||||||
Total debentures
|
3,210
|
3,099
|
2,996
|
2,920
|
|
2. |
In August 2019, the Company’s rating was updated from an “ilA+/negative” to an “ilAA-/negativerating in relation to the Company’s debentures. No changes has occurred in annual interest rates
following this update.
|
|
3. |
In connection with the issue of Series H-L debentures, the Company has undertaken to comply with certain financial and other covenants. Inter alia:
|
|
a. |
An undertaking not to distribute more than 95% of the profits suitable for distribution under the Companies Law (the “Profits”); provided (1) if the Company’s net debt to EBITDA ratio
exceeds a ratio of 3.5:1, the Company shall not distribute more than 85% of the Profits; (2) if the Company’s net debt to EBITDA ratio exceeds 4:1, the Company shall not distribute more than 70% of the Profits; and (3) of the
Company’s net debt to EBITDA ratio exceeds 5:1 or 4.5:1 for a duration of four consecutive quarters, the Company shall not distribute dividends.
|
|
b. |
An undertaking to rate the debentures through a rating company (insofar as this is under the Company’s control).
|
|
c. |
An undertaking to pay additional interest at a rate of 0.25% for a two point decrease in the rating of the debentures Series H to K, and 0.5% for a two point decrease in the rating of debentures Series L, and additional
interest of 0.25% for any one point decrease in the rating of the debentures, up to a maximum addition of 1%, compared to their rating before being issued.
|
|
d. |
The Company’s undertaking not to issue additional debentures of any series should the Company fail to meet the financial criteria, or if such issue shall cause a decrease in the debentures’ rating.
|
|
B. |
The terms and debt repayment schedule (cont'd)
|
|
e. |
The net debt to EBITDA ratio is the ratio between the Company’s net debt and the adjusted EBITDA in a period of 12 consecutive months, neutralizing non-recurring events. In this respect, “net debt” is defined as credit and
loans from banking and other corporations (without obligations for leases arising from the implementation of IFRS 16) and obligations for debentures, less cash and cash equivalents and current investments in marketable securities.
“Adjusted EBITDA” – see definition in Note 6.
|
|
4. |
In addition, the Company’s debentures include Events of Default, including:
|
|
a. |
An undertaking not to create pledges (negative pledge), subject to certain exceptions. Failure to fulfill such undertaking shall be deemed a cause for acceleration.
|
|
b. |
Acceleration of a different debt of the Company (cross default) by a lender that is not a supplier, except with respect to a debt of ILS 150 million or less. The restriction on accelerating such debt shall not apply to a
cross default that was caused by a different series of the Company’s debentures.
|
|
c. |
A case where the Company shall cease to act in the field of cellular communications and/or ceased to hold its cellular license for a period exceeding 60 days.
|
|
d. |
A suspension of trading the debentures on TASE, for a period exceeding 45 days.
|
|
e. |
Making a distribution that does not comply with the Company’s undertaking with respect to the restrictions on distributing Profits.
|
|
f. |
Failure to rate the debenture for a period exceeding 60 days.
|
|
g. |
A motion or court order for stay of proceedings against the Company or submitting a motion for a creditors arrangements.
|
|
h. |
Selling a material part of the Company’s assets or merger (except for certain exceptions).
|
|
i. |
Failure to publish financial statements on time.
|
|
j. |
A net debt to EBITDA ratio exceeding 1:5, or exceeding 1:4.5 for four consecutive quarters.
|
|
k. |
Failure to comply with the Company’s undertaking not to create pledges.
|
|
l. |
A material deterioration of the Company’s business compared to its situation on the issue date of the debentures, and a real concern that the Company may not repay the debentures on time.
|
|
m. |
There is real concern that the Company shall not fulfill its material undertakings towards its debenture holders.
|
|
n. |
Including a comment in the Company’s financial statements regarding the concern of the Company’s continued existence as a “going concern” for a period of two consecutive quarters.
|
|
o. |
A breach of the Company’s undertakings with respect to the issue of additional debentures.
|
|
5. |
In May 2020, the Company issued to the public:
|
|
a. |
ILS 222,000,000 par value of debentures Series L.
|
|
b. |
2,220,000 warrants (Series 4) (for additional details see Note 20).
|
|
6. |
In December 2020, the Company issued additional debentures (Series L) of approximately ILS 400 million par value, in total consideration of approximately ILS 390 million, which reflects an effective annual interest rate of
3.65%. Debentures (Series L) of the Company are traded on TASE.
|
|
C. |
Long-term loans from financial institutions
|
|
1. |
The terms and repayment schedule of the Company's long-term loans are as follows:
|
December 31, 2020
|
December 31, 2019
|
||||||||||||||||||||||||
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
|
50
|
50
|
100
|
100
|
|||||||||||||||||
Loan from financial institution
|
NIS
|
5.10
|
%
|
2019-2022
|
100
|
100
|
150
|
150
|
|||||||||||||||||
Loan from bank (3)
|
NIS
|
4.00
|
%
|
2020-2021
|
38
|
38
|
150
|
150
|
|||||||||||||||||
Total loans
|
|
188
|
188
|
400
|
400
|
|
2. |
The Company's long-term loans contain standard terms in addition to certain additional undertakings by the Company, including: that the loans' interest rates may be subject to certain adjustments;
the Company may prepay the loans, subject to a prepayment fee; generally include the negative pledge, limitations on distribution, immediate repayment events and financial covenants that apply to the Company’s Debentures Series
I. As of December 31, 2020, the Company is in compliance with the financial covenants.
|
|
3. |
According to a deferred loan agreement entered by the Company with an Israeli bank in June 2017, in March 2019, the loan in a principal amount of ILS 150 million was provided to the Company. The loan is with no linkage and
bears an annual fixed interest rate of 4%. The loan's principal amount will be payable in four equal annual payments on March 31 of each of the years 2021 through and including 2024 and the interest will be payable in ten
semi-annual installments on March 31 and September 30 of each calendar year commencing September 30, 2019 through and including March 31, 2024. In October 2020 the Company made early repayment with respect to part of the loan in
the amount of approximately ILS 113 million. The balance of the loan shall be repaid in March 2021.
|
D.
|
Movement in liabilities deriving from financing activities
|
Loans
|
Debentures
|
Derivatives
|
Interest payable
|
Leases liabilities
|
Total
|
|||||||||||||||||||
NIS millions
|
||||||||||||||||||||||||
Balance as of January 1, 2019
|
(462
|
)
|
(3,403
|
)
|
(1
|
)
|
(63
|
)
|
(830
|
)
|
(4,759
|
)
|
||||||||||||
Changes from financing cash flow
|
||||||||||||||||||||||||
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
|
||||||||||||||||||
payments for leases
|
-
|
-
|
-
|
-
|
256
|
256
|
||||||||||||||||||
Total cash, net, deriving from financing activities
|
62
|
514
|
2
|
127
|
256
|
961
|
||||||||||||||||||
Other changes
|
-
|
-
|
-
|
-
|
(185
|
)
|
(185
|
)
|
||||||||||||||||
Financing expenses recognized in profit or loss
|
-
|
(31
|
)
|
(6
|
)
|
(119
|
)
|
-
|
(156
|
)
|
||||||||||||||
Balance as of December 31, 2019
|
(400
|
)
|
(2,920
|
)
|
(5
|
)
|
(55
|
)
|
(759
|
)
|
(4,139
|
)
|
||||||||||||
Changes from financing cash flow
|
||||||||||||||||||||||||
Payments for derivative contracts, net
|
-
|
-
|
6
|
-
|
-
|
6
|
||||||||||||||||||
Repayment of debentures and long- term loans from financial institutions
|
212
|
417
|
-
|
-
|
-
|
629
|
||||||||||||||||||
Proceeds from issuance of debentures, net of issuance costs
|
-
|
(583
|
)
|
-
|
-
|
-
|
(583
|
)
|
||||||||||||||||
Repurchase of debentures
|
||||||||||||||||||||||||
Interest paid
|
-
|
-
|
-
|
130
|
-
|
130
|
||||||||||||||||||
Payments for leases
|
-
|
-
|
-
|
-
|
228
|
228
|
||||||||||||||||||
Total cash, net, deriving from financing activities
|
212
|
(166
|
)
|
6
|
130
|
228
|
410
|
|||||||||||||||||
Other changes
|
-
|
-
|
(1
|
)
|
(12
|
)
|
(126
|
)
|
(139
|
)
|
||||||||||||||
Business combination
|
-
|
-
|
-
|
-
|
(14
|
)
|
(14
|
)
|
||||||||||||||||
financing expenses recognized in profit or loss
|
-
|
(13
|
)
|
(8
|
)
|
(125
|
)
|
-
|
(146
|
)
|
||||||||||||||
Balance as of December 31, 2020
|
(188
|
)
|
(3,099
|
)
|
(8
|
)
|
(62
|
)
|
(671
|
)
|
(4,028
|
)
|
|
A. |
Post-employment benefit plans - defined contribution plan
|
|
B. |
Post-employment benefit plans - defined benefit plan
|
|
C. |
As of December 31, 2020, the Group's liability for adaptation grants to employees is ILS 6 million (2019 - ILS 8 million).
|
|
A. |
Share capital
|
2020
|
2019
|
2018
|
||||||||||
NIS
|
||||||||||||
Issued and paid at January 1
|
1,472,885
|
1,161,968
|
1,010,446
|
|||||||||
Equity offering
|
-
|
306,000
|
121,212
|
|||||||||
Exercise of share options
|
154,873
|
4,917
|
30,310
|
|||||||||
Issued and paid at December 31
|
1,627,758
|
1,472,885
|
1,161,968
|
|
1. |
In June 2019, 3,030,300 series 2 options of the Company which were issued on June 2018, expired.
|
|
2. |
In December 2019, The Company issued for immediate total net consideration of approximately ILS 309 million:
|
|
A. |
30,600,000 ordinary shares of the Company (par value ILS 0.01 per share, or ordinary shares).
|
|
B. |
7,038,300 Series 3 Options. Each Option entitled the holder thereof to purchase one ordinary share at an exercise price of ILS 8.64, until April 1, 2020. In March 2020 the court granted the Company’s request and extended the
exercise period for Series 3 Options until June 30, 2020.
|
|
C. |
6,426,000 Series 4 Options. Each Option entitled the holder thereof to purchase one ordinary share at an exercise price of ILS 9.60, until September 30, 2020.
|
|
3. |
In May 2020, the Company issued to the public:
|
|
A. |
ILS 222,000,000 par value debentures Series L (for details see Note 20).
|
|
B. |
2,220,000 Series 4 Options. Each Option entitled its holder to purchase one ordinary share at an exercise price of ILS 9.6, as of September 30, 2020.
|
|
4. |
Until June 30, 2020, 7,024,194 Series 3 Options were exercised, while the balance expired. Until September 30, 2020, 8,644,981 Series 4 Options were exercised, while the balance expired. The total proceeds received from
exercising the Options in the reporting period was ILS 140 million.
|
|
5. |
On December 31, 2020, 2019 and 2018, the authorized share capital was comprised of 300 million ordinary shares.
|
|
B. |
Basic and diluted earnings (loss) per share
|
|
C. |
Dividends
|
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
|
2020
|
|||||
Share options granted in August 2015 and October 2015 to senior employees
|
2,660
|
Exercisable into one share of ILS 0.01 par value, at the market price.
|
Three equal portions over three years of employment
|
4.5 years
|
ILS 25.65
|
|||||
Share options granted in November 2016 to senior employees
|
63
|
Exercisable into one share of ILS 0.01 par value, at the market price.
|
Three equal portions over three years of employment
|
4.5 years
|
ILS 29.97
|
|||||
Share options granted in May 2019 to employees
|
2,944
|
Exercisable into one share of ILS 0.01 par value, at the market price.
|
Four equal portions over four years of employment
|
5 years
|
ILS 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 ILS 0.01 par value.
|
Four equal portions over four years of employment
|
5 years
|
-
|
|||||
Restricted stock units (RSU) granted in May 2019 to non-profit organization employees
|
333
|
At fixed dates, the RSU is exercisable into one share of ILS 0.01 par value.
|
Two equal portions over two years
|
2 years
|
-
|
|||||
Share options granted in January 2020 to the CEO
|
4,153
|
Exercisable into one share of ILS 0.01 par value, at the market price.
|
Five equal portions over five years of employment
|
8 years
|
ILS 14.2-17.25
|
|||||
Share options granted to employees in July 2020
|
2,407
|
Exercisable into one share of ILS 0.01 par value, at the market price.
|
Four equal portions over four years of employment
|
5 years
|
ILS 12.35
|
|||||
Restricted stock units (RSU) granted in July 2020 to employees
|
629
|
At fixed dates, the RSU is exercisable into one share of ILS 0.01 par value.
|
Four equal portions over four years of employment
|
5 years
|
-
|
|||||
Share options granted in August-December 2020, to senior employees
|
4,930
|
Exercisable into one share of ILS 0.01 par value, at the market price.
|
Three equal portions over three years of employment
|
4 years
|
ILS 13.03-19.7
|
Number of
Options (thousands)
|
Weighted average
of exercise price
(NIS)
|
Number of
Options
(thousands)
|
Weighted average
of exercise price
(NIS)
|
Number of
Options
(thousands)
|
Weighted average
of exercise price
(NIS)
|
|||||||||||||||||||
2020
|
2019
|
2018
|
||||||||||||||||||||||
Balance as at January 1
|
3,564
|
17.8
|
780
|
25.9
|
964
|
28.0
|
||||||||||||||||||
Granted during the year
|
11,490
|
14.5
|
2,944
|
15.66
|
-
|
-
|
||||||||||||||||||
Forfeited during the year
|
(1,639
|
)
|
19.9
|
(160
|
)
|
16.96
|
(159
|
)
|
36.6
|
|||||||||||||||
Exercised during the year
|
(26
|
)
|
15.7
|
-
|
-
|
(25
|
)
|
25.6
|
||||||||||||||||
Total options outstanding as at December 31
|
13,389
|
14.7
|
3,564
|
17.8
|
780
|
25.9
|
||||||||||||||||||
Total of exercisable options as at December 31
|
579
|
15.8
|
759
|
25.8
|
766
|
25.8
|
2020
|
2019
|
2018
|
||||||||||
Fair value at grant date in ILS
|
2.2-4.3
|
3.26
|
-
|
|||||||||
Fair value assumptions:
|
||||||||||||
Share price at grant date NIS
|
11.1-15.8
|
15.05
|
-
|
|||||||||
Exercise price NIS
|
12.3-18.7
|
15.66
|
-
|
|||||||||
Expected volatility (weighted average)
|
38.2-52.4
|
%
|
34.7
|
%
|
-
|
|||||||
Option life (expected weighted average life)
|
3.8
|
2.75
|
-
|
|||||||||
Risk free interest rate
|
0.05-0.5
|
%
|
0.7
|
%
|
-
|
Number of RSU (thousands)
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
Balance as at January 1
|
987
|
-
|
-
|
|||||||||
Granted during the year
|
629
|
1,019
|
-
|
|||||||||
Forfeited during the year
|
(203
|
)
|
(32
|
)
|
-
|
|||||||
Exercised during the year
|
(309
|
)
|
-
|
-
|
||||||||
Total RSU outstanding as at December 31
|
1,104
|
987
|
-
|
|||||||||
Total of exercisable RSU as at December 31
|
285
|
-
|
-
|
2020
|
2019
|
2018
|
||||||||||
Fair value of restricted stock units:
|
||||||||||||
Fair value of restricted stock units at grant date
|
11.1
|
15.05
|
-
|
2020
|
2019
|
2018
|
||||||||||
Salary expenses arising from share-based payments (NIS millions)
|
20
|
8
|
3
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Trade receivables including long-term amount
|
1,161
|
1,451
|
||||||
Loans and other receivables, including long-term amounts
|
14
|
293
|
||||||
Investment in debt securities and deposits
|
429
|
428
|
||||||
Cash and cash equivalents in banks
|
719
|
1,006
|
||||||
Derivative financial instruments
|
1
|
1
|
||||||
2,324
|
3,179
|
As of December 31,
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Receivables from subscribers
|
1,027
|
1,235
|
||||||
Receivables from distributors and other operators
|
134
|
156
|
||||||
Investment in government of Israel debt securities
|
-
|
92
|
||||||
Investment in institutional debt securities
|
-
|
306
|
||||||
Deposits
|
429
|
30
|
||||||
Cash and cash equivalents in banks
|
719
|
1,006
|
||||||
Investments in equity accounted investees
|
-
|
*
|
||||||
Other
|
15
|
209
|
||||||
2,324
|
3,034
|
Gross
|
Devaluation
|
Gross
|
Devaluation
|
|||||||||||||
2020
|
2019
|
|||||||||||||||
NIS millions
|
||||||||||||||||
Not past due
|
2,272
|
32
|
3,108
|
35
|
||||||||||||
Past due less than one year
|
85
|
30
|
111
|
32
|
||||||||||||
Past due more than on year
|
143
|
115
|
146
|
119
|
||||||||||||
2,500
|
177
|
3,365
|
186
|
2020
|
2019
|
|||||||
NIS millions
|
||||||||
Balance as of January 1
|
186
|
196
|
||||||
Write-off of lost debts
|
(35
|
)
|
(39
|
)
|
||||
Entering consolidation
|
6
|
-
|
||||||
Classified to trade and other receivables
|
(7
|
)
|
-
|
|||||
Doubtful debt expenses
|
27
|
29
|
||||||
Balance as of December 31
|
177
|
186
|
As of December 31, 2020
|
||||||||||||||||||||||||||||
Carrying amount
|
Contractual cash flow
|
First year
|
Second year
|
Third year
|
Four to five years
|
More than five years
|
||||||||||||||||||||||
NIS millions
|
||||||||||||||||||||||||||||
Debentures*
|
(3,161
|
)
|
(3,588
|
)
|
(481
|
)
|
(469
|
)
|
(641
|
)
|
(1,120
|
)
|
(877
|
)
|
||||||||||||||
Long-term loans from financial institutions*
|
(188
|
)
|
(194
|
)
|
(143
|
)
|
(51
|
)
|
-
|
-
|
-
|
|||||||||||||||||
Trade and other payables
|
(913
|
)
|
(913
|
)
|
(913
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Forward exchange contracts on foreign currencies
|
(8
|
)
|
(8
|
)
|
(8
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Other long-term liabilities
|
(44
|
)
|
(44
|
)
|
(6
|
)
|
(38
|
)
|
-
|
-
|
-
|
|||||||||||||||||
Lease liabilities
|
(671
|
)
|
(713
|
)
|
(221
|
)
|
(164
|
)
|
(96
|
)
|
(125
|
)
|
(106
|
)
|
||||||||||||||
(4,985
|
)
|
(5,460
|
)
|
(1,772
|
)
|
(722
|
)
|
(737
|
)
|
(1,245
|
)
|
(983
|
)
|
As of December 31, 2019
|
||||||||||||||||||||||||||||
Carrying amount
|
Contractual cash flow
|
First year
|
Second year
|
Third year
|
Four to five years
|
More than five 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, 2020
|
December 31, 2019
|
|||||||||||||||||||||||
Foreign currency or linked to foreign currency (mainly USD)
|
Linked to CPI
|
Unlinked
|
Foreign currency or linked to foreign currency (mainly USD)
|
Linked to CPI
|
Unlinked
|
|||||||||||||||||||
NIS millions
|
NIS millions
|
|||||||||||||||||||||||
Current assets
|
||||||||||||||||||||||||
Cash and cash equivalents
|
17
|
-
|
702
|
14
|
-
|
992
|
||||||||||||||||||
Current investments, including derivatives
|
-
|
-
|
429
|
13
|
186
|
182
|
||||||||||||||||||
Trade receivables
|
22
|
-
|
963
|
43
|
-
|
1,099
|
||||||||||||||||||
Other receivables
|
-
|
2
|
9
|
-
|
-
|
4
|
||||||||||||||||||
Long-term assets
|
||||||||||||||||||||||||
Long-term receivables
|
-
|
1
|
179
|
-
|
60
|
393
|
||||||||||||||||||
Current liabilities
|
||||||||||||||||||||||||
Current maturities of debentures and loans from financial institutions
|
-
|
(160
|
)
|
(354
|
)
|
-
|
(331
|
)
|
(178
|
)
|
||||||||||||||
Trade payables and accrued expenses
|
(197
|
)
|
-
|
(570
|
)
|
(171
|
)
|
-
|
(516
|
)
|
||||||||||||||
Other current liabilities, including derivatives
|
(8
|
)
|
(40
|
)
|
(344
|
)
|
(2
|
)
|
(48
|
)
|
(306
|
)
|
||||||||||||
Current maturities of lease liabilities
|
(4
|
)
|
(206
|
)
|
(5
|
)
|
(6
|
)
|
(216
|
)
|
(4
|
)
|
||||||||||||
Long-term liabilities
|
||||||||||||||||||||||||
Long-term loans from financial institutions
|
-
|
-
|
(50
|
)
|
-
|
-
|
(300
|
)
|
||||||||||||||||
Debentures
|
-
|
(523
|
)
|
(2,200
|
)
|
-
|
(679
|
)
|
(1,832
|
)
|
||||||||||||||
Other non-current liabilities
|
(38
|
)
|
-
|
(42
|
)
|
-
|
-
|
(20
|
)
|
|||||||||||||||
Long-term lease liabilities
|
(8
|
)
|
(439
|
)
|
(10
|
)
|
(15
|
)
|
(509
|
)
|
(9
|
)
|
||||||||||||
(216
|
)
|
(1,365
|
)
|
(1,293
|
)
|
(124
|
)
|
(1,537
|
)
|
(495
|
)
|
|
December 31, 2020
|
||||||||||
|
Currency/linkage receivable
|
Currency/linkage payable
|
Face value
|
Fair value
|
|||||||
NIS millions
|
|||||||||||
Instruments not used for hedging
|
|||||||||||
Forward contracts on exchange rates
|
USD
|
NIS
|
92
|
(5
|
)
|
||||||
Forward contracts on CPI
|
CPI
|
NIS
|
70
|
-
|
|||||||
Instruments used for hedging
|
|||||||||||
Forward contracts on exchange rates
|
USD
|
NIS
|
59
|
(3
|
)
|
December 31, 2019
|
|||||||||||
Currency/linkage receivable
|
Currency/linkage payable |
Face value
|
Fair value
|
||||||||
NIS millions
|
|||||||||||
Instruments not used for hedging
|
|||||||||||
Forward contracts on exchange rates
|
USD
|
NIS
|
128
|
(2
|
)
|
||||||
Forward contracts on CPI
|
CPI
|
NIS
|
360
|
(3 |
)
|
Equity
|
Net profit
|
|||||||||||
Change
|
NIS millions
|
NIS millions
|
||||||||||
December 31, 2020
|
||||||||||||
Increase in the CPI of
|
2.0
|
%
|
(20
|
)
|
(20
|
)
|
||||||
Increase in the CPI of
|
1.0
|
%
|
(10
|
)
|
(10
|
)
|
||||||
Decrease in the CPI of
|
(1.0
|
)%
|
10
|
10
|
||||||||
Decrease in the CPI of
|
(2.0
|
)%
|
20
|
20
|
||||||||
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
|
Carrying Amount
|
||||||||
2020
|
2019
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Fixed rate instruments
|
||||||||
Financial assets
|
-
|
656
|
||||||
Financial liabilities
|
(3,287
|
)
|
(3,320
|
)
|
||||
(3,287
|
)
|
(2,664
|
)
|
|||||
Variable rate instruments
|
||||||||
Financial assets
|
1,056
|
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
|
|
(1) |
Financial instruments measured at fair value for disclosure purposes only
|
December 31, 2020
|
December 31, 2019
|
|||||||||||||||
Carrying Amount
|
Fair value*
|
Carrying Amount
|
Fair value*
|
|||||||||||||
|
NIS millions
|
NIS millions
|
||||||||||||||
Debentures, including current maturities and interest payable
|
(3,160
|
)
|
(3,329
|
)
|
(2,973
|
)
|
(2,954
|
)
|
||||||||
Long-term loans from financial institutions, including current maturities and interest payable
|
(188
|
)
|
(192
|
)
|
(401
|
)
|
(406
|
)
|
|
(2) |
Fair value hierarchy of financial instruments measured at fair value
|
December 31, 2020
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Financial assets by fair value through profit or loss
|
||||||||||||||||
Derivatives
|
-
|
1
|
-
|
1
|
||||||||||||
Total assets
|
-
|
1
|
-
|
1
|
||||||||||||
Financial liabilities by fair value through profit or loss
|
||||||||||||||||
Derivatives
|
-
|
(8
|
)
|
-
|
(8
|
)
|
||||||||||
Total liabilities
|
-
|
(8
|
)
|
-
|
(8
|
)
|
December 31, 2019
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Financial assets by fair value through profit or loss
|
||||||||||||||||
Current investments in debt securities and shares
|
472
|
-
|
-
|
472
|
||||||||||||
Derivatives
|
-
|
1
|
-
|
1
|
||||||||||||
Total assets
|
472
|
1
|
-
|
473
|
||||||||||||
Financial liabilities by fair value through profit or loss
|
||||||||||||||||
Derivatives
|
-
|
(5
|
)
|
-
|
(5
|
)
|
||||||||||
Total liabilities
|
-
|
(5
|
)
|
-
|
(5
|
)
|
|
(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, 2020
|
||||||||||||||||
Note
|
Gross amount of financial assets (liabilities) recognized
|
Gross amount of financial assets (liabilities) recognized and offset in the consolidated statements of financial position
|
Net amount of financial assets (liabilities) presented in the consolidated statements of financial position
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||
Financial assets
|
||||||||||||||||
Trade receivables
|
9
|
209
|
(193
|
)
|
16
|
|||||||||||
Financial liabilities
|
||||||||||||||||
Trade payables and accrued expenses
|
13
|
(216
|
)
|
193
|
(23
|
)
|
December 31, 2019
|
||||||||||||||||
Note
|
Gross amount of financial assets (liabilities) recognized
|
Gross amount of financial assets (liabilities) recognized and offset in the consolidated statements of financial position
|
Net amount 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, 2019
|
||||||||
Profit or loss
|
Equity
|
|||||||
NIS millions
|
||||||||
Increase of 5%
|
2
|
2
|
||||||
Increase of 10%
|
3
|
3
|
||||||
Decrease of 5%
|
(2
|
)
|
(2
|
)
|
||||
Decrease of 10%
|
(3
|
)
|
(3
|
)
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
Revenues from equipment
|
878
|
932
|
904
|
|||||||||
Revenues from services
|
||||||||||||
Cellular services
|
1,543
|
1,541
|
1,581
|
|||||||||
Land-line communications services
|
1,153
|
1,111
|
1,068
|
|||||||||
Other services
|
102
|
124
|
135
|
|||||||||
Total revenues from services
|
2,798
|
2,776
|
2,784
|
|||||||||
Total revenues
|
3,676
|
3,708
|
3,688
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
According to source of income
|
||||||||||||
Cost of equipment sold
|
757
|
695
|
642
|
|||||||||
Cost of revenues from services
|
2,043
|
2,030
|
2,019
|
|||||||||
2,800
|
2,725
|
2,661
|
||||||||||
According to its components
|
||||||||||||
Cost of equipment sold
|
757
|
695
|
642
|
|||||||||
Rent and related expenses
|
66
|
64
|
271
|
|||||||||
Salaries and other related expenses
|
196
|
213
|
217
|
|||||||||
Fees to communication operators
|
795
|
763
|
783
|
|||||||||
Cost of content
|
261
|
267
|
223
|
|||||||||
Depreciation and amortization
|
597
|
601
|
390
|
|||||||||
Royalties and fees
|
86
|
85
|
84
|
|||||||||
Other
|
42
|
37
|
51
|
|||||||||
Total cost of revenues from services
|
2,043
|
2,030
|
2,019
|
|||||||||
2,800
|
2,725
|
2,661
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
Salaries and related expenses
|
251
|
278
|
277
|
|||||||||
Commissions
|
78
|
83
|
85
|
|||||||||
Advertising and public relations
|
39
|
46
|
38
|
|||||||||
Depreciation and amortization
|
167
|
155
|
86
|
|||||||||
Royalties and fees
|
19
|
* 18
|
* 15
|
|||||||||
Other
|
26
|
* 30
|
* 66
|
|||||||||
580
|
610
|
567
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
Salaries and related expenses
|
82
|
73
|
81
|
|||||||||
Depreciation and amortization
|
160
|
142
|
108
|
|||||||||
Rent and maintenance
|
19
|
* 14
|
* 58
|
|||||||||
Data processing and professional services
|
28
|
33
|
34
|
|||||||||
Welfare expenses, car allowance and transportation workers
|
31
|
* 27
|
* 38
|
|||||||||
Other
|
10
|
* 11
|
* 4
|
|||||||||
330
|
300
|
323
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
Interest income from installment sale transactions
|
18
|
24
|
27
|
|||||||||
Expenses for voluntary retirement plan
|
-
|
(45
|
)
|
(26
|
)
|
|||||||
Other
|
20
|
1
|
-
|
|||||||||
Other revenues (expenses), net
|
38
|
(20
|
)
|
1
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
Net change in the fair value of financial assets measured by fair value through profit or loss
|
-
|
36
|
12
|
|||||||||
Interest revenues from loans
|
4
|
11
|
3
|
|||||||||
Other
|
6
|
2
|
4
|
|||||||||
Financing revenues
|
10
|
49
|
19
|
|||||||||
Net change in the fair value of financial assets measured by fair value through profit or loss
|
(19
|
)
|
-
|
-
|
||||||||
Interest expenses and index linkage differentials for long-term liabilities
|
(96
|
)
|
(123
|
)
|
(138
|
)
|
||||||
Net change in the fair value of derivatives
|
(8
|
)
|
(12
|
)
|
(7
|
)
|
||||||
Expenses from discount amortization
|
(29
|
)
|
(27
|
)
|
(26
|
)
|
||||||
Financing expenses for liabilities for leases
|
(25
|
)
|
(24
|
)
|
-
|
|||||||
Other
|
(5
|
)
|
(7
|
)
|
(19
|
)
|
||||||
Financing expenses
|
(182
|
)
|
(193
|
)
|
(190
|
)
|
||||||
Financing expenses, net
|
(172
|
)
|
(144
|
)
|
(171
|
)
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
Current tax expenses (revenues)
|
||||||||||||
For current year
|
4
|
19
|
14
|
|||||||||
Adjustments for past years, net
|
1
|
(3
|
)
|
1
|
||||||||
5
|
16
|
15
|
||||||||||
Deferred tax expenses (revenues)
|
||||||||||||
Creation and reversal of temporary differences
|
(44
|
)
|
(39
|
)
|
(21
|
)
|
||||||
Change in tax rate
|
-
|
-
|
-
|
|||||||||
(44
|
)
|
(39
|
)
|
(21
|
)
|
|||||||
Taxes on income (tax benefit)
|
(39
|
)
|
(23
|
)
|
(6
|
)
|
C. |
Income tax in respect of other comprehensive loss
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
Before tax
|
-
|
(5
|
)
|
(2
|
)
|
|||||||
Tax expenses (tax benefit)
|
-
|
1
|
1
|
|||||||||
Net of tax
|
-
|
(4
|
)
|
(1
|
)
|
D. |
Reconciliation between the theoretical tax on the pre-tax profit (loss) and the tax expense (income)
|
For year ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
NIS millions
|
||||||||||||
loss before taxes on income
|
(195
|
)
|
(130
|
)
|
(70
|
)
|
||||||
Primary tax rate of the group
|
23.0
|
%
|
23.0
|
%
|
23.0
|
%
|
||||||
Tax calculated according to the Group's primary tax rate
|
(45
|
)
|
(30
|
)
|
(16
|
)
|
||||||
Addition tax (tax savings) in respect of:
|
||||||||||||
Non-deductible expenses
|
8
|
8
|
6
|
|||||||||
Taxes in respect of previous years
|
(1
|
)
|
(3
|
)
|
1
|
|||||||
Other differences
|
(1
|
)
|
2
|
3
|
||||||||
Tax income
|
(39
|
)
|
(23
|
)
|
(6
|
)
|
Provision to doubtful debts
|
Fixed assets and intangible assets
|
Deduction and losses for carrying for tax purposes
|
Other
|
Total
|
||||||||||||||||
NIS millions
|
||||||||||||||||||||
Deferred tax asset (liability) balance as of January 1, 2020
|
41
|
*
|
(185
|
)
|
51
|
*
|
33
|
*
|
(60
|
)
|
||||||||||
Changes recognized in profit or loss
|
(1
|
)
|
18
|
19
|
8
|
44
|
||||||||||||||
Business combination
|
-
|
(21
|
)
|
3
|
(2
|
)
|
(20
|
)
|
||||||||||||
Balance of deferred tax asset (liability) as at December 31, 2020
|
40
|
(188
|
)
|
73
|
39
|
(36
|
)
|
|||||||||||||
Deferred tax asset
|
40
|
5
|
73
|
41
|
159
|
|||||||||||||||
Offset of balances
|
(159
|
)
|
||||||||||||||||||
Deferred tax asset in the consolidated statements of financial position as at December 31, 2020
|
-
|
|||||||||||||||||||
Deferred tax liability
|
-
|
(193
|
)
|
-
|
(2
|
)
|
(195
|
)
|
||||||||||||
Offset of balances
|
159
|
|||||||||||||||||||
Deferred tax liability in the consolidated statements of financial position as at December 31, 2020
|
(36
|
)
|
Provision to doubtful debts
|
Fixed assets and intangible assets
|
Deduction and losses for carrying for tax purposes
|
Other
|
Total
|
||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||
Balance of deferred tax asset (liability) as of 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 of December 31, 2019
|
43
|
(185
|
)
|
47
|
35
|
(60
|
)
|
|||||||||||||
Deferred tax asset
|
43
|
5
|
47
|
42
|
137
|
|||||||||||||||
Balances that can be offset
|
(137
|
)
|
||||||||||||||||||
Deferred tax asset in the consolidated statements of financial position as of December 31, 2019
|
-
|
|||||||||||||||||||
Deferred tax liability
|
-
|
(190
|
)
|
-
|
(7
|
)
|
(197
|
)
|
||||||||||||
Balances that can be offset
|
137
|
|||||||||||||||||||
Deferred tax liability in the consolidated statements of financial position as of December 31, 2019
|
(60
|
)
|
|
1. |
In March 2020, the Company with Israeli Tax Authority reached a final agreement in relation to the years 2014 - 2017 tax assessment of the Company. The assessment did not have a material effect on the tax expenses in 2020.
|
|
2. |
013 Netvision Ltd has received final tax assessments up to and including the year ended December 31, 2015 (2015 fiscal year).
|
|
3. |
Golan Telecom Ltd. has received final tax assessments up to and including the year ended December 31, 2019 (2019 fiscal year).
|
|
4. |
Dynamica network stores Ltd. has received final tax assessments up to and including the year ended December 31, 2014 (2014 fiscal year). In December 2020, Dynamica received tax assessments according to best judgement for
2015-2019 from the tax authority, for timing discrepancy issues. Dynamica does not agree with the arguments raised by the Israeli Tax Authority, and therefore in January 2021, Dynamica submitted an appeal on these assessments. In
the Company’s estimate, these assessments are not expected to have a material effect on the Group’s reports.
|
|
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, 2020, 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 376 million.
|
|
C. |
The Group has 2 agreements for purchase of rights of use (IRU):
|
|
1. |
Rights of use in communication lines to the global internet: The Group engaged in several agreements for the purchase of indefeasible rights of use (IRU) in certain communication capacities in
communication lines connecting the Israeli internet to the global internet, as well as maintenance and operation services in connection with the foregoing communication lines. The agreement period in connection with most of the
capacity is until May 2032. The balance of the liability from all of the existing agreements as of December 31, 2020, is ILS 27 million.
|
|
2. |
Rights of use in IBC’s optic fiber infrastructure, for addition details see Section G of this note.
|
|
D. |
The Company’s network sharing agreements: (1) the 4G network sharing and 2G and 3G hosting services agreement with Xfone (which commenced operations in the
cellular market in April 2018) (the “Xfone Agreement” or “Sharing Agreement”), (2) the 3G and 4G network sharing and 2G hosting services agreement with Golan that took effect in April 2017 and terminated with the completion of
Golan’s acquisition at the end of August 2020 as detailed in Note 7 above, and (3) an agreement combining relevant 4G network sharing arrangements determined in the Xfone Agreement and in the Golan agreement into one trilateral
agreement (the “Trilateral Agreement”), that took effect in March 2018 with the completion of the Golan Acquisition in the end of August 2020, as detailed above.
|
|
D. |
The Company’s network sharing agreements (Cont’d)
|
|
1. |
Regulating usage of the parties’ relevant frequencies, possession of the active radio equipment of the shared network, regulation of future investments in the active radio equipment of the shared network, regulating the
indefeasible right of use (IRU) in such equipment of each sharing party toward the other sharing party and granting an indefeasible right of use (IRU) from the Group to Xfone in the passive infrastructure of the shared network,
regulating services to be provided by the Group to the shared corporation as a subcontractor and certain arrangements for the separation of the parties and adding another sharing party.
|
|
2. |
The agreement is for a term of ten years, and will be extended for additional periods, unless either party notifies otherwise. In addition to causes for terminating the agreement due to its fundamental breach, Xfone may
terminate the agreement with it by prior written notice, if it decides to cease operating in the cellular market in Israel.
|
|
3. |
The annual consideration to be received by the Group in the period of the Sharing Agreement with Xfone includes three components: (1) a payment for IRU in the passive components of the shared network, (2) payment for Xfone’s
part in the cost of the active components of the shared network, prior to the Sharing Agreement and its part in the cost of active components purchased for the shared network starting from the entry into effect of the Sharing
Agreement and (3) payment for participation in the current operation costs of the shared network and the Group’s 2G and 3G networks, depending on the number of Xfone subscribers and their use of the shared network and the Group’s
2G and 3G networks. However, beginning April 2018, for a period of up to 5 years, Xfone will be entitled to replace its payments for the indefeasible right of use (IRU) for the passive elements of the shared network and its share
of the current operating costs of the network and the Group’s 2G and 3G networks, with a monthly payment based on the number of subscribers, that in any case will be no less than certain minimum annual amounts ranging between ILS
20 million in the first year and ILS 110 million in the fifth year.
|
|
D. |
The Company’s network sharing agreements (Cont’d)
|
|
4. |
In November 2020, Xfone ceased from performing part of the payments to the Group pursuant to the Sharing Agreement. As of the date of the statements, Xfone has not paid the Group a part of the
monthly consideration for August - December 2020. Xfone has raised several arguments regarding its unwillingness to pay the Company the consideration set forth in the Sharing Agreement. Thus, Xfone argued that Golan’s
acquisition by the Company and making it a MVNO (while cancelling the Cellular License and terminating the Trilateral Agreement) constitutes a violation of the agreements with it, and on January 31, 2021, it informed the Company
of the cancellation of the agreements, arguing for their fundamental breach by the Company as foregoing. The Company rejects absolutely Xfone’s Sharing Agreement cancellation notice and arguments, which in the Company’s
management’s opinion were made with the purpose of changing the terms of the Sharing Agreement. On February 8, 2021, the Company filed a claim for enforcing the Sharing Agreement, including payment of Xfone’s debts until the
claim’s filing date (in the amount of ILS 34 million) against Xfone and its controlling shareholder, Mr. Hezi Bezalel,, as well as a motion for a temporary injunction prohibiting Xfone from executing the execution of the
agreement or engaging in an agreement that contradicts the Sharing Agreement with the Company, and a motion for a temporary foreclosure order for amounts belonging to Xfone, up to an amount of ILS 34 million. An ex-parte
temporary foreclosure order was granted on the same day and expanded on February 24, 2021, to also include funds in the possession of Xfone’s parent company (Xfone 018 Ltd.). On March 3, 2021, the claim was amended to also
include the parent company as an additional defendant.
|
|
E. |
Collective employment agreements:
|
|
F. |
Investment agreements in IBC:
|
|
1. |
Partnership Agreements - The Group and IIF entered into agreements for the establishment of a limited partnership, jointly owned in equal parts, that will acquire 70% of the share
capital of IBC (the “Purchaser” or the “IBC Partnership”). The Partnership Agreements contain an undertaking for an additional investment of up to ILS 200 million by both the Company and IIF, pro
rata to their holdings in the Purchaser, over a period of 3 years (the Group has met its full obligation as foregoing) and certain arrangements regarding a party's failure to invest its share as foregoing and regarding
deadlock situations. In March 2020, IBC engaged in an agreement with an Israeli financing institution for the provision of a credit facility. For further details, see Note 8.
|
|
2. |
Share Purchase Agreement (SPA) - The Purchaser, IBC, Israeli Electric Corporation (“IEC”) and the other shareholders and main creditors of IBC entered an agreement for the purchase of 70%
of IBC's issued and outstanding share capital, through investment by the Purchaser in IBC, for a total amount of approximately ILS 110 million (of which the Group paid half) (the "Consideration"), the majority of which given 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 will be held by IEC.
|
|
3. |
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 shareholders that do not participate in financing.
|
|
F. |
Investment agreements in IBC (cont'd)
|
|
4. |
IRU Agreement - The Group and IBC engaged in an agreement in the framework of which the Group acquired indefeasible rights of use (IRU) in 10-15% (the Group’s undertaking was 15% until
the completion of Hot’s investment transaction in IBC, and currently it is 10%) of customers’ houses connected to IBC’s fiber optics, as shall be deployed by IBC in the next 15 years (including an extension option for additional
periods at no additional consideration other than annual maintenance payments). The IRU consideration is subject to actual deployment to customers’ houses by IBC 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 the amount of approximately ILS 70 million. This guarantee is expected to decrease after the completion of
the IBC-Hot transaction, as detailed below.
|
|
5. |
IEC Services Agreement - The IEC Services Agreement includes updated and 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.
|
|
6. |
In addition, in July 2019, the Group and IBC completed the transaction for the sale of the Company's independent fiber-optic infrastructure in residential areas to IBC, in consideration for the amount of approximately ILS 180
million. The IRU Agreement, including the Group’s obligation to purchase indefeasible right of use in a certain percentage of households in buildings connected to IBC’s fiber-optic infrastructure (as detailed above) also applies
to the infrastructure purchased from the Company.
|
|
7. |
In September 2020, the Group engaged, together with IIF, in investment agreements with Hot Cable Communication Systems Ltd. (together with entities related to it) (“Hot”) in IBC. In addition to standard, customary terms, the
transaction includes an obligation to significantly increase the deployment of IBC’s fiber-optic cable network in upcoming years, and most of the following:
|
|
A. |
Investment agreements - between the IBC Partnership and Hot, in the framework of which Hot will become an equal partner in the IBC Partnership (so that each of the partners shall indirectly hold 23.3% of IBC’s share capital),
by performing an investment that is materially identical to the investment performed by each of the Group and IIF, by the transaction completion date. In addition, the investment agreements include additional corporate governance
rights and other mechanisms.
|
|
B. |
An agreement for purchasing IRU in IBC’s fiber-optic infrastructure - between IBC and Hot, in the framework of which Hot undertakes to purchase indefeasible rights of use in IBC’s fiber-optic network.
|
|
C. |
Service agreements - between IBC and Hot, in the framework of which IBC undertakes to purchase certain services from Hot and is permitted to purchase additional services.
|
|
D. |
IBC also undertakes to continue purchasing from the Group certain services that are provided to it by the Group, beyond the completion date.
|
A. |
Legal actions
|
Group of claims
|
Exposure amount
|
Exposure amount for claims without an estimate of chance of success
|
Total
|
Consumer Claims
|
1,829 *
|
80
|
1,909
|
Other Claims
|
10
|
-
|
10
|
Total
|
1,839
|
80
|
1,919
|
Claim amount
|
Number of claims
|
Total claims amount (ILS millions)
|
Up to ILS 100 million *
|
42
|
658
|
ILS 100-500 million
|
2
|
555
|
Unquantified claims
|
17
|
-
|
Against the Group and other defendants together without specifying the amount claimed from the Group
|
2
|
700
|
Against the Group and other defendants together, in which the amount claimed from the Group has been quantified
|
2
|
6
|
Unquantified claims against the Group and other defendants
|
7
|
-
|
|
1. |
Liens: As part of issuance of the Series H to L debentures and the loan agreements which the Company entered into, the Company committed not to create liens on its assets, subject to
certain exceptions.
|
|
2. |
Guarantees: The Group has given bank guarantees as follows:
|
|
A. | To government institutions - ILS 112 million. |
|
B. |
To suppliers and others - ILS 141 million.
|
|
A. |
In October 2018, regulations setting procedures for the construction, changes and replacement of 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 reduce the Company's ability and
make it more difficult for it to construct new radio access devices based on such exemption.
|
|
B. |
In February 2020, the Ministry of Communications announced a retroactive reduction of wholesale service tariffs as determined in the past by the Ministry of Communications in connection with using Bezeq’s copper cable
infrastructure, and updating the tariff mechanism for 2019-2020. This reduction led to a return of amounts that the Company paid in the past to Bezeq, and to the offset of additional amounts in 2020 against payments paid or to be
paid to Bezeq for these services, at a total amount of approximately ILS 31 million. In December 2020, the Ministry of Communications announced another significant reduction of the tariffs for the wholesale market, for using
Bezeq’s copper infrastructure for 2021.
|
|
C. |
In March 2020, the Ministry of Communications informed the Group, and another mobile operator, that they are required to replace the frequencies allocated to them in the 850MHz band to frequencies in the 800MHz band, so that
they conform with European standards and the region that the State of Israel is in. As of the date of the statements, the Group’s bandwidth in the 850MHz frequency band was reduced from 10MHz to 5 MHz and was transposed to an
alternative band. In the next stage of the transfer, on a later date to be determined, the ministry shall allow the Group to receive a frequency band in the 800MHz range, and in the last stage, on a later date to be determined,
the frequency band in the 850MHz range will be cancelled, and instead the Group will be offered a frequency band entirely in the 800MHz range. The Ministry of Communications will consider allocating part of the revenues from the
frequency tenders in the 800MHz range or 900MHz range, if such tenders are conducted, to accelerate performing the tender replacement process as foregoing. The completion of the tender replacement as foregoing shall require
significant investments and replacement of radio equipment in most of the Group’s cellular sites.
|
|
D. |
In August 2020, the Company and Xfone, its partner in the Company’s shared network, won additional frequencies for 4G and 5G broadcasts, in consideration for the payment of total licensing fees in the amount of ILS 115 million,
which will be paid in September 2022. According to the conditions of the tender, grant will be given to the group that will meet the conditions of broadcast centers, the amount of the grant will determine according to the rate of
layout.
|
|
E. |
In December 2020, a joint team from the Ministries of Communication, Finance and the Competition Authority, was imposed with the task of examining the need to update the duties to deploy
fiber-optics and supply services of fixed-line communications operators that own infrastructure (which under present regulation are required to deploy nationwide any network they deploy) and the need for deployment incentives
in areas where deployment duties do not apply, and this according to financial advisability tests, published its recommendations for a public hearing. Most of the expected effect on the Group, should the hearing become binding
provisions, is imposing additional tax at the rate of 0.5% on its annual income (as defined) from 2022 and until connecting all households in Israel to fiber-optics.
|
|
F. |
In December 2020, the Ministry of Communications published a hearing on the matter of closing the 2G and 3G networks by the end of 2025. This process, if it is implemented, will allow the Group to save on the operational costs
of these networks and to utilize the vacated frequencies, insofar as any remain in the Group’s possession, to improve the performances of the 4G and 5G networks.
|
December 31,
|
December 31,
|
|||||||
2019
|
2020
|
|||||||
NIS millions
|
||||||||
|
|
|
Current assets
|
5
|
-
|
||||||
Current liabilities
|
2
|
1
|
B. |
Transactions with related and interested parties executed in the ordinary course of business at regular commercial terms:
|
Year ended December 31,
|
||||||||||||
2018
|
2019
|
2020
|
||||||||||
NIS millions
|
||||||||||||
|
|
|
|
Income:
|
||||||||||||
Revenues
|
12
|
30
|
7
|
|||||||||
Expenses:
|
||||||||||||
Cost of revenues and other
|
13
|
10
|
5
|
Year ended December 31,
|
||||||||||||
2018
|
2019
|
2020
|
||||||||||
NIS millions
|
||||||||||||
|
|
|
|
Short-term employee benefits
|
4
|
4
|
3
|
|||||||||
Share-based payments
|
1
|
-
|
5
|
|||||||||
5
|
4
|
8
|
Page
|
|
3 | |
4 | |
5 | |
6 | |
8 |
The accompanying audit report is a non-binding translation into English of the original audit report published in Hebrew. The version in Hebrew is the approved
text.
|
Re: |
Auditors' special report on separate financial information in accordance with Regulation 9C to the Israeli Securities Regulations (Periodic and Immediate Reports) – 1970
|
/s/ Kesselman & Kesselman
|
|
Tel Aviv, Israel
|
Kesselman & Kesselman
|
March 17, 2021
|
Certified Public Accountants (Isr.)
|
A member firm of PricewaterhouseCoopers International Limited
|
December 31,
|
Convenience translation into US dollar (Note 1C)
December 31, |
|||||||||||
2019
|
2020
|
2020
|
||||||||||
NIS milions
|
US$ millions
|
|||||||||||
Assets
|
||||||||||||
Cash and cash equivalents
|
824
|
578
|
180
|
|||||||||
Current investments and deposits
|
444
|
310
|
96
|
|||||||||
Trade receivables
|
960
|
927
|
288
|
|||||||||
Current tax assets
|
-
|
3
|
1
|
|||||||||
Other receivables
|
25
|
32
|
10
|
|||||||||
Inventory
|
40
|
41
|
13
|
|||||||||
2,293
|
1,891
|
588
|
||||||||||
Non-current assets
|
||||||||||||
Trade and other receivables
|
445
|
170
|
53
|
|||||||||
Property, plant and equipment, net
|
1,321
|
1,295
|
403
|
|||||||||
Intangible assets and others, net
|
428
|
431
|
134
|
|||||||||
Investments in investee companies
|
1,997
|
2,063
|
642
|
|||||||||
Loans to investees and capital notes
|
-
|
373
|
116
|
|||||||||
Right of use assets, net
|
715
|
607
|
189
|
|||||||||
4,906
|
4,939
|
1,537
|
||||||||||
7,199
|
6,830
|
2,125
|
||||||||||
Liabilities
|
||||||||||||
Current maturities of debentures and loans from financial institutions
|
509
|
514
|
160
|
|||||||||
Current taxation liabilities
|
2
|
-
|
-
|
|||||||||
Current maturities of lease liabilities
|
210
|
198
|
62
|
|||||||||
Trade payables and accrued expenses
|
509
|
581
|
181
|
|||||||||
Provisions
|
90
|
89
|
28
|
|||||||||
Loans from investees
|
90
|
90
|
28
|
|||||||||
Other payables, including derivatives
|
229
|
169
|
52
|
|||||||||
1,639
|
1,641
|
511
|
||||||||||
Non-current liabilities
|
||||||||||||
Long-term loans from financial institutions
|
300
|
50
|
16
|
|||||||||
Debentures
|
2,511
|
2,723
|
847
|
|||||||||
Long-term lease liabilities
|
519
|
440
|
137
|
|||||||||
Provisions
|
22
|
30
|
9
|
|||||||||
Other long-term liabilities
|
3
|
41
|
13
|
|||||||||
Long-term loans from investees
|
242
|
-
|
-
|
|||||||||
Liability for employee rights upon retirement, net
|
18
|
9
|
3
|
|||||||||
Deferred tax liabilities
|
60
|
16
|
5
|
|||||||||
3,675
|
3,309
|
1,030
|
||||||||||
5,314
|
4,950
|
1,541
|
||||||||||
Equity
|
||||||||||||
Equity attributable to owners of the Company
|
1,885
|
1,880
|
584
|
|||||||||
|
||||||||||||
Total equity
|
1,885
|
1,880
|
584
|
|||||||||
|
||||||||||||
|
7,199
|
6,830
|
2,125
|
March 17, 2021 | ||||||
Date of approving the
financial statements
|
Doron Cohen
Chairman of the board
|
Avi Gabbay
CEO
|
Shai Amsalem
CFO
|
Year ended December 31,
|
Convenience translation into US dollar (Note 1C)
Year ended December 31, |
|||||||||||||||
2018
|
2019
|
2020
|
2020
|
|||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||
Revenues
|
2,564
|
2,484
|
2,381
|
741
|
||||||||||||
Cost of revenues
|
(1,972
|
)
|
(1,967
|
)
|
(2,020
|
)
|
(628
|
)
|
||||||||
Gross profit
|
592
|
517
|
361
|
113
|
||||||||||||
Sales and marketing expenses
|
(430
|
)
|
(441
|
)
|
(390
|
)
|
(121
|
)
|
||||||||
General and administrative expenses
|
(236
|
)
|
(217
|
)
|
(237
|
)
|
(74
|
)
|
||||||||
Credit losses
|
(37
|
)
|
(27
|
)
|
(25
|
)
|
(8
|
)
|
||||||||
Other income (expenses), net
|
9
|
(12
|
)
|
45
|
14
|
|||||||||||
Operating Loss
|
(102
|
)
|
(180
|
)
|
(246
|
)
|
(76
|
)
|
||||||||
Financing income
|
19
|
52
|
34
|
10
|
||||||||||||
Financing expenses
|
(181
|
)
|
(194
|
)
|
(204
|
)
|
(63
|
)
|
||||||||
Financing expenses, net
|
(162
|
)
|
(142
|
)
|
(170
|
)
|
(53
|
)
|
||||||||
Shere in profit from investees companies
|
184
|
183
|
204
|
63
|
||||||||||||
Loss before taxes on income
|
(80
|
)
|
(139
|
)
|
(212
|
)
|
(66
|
)
|
||||||||
Tax benefit
|
18
|
32
|
42
|
13
|
||||||||||||
Loss for the year
|
(62
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
Year ended December 31,
|
Convenience translation into US dollar (Note 1C)
Year ended December 31, |
|||||||||||||||
2018
|
2019
|
2020
|
2020
|
|||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||
Loss for year
|
(62
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
||||||||
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
|
-
|
-
|
(2
|
)
|
(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
|
-
|
-
|
(2
|
)
|
(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
|
)
|
2
|
1
|
||||||||||
Total other comprehensive loss for the year that will not be transferred to profit or loss, net of tax
|
(1
|
)
|
(4
|
)
|
2
|
1
|
||||||||||
Total other comprehensive loss for the year, net of tax
|
(1
|
)
|
(4
|
)
|
-
|
-
|
||||||||||
Total comprehensive loss for the year
|
(63
|
)
|
(111
|
)
|
(170
|
)
|
(53
|
)
|
Year ended December 31,
|
Convenience translation into US dollar (Note 1C)
Year ended December 31, |
|||||||||||||||
2018
|
2019
|
2020
|
2020
|
|||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||
Cash flows from operating activities
|
||||||||||||||||
Loss for the period
|
(62
|
)
|
(107
|
)
|
(170
|
)
|
(53
|
)
|
||||||||
Adjustments for:
|
||||||||||||||||
Depreciation and amortization
|
481
|
779
|
780
|
243
|
||||||||||||
Share-based payments
|
2
|
8
|
20
|
6
|
||||||||||||
Loss (gain) on sale of property, plant and equipment
|
1
|
(8
|
)
|
-
|
-
|
|||||||||||
Net change in fair value of investment property
|
-
|
6
|
7
|
2
|
||||||||||||
Tax benefit
|
(18
|
)
|
(32
|
)
|
(42
|
)
|
(13
|
)
|
||||||||
Financing expenses, net
|
163
|
142
|
170
|
53
|
||||||||||||
Shere in profit from investees companies
|
(184
|
)
|
(183
|
)
|
(204
|
)
|
(63
|
)
|
||||||||
Changes in operating assets and liabilities:
|
||||||||||||||||
Change in inventory
|
(24
|
)
|
37
|
(1
|
)
|
(1
|
)
|
|||||||||
Change in trade receivables (including long-term amounts)
|
8
|
223
|
154
|
48
|
||||||||||||
Change in other receivables (including long-term amounts)
|
15
|
28
|
(3
|
)
|
(1
|
)
|
||||||||||
Change in trade payables, accrued expenses and provisions
|
(21
|
)
|
(30
|
)
|
34
|
11
|
||||||||||
Change in other liabilities (including long-term liabilities)
|
30
|
(20
|
)
|
(89
|
)
|
(28
|
)
|
|||||||||
Payments for derivative hedging contracts, net
|
-
|
(10
|
)
|
(3
|
)
|
(1
|
)
|
|||||||||
Income tax paid
|
(10
|
)
|
(3
|
)
|
(7
|
)
|
(2
|
)
|
||||||||
Income tax received
|
-
|
10
|
-
|
-
|
||||||||||||
Net cash from operating activities
|
381
|
840
|
646
|
201
|
||||||||||||
|
||||||||||||||||
Cash flows from investing activities
|
||||||||||||||||
Acquisition of property, plant and equipment
|
(318
|
)
|
(291
|
)
|
(262
|
)
|
(81
|
)
|
||||||||
Acquisition of intangible assets and others
|
(187
|
)
|
(216
|
)
|
(181
|
)
|
(56
|
)
|
||||||||
Investments in investee companies
|
(4
|
)
|
(161
|
)
|
(617
|
)
|
(192
|
)
|
||||||||
Change in current investments, net
|
(56
|
)
|
(20
|
)
|
110
|
34
|
||||||||||
Receipts for other derivative contracts, net
|
3
|
9
|
1
|
-
|
||||||||||||
Proceeds from sale of property, plant and equipment and intangible assets
|
(1
|
)
|
181
|
-
|
-
|
|||||||||||
Dividend received
|
-
|
40
|
195
|
61
|
||||||||||||
Interest received
|
14
|
13
|
6
|
2
|
||||||||||||
Net cash used in investing activities
|
(549
|
)
|
(445
|
)
|
(748
|
)
|
(232
|
)
|
Year ended December 31,
|
Convenience translation into US dollar (Note 1C)
Year ended December 31, |
|||||||||||||||
2018
|
2019
|
2020
|
2020
|
|||||||||||||
NIS millions
|
US$ millions
|
|||||||||||||||
Cash flows from financing activities
|
||||||||||||||||
Payments for derivative contracts, net
|
(15
|
)
|
(2
|
)
|
(6
|
)
|
(2
|
)
|
||||||||
Receipt of long-term loan from financial institutions
|
-
|
150
|
-
|
-
|
||||||||||||
Repayment of long-term loans from financial institutions
|
(78
|
)
|
(212
|
)
|
(212
|
)
|
(66
|
)
|
||||||||
Repayment of debentures
|
(556
|
)
|
(504
|
)
|
(417
|
)
|
(130
|
)
|
||||||||
Receipt from issuance of debentures, net of issuance costs
|
997
|
-
|
596
|
185
|
||||||||||||
Repurchase of own debentures
|
-
|
(10
|
)
|
-
|
-
|
|||||||||||
Interest paid
|
(126
|
)
|
(151
|
)
|
(130
|
)
|
(40
|
)
|
||||||||
Equity offering
|
275
|
309
|
5
|
2
|
||||||||||||
Receipt of loan from investees
|
-
|
293
|
90
|
28
|
||||||||||||
Proceeds from exercise of share options
|
59
|
4
|
140
|
44
|
||||||||||||
Payment of principal of lease liabilities
|
-
|
(238
|
)
|
(210
|
)
|
(65
|
)
|
|||||||||
Net cash from (used) in financing activities
|
556
|
(361
|
)
|
(144
|
)
|
(44
|
)
|
|||||||||
Changes in cash and cash equivalents
|
388
|
34
|
(246
|
)
|
(75
|
)
|
||||||||||
Cash and cash equivalents as at the beginning of the period
|
403
|
790
|
824
|
255
|
||||||||||||
Effects of exchange rate changes on cash and cash equivalents
|
(1
|
)
|
-
|
-
|
-
|
|||||||||||
Cash and cash equivalents as at the end of the period
|
790
|
824
|
578
|
180
|
A. |
Liquidity Risk
|
|
December 31, 2020
|
|||||||||||||||||||||||||||
|
Carrying amount
|
Conractual cash flow
|
1st year
|
2nd year
|
3rd year
|
4-5 years
|
More than 5 years
|
|||||||||||||||||||||
|
NIS milions
|
|||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Debentures*
|
(3,161
|
)
|
(3,588
|
)
|
(481
|
)
|
(469
|
)
|
(641
|
)
|
(1,120
|
)
|
(877
|
)
|
||||||||||||||
Long-term loans from financial institutions
|
(188
|
)
|
(194
|
)
|
(143
|
)
|
(51
|
)
|
-
|
-
|
-
|
|||||||||||||||||
Trade and other payables
|
(669
|
)
|
(669
|
)
|
(669
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Forward exchange contracts on foreign currencies
|
(8
|
)
|
(8
|
)
|
(8
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Other long-term liabilities
|
(40
|
)
|
(40
|
)
|
(2
|
)
|
(38
|
)
|
-
|
-
|
-
|
|||||||||||||||||
Lease liabilities
|
(638
|
)
|
(693
|
)
|
(206
|
)
|
(161
|
)
|
(95
|
)
|
(125
|
)
|
(107
|
)
|
||||||||||||||
|
(4,704
|
)
|
(5,192
|
)
|
(1,509
|
)
|
(719
|
)
|
(736
|
)
|
(1,245
|
)
|
(984
|
)
|
|
December 31, 2019
|
|||||||||||||||||||||||||||
|
Carrying amount
|
Conractual cash flow
|
1st year
|
2nd year
|
3rd year
|
4-5 years
|
More than 5 years
|
|||||||||||||||||||||
|
NIS milions
|
|||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Debentures*
|
(2,974
|
)
|
(3,389
|
)
|
(507
|
)
|
(466
|
)
|
(454
|
)
|
(1,052
|
)
|
(910
|
)
|
||||||||||||||
Long-term loans from financial institutions
|
(401
|
)
|
(434
|
)
|
(116
|
)
|
(148
|
)
|
(93
|
)
|
(77
|
)
|
-
|
|||||||||||||||
Trade and other payables
|
(686
|
)
|
(686
|
)
|
(686
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Forward exchange contracts on foreign currencies
|
(2
|
)
|
(2
|
)
|
(2
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Forward exchange contracts on CPI
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Other long-term liabilities
|
(21
|
)
|
(21
|
)
|
(0
|
)
|
(3
|
)
|
-
|
-
|
(18
|
)
|
||||||||||||||||
Lease liabilities
|
(729
|
)
|
(942
|
)
|
(249
|
)
|
(206
|
)
|
(161
|
)
|
(165
|
)
|
(161
|
)
|
||||||||||||||
|
(5,011
|
)
|
(5,539
|
)
|
(1,745
|
)
|
(798
|
)
|
(689
|
)
|
(1,268
|
)
|
(1,039
|
)
|
B. |
Current investments and deposits
|
A. |
Composition of tax on income (tax benefit)
|
Year ended December 31,
|
||||||||||||
2018
|
2019
|
2020
|
||||||||||
NIS millions
|
||||||||||||
Current tax expense (income)
|
||||||||||||
Current year
|
-
|
9
|
-
|
|||||||||
Adjustments for prior years. Net
|
1
|
(3
|
)
|
1
|
||||||||
1
|
6
|
1
|
||||||||||
Deferred tax expense (income)
|
||||||||||||
Creation and reversal of temporary differences
|
(19
|
)
|
(38
|
)
|
(43
|
)
|
||||||
(19
|
)
|
(38
|
)
|
(43
|
)
|
|||||||
Tax on income (tax benefit)
|
(18
|
)
|
(32
|
)
|
(42
|
)
|
B. |
Reconciliation between the theoretical tax on pre-tax profit (loss) and the tax expense (income)
|
Year ended December 31,
|
||||||||||||
2018
|
2019
|
2020
|
||||||||||
NIS millions
|
||||||||||||
Profit (loss) before taxes on income
|
(80
|
)
|
(139
|
)
|
(212
|
)
|
||||||
Primary tax rate of the company
|
23
|
%
|
23
|
%
|
23
|
%
|
||||||
Tax calculated according to the company primary tax rate
|
(18
|
)
|
(32
|
)
|
(49
|
)
|
||||||
Additional tax (tax saving) in respect of:
|
||||||||||||
Non-deductible expenses
|
5
|
4
|
6
|
|||||||||
Taxes in respect of previous years
|
1
|
-
|
-
|
|||||||||
Other differences
|
(6
|
)
|
(4
|
)
|
1
|
|||||||
Income tax expeneses (tax income)
|
(18
|
)
|
(32
|
)
|
(42
|
)
|
|
Property, plant and equipment
|
Intangible assets and others
|
||||||
|
NIS millions
|
|||||||
Cost
|
||||||||
Balance at January 1, 2019
|
5,583
|
1,028
|
||||||
Additions
|
296
|
212
|
||||||
Disposals
|
(379
|
)
|
(72
|
)
|
||||
Balance at December 31, 2019
|
5,500
|
1,168
|
||||||
|
||||||||
Additions
|
321
|
213
|
||||||
Disposals
|
(106
|
)
|
(50
|
)
|
||||
Balance at December 31, 2020
|
5,715
|
1,331
|
||||||
|
||||||||
Accumulated Amortization
|
||||||||
Balance at January 1, 2019
|
4,041
|
610
|
||||||
Amortization for the year
|
349
|
196
|
||||||
Disposals
|
(211
|
)
|
(66
|
)
|
||||
Balance at December 31, 2019
|
4,179
|
740
|
||||||
|
||||||||
Amortization for the year
|
347
|
210
|
||||||
Disposals
|
(106
|
)
|
(50
|
)
|
||||
Balance at December 31, 2020
|
4,420
|
900
|
||||||
|
||||||||
Carrying amount at January 1, 2019
|
1,542
|
418
|
||||||
Carrying amount at December 31, 2019
|
1,321
|
428
|
||||||
Carrying amount at December 31, 2020
|
1,295
|
431
|
A. |
Investments and ownership interest in investee companies
|
Company's ownership interest in the investee
|
Investments in equity accounted investees at December 31,
|
|||||||||||
2019
|
2020
|
|||||||||||
NIS millions
|
||||||||||||
Cellcom Fixed Line Communication L.P.
|
100
|
%
|
1,707
|
1,412
|
||||||||
Golan Telecom Ltd.
|
100
|
%
|
-
|
398
|
||||||||
Dynamica Cellular Ltd.
|
100
|
%
|
139
|
121
|
||||||||
I.B.C (Unlimited) Holdings L.P.
|
50
|
%
|
149
|
130
|
||||||||
Other Companies
|
-
|
2
|
2
|
|||||||||
1,997
|
2,063
|
B. |
Management Fee
|
C. |
Loans to investee companies
|
December 31,
|
||||||||
2019
|
2020
|
|||||||
NIS millions
|
||||||||
Loan to Golan Telecom Ltd. *
|
-
|
123
|
||||||
Capital Note - Golan Telecom Ltd.
|
-
|
250
|
||||||
-
|
373
|
D. |
Loans from investee companies
|
December 31,
|
||||||||
2019
|
2020
|
|||||||
NIS millions
|
||||||||
Current maturities of loan from Cellcom Fixed Line Communication L.P.
|
90
|
90
|
||||||
Long-term loan from Cellcom Fixed Line Communication L.P.
|
242
|
-
|
||||||
332
|
90
|
E. |
Dividend's and share of profits from limited partnerships
|
December 31,
|
||||||||||||
2018
|
2019
|
2020
|
||||||||||
NIS milions
|
||||||||||||
Dynamica Cellular Ltd.
|
-
|
40
|
25
|
|||||||||
Cellcom Fixed Line Communication L.P.
|
-
|
700
|
510
|
|||||||||
-
|
740
|
535
|
|
A. |
For additional information regarding the acquisition of Golan Telecom Ltd., see Note 7b for the consolidated financial statements.
|
|
B. |
For additional information regarding the issuance of securities and debentures, see note 20b and 22a for the consolidated financial statements.
|
|
C. |
For additional information regarding share based payments and exercise of share options, see Note 23 for the consolidated financial statements.
|
|
D. |
For additional information regarding the frequency tender, see note 34 for the consolidated financial statements.
|
|
E. |
For additional information regarding the investment agreement under which HOT entered as partner at I.B.C (Unlimited) Holdings L.P., see Note 32f for the consolidated financial statements.
|
|
F. |
For additional information regarding the Covid-19 virus and his possible effects on the company, see Note 36 for the consolidated financial statements.
|
|
G. |
For additional information regarding the realization of current investments, see Note 10 for the consolidated financial statements.
|
|
H. |
For additional information regarding loan granted from financial institute, see Note 20c for the consolidated financial statements.
|
|
I. |
For additional information regarding the company's network sharing agreements and Xfone discontinuation from paying part of the payments regarding it, see Note 32d for the consolidated financial statements.
|
The accompanying audit report is a non-binding translation into English of the original audit report published in Hebrew. The version in Hebrew is the
approved text.
|
/s/ Kesselman & Kesselman
|
|
Tel Aviv, Israel
|
Kesselman & Kesselman
|
March 17, 2021
|
Certified Public Accountants (Isr.)
|
A member firm of PricewaterhouseCoopers International Limited
|
Year ended December 31, 2020
|
||||||||||||||||
NIS millions
|
||||||||||||||||
Cellcom as
reported
|
Golan as
reported
|
Pro forma
adjustments
|
Pro forma
data
|
|||||||||||||
Revenues
|
3,676
|
532
|
(308
|
)
|
3,900
|
|||||||||||
Cost of revenues
|
(2,800
|
)
|
(395
|
)
|
262
|
(2,933
|
)
|
|||||||||
|
||||||||||||||||
Gross profit (loss)
|
876
|
137
|
(46
|
)
|
967
|
|||||||||||
|
||||||||||||||||
Selling and marketing expenses
|
(580
|
)
|
(64
|
)
|
7
|
(637
|
)
|
|||||||||
General and administrative expenses
|
(330
|
)
|
(11
|
)
|
4
|
(337
|
)
|
|||||||||
Credit losses
|
(27
|
)
|
(2
|
)
|
1
|
(28
|
)
|
|||||||||
Other income (expenses), net
|
38
|
(71
|
)
|
68
|
35
|
|||||||||||
|
||||||||||||||||
Operating profit (loss)
|
(23
|
)
|
(11
|
)
|
34
|
-
|
||||||||||
|
||||||||||||||||
Financing income
|
10
|
1
|
(3
|
)
|
8
|
|||||||||||
Financing expenses
|
(182
|
)
|
(43
|
)
|
41
|
(184
|
)
|
|||||||||
Financing expenses, net
|
(172
|
)
|
(42
|
)
|
38
|
(176
|
)
|
|||||||||
|
||||||||||||||||
Share in losses of equity accounted investees
|
(14
|
)
|
(1
|
)
|
-
|
(15
|
)
|
|||||||||
|
||||||||||||||||
Profit (loss) before taxes on income
|
(209
|
)
|
(54
|
)
|
72
|
(191
|
)
|
|||||||||
|
||||||||||||||||
Tax benefit (taxes on income)
|
39
|
38
|
(43
|
)
|
34
|
|||||||||||
Profit (loss) for the period
|
(170
|
)
|
(16
|
)
|
29
|
(157
|
)
|
|||||||||
Attributable to:
|
||||||||||||||||
Owners of the Company
|
(170
|
)
|
(16
|
)
|
29
|
(157
|
)
|
|||||||||
Non-controlling interests
|
-
|
-
|
-
|
-
|
||||||||||||
Profit (loss) for the period
|
(170
|
)
|
(16
|
)
|
29
|
(157
|
)
|
|||||||||
|
||||||||||||||||
Loss per share
|
||||||||||||||||
Basic loss per share (in NIS)
|
(1.11
|
)
|
-
|
-
|
(1.02
|
)
|
||||||||||
|
||||||||||||||||
Diluted loss per share (in NIS)
|
(1.11
|
)
|
-
|
-
|
(1.02
|
)
|
||||||||||
|
||||||||||||||||
Weighted-average number of shares used in the calculation of basic loss per share (in shares)
|
153,751,724
|
-
|
-
|
153,751,724
|
||||||||||||
|
||||||||||||||||
Weighted-average number of shares used in the calculation of diluted loss per share (in shares)
|
153,751,724
|
-
|
-
|
153,751,724
|
March 17, 2021 | ||||||
Date of approving the
financial statements
|
Doron Cohen
Chairman of the board
|
Avi Gabbay
CEO
|
Shai Amsalem
CFO
|
Year ended December 31, 2019
|
||||||||||||||||
NIS millions
|
||||||||||||||||
|
Cellcom as
reported
|
Golan as
reported
|
Pro forma
adjustments
|
Pro forma
data
|
||||||||||||
|
||||||||||||||||
Revenues
|
3,708
|
530
|
(190
|
)
|
4,048
|
|||||||||||
Cost of revenues
|
(2,725
|
)
|
(322
|
)
|
133
|
(2,914
|
)
|
|||||||||
|
||||||||||||||||
Gross profit (loss)
|
983
|
208
|
(57
|
)
|
1,134
|
|||||||||||
|
||||||||||||||||
Selling and marketing expenses
|
(610
|
)
|
(74
|
)
|
(21
|
)
|
(705
|
)
|
||||||||
General and administrative expenses
|
(300
|
)
|
(15
|
)
|
3
|
(312
|
)
|
|||||||||
Credit losses
|
(29
|
)
|
(3
|
)
|
-
|
(32
|
)
|
|||||||||
Other income (expenses), net
|
(20
|
)
|
124
|
(124
|
)
|
(20
|
)
|
|||||||||
|
||||||||||||||||
Operating profit (loss)
|
24
|
240
|
(199
|
)
|
65
|
|||||||||||
|
||||||||||||||||
Financing income
|
49
|
-
|
(4
|
)
|
45
|
|||||||||||
Financing expenses
|
(193
|
)
|
(50
|
)
|
47
|
(196
|
)
|
|||||||||
Financing expenses, net
|
(144
|
)
|
(50
|
)
|
43
|
(151
|
)
|
|||||||||
|
||||||||||||||||
Share in losses of equity accounted investees
|
(10
|
)
|
(1
|
)
|
-
|
(11
|
)
|
|||||||||
|
||||||||||||||||
Profit (loss) before taxes on income
|
(130
|
)
|
189
|
(156
|
)
|
(97
|
)
|
|||||||||
|
||||||||||||||||
Tax benefit (taxes on income)
|
23
|
-
|
(8
|
)
|
15
|
|||||||||||
Profit (loss) for the period
|
(107
|
)
|
189
|
(164
|
)
|
(82
|
)
|
|||||||||
Attributable to:
|
||||||||||||||||
Owners of the Company
|
(107
|
)
|
189
|
(164
|
)
|
(82
|
)
|
|||||||||
Non-controlling interests
|
-
|
-
|
-
|
-
|
||||||||||||
Profit (loss) for the period
|
(107
|
)
|
189
|
(164
|
)
|
(82
|
)
|
|||||||||
|
||||||||||||||||
Loss per share
|
||||||||||||||||
Basic loss per share (in NIS)
|
(0.90
|
)
|
-
|
-
|
(0.69
|
)
|
||||||||||
|
||||||||||||||||
Diluted loss per share (in NIS)
|
(0.90
|
)
|
-
|
-
|
(0.69
|
)
|
||||||||||
|
||||||||||||||||
Weighted-average number of shares used in the calculation of basic loss per share (in shares)
|
118,376,455
|
-
|
-
|
118,376,455
|
||||||||||||
|
||||||||||||||||
Weighted-average number of shares used in the calculation of diluted loss per share (in shares)
|
118,376,455
|
-
|
-
|
118,376,455
|
Year ended December 31, 2018
|
||||||||||||||||
NIS millions
|
||||||||||||||||
|
Cellcom as reported
|
Golan as
reported
|
Pro forma
adjustments
|
Pro forma
data
|
||||||||||||
|
||||||||||||||||
Revenues
|
3,688
|
519
|
(193
|
)
|
4,014
|
|||||||||||
Cost of revenues
|
(2,661
|
)
|
(325
|
)
|
147
|
(2,839
|
)
|
|||||||||
|
||||||||||||||||
Gross profit (loss)
|
1,027
|
194
|
(46
|
)
|
1,175
|
|||||||||||
|
||||||||||||||||
Selling and marketing expenses
|
(567
|
)
|
(67
|
)
|
(21
|
)
|
(655
|
)
|
||||||||
General and administrative expenses
|
(323
|
)
|
(14
|
)
|
4
|
(333
|
)
|
|||||||||
Credit losses
|
(37
|
)
|
(4
|
)
|
-
|
(41
|
)
|
|||||||||
Other income (expenses), net
|
1
|
15
|
(17
|
)
|
(1
|
)
|
||||||||||
|
||||||||||||||||
Operating profit (loss)
|
101
|
124
|
(80
|
)
|
145
|
|||||||||||
|
||||||||||||||||
Financing income
|
19
|
-
|
(4
|
)
|
15
|
|||||||||||
Financing expenses
|
(190
|
)
|
(56
|
)
|
52
|
(194
|
)
|
|||||||||
Financing expenses, net
|
(171
|
)
|
(56
|
)
|
48
|
(179
|
)
|
|||||||||
|
||||||||||||||||
Share in losses of equity accounted investees
|
-
|
(1
|
)
|
-
|
(1
|
)
|
||||||||||
|
||||||||||||||||
Profit (loss) before taxes on income
|
(70
|
)
|
67
|
(32
|
)
|
(35
|
)
|
|||||||||
|
||||||||||||||||
Tax benefit (taxes on income)
|
6
|
-
|
(8
|
)
|
(2
|
)
|
||||||||||
Profit (loss) for the period
|
(64
|
)
|
67
|
(40
|
)
|
(37
|
)
|
|||||||||
Attributable to:
|
||||||||||||||||
Owners of the Company
|
(62
|
)
|
67
|
(40
|
)
|
(35
|
)
|
|||||||||
Non-controlling interests
|
(2
|
)
|
-
|
-
|
(2
|
)
|
||||||||||
Profit (loss) for the period
|
(64
|
)
|
67
|
(40
|
)
|
(37
|
)
|
|||||||||
|
||||||||||||||||
Loss per share
|
||||||||||||||||
Basic loss per share (in NIS)
|
(0.58
|
)
|
-
|
-
|
(0.34
|
)
|
||||||||||
|
||||||||||||||||
Diluted loss per share (in NIS)
|
(0.58
|
)
|
-
|
-
|
(0.34
|
)
|
||||||||||
|
||||||||||||||||
Weighted-average number of shares used in the calculation of basic loss per share (in shares)
|
107,499,543
|
-
|
-
|
107,499,543
|
||||||||||||
|
||||||||||||||||
Weighted-average number of shares used in the calculation of diluted loss per share (in shares)
|
107,499,543
|
-
|
-
|
107,499,543
|
|
A. |
Pro forma event
|
|
B. |
Pro forma assumptions
|
|
1. |
The Golan Acquisition, as provided in Section a. above, was completed on the pro forma starting date, i.e. January 1, 2018.
|
|
2. |
Expenses for the 3G frequency fees which were recognized in the other revenues (expenses) item in Golan’s statements in 2019 were cancelled, including cancellation of the registration of a one-time profit, in light of the
resolution to cancel the allocation of these frequencies, adopted by the Ministry of Communications in 2019.
|
|
3. |
The purchase amount was attributed to Golan’s recognized assets, net, and to goodwill, as detailed in Note 7 of the company's consolidated financial statements. The pro forma consolidated statements of income include the
reduction of the cost surpluses created in the Acquisition, starting from the pro forma starting date. The cost surpluses attributed to intangible assets - customer relations and brand name, were amortized at foregoing in
Section b. above and were included in the selling and marketing expenses section in the pro forma consolidatedfinancial statements.
|
|
4. |
In light of the Golan Acquisition, management fee expenses in the statements were cancelled, that were attributed to Electric Consumer Products (1971) Ltd. (the former controlling shareholder in Golan), as were salary
expenses for the allocation of options to officers in Golan, that were recognized in Golan’s financial statements.
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|
5. |
These pro forma statements include cancellation of intercompany transactions between Golan and Cellcom, that include, inter alia, interest expenses accrued in the pro forma period between Golan and Cellcom for a loan taken
from Cellcom, cancellation of revenues for the cooperation agreement registered in Cellcom, cancellation of accounting registrations performed in Golan’s financial statements for the cooperation agreement before the Acquisition
date, this to reflect Golan’s financial results after the completion of the transaction and as expressed in the Company’s consolidated financial statements.
|
|
6. |
The pro form statements do not include nonrecurring expenses that were recognized in Golan’s statements in 2020, that derive from the completion of the Golan Acquisition transaction, such as bonus and commission payments to
consultants and registering a provision for the Return Amount as provided in Section a. above.
|
|
7. |
The pro forma statements include a statutory tax rate at the rate of 23% on Golan’s profit before tax and on the pro forma adjustments that were performed.
|
|
8. |
In order to prevent duplication, Golan's result's from the acquisition date, which included in "Cellcom as reported" and in "Golan as reported" columns, were cancelled in "pro forma adjustments" column.
|
Cellcom Israel Ltd.
Goodwill Impairment Test
As of December 31, 2020
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BDO Consulting Group
BDO Beit Amot
46-48 Menachem Begin Road
Tel Aviv-Jaffa 66184
Telephone no.: 03-6374391
Fax: 03-6382511
Website: www.bdo.co.il
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Greetings, |
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We were asked by Cellcom Israel Ltd. (hereinafter: “Cellcom” and/or “the Company” and/or “the Work Commissioner”) to test and assess whether the Company needs to recognize an impairment loss for the goodwill listed in the Company's balance sheets, which is attributed to its
mobile and terrestrial telephone segments (hereinafter: “Mobile Segment” and “Terrestrial Segment”) as of December 31 2020 (hereinafter: “the Assessment Date”), in accordance with International Accounting Standard 36 Impairment of Assets (hereinafter: “IAS 36”).
The engagement between BDO Ziv Haft Consultation and Management Ltd. (hereinafter: “BDO”) and the Work Commissioner was approved
and signed by Mr. Ronen Shalaz, Company Accountant (hereinafter: “the Engagement Agreement”), on January 7 2021 (hereinafter: “the Engagement Date”).
Our findings will be used by the Company, its management and its auditors, for financial reporting purposes within the framework of generally accepted Israeli accounting
and financial reporting principles required by law including in accordance with International Accounting Standard 36 Impairment of Assets (IAS 36) This paper is for the exclusive use of the Company, its management and its
independent auditors, in accordance with all applicable laws.
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In order to prepare this paper, we relied on the accuracy, comprehensiveness and timeliness of the information received from the Company and from various elements
connected to the Company's activity. We have no reason to believe that the data at the basis of our work is not reliable, complete or fair, and we did not conduct our own independent examination of this information with
the exception of examination of its reasonability. Reliance on this information does not constitute verification or confirmation of its veracity. No due diligence was carried out during the preparation of this opinion and
it has no pretense of including all of the information, tests and checks or any other information included in due diligence.
We did not examine the information on an independent basis, other than in terms of reasonability, as follows:
◾ An analysis of the Company's business results in recent years and performance of a probability test of the forecasts we used
in this document;
◾ Examination of the Company’s compliance with its quarterly and annual budgets;
◾ An examination of the structure of the Company's expenses;
Economic opinions are not a precise science, and are supposed to provide a reasonable and fair reflection of a certain situation at a certain time, on the basis of known
data, basic assumptions made and forecasts assessed. Changes to key variables and/or information may alter the basis of the base assumptions and accordingly, the conclusions.
Calculations in this paper were performed using an electronic spreadsheet, and therefore rounding errors are possible.
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Cellcom Israel Ltd.
Goodwill Impairment Test I As of December 31, 2020
|
II |
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Cellcom Israel Ltd.
Goodwill Impairment Test I As of December 31, 2020
|
III |
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Details on the Appraiser and Their Expertise |
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BDO Consulting and Management Ltd – founded by the partners of the BDO accounting firm. BDO Consulting and Management is part of the
international BDO Network, which provides a broad variety of business services needed for national and international businesses in any sector. Our company has extensive experience in the following areas: valuation of
businesses, financial due diligence and tax due diligence, valuation of goodwill and intangible assets, financial analyses, building business plans, financing consulting for PFI/PPP projects, mergers and
acquisitions, investment banking and more.
Mr. Moti Dettelkramer, C.P.A., Head of Corporate Finance
Current position – partner, Head of Corporate Finance Department.
Background and employment experience – Moti has a B.A. in Economics and Computer Sciences and an MBA from Bar Ilan University. Moti has over 10 years of experience consulting companies
and government ministries. As part of his current position at the consulting company, Moti manages a team of economists and accountants dealing with valuations, PPA, business plans, due diligence, impairment tests,
appraising financial instruments and more.
Within the framework of his work, Moti has been involved in a broad variety of valuations, business plans, strategic plans and due diligence in a variety of areas of activity such as
communications, media, technology, traditional industry, food, real estate, medical equipment and finance.
|
|
The following are details of appraisals of similar or larger scopes, carried out by the appraiser:
◾ Elbit Systems – performing a variety of works: valuations, PPA and impairment tests;
◾ Discount Investments – valuation of Cellcom for the purpose of testing the impairment of an investment;
◾ Supergas – valuation for the purpose of testing impairment;
◾ Partner – valuation for the purpose of testing impairment of the land-based communications sector;
◾ One1 Software Services – performing a variety of works: valuations, PPA and impairment tests;
◾ Delek Group – performing a variety of works: valuations and PPA;
◾ Given Imaging – performing a variety of works: valuations and impairment tests;
◾ Gazit Globe – performing a variety of works: PPA and impairment tests;
|
Cellcom Israel Ltd.
Goodwill Impairment Test I As of December 31, 2020
|
IV |
|
Sources of Information
|
Summary of Findings
|
|||
Our work was detailed on the following data, documents and presentations:
◾ The Company’s audited Financial Statements for 2018-2019, presented in accordance with the International Financial
Reporting Standards (hereinafter “IFRS”).
◾ The Company’s draft Financial Statements as of December 31 2020, divided into Mobile Segment and Terrestrial Segment;
◾ Gain/loss data for 2020 presented according to Management data;
◾ The Company’s 2021 budget at the annual and quarterly level as well as an examination of budget versus implementation for
2020.
◾ Electronic spreadsheets with other information pertaining to the Company's activity;
◾ Additional data provided by Company Management;
◾ Public information.
|
|
Mobile Segment
Based on our work and the findings detailed in it, we have reached the conclusion that as of December 31 2020, the value in use of the mobile segment cash-generating unit is higher
than its carrying amount, and therefore no impairment provision is needed. The following table presents the results of the impairment test (in millions of NIS):
Terrestrial Segment
Based on our work and the findings detailed in it, we have reached the conclusion that as of December 31 2020, the value in use of the mobile segment cash-generating unit is higher
than its carrying amount, and therefore no impairment provision is needed. The following table presents the results of the impairment test (in millions of NIS):
Respectfully,
Moti Dettelkramer, C.P.A.
BDO Ziv Haft Consulting and Management Ltd.
Signed: March 17, 2021
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Table of Contents
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1
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6
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28
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33
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40
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47
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Examination of Need to Measure Impairment | 54 |
57 |
Cellcom Israel Ltd.
Goodwill Impairment Test I As of December 31, 2020
|
VI |
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Chapter 1 : The Company and its Activity
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
1 |
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The Company and its Activity
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General
Cellcom Israel Ltd. is a public company incorporated in Israel, the shares and securities of which are listed for trade on the Tel Aviv Securities Exchange. Until February 8 2021 the
shares were also listed for trade on the New York Stock Exchange.
Cellcom is a provider of communications services, primarily offering its customers cellular communications services, terrestrial (land-line) telephone services, international telephone
services, internet services, transmissions and data communications, television services, and other associated services. The Company’s services are divided between the mobile and terrestrial segments as wilk be
expanded on below.
The Company is a subsidiary of Discount Investments (hereinafter: “DI”) which until the end of 2020 was under the control of Dolphin IL
Investments Ltd, a company under the indirect control of Mr. Eduardo Alstein. The court recently ratified the sale of the controlling shares (82%) in DI to a group of investors headed by Mega Or, under the control of
Tzachi Nachmias. As of the writing of this paper, not all approvals have been received for the transaction in question. Discount Investments’ indirect holding rate, as of this opinion, of the Company's issued stock
capital, is 46.1% and Discount Investments' voting rights in the Company amount to 48.2%1
The remaining holdings in Cellcom are held by various institutional bodies (10.6%) and the public (41.8%).
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Mobile Segment
Cellcom provides cellular communications services in Israel in accordance with a general license from the Ministry of Communications, which will be in effect until the end of
January 2022 (hereinafter: “the Cellular License”).
Cellular Activity
As of December 31 2020 , Cellcom provides cellular services to 3,204 subscribers over a number of networks, most of which are nationally deployed, which include calls, sending and
receiving messages and internet access. Cellcom also provides its customers with other associated services and also offers end equipment (mainly mobile phones and other end equipment such as tablets), and
repair services for end equipment.
As of December 31 2020, after the purchase of Golan as will be detailed below, Cellcom has the largest market share in Israel in the field of cellular services, with a 31% market
share.
Over the course of August 2020 a tender was held for 5th generation frequencies participating from existing cellular activity. In accordance with the results of the tender, it was
decided that Cellcom (along with XFONE) would pay 115 million NIS in 2022 in return for the allocation of frequencies they won in the tender in the 700, 2600 and 3500 range.
|
Chapter 1 : The Company and its Activity
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
2 |
|
The Company and its Activity
|
|
|||
Mobile Segment (Continued)
Purchase of Golan Telecom
On August 26 2020, the purchase of the full stock capital of Golan Telecom by Cellcom was completed2.
Pursuant to the approval of the transaction by the Ministry of Communications, the latter established certain conditions for approval, including turning Golan Telecom into a virtual
operator (MVNO) on a temporary basis and demanding that Golan Telecom refund monetary benefits it received in the past, to the sum of 75 million NIS. Until the completion of Golan’s hearing on this matter, the
Ministry of Communications has determined that Golan must provide autonomic collateral for the full recoverable sum as a condition for transferring control in it.
The total proceeds of the transaction amounted to 613 million NIS, which was paid in cash and comprised of a basic compensation sum as well as additional adjustments (a net sum of
545 million NIS, after deducting the balance of cash in Golan’s coffers immediately prior to completing the transaction).
Hospitality and Sharing Agreement with XFONE
In July 2016 the Company engaged with Marathon 018 XFONE Ltd. (hereinafter: “XFONE”), which had won 4G frequencies in the 2015 frequencies
tender, in a 4th Generation network sharing agreement and 2nd and 3rd Generation network hosting services (hereinafter: “the XFONE Agreement”). The XFONE Agreement
establishes accounting mechanisms between the parties in the agreement period (including discount mechanisms) and states that XFONE may choose, at its discretion, that the proceeds during the first 5 years of the
XFONE agreement would be carried out based on the calculation of proceeds per subscriber, so that XFONE would bear a monthly payment per subscriber of 25 NIS in the first year, 27.5 NIS in the second year and 30
NIS subsequently, but in any event no less than certain yearly minimum sums (in a range between 20 million NIS in the
|
|
first year and 110 million NIS in the fifth year). Over the course of April 2018, XFONE began marketing its mobile telephone services in Israel, and started
recruiting subscribes as a result. The agreement will remain in effect for 10 years, unless extended by the parties.
In November 2020 XFONE ceased making some of its payments to Cellcom in accordance with the sharing agreement. As of the assessment date, XFONE had not paid
Cellcom the share of the monthly proceeds which belong to the Company.. On January 31 2020 Cellcom reported that XFONE had informed it that it was cancelling the sharing agreement, on the grounds that Cellcom had
made a material violation of the sharing agreement by purchasing Golan Telecom. On February 8 2021 the Company filed a suit to enforce the sharing agreement including paying XFONE’s debts as well as requests for
temporary remedies against XFONE, including seizing money belonging to XFORN and preventing it from engaging in agreements contrary to the sharing agreement. On February 17 2021 it was agreed, with the Court's
recommendation regarding the Company's request for a temporary injunction, with each party retaining all of their arguments that during the period until March 17 2021, XFONE would not engage in any opposing
agreement, and the Company will continue to bill XFONE according to the same commercial conditions it had applied to date and that XFONE would pay for the services received in this period; over the course of the
period the parties would hold mediated talks and on March 17 2021 they would inform the Court whether it should rule on the motion or defer it for an additional period of time. The agreements were given the force
of a court ruling.
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Chapter 1 : The Company and its Activity
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
3 |
|
The Company and its Activity
|
|
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Terrestrial Segment
Cellcom provides a variety of services in the Terrestrial segment, including via Cellcom Line Communications:
• Television over internet services (hereinafter: “Cellcom TV Services”)*;
• Internet infrastructure services;
• Internet access services (hereinafter: “ISP” and/or “Internet
Services Provider”);
• International telephone carrier services (hereinafter: “ITC Services”;
• Terrestrial telephone services;
• Data transmission and communications services;
• Additional services such as conference call services, cloud services and information security;
As of December 31 2020 the Company has 293,000 internet subscribers and 252,000 television subscribers, which include television services only or as part of Triple packages and
app-based television services.
|
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Investment in Fiber Optic Infrastructure
In July 2019, the Company completed its investment transaction in the shares of IBC Israel Broadband Company Ltd. (“IBC”). Pursuant to this, the Company engaged with the Israel
Infrastructure Fund (“IIF”) in agreements to establish a limited partnership, jointly owned in equal shares, which will purchase 70% of IBC’s shares (“the IBC Partnership”) as well as in an agreement to
purchase such shares with IBC and with other primary shareholders and debtors. In addition, the Company engaged in agreements with IBC to sell its fiber infrastructure in residential areas to IBC and an
irrevocable usage agreement for the IBC fiber network.
In September 2020, the Company and IIF signed an investment agreement with HOT Cable Communications Systems Ltd. (“HOT”), according to which HOT would become an equal partner in
the IBC partnership, holding 70% of IBC’s issued stock capital. The transaction was completed in February 2021 after receiving the required regulatory approvals.
|
Chapter 1 : The Company and its Activity
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
4 |
|
The Company and its Activity
The Corona Virus
|
|
|||
At the end of 2019 the Covid-19 pandemic emerged in China, spreading in early 2020 to many countries around the world, including Israel (“the Covid-19 Crisis”). In January 2020
the World Health Organization declared the Covid-19 outbreak a global state of emergency and in March 2020 the WHO declared a global pandemic. The Covid-19 crisis is an irregular event with macroeconomic
implications. Following this event, starting March 2020 the State of Israel (like many other countries) took significant steps to prevent the spread of the virus. These steps include, among other things,
restrictions on civilian movement and employment, restrictions on gatherings and events, restrictions on commercial activities, closing borders between countries, closing culture and leisure venues and a
significant decrease in the number of workers present at work places.
The Company, which belongs to a total infrastructure segment that requires the continued operation of services to Israeli customers, continued to provide high quality services to
all of its customers. At the same time, the imposition of lateral restrictions that include, among other things, closing the skies in Israel and around the world and placing restrictions on the movement of
civilians in Israel and elsewhere, from the start of the Covid-19 crisis, has led to a significant drop in international tourism, outgoing and incoming, and to significant damage to the Company’s revenues
from roaming services of Company customers abroad and revenues from roaming services for tourists visiting Israel in 2020. The Company estimates that there is expected to be a material negative impact on its
roaming services in the near future as well, inasmuch as restrictions on tourism to and from Israel continues.
Furthermore, as a result of the restrictions on trade and the closing of shopping malls and commercial centers, the Company closed the various points of sale and services
operated by it for a certain period during the lockdowns. Note also that as of this date the Company has taken various steps to lower the impacts described above, among other things, by decreasing expenses
and applying streamlining steps, that include, among other things, furloughing workers for a certain period of time, reducing rental costs and property taxes (after closing service centers and points of
sale), diverting sales to the Company's digital channels and so on.
|
|
Implications of the Spread of the Covid-19 Coronavirus on Aspects of Liquidity, Financial Status and Sources of Finance
The Company examined its sources of finance and liquidity and estimates that it has the financial fortitude to face the implications of the crisis, among other things in light of
the diversification of its areas of activity and the scope of its liquid balances. In addition, on May 12 2020, the Company completed a public offering of debentures (Series L) and options (Series 4) by way of
a series expansion as noted, and on December 2 2020, the Company completed a private offering of debentures (Series L) by way of the series expansion.
At the same time, as the event is not under the Company’s control and due to the ongoing nature of the crisis, which is characterized by uncertainty, among other things, regarding
the date the spread of the pandemic will be halted, as of the balance sheet date, no certainty exists regarding the scope of the impact on the Company and on the economy as a whole, among other things, in light
of the state of the markets, the economic situation in Israel and around the world, unemployment levels, private consumption levels, concerns regarding the development of a local or global recession, or an
additional outbreak of the virus. Such lateral impacts, if and inasmuch as they are realized, may have a negative impact on the Company’s business and its operating results.
|
Chapter 1 : The Company and its Activity
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
5 |
|
Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
6 |
|
Market Review
The Communications Industry
|
|
|||
The global communications industry, and the Israeli communications industry in particular, is characterized by a rapid pace of development, and by frequent changes both
technological, in terms of the industry's busines structure and in terms of the regulation covering it.
The telecom market is divided by the Ministry of Communications into six main segments: cellular, terrestrial telephone services, multi-channel television, connectivity
services and internet infrastructure, international calls as well as transmission and data communications services, with the cellular segment constituting 42% of the industry’s revenues, as of 2019.
The following graph shows the breakdown of revenues of the communications market3 between the
primary operating segments in 2019:
(*) The internet supplier and infrastructure were consolidated for the purposes of this analysis.
|
|
In 2017-2019 revenues in the communications market were estimated at 19.2 billion NIS, 18.4 billion NIS and 17.6 billion NIS, respectively, a drop of 4.1% and 4.3%,
(respectively). Most of the decrease originates from the cellular market which, as we’ll see below, came from a drop in prices beginning almost 10 years since the cellular market reform, which saw the
entrance of the two new players at the time, Golan Telecom Ltd. (hereinafter: “Golan”) and HOT Mobile Ltd. (hereinafter: “HOT Mobile”),
as well as the following the entrance of XFONE in early 2018.
Other decreases are also presented in the international communications segment (ILD) (mainly in light of free international call solutions), terrestrial telephone services
(domestic operators) (in light of young couples and many households abandoning their home land-lines) and the broadcasting segment (in light of the entrance of Cellcom and Partner into the field of
television as well as the continued penetration of alternative solutions, like Netflix).
On the other hand, the segment that saw a slight increase is internet infrastructure and access (and associated services), which as we will also see below, apparently
originates from an increase in uses and supported by fiber optics deployment, which has accelerated in recent years.
|
Market Review
The Communications Industry (Continued)
|
|
|||
While in the past, competition in the telecom market focused on competition between independent communications providers in each operating segment separately, in recent years
there has been a trend of moving to competition between communications groups operating in parallel in a number of sectors of the telecom market, and offering shared package deals, as detailed in the
following table and below:
|
|
The following is a description of the primary players active in the communications industry in Israel:
Cellcom Israel Ltd (below: "Cellcom") – Cellcom
provides cellular communications services in Israel in accordance with a general license from the Ministry of Communications, which will be in effect until the end of January 2022 (hereinafter: “the
Cellular License”) as well as various services in the terrestrial segment (along withpartner Cellcom Fixed Line Communications L.P), which include, among other things, television services provided over the
internet (Cellcom TV, starting 2015), internet infrastructure services, internet access services (ISP), international carrier services, terrestrial telephone services, data transmission and communications
services, sale of end equipment (through subsidiary Dynamica), as well as additional services. Cellcom provides internet infrastructure primarily through the Wholesale Market arrangement (mainly Bezeq
infrastructure), and more and more through the infrastructure of IBC, which is held by it at a rate of 35%).
As of September 30 2020, the company has reported on 3,641,000 cellular subscribers (after completing the purchase of Golan Telecom), 289,000 internet subscribers and 251,000
television subscribers, and is Israel’s largest cellular company.
Partner Israel Ltd (hereinafter: “Partner") -
Partner provides cellular communications services in Israel in accordance with a general license from the Ministry of Communications, which will be in effect until the end of February 2022 (hereinafter:
“the Cellular License”) as well as various services in the terrestrial segment (along with partner 012 Smile), which include, among other things, television services provided over the internet (Partner TV,
starting 2017), internet infrastructure services, internet access services (ISP), international carrier services, terrestrial telephone services, data transmission and communications services, sale of end
equipment, as well as additional services. Partner provides internet infrastructure primarily through the Wholesale Market (mainly Bezeq infrastructure), and more and more through IBC’s infrastructure.
As of September 30 2020, Partner has 2,762,000 cellular subscribers and 224,000 television subscribers.
|
Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
8
|
|
Market Review
The Communications Industry (Continued)
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|
|||
HOT – Cable Communications Systems Ltd. (hereinafter: “HOT”) – HOT owns a nationally-deployed cable infrastructure, and provides multi-channel television services, cellular telephone services via HOT Mobile, terrestrial telephone services, internet
transmission infrastructure and data communications using HOT Telecom Ltd. (hereinafter: “HOT Telecom”) as well as internet service provider (ISP) services via HOT
Net Internet Services Ltd. (hereinafter: “HOT-Net”). HOT is a private company fully owned by international communications corporation Altice, owned by Patrick
Drahi.
In accordance with Altice’s reports from September 30 2020, HOT has 1,356,000 cellular subscribers and 1,043,000 subscribers in the terrestrial segment. In addition, HOT’s
cable infrastructure reaches 2,164,000 households, constituting 90% of all households.
Bezeq – the Israeli Communications Company Ltd. (hereinafter: “Bezeq”) – Bezeq owns the
nationally deployed copper wire infrastructure. It implements and provides terrestrial domestic communications services, mobile telephone services via Pelephone Communications Ltd. (hereinafter: “Pelephone”), multi-channel television via D.B.S. Satellite Services (1998) Ltd. (hereinafter: “Yes”), infrastructure services via Bezeq, international communications
services, internet infrastructure services via the Wholesale Market and internet access services via Bezeq International Ltd. (hereinafter: “Bezeq International”).
In addition, Bezeq provides maintenance and development of communications infrastructure, provides communications services to other communications providers, distributes television and radio broadcasts to
the public, provides and maintains equipment and services
In accordance with Bezeq’s September 30 2020 Financial Statements, Bezeq has 2,406,000 cellular subscribers, 1,653,000 phone lines and 1,565,000 internet infrastructure
customers (of these 570,000 are in the Wholesale Market and 995,000 direct to end customers).
|
|
Results of primary communications companies for the first three quarters of 2020:
The following are the results of the market’s primary communications companies for the first three quarters of 2020 (millions of NIS), as reported in their Financial
Statements (*):
(*) HOT's information is published in Altice’s reports in euros and were translated according to the average exchange rate for the first three quarters of 2020 according to
the Bank of Israel.
The following the breakdown of the revenues of the primary communications companies in Q1-3 2020:
|
Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
9
|
|
Market Review
The Communications Industry (Continued)
|
|
|||
The Corona Virus
In early 2020 the coronavirus (Covid-19, hereinafter: “Coronavirus” and/or “Covid-19” and/or
“the Virus”), which was declared a global pandemic by the World Health Organization. The Covid-19 pandemic and the uncertainty regarding the continued spread of
the virus, have led to an economic crisis expressed, among other things, by a drop in economic activity, sharp drops in oil prices, fluctuations in foreign currency rates and increased unemployment. As
a result, and in order to prevent the virus from spreading, many countries around the world, including Israel, took measures that placed restrictions on movement, crowds, events, business activity and
more. On Rosh Hashanah even in September 2020, the Government approved a second lockdown for 21 days; and in January 2021 a third lockdown was announced, crowd restrictions were made more strict and
work was allowed at vital locations only.
The vaccination drive began on December 20 2020, after emergency approval was given for the vaccine by the U.S. FDA and as of the start of 2021 the State of Israel has
vaccinated tens of percentage points of its entire population (both the first and the second doses).
Impact of the pandemic on the communications market – the movement restrictions, event restrictions and business closures, as well as the economic slowdown
resulting from the crisis, have had a negative impact on Israeli communications companies. Most of the impact is expressed in the cellular field due to the halting of the tourism and aviation industry,
which led to a significant decrease in revenues from overseas roaming services, as well as in the sale of end equipment.
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|
|
Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
10
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|
Market Review
Mobile Telephone Market
|
|
|||
The cellular network operates using two primary components – mobile telephone devices and fixed broadcast facilities. Mobile phones, the end
device, broadcasts radio waves to the antenna of the broadcast facility and receives radio waves from it. The cellular network divides the country’s area into thousands of geographical units called
“cells” (hence, cellular communications), with each cell containing a fixed broadcast facility (broadcast site, antenna). The cells overlap each other slightly, and maintain continuous
telecommunications coverage in a structure similar to that of a beehive. If the cells do not overlap then a gap is created in coverage, which means no reception in the “hole” and inability to
maintain continuity when a subscriber passes between cells.
The cellular technologies used to date in Israel include “Second Generation”, “Third Generation” (UMTS technology4 and additional types), “Fourth Generation” (LTE Technology5)
and Fifth Generation.
The Fourth Generation tender was held in 2014-2015 with the following cellular providers winning the license: HOT Mobile, Partner, Cellcom,
Pelephone, Golan as Telecom well as XFONE (hereinafter: “the Cellular Operators” and/or “MNO”)
After the Cellcom-Golan merger in August 2020 the number of cellular operators dropped to 5 (as detailed above).
|
|
The following is subscriber data for the companies operating in the field of mobile communications in Israel as of December 31 2014-2019 and as of September 30 2020
(thousands):
(*) Partner, Cellcom, Pelephone, Golan Telecom and HOT Mobile subscriber data was derived from the financial statements of these companies or the statements of their parent
companies. Subscriber data for6 MVNO operators as well as XFONE (We4G) was estimated by us.
(**) Over the course of 2018 588,000 subscribers were written off by Pelephone and HOT, and in 2019 153,000 subscribers were written off by Cellcom.
(***) For the sake of comparison – Cellcom and Golan data was consolidated for the duration of the measurement period.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Market Review
Mobile Telephone Market (Continued)
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|||
The following is a description of the development of the market shares of the primary companies active in the industry based on the number of
subscribers presented in the above table in 2013-2019 and in the third quarter of 2020:
The increased competition in the mobile field has led to an ongoing drop in prices, increased customer mobility, a drop in telephone minute
consumption as well as customer abandonment, and as a result, ongoing harm to the results of the older players in the field: Pelephone, Partner and Cellcom. In addition, the implementation of
regulation regarding the expansion of competition in the Wholesale Market increased competition in the field of internet service packages (for more on this subject, see “Internet Market Review”).
|
|
Cooperation Agreements and Hosting Agreement
The cellular companies operate within the framework of a license issued by the Ministry of Communications. The license given the companies obliges them to provide the
service to their subscribers in a proper and organized manner, across the country and at a level of service no lesser than that stated in the service quality indices detailed in their licenses. As a
rule, each company is required to have their own independent infrastructure, but collaborations exist between cellular companies at various passive communications sites (meaning sites featuring
antennas). These are usually central sites, with a single “mast” serving as the basis for the antennas of various companies as well as collaborations on active infrastructure as detailed below. The
Ministry of Communications’ current policy is to encourage various methods of sharing between networks, while making sure to protect competition between companies.
The following are the existing cooperation agreements:
a. Partner - HOT Mobile: in April 2015 Partner and HOT Mobile announced that the Minister of Communications has
approved the network sharing agreement between the companies for the active radio segment for the establishment of a partnership that would hold, develop and operate one advanced cellular network for
both companies, each of which would hold one half of the rights to it. Following the approval in question, Partner and HOT Mobile established a joint corporation (the Phi Company), which received a
special license to provide cellular radio infrastructure to a mobile telephone operator. The license will be in effect for 10 years. As part of the joint agreement between Partner and HOT Mobile, HOT
Mobile will receive hosting services from Partner.
b. Cellcom – XFONE: in July 2016 the Company engaged with Marathon 018 XFONE Ltd. (hereinafter: “XFONE”), which had won 4G frequencies in the 2015 frequencies tender, in a 4th Generation network sharing agreement and 2nd and 3rd Generation network hosting
services. The agreement will remain in effect for 10 years, unless extended by the parties. See also an expansion on the state of things as of the test date in the chapter on the Company and its above
actions.
c. Cellcom - Golan Telecom: in April 2017 an agreement to share 3rd and 4th Generation network and 2nd generation
network hosting service came into effect between Golan and Cellcom. As noted, in August 2020 Cellcom purchased Golan Telecom and theagreement between them has ended.
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Chapter 2 : Market Review
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Cellcom Israel Ltd.
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Market Review
Mobile Telephone Market (Continued)
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|||
In addition, there are infrastructure hosting agreements between operators without independent infrastructure and operators with independent
infrastructure (hereinafter: “Hosting Services”):
a. Rami Levi receives hosting services from Pelephone.
b. 019 Telzar receives hosting services from Pelephone and Partner.
Mobile Telephones – Market Price Trends
Israeli mobile telephone prices are among the lowest in the world. The older companies in the industry are operating at a loss or with marginal
profitability in terms of net profits, the level of investment in the industry is small, and the penetration of the LTE Fourth Generation network is among the lowest in the world.
The cellular market reform has led to a drop in prices and the low rates have compelled the companies to undergo significant streamlining.
Israeli consumers have internalized number mobility. Between 2010 and 2018, average revenues per subscriber in Israel have dropped by over 50%. In 2010-2015 the Israeli ARPU dropped by an
average rate of 14% per year, and since 2016 the drop has shown signs of slowing down, amounting to just 4.2% per year in 2016-2018.
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|
The following is information on average redemptions per user in Israel compared to the OECD (NIS per month)7:
(*)Without Israel (for comparison prices), without the Czech Republic, Estonia, Hungary, Iceland, Ireland, Latvia, Lithuania, Luxembourg, Poland, Slovakia and Slovenia
due to the lack of data.
(**)Redemption data does not include virtual operators (MVNO).
In addition, in accordance with Ministry of Communications data, Israel presents the lowest ARPU in Europe.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Market Review
Mobile Telephone Market (Continued)
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|
|||
The following is ARPU data of the primary companies operating in the Israeli mobile telephone market in 2010-2019 as well as during the first nine
months of 2020 as presented in their Financial Statements (in NIS per month):
(*) Information for Q1-3 2020 includes Golan’s information.
(**) Starting Q3 2018 HOT is not a reporting corporation and its information is not public.
(***) A weighted average in accordance with the market share of each of the leading players in the market in that period.
According to the financial statements of these companies, the ARPU was calculated by dividing the monthly average of the total revenues from the
cellular services, including revenues received from cellular operators making use of the network of the relevant company, by the lineup of active subscribers at the end of the period.
|
|
As the table shows, we can see that the weighted ARPU of the leading companies in the mobile telephone market has eroded gradually in recent years, with a sharp drop in
2011 due to the decrease in connectivity fees (see below) and the start of the intensive competition in the industry, drops of 10-13% per year in 2012-2015 and a drop of an additional 4-5% in 2016-2018.
The total drop in ARPU from 2010 to September 30 2020 amounted to 86 NIS, an accumulated drop of 63%, at a combined annual rate of decrease of 9.5%.
The relatively moderate drop in ARPU in 2018 largely derives from the subscriber write-offs carried out by Pelephone and HOT, which increased the ARPU they displayed. In
addition, 2020 saw an additional trend of an additional sharp drop in weighted ARPU, largely deriving from the negative impact of the Covid-19 crisis on revenues from roaming service sand the continued
price erosion of cellular services as a result of the ongoing competition in the market.
Connectivity Fees in the Communications Market
Connectivity fees in cellular calls dropped starting January 1 2011 from 0.254 NIS to 0.634 NIS, gradually decreasing to 0.06 NIS by 2014. In text messaging, connectivity
fees dropped starting January 1 2011 from 0.03 NIS to 0.0016 NIS, gradually decreasing to 0.0013 NIS by 2014. In addition, connectivity fees for terrestrial telephones dropped starting December 1 2013
from 0.035 NIS to just 0.01 NIS.
Over the course of 2016 it was publicized that the Ministry of Communications was about to hold a hearing to cancel connectivity fees between operators, both in the
terrestrial market and in the cellular market. In October 2018 it was published that the Ministry of Communications would make another attempt to initiate a model of reciprocal relations between
operators at zero price.
As of the valuation date, the connectivity fees have not yet been amortized.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Market Review
Mobile Telephone Market (Continued)
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|||
Alongside the drop in ARPU, following the increase in competition in recent years, companies in the industry have undergone a significant
increase in abandonment rates. The following graph shows the development of abandonment rates in leading companies in the industry in 2009-2019 as presented in their Financial Statements:
(*) Starting from the third quarter of 2018 HOT has not been a reporting corporation and its information has not been public, and therefore HOT’s
information for 2018 is in accordance with the second quarter of 2018, standardized for the entire year. In addition, 2019 data is from publications in the economic press.
The abandonment rate in Israeli cellular networks is among the highest in the world. The abandonment rate in Israel is double the average
European abandonment rate and the highest among the OECD countries. This means that mobility barriers are not significant for Israeli consumers.
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CapEx
The drop in prices (reflected in the drop in ARPU) has forced the companies to undergo significant streamlining, which is also expressed by reducing investments in
infrastructure. As a result, investment per subscriber decreased, amounting to 41% in 2018 relative to the level in 2008.
The following graph displays real yearly investment data per cellular subscriber in Israel (NIS per subscriber)8:
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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15 |
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Mobile Telephone Market (Continued)
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|||
Israel is one of the last countries in the world to adopt the Fourth Generation cellular infrastructure, and it Fourth Generation coverage is one of the lowest of all
developed countries.
The following graph shows an international comparison of investment in cellular infrastructure per subscriber in 2018 (NIS per subscriber):
* Not including Partner and Cellcom’s investments in fiber infrastructure.
** Q12018–Q22017 was taken for TDC
Mobile
|
As we can see, Israeli investment in infrastructure per subscriber was one of the lowest in the world relative to comparison countries with a similar ratio, Mexico, Portugal
and Greece, with the average investment in infrastructure per subscriber in the OECD being twice has high as in Israel.
The following graph shows an international comparison of 4th Generation coverage9 as of May
2019:
The above graph shows that Israel is behind in terms of 4th Generation coverage rates compared to the comparison companies (69.5% coverage only).
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Mobile Telephone Market (Continued)
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|||
The Need for Innovation – Fifth Generation
Technology used to transmit cellular data undergoes constant improvement. Experience from the past 30 years shows that on average, every 7 years a new generation is
developed, which upgrades the information data transfer capacity over the cellular medium. The new technology’s development process will take a number of years. As of the start of 2020, China and South Korea were the first
countries in the world with a 5th Generation network covering the entire country. The United States also has a number of cities in which the technology is active. According to estimates, Japan will start assimilation circa
2021.
Fifth Generation technology is expected to increase bandwidth by a factor or 10 or more relative to Fourth Generation networks. But beyond that, 5G is expected to lead to a
significant increase in response time (a decrease in latency – the amount of time that passes between performing a certain action and receiving a response). The improved reaction time contributes to the user experience in
online services in general, but is particularly critical in M2M applications – high-speed communications between machines. The Fifth Generation creates the potential for an actual revolution in app and service potential.
|
The following graph shows the projected global usage forecast for the various generations (2G-5G) in 2016-2025:
According to this forecast, 4G will dominate the global market in terms of deployment and use for at least 10 years. According to the forecast, in 2025 Fourth Generation and
Fifth Generation will constitute 59% and 15%, respectively, of total technology used to transmit cellular data.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Mobile Telephone Market - End Equipment
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|||
Revocation of the need for the approval of the cellular companies to import a cellular device not through an official importer, and the opening of multiple shops selling end
equipment, has led to a drop in the sales of devices and of cellular end equipment sold by the cellular operators themselves. In order to reduce the damage to revenues, the cellular companies have increased the variety of
equipment sold by them and also sell end equipment that is not cellular devices, such as tablets, mobile computers and accessories, as well as end equipment for other areas of activity in the communications industry, such as
cable converters.
In accordance with a study published in February 2019 by the Pew Research Center, Israel is second in the world in terms of smartphone penetration, at 88%, with only South
Korea passing it with a penetration rate of 95%
The following is the number of smartphone users in the world (in billions)10, the rate of
increase in 2016-2020 and the forecast for 2021:
|
We can see that the number of smartphone users has been increasing, and are expected to amount to 3.8 billion users in 2021.
The following graph shows the number of users of tablet computers (in billions) in 2013-2020and the forecast for 2021:
We can see that the number of tablet users has been increasing in recent years, and the trend is expected to continue, reaching 1.28 billion users in 2021. At the same time,
growth rates seem to be dropping.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Mobile Telephone Market - End Equipment
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|||
The following is data on revenues from end equipment sales in the mobile sector of Israel’s leading communications companies, in 2012-2020 (millions of NIS):
(*) 2020 data was standardized for a full year in accordance with the companies’ results in the first three quarters of 2020. HOT end equipment sales data exists to the end
of 2018 only.
The graph shows a return to a moderate decrease at a rate of 8%, 4% and 4% in 2017, 2018 and 2019, respectively. The decrease in 2017 is backed, among other things, by
cancellation of the purchase tax, as explained below.
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Revocation of Purchase Tax on Mobile Phones
In April 2017 the Minister of Finance signed an order to revoke a 15% purchase tax on mobile phones, batteries and SIM cards, but the 17% VAT set in law was not cancelled.
Prior to this reform, for importing mobile phones, importers were liable for a purchase tax of 15% of the cost of the product plus shopping, as well as a 17% VAT surcharge.
Additional Trends
A trend can be identified that is expressed in the diversion of mobile phone sales from across the country to Eilat, as besides the fact that purchases taking place in Eilat
are exempt from VAT, phone prices are lower due to the large amount of competition in this region.
In addition, the amount of time in which people keep a mobile phone before replacing is increasing, which has a negative impact on revenues from the sale of end equipment.
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Chapter 2 : Market Review
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Cellcom Israel Ltd.
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The Internet Market
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|||
Connecting to terrestrial internet takes place in two stages: first through the internet infrastructure provider, and second through the ISP.
Israel has two nationally-deployed infrastructure providers: Bezeq (copper) and HOT (cables), and two more local providers: Partner (fiber) and IBC (fiber). The Israeli
internet connectivity market includes dozens of companies with relevant licenses, but the vast majority of them have no significant market share and the market is controlled by Bezeq International (Bezeq), 012 Smile
(Partner) and 013 Netvision (Cellcom).
According to Bezeq’s financial statements, it estimates that Bezeq’s market share in the field of internet infrastructure in 2019 amounted to 63%, compared to 69% in 2018.
One can say that Bezeq's market share in terms of internet infrastructure has been decreasing, due to increased competition from the new competitors, Partner and Cellcom (on IBC infrastructure), which provide internet
infrastructure over fiber optics and who have been accumulating more and more subscribers at the expense of older competitors Bezeq and HOT.
The internet infrastructure penetration rate in Israeli households is among the highest in western countries. However, in international terms, Israel is falling behind
western countries in terms of bandwidth and the move to optic fiber.
In July 2020, the Ministry of Communications published the recommendations of a professional committee founded regarding the issue of cancelling the structural separation in
the Bezeq Group and the HOT Group. Among other things, the team recommended that the Minister examine cancelling the existing separation between the infrastructure service and the ISP service.
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The following is a description of the development of the number of internet subscribers in Israel in 2009-2019(thousands):11
(**) Starting from the third quarter of 2018 HOT has not been a reporting corporation and its information has not been public, and therefore the number of HOT subscribers
is according to Bezeq's estimates in its 2018 statements.
The number of internet subscribers in 2019 increased by 4.2% compared to 2018. In 2016 this index increased by 2.5% compared to 2017. In 2009-2018 the yearly growth rate in
the number of Israeli internet subscribers is 4%.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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20 |
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The Internet Market (Continued)
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|||
Wholesale Market Reform
In November 2014 the Minister of Communications published a resolution according to which, among other things, the obligation to lease the infrastructure of Bezeq and HOT,
in stages, to the access providers, was anchored in defined rates. Among other things, the monthly payment includes a fixed payment to a line for accessibility services, and a variable payment for the scope of use (measured
in megabits/second).
On February 20 2020, the Ministry of Communications ruled on an update to Wholesale Market rates. The ruling retroactively set the final rates for 2019 and 2020 and set the
rate update mechanism for 2021-2022. The decision also included a mechanism for repaying the surplus payments paid by the ISPs to Bezeq in 2017-2018.
Starting 2021, in accordance with the Ministry of Communication’s announcement, the rate for the data transmission service in the Bezeq network core will amount to 6.5 NIS
per megabit/second, compared to 10.2 NIS in 2020, and the fiber rate will average 75 NIS.
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The following graph shows the development of the number of wholesale internet lines in Bezeq infrastructure from the start of the reform (in millions) on a quarterly basis12:
We can see that as of December 31 2019 the number of wholesale internet lines amounted to 592,000 internet lines. From the start of the reform to the end of 2015 a sharp
increase occurred and in 2016-2017 the number of wholesale internet lines increased at a moderate pace each quarter. Since 2018 the growth rate in question decreased, and starting from the first quarter of 2019, for the
first time, there was a decrease in the number of subscribers. We estimate that the primary cause of the trend reversal is that Partner and Cellcom began to sell fiber optic infrastructure in lieu of Bezeq infrastructure.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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The Internet Market (Continued)
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||
Optic Fiber
Unlike the more common copper wire technology, optic fiber technology allows extremely large bandwidths that allows the transfer of large amounts of data. It also allows
internet access at symmetrical speeds, meaning that data will downloads at the same rate as it uploads. Additional advantages of the use of fibers are lower weight, immunity to outside disturbances, and resistance to water
and dampness. Expanding internet speeds beyond symmetrical access will upgrade users’ internet experience, improve the quality of content viewing and will allow the infrastructure to deal with increased future network
traffic capacity demands, which are expected to emerge as a result of the increase in uses and applications demanding broadband, such as IOT (internet of things) technology.
The first companies to deploy optic fibers in Israel in 2013 were Bezeq and IBC (more below).
In January 2017 the Ministry of Communications announced that Cellcom and Partner would be able to deploy an optic fiber network on Bezeq's infrastructure according to a
model and method of their choice. In light of this and in order to avoid the need to pay Bezeq for infrastructure, over the course of 2017 Cellcom and partner began deploying fiber optics at a high pace, with Bezeq, who
had been at the forefront of the field, actually slowing down its pace due to its universal deployment obligation.
Today, based on the fiber outline and on the HOT-IBC transaction that will be detailed below, it seems as though three fiber networks will be deployed in Israel – by
Partner, Bezeq and IBC.
Partner
Partner is considered the company to have the greatest deployment of optic fiber to date, which according to publications reaches 700,000 households. Note that Partner
selects its deployment areas in a focused manner at its sole discretion in accordance with economic feasibility and is not committed to deployment percentages.
|
IBC
In August 2013 the State granted IBC a general license to provide communications infrastructure services (such as data communications, numeric transmission, VPN) based on
fiber optics. IBC is building high-speed internet infrastructure on fiber optics deployed on the Electric Corporation's power grid, allowing internet usage rates of up to 1000 MB under the Unlimited brand.
IBC was compelled, by its licensed, to implement gradual universal deployment over a course of 20 years. In November 2018, the Ministry of Communications approved relief
in the deployment of IBC’s fiber optic network, compelling it to achieve 40% deployment only, unlike the original demand for 100% deployment.
In 2019 Cellcom invested, along with the IIF, a total of 170 million NIS in IBC. After the investment and until HOT came in, IBC was held indirectly by Cellcom (35%), the
IIF (35%) and by the Israeli Electric Corporation (30%). Concurrently the company sold IBC the Cellcom’s independent fiber network in residential areas in return for 180 million NIS. In light of the transaction and the
purchase of Cellcom’s infrastructure by IBC, on that date it achieved access to 300,000 households connected to an optic fiber network. After HOT came in, IBC was held indirectly by Cellcom the IIF and HOT (23.3% each of
them) and by the Israeli Electric Corporation (30%).
In September 2020, the Company and IIF signed an investment agreement with HOT, according to which HOT would become an equal partner in the IBC partnership, holding 70% of
IBC’s issued stock capital. The transaction was completed in February 2021 after receiving the required regulatory approvals. Bringing HOT in as a partner in IBC will lead to IBC being able to significantly increase its
infrastructure deployment (1.7 million households) and at an accelerated rate. As of the assessment date, IBC reached 560,000 households.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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22
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The Internet Market (Continued)
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|
||
Bezeq
According to market estimates, Bezeq has deployed fiber optics to 60% of households but has halted their actual connection to buildings in light of the economic
infeasibility of national deployment. At the same time, there has recently been a significant development, with the Ministry of Communications solving the issue using the “Fiber Optic Outline”,
which was recently approved by the Government and the Knesset.
Pursuant to the reform, which came into effect on January 1 2021, Bezeq’s national deployment obligation was withdrawn and it will be required to announce where it plans to
deploy within 5 months, and will complete the deployment within 6 years. A subsidization fund from the revenues of the communications companies will be established for areas it does not choose, which will operate for a
decade. The areas that Bezeq will ask to avoid deploying in will be defined as “incentivization areas”, for which a fund will be established from the revenues of the communications companies (0.5%), the money of which will
subsidize the deployment via tenders.
Following that, Bezeq announced that it would start planning and carrying out the deployment of the infrastructure in a number of Israeli cities immediately, and according
to its forecasts, over the coming years hundreds of thousands of Israeli homes will be able to connect to the new optic fiber network.
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|
Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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23
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International Call Market
|
|
||
General
International call services include, among other things, direct dialing services from Israel abroad and from outside the country to Israel, dialing lines abroad, routing and transferring
international calls between foreign telecom providers, call cards and more.
As of today, there are 7 communications companies active in the Israeli market that provide international telephone services – 014 Bezeq International, Cellcom Terrestrial Communications
(013), 012 Smile (operating under Partner), HOT Mobile International Communications Ltd. (017), XFONE 018, Telzar 019 and Rami Levi (015). In order to operate in the international calls market, the company/operator needs
to receive an International Carrier license in accordance with the Communications Law and make investments in infrastructure (the scope of investments in this market is lower than the scope of investments needed in the
domestic operator or cellular markets).
The Israeli international calls market has been characterized in recent years by a drop in call minutes (incoming and outgoing), mainly due to the service packages offered by the cellular
companies, which include international call minutes and in addition, the increasing use of applications that require no payment on behalf of the user (free apps), mainly use of applications like WhatsApp.
The market is competitive, sensitive to prices from the consumer's point of view, and is characterized by multiple special offers made by various operators. The price margin that existed in
the past between calls abroad using a mobile versus terrestrial phone has decreased due to the drop in cellular air time prices.
In addition, the cellular companies also include unlimited overseas call packages in their packages, in these packages the customers do not make their calls through the terrestrial operator
but rather use the package of minutes offered them as part of their cellular package.
|
The following graph displays total revenue from international call activity in the Israeli communications market (thousands of NIS) and the change occurring in 2010-201913:
Revenues from international call activity in the communications market are dropping. We can see an 24.3% crop in revenues in 2019 relative to 2018. Revenues from 2013 to
2019 dropped by an accumulated 59%, with the average yearly decrease amounting to 13.7%.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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24
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The Television Market
|
|||
After years of stagnation, in which the Israeli television market was under the near-absolute control of HOT and Yes, it has been exposed to competition, through the entry
of Cellcom and Partner to this field of activity. Revenues from television services in the communications market dropped from 3.7 billion NIS in 2015 to 3.1 billion NIS in 2019, a decrease largely deriving from the increase
in competition in the field of broadcasts.
The following are details of the primary competitors in the Israeli television content market:
◾ Yes – is the brand of DBS Satellite Services (1998) Ltd. which provides satellite
services. In additional, Yes provides the Sting reduced-price service (for more, see below in this chapter).
◾ HOT – is the brand of HOT Telecommunication Systems Ltd. In addition, HOT operates
the reduced-cost services Next TV and Rami Levi (for more, see below).
◾ Cellcom TV – Cellcom service using internet based streaming service technology,
or in other words, Over the Top – OTT. This service is based on aerial reception of the 10 existing DTT channels (the Idan Plus channels) and the broadcast of additional content on the basis of the public internet network
(among other things, VOD content).
◾ Partner TV – Partner's television services are provided through a converter with
the Android TV operating system installed, with the channels and content broadcast over the internet. An open operation system that allows, among other things, the installation of other viewing applications.
◾ Idan Plus – Idan Plus is operated by the Second Authority for Television and
Cable, and is used to distribute certain channels to the public free of charge (DTT), with the exception of the one-time cost of the converter.
◾ Streaming services/smart televisions/other digital converters and so on – these
are internet-based VOD services. In January 2016 Netflix, which provides web-based VOD services, began operating in Israel. In mid-2017 Netflix launched full translation of its contents, Hebrew user interface as well as
Israeli contents. Other major streaming systems have begun operating around the world recently: Apple TV+, Disney+, Amazon Prime, MBO Max and more. These are expected to be available in Israel in the near future.
|
Structure of Competition in the Multi-Channel Television Market and Changes Occurring Therein
The following is a description of the breakdown of the television market in Israel (% of total Israeli households) in 2010 to Q1-3 2020 based on public data and an analysis
we conducted (in thousands):
(*) Starting from the third quarter of 2018 HOT has not been a reporting corporation and its information has not been public, and therefore HOT’s information for 2018 is in
accordance with the end of Q2 of this year. Its information for 2019 and Q1-3 2020 is according to the BDO estimate.
(**) Others including Israeli households that do not have televisions or households not connected to multichannel television and which are connected to other alternatives to
multichannel television (such as Netflix and Idan Plus).
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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25
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Television Market Risks (Continued)
|
|
||
Structure of Competition in the Multi-Channel Television Market and Changes Occurring Therein (Continued)
As we can see, as of September 30 2020, HOT is the biggest player in multichannel television services, with a 30% market share, with Yes following at 21%. Cellcom TV has
252,000 subscribers, constituting 9.4% of the market. In addition, we can see that Partner, which entered the market in 2017, reached a market share of 8.4% as of September 2020, with 224,000 households.
In addition, we can see that the total rate of households not connected to the four alternatives noted above increased in 2010-2016 from 31% to 38%. This increase began to
slow down in 2015 due to the entry of Cellcom TV, and for the first time in 2017 the trend reversed in light of increased competition in the market as well as following the entrance of Partner TV. In 2018 a decrease
occurred, and this rate amounted to 34%, while data up to the third quarter of 2020 indicates a continued drop in this rate, to 31%.
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Chapter 2 : Market Review
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Cellcom Israel Ltd.
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26
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Television Market Risks (Continued)
|
|||
Netflix – Global
The following graph describes the development of Netflix and cable subscribers in the United States 14 (millions of customers):
As we can see, in the first quarter of 2017, for the first time the number of Netflix customers in the United States passed the number of cable subscribers: 50.8 million
Netflix customers versus 48.6 million cable customers. This information is a bit biased, as it does not include 38 million satellite customers. As of the first quarter of 2019, the number of Netflix subscribers in the United
States increased to 60.2 million customers, compared to just 46.7 million cable customers, and as of the first quarter of 2020 Netflix listed a record number of 70 million subscribers compared to 44.6 cable
|
television subscribers.15 The trend is clear, Netflix is growing at a rapid rate: in the
first quarter of 2020 it added 9.7 million customers in the U.S. and 13.5 million customers in the rest of the world16.
The trend in multichannel television is the opposite of Netflix’s growth trend. In the first quarter of 2019 U.S multichannel television companies lost 335,000 customers
compared to the previous quarter. This trend has continued since the fourth quarter of 2012, although abandonment rates were lower. In 2017 as a whole, the three companies with the highest abandonment rate together lost 2.2
million customers.
According to press publications17, the traditional U.S. television channels are trying to
reduce their abandonment rate by launching their own limited products that include net-based activity, smaller channel packages and lower prices. Europe also has examples of reduced services by veteran companies. According
to estimates by the U.S. Consumer Organization, the older companies and the new players will end up meeting at the middle, with a package consisting of a several dozen channels for $30 per month. The processes taking place
in the Israeli multichannel television market are similar to those taking place around the world.
An ASCI survey from May 2017 showed that customer satisfaction with cable and internet services was low. 9% of respondents said that there was a high probability of them
leaving their cable or satellite company in the coming year in favor of steaming-based viewing solutions. It also showed that the picture is even clearer with younger people, with 68% of Millennials (age 18-34) willing to
abandon their television company in favor of television services of technology companies like Apple, Google or Facebook.
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Chapter 2 : Market Review
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Chapter 3 : Results of Business Activity
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Balance Sheet
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The following are the Company's balance sheets for December 31 2018-2020:
Source: Cellcom’s Financial Statements for 2018-2020.
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Chapter 3 : Results of Business Activity
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Balance Sheet (Continued)
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Note 1 - Customers and Other Long-Term Receivables
The following is the composition of the Long-Term Trade and Other Receivables item for December 31 2018-2020 (millions of NIS):
(*) Less provision for doubtful debts.
(**) The Company purchases usage rights to communications lines for their own use and to sell to third parties.
Note 2 – Investments in Investees handled Using the Carrying Amount Method
This section is for the Company's investment in IBC, which is treated as an investment in an associated company.
Note 3 - Provisions
The provision items largely consist of:
a. Provisions due to lawsuits;
b. Site disassembly and restoration provisions – specific costs for removing assets and restoring the sites where the assets were
located. These disassembly provisions are calculated based on the disassembly value in the current year taking into account Management’s estimates regarding possible price changes, inflation and so on and capitalized by
risk-free interest; and -
c. Provisions due to contractual liabilities and other exposures
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Note 4 - Payables and Credit Balances, Including Derivatives
The following is the composition of the Payables and Credit Balances item, including derivatives for December 31 2018-2020 (millions of NIS):
The following is the economic balance sheet as of December 31 2018-2020 (millions of NIS) in accordance with the analysis we conducted:
The following are the working capital items as of December 31 2018-2020 (millions of NIS) in accordance with the analysis we conducted:
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Chapter 3 : Results of Business Activity
Goodwill Impairment Test -As of December 31, 2020
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The following is the Company's concise draft balance sheet for December 31 2020, presenting the Company’s assets and liabilities attributed to the mobile and terrestrial
segments (millions of NIS):
Source: Company Management
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Chapter 3 : Results of Business Activity
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Cellcom Israel Ltd.
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Profit and Loss
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The following are the Company's Statements of Operations for 2018-2020 (millions of NIS):
* In 2019 the Company began to implement International Financial Reporting Standard 16, and accordingly ceased recognizing rental expenses for structures it rented that meet
the definitions of the standard, and began recognizing depreciation and financing expenses for them.
Source: Cellcom’s Financial Statements
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Chapter 3 : Results of Business Activity
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Chapter 4 : Methodology
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Background and Definitions
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Identification of Asset the Value of Which May be Impaired
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International Accounting Standard 361 (Revised) (hereinafter: “the Standard” or “IAS 36”)
seeks to ensure that an entity's assets are not presented at a sum exceeding their recoverable sum. An asset is presented at a sum higher than its recoverable sum when the asset's carrying amount exceeds the sum received
from the use or sale of the asset. In this case the asset has an impairment and IAS 36 requires that the entity recognize an impairment loss.
The Standard applies to all assets (besides exceptions denoted in the Standard itself) including goodwill acquired in a business combination. Goodwill acquired in a business
combination represents payment made by the buyer based on expectations of future economic benefits from assets that cannot be identified separately and recognized separately.
Definitions
Carrying amount is defined as the sum the asset is recognized at after deducting all accrued depreciation (accrued amortization), and
less accrued impairment losses.
A cash-generating unit is the smallest identified group of assets that generates positive cash flows, which are largely independent
of positive cash flows from other assets or from other groups of assets.
Fair value is the price that would have been received from the sale of an asset or the sum that would be paid for the transfer of a
liability, in an orderly transaction between market participants in the date of measurement.
Costs of disposal are incremental costs, directly attributed to the realization of an asset or cash-generating unit, with the
exception of financing costs and tax expenses on income.
Value in use is the present value of the future cash flows expected to be derived from an asset or from a cash-generating unit.
The recoverable amount of an asset or cash-generating unit is its fair value less sales costs or its value in use, whichever is
higher.
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Timing of Impairment Test
On each balance sheet date, an entity shall study whether signs exist indicating the impairment of an asset. If any indications exist, the entity must estimate the asset’s recoverable sum.
Regardless of whether there are any indications of impairment, the entity must also:
◾ Test the impairment of an intangible asset with an undefined life span or an intangible asset not yet available for use annually by comparing its
value to its recoverable sum.
◾ Test the impairment of goodwill acquired in business combinations annually.
Signs Indicating Impairment
As noted, the entity shall test the indications of impairment on each balance sheet date. The standard states that as a minimum, the entity must test the following indications:
Outside Sources of Information
◾ Over the course of a period, a significant decrease occurred in the market value of the asset beyond that projected as a result of the passage of
time or regular use.
◾ Material changes with a negative impact on the entity occurred over the course of the period or will occur in the near future, in the marketing,
economic or legal environment in which the entity is active, or in the market for which the entity is intended.
◾ Over the course of the period, an increase occurred in market interest rates or in other yields on investments in the market, and it is likely that
these costs will impact the discount rate used to calculate the value of the asset, and significantly reduce the asset's recoverable sum.
◾ The carrying amount of the entity's net assets is higher than the entity's market value (market capitalization).
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Chapter 4 : Methodology
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Identification of Asset the Value of Which May be Impaired (Continued)
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Measuring a Recoverable Sum
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Inside Sources of Information
◾ There is available evidence of the aging or physical damage to an asset.
◾ Significant changes with a negative impact on the entity occurred during the period or are forecast to occur in the near future,
at a level or in a manner in which the asset is used or is forecast to be used in the future.
◾ Available evidence exists from the internal reporting system that indicate that the asset's economic performance is, or will be,
worse than projected.
The above list is not comprehensive. An entity may identify additional signs indicating a possible drop in the value of an asset.
The existence of signs of impairment will require that the entity determine the recoverable sum of the asset, or, in the case of goodwill, test for impairment.
If the recoverable sum for a single asset cannot be estimated, the entity must calculate the recoverable sum of the cash-generating unit to which the asset belongs. The
cash-generating units need to be consistently identified from one period to another with the same assets or types of assets, unless some change is justified.
Goodwill
In order to test the impairment of goodwill acquired in a business combination, goodwill recognized on the acquisition date will be allocated to each of the cash-generating
units or group of cash-generating units of the buyer, which are expected to benefit from the synergy involved in the combination, irrespective of whether other assets or liabilities of the acquired entity were assigned to
those units or groups of units. Each unit or group of such units to which goodwill was assigned as noted above will represent the lowest level in the entity tracking goodwill for internal management purposes and shall be is
no larger than an operating segment as defined in IFRS 8, before collecting similar segments.
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General
The recoverable sum of an asset or cash-generating unit is its fair value less sales costs or its value in use, whichever is higher.
The standard states that it is not always necessary to determine both the fair value less costs of sale and its value in use. If one of these sums is higher than the asset's carrying amount,
no impairment takes place in the value of the asset and there is no need to estimate the additional sum.
If there is no reason to believe that the value in use of an asset significantly exceeds its fair value less costs of sale, the fair value of the asset less costs of sale may serve as a
recoverable sum. Often, this will be the case when the asset is intended for use. This is due to the fact that the value in use of an asset intended for realization will largely be based on net proceeds from realization,
as it is reasonable that future cash flows from continued use of the asset up to its sale are negligible.
Fair Value Less Costs of Sale
The best evidence of fair value less the costs of sale of an asset is the price set in a binding sales agreement in a transaction that is not influenced by special relationships between the
parties adjusted for incremental costs that can be directly attributed to the realization of the asset.
When there is no binding sales agreement, but the asset is traded on an active market, the fair value less costs of sale shall be the market price of the asset less costs of disposal.
When an asset does not have a binding sales agreement or active market, fair value will be based on the best available information in order to reflect the sum an entity could have received, on
the balance sheet date, in return for realization of the asset in a transaction that is not influenced by special relationships between the parties, between a willing buyer and a willing seller, operating in a rational
manner. When determining this sum, an entity takes into account the results of transactions carried out recently in similar assets in the same industry. Incremental costs that could have been directly attributed to the
realization of the asset must be subtracted from fair value.
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Chapter 4 : Methodology
Goodwill Impairment Test -As of December 31, 2020
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Chapter 4 : Methodology
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Measuring Recoverable Sum (Continued)
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Recognizing Impairment Loss
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Discount Rate
The discount rate needs to be a pre-tax rate that reflects current market assessments of:
◾ The time value of money.
◾ The asset's specific risks, for which the estimates of future cash flows were not adjusted.
Testing Impairment of Goodwill
The impairment of goodwill will be tested by comparing the carrying amount of the unit, including the goodwill, to its recoverable sum. If the unit's recoverable amount
exceeds its carrying amount, the value of the unit and goodwill allocated to the unit shall be considered undamaged. If the unit's carrying amount exceeds the unit’s recoverable sum, the entity will recognize an impairment
loss.
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The impairment loss must be allocated to reducing the carrying amount of the unit’s assets in the following order:
a. First, reduce the carrying amount of any goodwill allocated to a cash-generating unit, and subsequently;
b. To the unit's remaining assets on a relative basis on the basis of the carrying amount of each unit asset.
These amortizations of carrying amounts will be treated as impairment losses of individual assets.
In order to allocate the impairment loss in accordance with the above, an entity shall not decrease the carrying amount of an asset below the higher of the following:
◾ Its fair value less sales costs (if determinable);
◾ Its value in use (if determinable); or
◾ Zero.
The sum of the impairment loss that otherwise would have been assigned to the asset, will be assigned on a relative basis to the other assets in the unit.
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Chapter 4 : Methodology
Goodwill Impairment Test -As of December 31, 2020
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Discount Rate
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Based to International Accounting Standard 36 (IAS 36), when measuring the recoverable sum of a cash-generating unit, payment due to income tax must not be included. As a
result, the discount rate used to estimate the current value of the cash flows must be calculated as the discount rate before tax.
The discount rate is calculated according to the WACC model, which is the weighted yield rate required by the capital owner, as detailed below:
WACC = Kd * (%D) + Ke * (%E)
With:
WACC = the weighted yield rate required by the capital owner;
Kd = Yield on debt, after tax;
%D = rate of debt from total assets;
Ke = yield on equity;
%E = rate of equity from total assets;
The rate of yield on equity is determined according to the CAPM (Capital Asset Pricing Model). According to this model, the yield on equity is derived from risk-free
interest as of the date of purchase plus a market risk premium multiplied by the Company's risk level relative to the standard deviation of the market portfolio (β).
With: SCP + SRP + (Rf – Rm)*β + fR = Ke
Rf – rate of risk-free interest based on the real Israeli risk-free interest rate, for a period of 15 years, from the fair margin
system.
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β – the relative risk coefficient. This coefficient reflects the relative risk involved in a certain investment and is based on the level of correlation between the investment’s yield and the
yield of the capital market as a whole; when this coefficient is greater than 1, the business is highly sensitive to changes in the state of the market. Meaning that in the event of a recession the industry will be more
negatively impacted than other industries, and in the event of prosperity the industry will undergo a more positive impact than other industries. When this coefficient is smaller than 1, the value of the activity is less
sensitive than average to changes in the market condition.
In order to calculate the β of the Company's activity, we relied on the average β of public companies active in the Israeli communications industry.
Rm-Rf – Israel’s risk premium according to Damodaran.
The Company's leverage rate – it has been assumed that the Company will finance its activity in the future using a financing structure similar to the
financing structure of publicly traded companies active in the communications industry.
Kd – represents the price of the Company's long-term debt (15 years) in real terms and calculated based on the current yields of the debenture series
issued by the Company, while adjusted the estimated life span.
SCP – size premium in accordance with Duff & Phelps, 2020.
SRP – a specific premium, comprised of the following two:
◾ A premium reflecting, among other things, the following risks: the major fluctuations in the Company's stock price, changes in the Israeli
communications market in recent years and the excess regulation present in the communications market.
◾ A premium added based on macroeconomic considerations designed to moderate the impact of the interests present in the market as of the assessment
date, which are exceptionally low.
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Chapter 4 : Methodology
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Cellcom Israel Ltd.
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Discount Rate (Continued)
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The following are details of the parameters used to calculate the two segments’ capitalization rate:
As the basis of the discount rate, as detailed above, is after taxes, it must be adjusted to reflect a discount rate before taxes. For this purpose, value in use was
calculated given a discount rate after tax of 7.5%. After that, the discount rate before tax needed to reach the value in use received was calculated. Based on the above, the discount
rate before tax found in the mobile segment was 9.1%, and in the terrestrial segment, 9.2%
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Chapter 4 : Methodology
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Chapter 5 : Goodwill Impairment Test – Mobile Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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40
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General
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Timing of Impairment Test
At the request of Company management, the goodwill impairment test for the mobile segment activity in the Company's books was carried out in accordance with IAS 36 as of
December 31 2020.
Identifying Cash-Generating Units
In accordance with IAS 36, for the purpose of testing impairment, the standard defines a cash-generating unit as the smallest identified group of assets that generates
positive cash flows, which are largely independent of positive cash flows from other assets. For more, see “Methodology” chapter.
Company management has established that the activity of the mobile segment, is the smallest cash-generating unit to which goodwill may be assigned.
Recoverable Sum of Cash-Generating Units
In accordance with IAS 36, the recoverable sum of the cash-generating units is their fair value less sales costs or their value in use, whichever is higher. For more, see
“Methodology” chapter. The value in use of the group of cash-generating unit was calculated using the revenues approach, the discounted cash flows method.
Carrying Amount of the Cash-Generating Units
In order to determine the carrying amount of the mobile cash-generating unit, we calculated the sum of the carrying amount of the cash generating unit and we added the
balance of cost surpluses of the mobile activity we received from Company management, as of December 31 2020. Details and expansion on this subject will be presented in this chapter below.
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General assumptions:
1. The forecast years – represent the period from
January 1 2021 to December 31 2024 as well as the representative year (hereinafter: “the Forecast Years”).
2. Construction of projected cash flow in forecast year –
we estimated the projected cash flow for the forecast year on the basis, among other things, of the Company's actual results for previous years, the Company's 2021 budget, discussions and talks with Company
management, available market data, newspaper articles, internal studies carried out by BDO on the media industry, practices and experience in the industry and more.
3. Real forecast – the cash flow in the Forecast
Years is presented in real values. Therefore, the capitalization rate (WACC) is in real values.
4. Financial data by activity – a cash flow
forecast was carried out for each of the Company’s activities, with the data for each activity in past years received by Company Management. We emphasize that the financial data provided by Company management is compatible
with the Company's total operating profits in its audited and reviewed Financial Statements, with adjustments to accounting reporting, but is not necessarily compatible with the accounting classifications available to users
(such as classifying expenses between cost of sales and operating expense).
5. Tax rate – the tax rate taken into account is
the Israeli corporate tax rate, 23%.
6. Capitalization rate – the real yearly
capitalization rate was estimated at 7.5% after tax (9.1% before tax).
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Chapter 5 : Goodwill Impairment Test – Mobile Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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41
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Operating Cash Flow Forecast
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The following is the operating cash flow forecast for the mobile sector (millions of NIS):
* There are differences between the manner in which certain revenues and costs are classified regarding their classification in the Financial Statements.
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Chapter 5 : Goodwill Impairment Test – Mobile Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Revenues and Gross Profits
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Revenues in the mobile segment include revenues from cellular services – revenues from subscribers, from inbound and outbound roaming services, as well as from the XFONE
network hosting and sharing agreement, and include revenues from the sale of end equipment.
Subscriber revenues – these revenues were estimated in accordance with the average number of subscribers and the monthly ARPU
in each of the forecast years, as follows:
◾ Number of subscribers and market share – it was assumed that the total number of cellular subscribers in Israel will
increase by 2% each year to 2024 and in the long term would increase by 1.5% per year, in accordance with the growth rate of the population based on long-term Central Bureau of Statistics forecasts18. Over the course of 2020 the Company added all Golan subscribers after the completion of the purchase transaction. Furthermore, in Q4 the Company changed its method
of counting subscribers such that its lineup of active subscribers will not include the data subscribers which generate a negligible income. (Approximately 427,000 data subscribers). We estimate that after these two events,
the Company’s market share amounts to 31.5%, which reflects 3,204,000 subscribers. It was assumed that the market share will decrease in coming years and settle on 30% in the long term.
◾ Monthly ARPU – in 2020, the yearly average ARPU without revenues from hosting,network sharing agreement and without
revenues from inbound roaming services, amounted to 44 NIS. The ARPU in 2020 was influenced by a number of significant events that include among other things the consolidation of Golan in part of the year (starting September
2020), the change in subscriber counting method (starting October 2020, as noted above), and the decrease in roaming services sales in light of the closed skies. The Golan consolidation decreased the Company’s weighted ARPU,
both in light of Golan's lower ARPU relative to Cellcom, and in light ofinter-company cancellation of revenues from connectivity fees which generated from the network sharing agreement between the companies. This
inter-company decrease also decreased the cost of cellular services at the same time. We emphasize that differently from
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Company's calculation, the ARPU noted above which presented in this document does not include revenues from hosting and sharing agreements with XFONE and did not include revenues inbound roaming revenues. According to
our analysis, in the fourth quarter, average ARPU amounted to 46.5 NIS. Which reflects the months after the consolidation of Golan and after the change in the subscriber counting method.
The average ARPU in 2021 is expected to amount to 46.5 NIS, in light of the continued drop in the ARPU of the packages sold, against the expected increase in roaming revenues after the skies
are partially opened and the start of sale of packages including 5th Generation, which generate a higher ARPU.
It was assumed that the ARPU would increase in the forecast years and settle at 52.5 NIS in the representative year, representing a 6 NIS increase over the projected ARPU in 2021. We assume
that the increase will occur in light of the following circumstances:
◾ In accordance with a forecast by the International Air Transport Association (IATA), there will be a gradual resumption in flight levels,
reaching pre-Coronavirus levels in 2024. Accordingly, a gradual increase in the scope of outgoing roaming costs by 2024 was assumed.
◾ 5th Generation packages, which are priced higher, are expected to be sold at increasing levels, making their impact more significant in
coming years.
◾ In addition, in accordance with the network sharing and hosting agreement between XFONE and Cellcom, XFONE’s payments are expected to
increase from year to year, and therefore we assume that XFONE will be forced to increase prices, otherwise they will be forced to recognize a gross loss for each subscriber added.
Inbound roaming revenues – in 2020 a sharp decrease occurred in activity in light of the skies closing. It was assumed that these revenues
would increase gradually in coming years in light of the expected opening of the skies, but would level out to the multi-year trend of decrease later on in the forecast.
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Chapter 5 : Goodwill Impairment Test – Mobile Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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43
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Revenues and Gross Profits (Continued)
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Operating Expenses
|
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Revenues from network sharing and hosting agreement – these revenues represent the receipts the Company is expected to receive from XFONE due to
the network sharing agreements (for 4th and 5th Generations) as well as the hosting services (for 2nd and 3rd Generations). Note that in the Company’s financial reporting, the receipts are included under Revenues. In
accordance with the agreement between the parties, in the first 5 years of the agreement, a minimal payment exists that has been increasing over the years.
As described above, the Company is in a legal dispute that is in advanced stages with XFONE. In accordance with the Company’s position, as expressed in the statement of claim filed before the
court, we assumed that the sharing agreement will be enforced. At the same time, and seeing as there are still a number of scenarios across the agreement period regarding the existence of the agreement, we assumed that the
agreement, which began in April 2018, will be in effect for the first 5 years of the agreement and that there was only a certain probability that it will increase to the sixth year. Accordingly, we estimated the expectancy
of the comprehensive proceeds from the sharing agreement starting 2024 at 57 million NIS.
In addition to this key scenario, as expressed in the impairment work, an additional analysis was carried out, which included the examination of the impact of a number of possible scenarios,
including a loan granted XFONE as well as the possibility that the sharing agreement will end, including by way of insolvency or the introduction of new investors to XFONE. For each of the scenarios, weighted in accordance
with the Company’s estimates regarding the likelihood of their occurrence, we calculated the expected capitalized cash flow and reached the conclusion that such an event would have a negligent impact on the value of
activity, as expressed in this work, and accordingly, does not change the conclusion of the work.
End equipment revenues in the mobile sector – total revenues from the sale of end equipment in the mobile
segment amounted to 691 million NIS in 2019 and in 2020 amounted to 731 million NIS, a 6% increase. The Company expects an 11% increase in this segment in the 2021 budget. These increases occurred parallel to an erosion in
gross profitability. In the other forecast years, this segment was assumed to be stable.
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The segment’s operating expenses largely consists of salary and associated expenses including vehicles and welfare, as well as various advertising and marketing expenses,
electricity, maintenance, security, doubtful debts and so on. The expenses presented do not include leases covered by IFRS 16 and do not include depreciation and amortization.
Added to the segment’s operating expenses were Golan Telecom’s expenses starting September 2020, with the full impact of the consolidation expected in 2021.
On February 6 2020 the Company signed a collective agreement according to which 450 people will retire in a voluntary retirement plan. The Company listed reorganization
expenses for the plan to the sum of 45 million NIS in the fourth quarter of 2019. Due to the streamlining steps taken by the Company over the course of the year, all of the Company’s expenses in 2020 (without depreciation
and the cost of end equipment and without the expenses of Golan, which were consolidated starting from the end of August 2020), dropped by 110 million NIS relative to 2019.
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Chapter 5 : Goodwill Impairment Test – Mobile Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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44
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Cash Flow Adjustments
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Summary
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||
In order to achieve a cash flow that will be used to estimate the value in use of the group of cash-generating units, the operating profit before tax forecasts are required to undergo a number
of adjustments, in order to assess the investment needed for those assets generating the revenues forecast. These items include non-cash items that are added to the cash flow (depreciation and amortization), capital
investments needed to maintain the existing situation as well as investments in working capital.
Capital investments (CapEx)
The Company’s capital investments include, among other things, investment in the deployment and continued construction of the 4 and 5G networks. In 2020 the Company's investments in the mobile
segment amounted to 339 million NIS. We shall note that the investment forecast includes both the commissions and incentives paid marketers that capitalized as an asset (from the implementation of IFRS 15) and investments
in future leases (IFRS 16).
Depreciation and Amortization Expenses
Depreciation and amortization were examined relative to the scope of investments. In 2020 the depreciation is in accordance with the Company’s budget and in the remaining budget years it was
assumed that depreciation would gradually settle at the total investments in the representative year.
Investments in Working Capital
The balance of the Company's working capital in the mobile segment as of December 31 2020 amounted to 326 million NIS.
It was assumed that the balance of working capital would change in the forecast year as a function of the change in revenues.
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Based on the assessments detailed above, the following is the operating cash flow forecast of the base scenario of the mobile segment cash-generating unit for the forecast
years (millions of NIS):
Accordingly, the value in use of the mobile segment was estimated at 3,944 million NIS.
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Chapter 5 : Goodwill Impairment Test – Mobile Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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Sensitivity Analyses
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The following table shows a sensitivity analysis of the recoverable sum relative to the cap rate after tax and the long-term growth rate (millions of NIS):
The following table shows a sensitivity analysis of the recoverable sum relative to the cap rate after tax and the monthly ARPU (in NIS) assumed in the representative year (millions of NIS):
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The following table shows a sensitivity analysis of the recoverable sum relative to the cap rate after tax and the Company's market share in the representative year
(millions of NIS):
Reasonably possible changes in the base assumptions mentioned above would have made the recoverable sum of the mobile sector, which has been estimated in this economic
paper, to be equal to the value of the activity of the mobile sector in Cellcom’s Financial Statements.
The following calculation refers to the change of each of the parameters in the key assumptions, with the remaining parameters used in the economic work remaining unchanged:
◾ Real capitalization rate before tax of 10.8%
◾ Long-term market share of 28.07%
◾ ARPU in the representative year of 50.53 NIS.
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Chapter 5 : Goodwill Impairment Test – Mobile Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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46
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Chapter 6 : Goodwill Impairment Test – Terrestrial Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
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47
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General
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Timing of Impairment Test
At the request of Company management, the goodwill impairment test for the terrestrial segment activity in the Company's books was carried out in accordance with IAS 36 as
of December 31 2020.
Identifying Cash-Generating Units
In accordance with IAS 36, for the purpose of testing impairment, the standard defines a cash-generating unit as the smallest identified group of assets that generates
positive cash flows, which are largely independent of positive cash flows from other assets. For more, see “Methodology” chapter.
Company management has established that the activity of the terrestrial segment, is the smallest cash-generating unit to which goodwill may be assigned.
Recoverable Sum of Cash-Generating Units
In accordance with IAS 36, the recoverable sum of the cash-generating units is their fair value less sales costs or their value in use, whichever is higher. For more, see
“Methodology” chapter. The value in use of the group of cash-generating unit was calculated using the revenues approach, the discounted cash flows method.
Carrying Amount of the Cash-Generating Units
In order to determine the carrying amount of the terrestrial cash-generating unit, we calculated the sum of the carrying amount of the cash generating unit and we added
the balance of cost surpluses of the terrestrial activity we received from Company management, as of December 31 2020. Details and expansion on this subject will be presented in this chapter below.
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General assumptions:
1. The forecast years – represent
the period from January 1 2021 to December 31 2024 as well as the representative year (hereinafter: “the Forecast Years”).
2. Construction of projected cash flow in
forecast year – we estimated the projected cash flow for the forecast year on the basis, among other things, of the Company's actual results for previous years, the Company's 2021 budget, discussions and talks
with Company management, available market data, newspaper articles, internal studies carried out by BDO on the media industry, practices and experience in the industry and more.
3. Real forecast – the cash flow
in the Forecast Years is presented in real values. Therefore, the capitalization rate (WACC) is in real values.
4. Financial data by activity – a cash flow forecast was carried out for each of the Company’s activities, with the data for each activity in past years received by Company Management. We emphasize that the
financial data provided by Company management is compatible with the Company's total operating profits in its audited and reviewed Financial Statements, with adjustments to accounting reporting, but is not necessarily
compatible with the accounting classifications available to users (such as classifying expenses between cost of sales and operating expense).
5. Tax rate – the tax rate taken into account is the Israeli corporate tax rate, 23%.
6. Capitalization rate – the real
yearly capitalization rate was estimated at 7.5% after tax (9.2% before tax).
|
Chapter 6 : Goodwill Impairment Test – Terrestrial Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
48
|
|
Operating Cash Flow Forecast
|
|
|
The following is the operating cash flow forecast for the terrestrial sector (millions of NIS):
* There are differences between the manner in which certain revenues and costs are classified regarding their classification in the Financial Statements.
|
Chapter 6 : Goodwill Impairment Test – Terrestrial Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
49
|
|
Revenues and Gross Profits
|
|
||
Television services – these revenues include the Cellcom TV service, which is provided as a separate service or as Triple packages (for instance,
along with internet services – ISP and infrastructure and a home telephone line). In addition, revenues from Cellcom TV also include premium packages (additional content services), converters, Netbox, installation services
and more.
In order to build a forecast of revenues from television services, we estimated the scope of subscribers in the Triple package and the scope of subscribers for television only. The revenues
forecast was based on the projected average number of subscribers and the average revenue per subscriber for each channel separately. The number of television subscribers as of December 31 2020 amounted to 252,000.
The 2021 forecast is based on the Company’s budget, both in terms of the number of subscribers and in terms of the scope of revenues. It has been assumed that the number of subscribers would
gradually increase to 310,000 in the long term. In addition, it was assumed that in the long term, the average revenue per subscriber in Triple activity would remain stable.
Costs of television activity largely consist of content purchasing costs and are divided between fixed and variable costs. Fixed costs were estimated on the basis of current agreements with
content providers, while also taking additional content into account over the course of the forecast years. The variable costs were estimated in accordance with the Company’s budget and were predicted in accordance with
the projected number of users. Television service costs were estimated for all television users, regardless of the alternatives selected by the customers for purchasing television services.
Internet services – the Company’s revenues from internet services consist, among other things, from the
Company’s revenues from ISP services only, revenues from ISP and infrastructure services (as part of a bundle), as well as additional revenues such as transmission services. I order to build the forecast of revenues from
internet services, we estimated the number of subscribers on each of the channels in question so that the revenues forecast was based on the projected average number of subscribers and the average revenue per subscriber
for each channel separately.
As of December 31 2020, the Company has 293,000 internet infrastructure subscribers.
|
Since the Cellcom-IBC Agreement, Cellcom has been gradually transferring its customers to the IBC infrastructure (in lieu of the Bezeq infrastructure, the Wholesale Market),
as made possible by the scope of IBC’s deployment. Moving to the IBC infrastructure has distinct advantages for Cellcom, both in the option of moving its customer to higher speeds and more advanced technology, and in terms
of costs, which allows it to save Wholesale Market payments and move to payments in accordance with the agreement with IBC, which are cheaper.
As noted, in February 2021 the HOT-IBC transaction was completed, according to which HOT would become an equal partner in the IBC partnership. Bringing HOT in as a partner
will lead to IBC being able to significantly increase its infrastructure deployment (1.7 households instead of 1.1 million) and at an accelerated rate.
The 2021 forecast is based on the Company’s budget, both in terms of the number of subscribers and in terms of the scope of revenues. In the remaining forecast years,
stability was assumed, with a slight increase in internet and TV subscribers as detailed above. It was assumed that the number of internet subscriber would remain stable across the period, but with a significant change in
mixture as descried above.
Internet costs were estimated in accordance with the projected number of subscribers and the projected average cost per subscriber, for each channel separately. Among other
things, payment to Bezeq apply (primarily) for infrastructure subscribers in the Wholesale Market in accordance with the revised Wholesale Market rate, and a charge to IBC will apply in accordance with the scope of
subscribers through it and in accordance with the IRU agreement with it. In light of the deployment rate and connection forecast of hundreds of thousands of households in coming years, payment is expected to increase
gradually to 2030 and is expected to decrease from this point onward.
|
Chapter 6 : Goodwill Impairment Test – Terrestrial Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
50
|
|
Revenues and Gross Profits (Continued)
|
Operating Expenses
|
||
Private and business domestic operator – the domestic operator activity in the communications market has
been dropping in recent years, among other reasons due to the penetration rate of smartphones and/or tablets, the decrease in calls from terrestrial telephones and more. Based on a market analysis and talks with Company
Management, these revenues are expected to continue dropping in coming years, while business domestic operator revenues are expected to grow at a moderate pace.
International call (ILD) revenues – international calls activity has been dropping in recent years, among other reasons due to the increasing use
of internet-based calls from smartphones, which are replacing packages for international calls from terrestrial telephones. In accordance with the analysis we made, we assumed that this activity would continue to decrease
in the short term, so that in the representative year the rate of decrease would settle at 0%.
Business sector, transmissions and others – including internet services for business customers, hosting and cloud services, data transmission
services both to outside customers and to the mobile segment, as well as other revenues. The Company’s activity with business customers as well as the Company’s revenues from the sources note above have been growing in
recent years. It was assumed that the Company’s business internet revenues would increase by 1%-3% across the forecast years and settle on the long-term growth rate.
End equipment revenues in the terrestrial sector – total revenues from the sale of end equipment in the
terrestrial segment amounted to 265 million NIS in 2019 and in 2020 amounted to 167 million NIS, a 37% increase. In its 2021 the Company predicts a growth rate of 8% relative to 2020. In the forecast years following 2021
we assumed stability in this segment. Likewise, we assumed that the Company's gross profitability in the 2021 budget is the representative gross profitability and that it would remain stable for the duration of the
forecast years.
|
The segment’s operating expenses largely consists of salary and associated expenses including vehicles and welfare, as well as various advertising and marketing expenses,
electricity, maintenance, security, doubtful debts and so on. The expenses presented do not include leases covered by IFRS 16 and do not include depreciation and amortization.
The operational expenses were also impacted, among other things, by the voluntary retirement plan and by the streamlining steps taken by the Company over the course of
2020, as described above in the mobile segment.
|
Chapter 6 : Goodwill Impairment Test – Terrestrial Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
51
|
|
Cash Flow Adjustments
|
Summary
|
||
In order to achieve a cash flow that will be used to estimate the value in use of the group of cash-generating units, the operating profit before tax forecasts are required to undergo a number
of adjustments, in order to assess the investment needed for those assets generating the revenues forecast. These items include non-cash items that are added to the cash flow (depreciation and amortization), capital
investments needed to maintain the existing situation as well as investments in working capital.
Capital investments (CapEx)
The Company’s capital investments include, among other things, equipment for customers’ homes (including converters and routers) as well as installations at the customers’ homes. Note that
investments do not include the deployment of optic fiber, which is carried out by IBC. In 2020 the Company's investments in the terrestrial segment amounted to 190 million NIS. We shall note that the investment forecast
includes both the commissions and incentives paid marketers that capitalized as an asset (from the implementation of IFRS 15) and investments in future leases (IFRS 16).
Depreciation and Amortization Expenses
Depreciation and amortization were examined relative to the scope of investments. In 2021 the depreciation is in accordance with the Company’s budget and in the remaining budget years it was
assumed that the depreciation would gradually settle at the total investments in the representative year.
Investments in Working Capital
The balance of the Company's working capital in the terrestrial segment as of December 31 2020 amounted to 7 million NIS, as noted in Results of the Business Activity.
It was assumed that the balance of working capital would change in the forecast year as a function of the change in revenues.
|
Based on the assessments detailed above, the following is the operating cash flow forecast of the base scenario of the terrestrial segment cash-generating unit for the
forecast years (millions of NIS):
Accordingly, the value in use of the terrestrial segment was estimated at 2,152 million NIS.
(*) As noted, the commitment to Cellcom’s IRU payments decreases starting 2031 in accordance with the increase in the number of IBC
subscribers. Therefore, a lower representative payment was taken in the terminal year. In order to represent the margin in 2025-2031 we estimated surplus IRU liabilities to the sum of 125 million NIS.
|
Chapter 6 : Goodwill Impairment Test – Terrestrial Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
52
|
|
Sensitivity Analyses
|
|
||
The following table shows a sensitivity analysis of the recoverable sum relative to the cap rate after tax and the long-term growth rate (millions of NIS):
Reasonably possible changes in the base assumptions mentioned above would have made the recoverable sum of the terrestrial sector, which has been estimated in this
economic paper, to be equal to the value of the activity of the mobile sector in Cellcom’s Financial Statements.
The following calculation refers to the change of each of the parameters in the key assumptions, with the remaining parameters used in the economic work remaining
unchanged:
◾ Real capitalization rate before tax of 10.72%
◾ Long-term growth rate of -0.1%
|
|
Chapter 6 : Goodwill Impairment Test – Terrestrial Segment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
53
|
|
Chapter 7 : Examination of Need to Measure Impairment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
54
|
|
Book Value
|
Summary
|
||
After finding the recoverable sum of the activity, we shall compare it to the Company’s carrying amount. If and only if we find that the recoverable sum of the asset is
lower than its carrying amount, then the Company will have to impair the measured asset and amortize it accordingly.
In order to find the Company’s carrying amount, we examined the segment's draft balance sheet for December 31 2020. The carrying amount was comprised of the Company’s
operating assets and liabilities, as well as from the balance of the Company’s goodwill attributed to the mobile segment (in millions of NIS).
The following is the carrying amount of both cash-generating units, the mobile segment and the terrestrial segment:
For more see Results of Business Activity.
|
Mobile Segment
Based on our work and the findings detailed in it, we have reached the conclusion that as of December 31 2020, the value in use of the mobile segment cash-generating unit is higher than its
carrying amount, and therefore no recognition of impairment is needed. The following table presents the results of the impairment test (in millions of NIS):
Terrestrial Segment
Based on our work and the findings detailed in it, we have reached the conclusion that as of December 31 2020, the value in use of the mobile segment cash-generating unit is higher than its
carrying amount, and therefore no recognition of impairment is needed. The following table presents the results of the impairment test (in millions of NIS):
|
Chapter 7 : Examination of Need to Measure Impairment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
55
|
|
Comparison to Previous Works
|
|
||
We conducted an impairment test for Cellcom for its mobile segment and terrestrial segment in accordance with IAS 36 as of June 30 2019 and December 31 2019. These tests established the
following results:
June 30 2019
◾ Mobile segment – carrying amount of 2,804,000 and recoverable sum of 3,401,000 NIS.
◾ Mobile segment – carrying amount of 2,021,000 NIS and recoverable sum of 2,217,000 NIS.
Accordingly, on this date we found that there was no need to amortize the value of goodwill.
December 31 2019
◾ Terrestrial segment – carrying amount of 2,807,000 and recoverable sum of 2,998,000 NIS.
◾ Mobile segment – carrying amount of 1,760,000 NIS and recoverable sum of 2,589,000 NIS.
Accordingly, on this date we found that there was no need to amortize the value of goodwill.
|
The following is a summary of the primary changes occurring in assumptions between the valuation date and December 31 2019 (hereinafter: “the
Previous Examination”) and the current examination as of December 31 2020:
• The discount rate dropped from 7.75% to 7.5%.
Purchase of Golan Telecom – in the previous examination, prior to Cellcom’s purchase of Golan, the forecast
included revenues from the network sharing and hosting agreement with Golan. In the current examination, after purchasing of Golan full cosolidation in Company's rasults. The forecast includes the results of Golan’s
activity as a whole – meaning revenues and expenses from its activity. In addition, the book value of the mobile segment increased in light of the company's purchase. Furthermore, in light of the transaction, a change
occurred in the manner in which certain revenues from Golan were attributed from the terrestrial segment to the mobile segment (which aattributed to transmission services) in light of ended of sharing agreement with Golan.
• Lateral changes and updates in the Company’s activities as a whole, including in the number of subscribers at the starting point
and future expectations, the ARPU and the costs in each of the activities, the scope of end equipment sales and projected profitability, the scope of operating expenses as well as the scope of investments and depreciation.
|
Chapter 7 : Examination of Need to Measure Impairment
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
56
|
|
Chapter 8 : Appendix – Required Disclosures Regulation 8b of the Securities Regulations
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
57
|
|
Required Disclosures Regulation 8b of the Securities Regulations
|
|
|
In accordance with Regulation 8b of the Securities Regulations (Periodic and Immediate Reports), 1970 (hereinafter: “Regulation 8b” on the disclosure
required for the valuations attached to the Financial Statements (hereinafter: “the Required Disclosure”), the following is the additional disclosure presented (beyond the disclosure
detailed throughout the document):
Value of Cellcom’s activity derived from the Company's stock market value:
The following table presents the Company's market value in the six months ending December 31, 2020 (in thousands of NIS):
Market value for this period was set in accordance with the Company’s offering.
The following table shows the value of Cellcom’s activity as calculated by us in this opinion compared to the value of activity as derived from its average market value in the six months
ending December 31 2020 (in millions of NIS):
(1) Net debt and surplus assets as of December 31 2020.
|
As we can see, the gap between the value of the activity in this opinion, and the value of the activity derived from the market value in the six months ending December 31
2020 amounts to 867 million NIS constituting a margin of 14.2%.
We estimate that most of the fap derives from market expectations in the matter of the impact of regulation in the media industry as well as in light of our expectations
regarding the nature of the structure of the industry in the future. As we detailed in Chapter 5, as we see it, the cellular market is not in equilibrium in terms of the number of competitors and the current ARPU, and
therefore we predict that the level of prices in the market will increase in the future.
|
Chapter 8 : Appendix – Required Disclosures Regulation 8b of the Securities Regulations
Goodwill Impairment Test -As of December 31, 2020
Cellcom Israel Ltd.
|
58
|
|
Company name
|
Share no. on TASE
|
Class of share
|
Number of shares
|
Total par value held by the Company
|
Value in the Company’s separate financial statements (in NIS millions)
|
Rate of Company holdings
|
||
in equity
|
in voting rights
|
in power to appoint directors
|
||||||
Cellcom Fixed Line Communications L.P.
|
-
|
-
|
-
|
-
|
1,412
|
100%
|
100%
|
100%
|
Golan
|
not traded
|
Ordinary of par value NIS 0.01
|
21,664
|
216.64
|
648
|
100%
|
100%
|
100%
|
Dynamica
|
not traded
|
Ordinary of par value NIS 1
|
1
|
1
|
121
|
100%
|
100%
|
100%
|
Name of loan-providing company
|
Name of loan-receiving company
|
Loan/capital notes balance
as of December 31, 2020 (in NIS millions)
|
Main terms of the loans
|
The Company
|
Golan
|
374
|
The balance consists of: (a) a loan of NIS 124 million, half of which is index-linked and bears
interest of 1.85% per annum, and half of which is unlinked and bears interest of 3.5% per annum. The loan was provided in April 2017, for a period of 10 years, and shall be repaid in 6 equal semi-annual installments
starting from the eighth year of the agreement period (interest and index differentials to be accrued shall be paid starting from the sixth year). And (b) Capital notes of NIS 250 million. The capital notes are
unlinked and do not bear interest, and their repayment date is not before September 2025.
|
Cellcom Fixed Line Communications L.P.
|
The Company
|
90
|
Unlinked Shekel loans that are from time to time provided according to the framework agreement
between the Company and Cellcom Fixed Line Communications L.P., for periods of up to 12 months. The loans bear interest at a rate identical to the interest set forth under Section 3(j) of the Income Tax Ordinance (as
it changes from time to time). The agreement includes terms for extending the loan periods and their acceleration.
|
|
• |
On August 26, 2020, a transaction was completed for Company's acquisition of all of Golan’s outstanding share capital. For additional details see Note 7 to the Company’s consolidated financial statements as of
December 31, 2020.
|
|
• |
On February 11, 2021, a transaction was completed according to the investment transaction that the Group engaged in with IIF and Hot, whereby Hot became an equal partner in the IBC partnership which holds 70% of
IBC’s issued share capital. After completing the transaction, the Group holds 23.3% of IBC’s share capital (compared to 33% on the date before its completion). For additional details see Section 17.2 in Chapter A of
this Periodic Report and Note 32F to the Company’s consolidated financial statements as of December 31, 2020.
|
|
1. |
On May 11, 2020, the Company published a shelf offering report in the framework of which 222,000 units were issued that include NIS 222,000,000 par value debentures (Series L) of the Company and 2,220,000 options
(Series 4) that are exercisable into 2,220,000 ordinary shares of the Company par value NIS 0.01 each (“Ordinary Shares”). For additional details, see the Company’s current
report on Form 6-K dated May 12, 2020.
|
|
2. |
On December 2, 2020, the Company issued NIS 400 million par value of debentures (Series L) by way of expanding a series through a private placement. For additional details, see the Company’s current report on Form
6-K dated December 1, 2020, which is hereby included by way of reference.
|
|
3. |
In 2020, 27,358 unregistered options,3 6,532,477 options (Series 3), and 8,644,981 options (Series 4) were exercised, and 308,787
restricted shares units vested, so that as a result of such exercises and vesting, 15,487,269 Ordinary Shares were listed that year.
|
(a) |
Mr. Avi Gabbay has been serving as the Company’s CEO since January 19, 2020, according to the employment agreement dated January 28, 2020. Mr. Gabbay’s employment agreement
is for an unlimited period and may be terminated at any time by either party, with three-months prior notice during the first three years of his employment, and thereafter with six-months prior notice, according to
the Company’s compensation policy. Similarly, in the framework of the agreement, provisions were set forth regarding no competition for a period of 12 months from the end of the employment period, and provisions
regarding confidentiality. For his tenure as CEO of the Company, Mr. Gabbay is entitled to the following main terms: (a) A monthly salary of NIS 110,000 (linked to the Consumer Price Index); (b) customary related
terms, including vacation days, sick days, officers insurance fund and education fund fund; (c) a vehicle on behalf of the Company; (d) directors and officers liability insurance, indemnification and release, as
accepted with respect to the Company’s officers and directors.
|
(b) |
Ms. Liat Menahemi has been serving as VP Legal Affairs and Corporate Secretary since March 16, 2006. For her tenure as VP Legal Affairs and Corporate Secretary, Ms. Menahemi
is entitled to the following terms: (a) A monthly salary of NIS 70,000 (linked to the Consumer Price Index);7 (b) customary related terms, including vacation days, sick days, officers insurance fund and
education fund as customary in the Company; (c) a vehicle on behalf of the Company; (d) directors and officers liability insurance, indemnification and release, as accepted with respect to the Company’s officers and
directors. Ms. Menahemi’s employment agreement is for an unlimited period and may be terminated by six-months prior notice. Similarly, in the framework of the agreement, provisions were set forth regarding no
competition for a period of 12 months from the end of the employment period, and regarding confidentiality.
|
(c) |
Ms. Orly Pascal has been serving as VP Human Resources in the Company since January 1, 2020. For her tenure as VP Human Resources, Ms. Pascal is entitled to the following
terms: (a) A monthly salary of NIS 68,000 (linked to the Consumer Price Index); (b) customary related terms, including vacation days, sick days, officers insurance fund and education fund as customary in the Company;
(c) a vehicle on behalf of the Company; (d) directors and officers liability insurance, indemnification and release, as accepted with respect to the Company’s officers and directors. Ms. Pascal’s employment agreement
is for an unlimited period and may be terminated at any time by either party, with three-months prior notice during the first three years of her employment, and thereafter with six-months prior notice, according to
the Company’s compensation policy. Similarly, in the framework of the agreement, provisions were set forth regarding no competition for a period of 12 months from the end of the employment period, and provisions
regarding confidentiality. According to her employment agreement, Ms. Pascal may be entitled to an annual bonus and special bonus according to the Company’s compensation policy.
|
(d)
|
Mr. Teimuraz Romashvili has been serving as VP Sales and International Activity of the Company since November 2020 (and
as VP Prepaid Activity since October 2011). For his tenure as VP Sales and International Activity, Mr. Romashvili is entitled to the following terms: (a) A monthly salary of NIS 65,000 (linked to the Consumer
Price Index)10; (b) customary related terms, including vacation days, sick days, officers insurance fund and education fund as customary in the Company; (c) a vehicle on behalf of the Company; (d)
directors and officers liability insurance, indemnification and release, as accepted with respect to the Company’s officers and directors. Mr. Romashvili’s employment agreement is for an unlimited period and may
be terminated at any time by either party, with three-months prior notice during the first three years of his employment, and thereafter with six-months prior notice, according to the Company’s compensation
policy. Similarly, in the framework of the agreement, provisions were set forth regarding no competition for a period of 12 months from the end of the employment period, and provisions regarding confidentiality.
According to his employment agreement, Mr. Romashvili may be entitled to an annual bonus and special bonus according to the Company’s compensation policy.
|
(a)
|
Mr. Shlomi Fruhling served as the Company’s CFO from September 18, 2013, until June 30, 2020. For his tenure as CFO,
Mr. Fruhling was entitled to the following terms:12 (a) A monthly salary of NIS 78,000 (linked to the Consumer Price Index);13 (b) customary related terms, including vacation days, sick
days, officers insurance fund and education fund as customary in the Company; (c) a vehicle on behalf of the Company; (d) directors and officers liability insurance, indemnification and release, as accepted
with respect to the Company’s officers and directors. Similarly, in the framework of the agreement provisions were set forth regarding no competition for a period of 12 months from the end of the employment
period, and provisions regarding confidentiality.
|
• |
As of the report date, the controlling shareholder of the Company is DIC, a public company whose securities are traded on TASE, which holds approximately 46.1% of the Company’s issued share capital and
approximately 48.2%14 of its voting rights, through Koor Industries Ltd. (“Koor”), a fully
owned subsidiary. To the best of the Company’s knowledge, until November 2017, the controlling shareholder of DIC was IDB Development Corporation Ltd. (“IDB Development”),
which at the time held approximately 70% of the issued share capital and voting rights in DIC. To the best of the Company’s knowledge, all of the issued share capital and voting rights in IDB Development as foregoing
were held by corporations indirectly controlled by Mr. Eduardo Elsztain.
|
• |
It is noted that with respect to 5% of the Company’s issued share capital that is held by DIC through Koor, on January 22, 2018, after obtaining the approval of
the Israeli Ministry of Communications, a memorandum of principles was executed between DIC and the Transferee Companies (as defined below) (in this section: the “Agreement”),
in the framework of which an outline was agreed, that would fulfill the Israeli holding requirement included in the Cellular License (the “Outline”). In the framework of the
Outline, Koor transferred 5% of the Company’s issued share capital (the “Transferred Shares”), by way of a lending transaction, to two private companies incorporated in
Israel (2.5% to each company), Wior Communications Ltd. and Blejer Communications Ltd., the purpose of which is to hold the Company’s shares, and which are fully owned by two Israeli entities (one being Mauricio
Wior, who serves as an officer of the Company and at the time also as an officer of DIC; and the other is Mario Blejer, who at the time served as an officer of DIC and as an officer of IDB Development, which as of
the execution date of the Agreement was a company controlled by Mr. Elsztain) (the “Transferee Companies” or “Israeli Entities”). Upon
completion of the indirect transfer of control of the Company to a group of investors led by Mega Or Holdings Ltd. ("Mega Or") (as set forth below), the Israeli shareholder
in the Company will be Mega Or.
|
• |
To the best of the Company’s knowledge, in November 2017, the transaction was completed for transferring control of DIC from IDB Development to Dolphin Netherlands BV (“Dolphin
Netherlands”), through Dolphin IL Investments Ltd. (“Dolphin IL”), a company that it fully owns and that is incorporated in Israel. Until September 2020, to the best
of the Company’s knowledge, Dolphin Netherlands held approximately 82.26% of the issued share capital and voting rights in DIC. To the best of the Company’s knowledge, the controlling shareholder of Dolphin
Netherlands is Mr. Eduardo Elsztain, through corporations under his control.
|
• |
On September 25, 2020, the court appointed official receivers for DIC’s shares owned by Dolphin IL, which were pledged in favor of the debenture holders of IDB Development, and which
constitute approximately 70.14% of DIC’s share capital, and on October 12, 2020, an additional temporary official receiver was appointed for additional pledged shares of DIC owned by Dolphin IL which constitute
approximately 12.12% of DIC’s share capital (the “Pledged Shares of DIC”). On November 20, 2020, the court approved the sale of approximately 82.26% of DIC’s shares (under a
receivership procedure) to a group of investors led by Mega Or, subject to obtaining the approvals required by law. On March 15, 2021, approval was given by the Israeli Ministry of Communications for the transfer
of control as aforesaid. As per the approval, upon completion of transfer of means of control in the Group, Mega Or shall hold up to 29.9% of DIC's share capital and it shall be considered a "founding shareholder"
alongside Koor industries Ltd. (a wholly owned subsidiary of DIC) and as an "Israeli shareholder", as such terms are defined in the Company's Cellular License. On March 16, 2021, the Israeli Competition Authority
provided its (conditioned) approval to the transaction. As per DIC's report regarding the receivers' report, the transaction shall be completed in two phases, the first of which in the coming days.
|
|
a. |
Transactions set forth in Section 270(4) of the Companies Law, 5759-1999 (“Companies Law”):
|
|
• |
For details about release, indemnity, and insurance arrangements that are granted to directors serving the Company on behalf of its controlling shareholder, see Regulation 29A below.
|
|
• |
For details about the terms of office of the directors serving on behalf of the Company’s controlling shareholder, see Regulation 21 above. It is noted that Mr. Wior is even considered a controlling shareholder of
the Company by virtue of holding Company shares together with its controlling shareholder, for details see Regulation 21 above.
|
|
b. |
Transactions not set forth in Section 270(4) of the Companies Law that are not negligible
|
• |
On March 5, 2020, the Company’s general meeting approved the following resolutions:
|
|
(1) |
Approval of the terms of office and employment of the Company’s CEO Mr. Avi Gabbay (for details about the terms of office and employment, see subsection (a) under Regulation 21 above).
|
|
(2) |
Updating the Company’s compensation policy regarding the terms of the insurance policy for directors and officers of the Company.
|
• |
On August 12, 2020, the Company’s general meeting approved the following resolutions:
|
|
(1) |
The reappointment of the following directors who serve in the Company: Doron Cohen, Gustavo Traiber, and Aaron Kaufman for an additional term of office starting on the date their appointment is approved by the
general meeting.
|
|
(2) |
An update to the Company’s compensation policy so that it shall include the updates to the Company’s letters of release and indemnity as set forth in Regulation 29A below,
and it shall include a provision whereby granting restricted share units to officers would be stipulated upon the Company determining measurable targets for purpose of such grant.
|
|
(3) |
The renewed granting of letters of release and indemnity in identical form to the directors who from time to time serve and served in the Company on behalf of the Company’s controlling shareholder, for a period of
three years, and updating the form of the letters of release and indemnity with respect to the directors to be appointed to the Company’s board of directors starting from the approval date of the general meeting as
foregoing. For details see Regulation 29A below.
|
|
(4) |
The reappointment of the offices of Kesselman & Kesselman Accountants, as the Company’s auditors.
|
a.
|
Directors and officers liability insurance
|
b.
|
Obligation for directors and officers indemnity and release
|
Avi Gabbay
CEO
|
Doron Cohen
Chairman of the Board of Directors
|
Name of director
|
Doron Cohen, Chairman
|
Mauricio Wior15
|
Gustavo Traiber
|
Shmuel Hauser
|
Varda Liberman
|
Eran Shenar
|
Aaron Kaufman
|
Yoram Turbowicz
|
ID number
|
056681562
|
017211517
|
011148426
|
053488342
|
05369319
|
029509825
|
015139827
|
055585426
|
Date of birth
|
September 27, 1960
|
October 23, 1956
|
November 3, 1961
|
May 13, 1955
|
February 1, 1948
|
August 17, 1972
|
March 3, 1970
|
November 1, 1958
|
Address for service of judicial documents
|
ToHa Tower, 144 Yigal Alon, Tel Aviv
|
10 Ha-Gavish, Netanya
|
39 Rupin, Tel Aviv
|
19 Amirim, Savion
|
8 Pa’amoni, Tel Aviv
|
78 Egoz, Neve Yarak
|
ToHa Tower, 144 Yigal Alon, Tel Aviv
|
ToHa Tower, 144 Yigal Alon, Tel Aviv
|
Citizenship
|
Israel
|
Israel and Argentina
|
Israel
|
Israel
|
Israel
|
Israel
|
Israel
|
Israel
|
Board committee memberships
|
Security Committee; Option Committee
|
Cost Analysis Committee
|
Audit Committee; Cost Analysis Committee; Security Committee;
Risk Management Committee;
Compensation Committee
|
Audit Committee; Cost Analysis Committee; Security Committee; Compensation Committee;
Risk Management Committee;
|
Audit Committee; Cost Analysis Committee; Option Committee; Compensation Committee;
|
-
|
Security Committee
|
-
|
Name of director
|
Doron Cohen, Chairman
|
Mauricio Wior15
|
Gustavo Traiber
|
Shmuel Hauser
|
Varda Liberman
|
Eran Shenar
|
Aaron Kaufman
|
Yoram Turbowicz
|
External director, external expert, or independent?
|
No
|
No
|
Independent director
|
External director
|
External director
|
No
|
No
|
No
|
Commencement of director’s term
|
March 23, 2020
|
January 29, 2017
|
March 28, 2019
|
March 29, 2019
|
March 29, 2019
|
September 14, 2020
|
May 12, 2020
|
December 2, 2020
|
Expertise in financial accounting or professional qualifications?
|
Expertise in accounting and finances
|
Expertise in accounting and finances
|
Expertise in accounting and finances
|
Expertise in accounting and finances
|
Professional qualifications
|
-
|
-
|
-
|
Education
|
BA in Economics and Accounting, Tel Aviv University
MA in Law, Bar Ilan University
|
BA in Economics and Accounting, Tel Aviv University; certified in Business Administration, Tel Aviv University.
|
BA in Political Science and International Relations, The Hebrew University of Jerusalem; certified in Business Administration, expertise in
financing, Interdisciplinary Center Herzliya.
|
BA in Statistics and Economics, The Hebrew University of Jerusalem; certified in Financing and Business Administration, The Hebrew University of
Jerusalem; Ph.D., Temple University (Florida).
|
BA in Statistics and Mathematics, Tel Aviv University; certified in Mathematics, Tel Aviv University; Ph.D. in Mathematics, Tel Aviv University.
|
BA in Economics and Accounting, Tel Aviv University; certified in Business Administration with expertise in financing, strategy, and
entrepreneurship, Tel Aviv University.
|
LLB in Law, Tel Aviv University
|
LLB in Law, The Hebrew University of Jerusalem;
Certified in Law, Harvard University;
Ph.D., Harvard University.
|
Name of director
|
Doron Cohen, Chairman
|
Mauricio Wior15
|
Gustavo Traiber
|
Shmuel Hauser
|
Varda Liberman
|
Eran Shenar
|
Aaron Kaufman
|
Yoram Turbowicz
|
Main Employment in the past 5 years
|
2020 - today: CEO of DIC, the indirect controlling shareholders of the Company and Chairman of the board of Epsilon Investment House Ltd.;
2015 - today:
Founding partner of Credito Ltd.
2015 - 2019: Chairman of the board in IBC Israel Broadband Company (2013) Ltd.
|
2016 – 2020: Chairman and vice chairman of the board in Shufersal;
2016 - 2020: Director in Shufersal Real-Estate Ltd.;
2016 - 2020: Vice chairman of Israir Airlines & Tourism Ltd.; 2014-2020 substitute director in DIC; 2019-2020 substitute director in IDB Development Corporation
Ltd.
|
2006 - today: Owner of Traiber Investments Ltd.; 2014 - today: Owner and CEO, Spain-Israel Investments Ltd.; 2010 - 2014: CEO and partner in Sun Team Group Ltd.
|
2006 - today: Vice President Ono Academic College; 1995 - today: Professor of Finance, Ben Gurion University of the Negev;
2011 - 2018: Chairman of the Israel Securities Authority; 2020 - today: Consultant for eToro.
2006 - today: CEO and Chairman of Narativ Ltd.
2011-2018:
Co-chairman of the Israel Accounting Standards Board; 2011-2018 member of the Advisory Committee to the Supervisor of Banks; 2017-today: Member of the Advisory
Committee to the Capital Market Authority, Insurance and Savings;
2019-2020:
Member of the Advisory Committee of CyberRight Tech;
2020-today:
Member of the Investments Committee of the Israel Democracy Institute
|
1995-today: Staff member at the Arison School of Business, Interdisciplinary Center Herzliya (rank of prof.); 2016-today: Founder and Head of the
MBA program in healthcare innovation, Interdisciplinary Center Herzliya; 2012-today: Head of decision-making, Arison School of Business, Interdisciplinary Center Herzliya; 1995-today: Head of Mathematics-Statistics
studies, Interdisciplinary Center Herzliya; engaged in giving lectures on the topic of decision-making; provides consulting and training for organizations;.
|
2015-today: Entrepreneur and owner in Best Medical Ltd. and the Multidisciplinary Center for Gastroenterology;
2010-today: Economic and business consultant
|
2016-today: VP and Legal Counsel at DIC;
2015-April 2020: VP and Legal Counsel at IDB Development Corporation Ltd.;
April 2020-September 2020: CEO of IDB Development Corporation Ltd.
|
November 2020-today: Chairman of the board at DIC, Mehadrin Ltd., Elron Electronic Industry Ltd., Property & Building Corporation Ltd.;
2009-2018: Attorney in the private sector.
2013-today:
Director at Allied Logistics Ltd.
2009-today:
Director at Allied Ltd.; 2009-today:
Director at Champion Motors Ltd.
|
Name of director
|
Doron Cohen, Chairman
|
Mauricio Wior15
|
Gustavo Traiber
|
Shmuel Hauser
|
Varda Liberman
|
Eran Shenar
|
Aaron Kaufman
|
Yoram Turbowicz
|
Additional corporations where he/she serves as director
|
Director at the following companies: Property & Building Corporation Ltd., Elron Electronic Industry Ltd., Mehadrin Ltd., Epsilon Underwriting & Issuing Ltd., ORT Braude
College of Engineering (chairman of the board of trustees); Civil Service Commission (member of the appointments committee and member of the service committee); Credito Ltd.; and private companies fully owned by
DIC.
|
Director at the following companies: Wior Communications Ltd., Inversiones Y Representaciones Sociedad Anonima (“IRSA”), Banco Hipotecario S.A., and BH sociedad de
inversion
|
External director of Adama Agricultural Solutions Ltd.
|
External director of Gazit Globe Ltd.; independent director of Alrov Properties & Lodgings Ltd.; chairman of the board at Pocketful Ltd.;
Member of the board (and partner) at Quantex Expected Returns.
|
External director of Aquarius Engines (A.M) Ltd.
|
Director of the following companies: Best Medical Advance Medicine Ltd.; MBA Management and Initiatives Ltd.
|
Director of Epsilon Investments House Ltd., director of private companies fully owned by DIC.
|
Director in the following companies: Gav-Yam Land Corporation Ltd., Allied Ltd., Allied Logistics Ltd., Champion Motors Ltd., D.N.S.T Holdings Ltd., and D.N.S.H.T
Ltd.
|
Name of director
|
Doron Cohen, Chairman
|
Mauricio Wior15
|
Gustavo Traiber
|
Shmuel Hauser
|
Varda Liberman
|
Eran Shenar
|
Aaron Kaufman
|
Yoram Turbowicz
|
Is he/she an employee of the Company, of a subsidiary, or of a company affiliated therewith, or of an interested party therein, and the roles that
he/she fulfills as foregoing
|
CEO of DIC.
|
Director in IRSA; director in Banco Hipotecario S.A., a company controlled by IRSA.
|
No
|
No
|
No
|
No
|
VP and Legal Counsel of DIC.
|
No.
Pursuant to the approval of the General Meeting of DIC, dated January 14, 2121, the Director provides services of the.
Chairman of the Board of DIC.
|
Is he/she a family member of an interest party in the Company
|
No
|
No
|
No
|
No
|
No
|
No
|
No
|
No
|
Does the Company consider him/her an expert in accounting and finance for purpose of meeting the minimum number determined by the board of
directors under Section 92(a)(12) of the Companies Law
|
Yes
|
Yes
|
Yes
|
Yes
|
No
|
No
|
No
|
No
|
Name of officer
|
Avi Gabbay
|
Shai Amsalem
|
Liat Menahemi
|
Orly Pascal
|
Nadav Amsalem
|
Ilan Sigal
|
Yaniv Koriat
|
ID number
|
59777920
|
025218355
|
22061238
|
025001116
|
027443043
|
038304127
|
038551586
|
Date of birth
|
February 22, 1967
|
May 29, 1973
|
October 23, 1966
|
November 30, 1972
|
October 6, 1974
|
December 7, 1975
|
February 12, 1976
|
Commencement date of term
|
January 19, 2020
|
September 13, 2020
|
March 16, 2006
|
January 1, 2020
|
August 1, 2017
|
February 1, 2021
|
March 15, 2020
|
Role in the Company
|
CEO
|
CFO
|
VP Legal Affairs and Corporate Secretary
|
VP Human Resources
|
VP Business Customers
|
VP Business Development
|
CTO
|
Position fulfilled in a subsidiary, related company or interested party of the Company
|
Director in the following companies:
Cellcom Holdings (2001) Ltd.; Dynamica Communications Chain Store Ltd.; Mobilab Technologies Ltd;
Netvision Ltd.; 013 Netvision Landline Communications Ltd.; IBC Holdings GP Ltd.; IBC Israel Broadband Company (2013) Ltd.; Golan Telecom Ltd.; Golan Telecom International Ltd.; Golan Tel Communication (2011) Ltd.
|
CFO of Golan Telecom Ltd.; director in the following companies:
Cellcom Holdings (2001) Ltd.; CMG Management Network Ltd.; Safeway - Data Protection Solutions; IBC
Holdings GP Ltd.
|
Director in IBC Israel Broadband Company (2013) Ltd.
|
-
|
Director in the following companies: Safeway
Data Security Solutions Ltd.; Cellcom Fixed Line Communications Inc.
|
CEO of Golan Telecom Ltd.
|
Director in the following companies:
CMG Management Network Ltd.; CG Management Network Ltd.
|
Name of officer
|
Avi Gabbay
|
Shai Amsalem
|
Liat Menahemi
|
Orly Pascal
|
Nadav Amsalem
|
Ilan Sigal
|
Yaniv Koriat
|
Is he/she a family member of a senior officer in the Company or of a different interested party in
the Company
|
No
|
No
|
No
|
No
|
No
|
No
|
No
|
Education
|
BA in Economics, The Hebrew University of Jerusalem; certified in Business Administration, The
Hebrew University of Jerusalem.
|
BA in Economics and Business Administration with expertise in accounting, College of Management
Academic Studies. Certified in business administration with expertise in financing, College of Management Academic Studies.
|
LLB in Law, Haifa University; BA in English and French Languages and Literature, Haifa University.
|
BA in Political Science, The Hebrew University of Jerusalem; certified in business administration
with expertise in organizational consulting, College of Management Academic Studies.
|
-
|
BA in Business Administration with expertise in communications and marketing, College of Management
Academic Studies; certified in business administration, Ono Academic College.
|
B.Sc.in Electrical Engineering and Electronics, Ariel University; MBA, The Open University.
|
Name of officer
|
Avi Gabbay
|
Shai Amsalem
|
Liat Menahemi
|
Orly Pascal
|
Nadav Amsalem
|
Ilan Sigal
|
Yaniv Koriat
|
Employment in the last five years
|
January 2020-today: CEO of the Company
2014-2019: A few key roles in politics, including: Chairman of the Labor Party, Minister of
Environmental Protection, and member of the Kulanu party.
|
September 2020-today: CFO of the Company; 2017-today: CFO of Golan Telecom Ltd.
2012-2016 - CFO of Tiv Taam Group
|
VP Legal Affairs and Corporate Secretary
|
January 2020-today:
VP Human Resources of the Company
2017-2020:
SVP for International Markets & Global staff Functions in Teva Pharmaceutical Industries Ltd.;
2015-2017: SVP, HR Regional Lead for Israel for Global Staff Functions in Teva Pharmaceutical
Industries Ltd.
|
July 2017-today: VP Business Customer of the Company;
2014-2017: Strategic customer department manager of the Company.
|
2021-today: VP Business Development and CEO of Golan Telecom Ltd.
January 2019-January 2020: VP Marketing and Business Development in Yes - D.B.S. Satellite Services
(1998) Ltd.
January 2019-January 2020: VP Marketing and Business Development in Bezeq International Ltd.
2016- 2020: VP Marketing in Pelephone Communications Ltd.
2006-2010: Marketing director for the private sector and soho in Bezeq The Israel Telecommunication
Corporation Ltd.
|
2015-2020: Director of IP and Transport Engineering of the Company.
|
Name of officer
|
Atara Litvak-Shacham
|
Teimuraz Romashvili
|
Victor Malka
|
Eli Adadi
|
Itzhak Ravid
|
Ronen Shlez
|
ID number
|
28813095
|
313974123
|
069478923
|
033141383
|
052761384
|
23077316
|
Date of birth
|
September 20, 1971
|
January 1, 1979
|
August 7, 1956
|
August 26, 1976
|
August 24, 1954
|
November 9, 1967
|
Commencement date of term
|
March 5, 2020
|
October 23, 2011
|
March 18, 2020
|
November 23, 2020
|
March 14, 2017
|
December 1, 2014
|
Role in the Company
|
VP Excellence & Innovation and Replacement VP Marketing
|
VP Sales and International Activity
|
Chief Information Officer
|
VP Retail
|
Internal auditor
|
Controller
|
Position fulfilled in a subsidiary, related company or interested party of the Company
|
Director in the following companies:
Cellcom Holdings (2001) Ltd.; Dynamica Communications Chain Store Ltd.; Mobilab Technologies Ltd.
|
-
|
-
|
CEO of Dynamica Communications Chain Store Ltd. and director of Mobilab Technologies Ltd.
|
Internal auditor of DIC; Internal auditor of Elron Electronic Industry Ltd.
|
Director in the following companies:
G.B. Satellite Holdings Ltd. Barak I.T.C. (1999) - The International Telecommunications Corporation (Satellite Holdings)
Ltd.; Cellcom Fixed Line Communications Inc.
|
Name of officer
|
Atara Litvak-Shacham
|
Teimuraz Romashvili
|
Victor Malka
|
Eli Adadi
|
Itzhak Ravid
|
Ronen Shlez
|
Is he/she a family member of a senior officer in the Company or of a different interested party in
the Company
|
No
|
No
|
No
|
No
|
No
|
No
|
Education
|
BA in Behavioral Sciences, Ben Gurion University of the Negev; certified in business
administration, The Hebrew University.
|
BA in Economics and Management, The Kyiv National Economic University, Ukraine.
|
B.Sc. Mathematics, Technion - Israel Institute of Technology; M.Sc. in Performance Analysis and
Systems Analysis, Technion - Israel Institute of Technology.
|
BA in Business Administration, Ben Gurion University of the Negev; certified in Business
Administration with expertise in marketing, Ben Gurion University of the Negev.
|
BA in Accounting and Economics, Tel Aviv University
|
BA in Accounting and Business Administration, College of Management Academic Studies.
|
Employment in the last five years
|
March 2020-today: VP Excellence & Innovation and Replacement VP Marketing in the Company;
2018 - VP Marketing of Nova Lumos Ltd.; 2015-2017: VP Marketing and Growth Engines at Partner
Communications Ltd.
|
2011-2020: VP Pre-Paid Activity of the Company
|
March 2020-today: Chief Information Officer of the Company;
2019-2020: Active communications consultant; 2012-2019: Director of Information Systems Division at
the Technology Division in Bezeq The Israel Telecommunication Corporation Ltd.; 2012-2017: Director of Management Systems Division at Bezeq The Israel Telecommunication Corporation Ltd.
|
2011-today: CEO of Dynamica Communications Chain Store Ltd.
|
Managing partner at Raveh Ravid & Co., Accountants
|
Company Controller
|
1. |
Avi Gabbay, CEO
|
2. |
Shai Amsalem, CFO
|
1. |
I have reviewed the annual report of Cellcom Israel Ltd. (hereinafter – the "Company") for the year 2020 (hereinafter – the "reports");
|
2. |
Based on my knowledge, the reports do not contain any misrepresentation of a material fact or omit any representation of material fact required so that the representations included therein, in light of the
circumstances under which such representations were made, are not misleading with respect to the reports period;
|
3. |
Based on my knowledge, the financial statements and other financial information included in the reports adequately reflect in all material aspects the financial position, the results of operations and cash flows
of the Company for the dates and periods to which the reports relate;
|
4. |
I have disclosed to the Company's auditor, the Board of Directors and the Company's audit committee, based on my most recent assessment regarding the internal control over financial reporting and disclosure:
|
|
a. |
All material deficiencies and weaknesses in determining or operating the internal control over financial reporting and disclosure, which could reasonably adversely affect the Company's ability to gather, process,
summarize and report financial data so as to cast doubt on the reliability of financial reporting and the preparation of financial statements in accordance with law; and –
|
|
b. |
Any fraud, whether or not material, that involves the CEO or anyone directly subordinated to the CEO or that involves other employees who have a significant role in internal control over financial reporting and
disclosure;
|
5. |
I, by myself or together with others in the Company, state that:
|
|
a. |
I have determined such controls and procedures, or ascertained the determination and fulfillment of controls and procedures under my supervision, intended to ensure that material information relating to the
Company, including its subsidiaries as defined in the Securities Law (Annual Financial Statements) – 2010, is made known to me by others in the Company and the subsidiaries, particularly during the period in which
the reports are being prepared; and –
|
|
b. |
I have determined such controls and procedures, or ascertained the determination and fulfillment of such controls and procedures under my supervision, intended to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with law, including in accordance with generally accepted accounting principles;
|
|
c. |
Assessed the effectiveness of the internal control over financial reporting and disclosure, and presented in this report the conclusion of the Board of Directors and the Management with respect to the
effectiveness of the internal control as aforesaid as of the date of the reports.
|
1. |
I have reviewed the financial statements and other financial information included in the reports of Cellcom Israel Ltd. (hereinafter – the "Company") for the year 2020
(hereinafter – the "reports");
|
2. |
Based on my knowledge, the financial statements and other financial information included in the reports do not contain any misrepresentation of a material fact or omit any representation of material fact required
so that the representations included therein, in light of the circumstances under which such representations were made, are not misleading with respect to the reports period;
|
3. |
Based on my knowledge, the financial statements and other financial information included in the reports, adequately reflect in all material aspects the financial position, the results of operations and cash flows
of the Company for the dates and periods to which the reports relate;
|
4. |
I have disclosed to the Company's auditor, the Board of Directors and the Company's audit committee, based on my most updated assessment regarding the internal control over financial reporting and disclosure:
|
|
a. |
All material deficiencies and weaknesses in determining or operating the internal control over financial reporting and disclosure to the extent it relates to the financial statements and other financial
information included in the reports, which could reasonably adversely affect the Company's ability to gather, process, summarize and report financial data so as to cast doubt on the reliability of financial reporting
and the preparation of financial statements in accordance with the provisions of the law; and –
|
|
b. |
Any fraud, whether or not material, that involves the CEO or anyone directly subordinated to the CEO or that involves other employees who have a significant role in internal control over financial reporting and
disclosure.
|
5. |
I, by myself or together with others in the Company, state that:
|
|
a. |
I have determined such controls and procedures, or ascertained the determination and fulfillment of controls and procedures under my supervision, intended to ensure that material information relating to the
Company, including its subsidiaries as defined in the Securities Law (Annual Financial Statements) – 2010, is made known to me by others in the Company and the subsidiaries, particularly during the period in which
the reports are being prepared; and –
|
|
b. |
I have determined such controls and procedures, or ascertained the determination and fulfillment of such controls and procedures under my supervision, intended to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with law, including in accordance with generally accepted accounting principles;
|
|
c. |
Assessed the effectiveness of the internal control over financial reporting and disclosure, to the extent it relates to the financial statements and other financial information included in the reports as of the
date of the reports; my conclusions with respect to my assessment as aforesaid were brought before the Board of Directors and the Management and are included in this report.
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro |
USD
|
Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
167,547
|
218,835
|
0 |
0
|
0
|
93,314
|
479,696
|
|||||||||||||||||||||
Second year
|
167,547
|
218,835
|
0 |
0
|
0
|
81,491
|
467,873
|
|||||||||||||||||||||
Third year
|
167,547
|
400,572
|
0 |
0
|
0
|
69,668
|
637,787
|
|||||||||||||||||||||
Fourth Year
|
167,547
|
400,572
|
0 |
0
|
0
|
53,302
|
621,421
|
|||||||||||||||||||||
Fifth year and thereafter
|
41,311
|
1,244,064
|
0 |
0
|
0
|
77,305
|
1,362,680
|
|||||||||||||||||||||
Total
|
711,499
|
2,482,878
|
0 |
0
|
0
|
375,080
|
3,569,457
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro | USD | Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
100,000
|
0 |
0
|
0
|
4,955
|
104,955
|
|||||||||||||||||||||
Second year
|
0
|
50,000
|
0 |
0
|
0
|
1,265
|
51,265
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
150,000
|
0 |
0
|
0
|
6,220
|
156,220
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro |
USD
|
Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
37,500
|
0 |
0
|
0
|
695
|
38,195
|
|||||||||||||||||||||
Second year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
37,500
|
0 |
0
|
0
|
695
|
38,195
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro |
USD
|
Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Second year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro | USD | Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
167,547
|
356,335
|
0 |
0
|
0
|
98,264
|
622,846
|
|||||||||||||||||||||
Second year
|
167,547
|
268,835
|
0 |
0
|
0
|
82,756
|
519,138
|
|||||||||||||||||||||
Third year
|
167,547
|
400,572
|
0 |
0
|
0
|
69,668
|
637,787
|
|||||||||||||||||||||
Fourth Year
|
167,547
|
400,572
|
0 |
0
|
0
|
53,302
|
621,421
|
|||||||||||||||||||||
Fifth year and thereafter
|
41,311
|
1,244,064
|
0 |
0
|
0
|
77,305
|
1,362,680
|
|||||||||||||||||||||
Total
|
711,499
|
2,670,378
|
0 |
0
|
0
|
381,995
|
3,763,872
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro |
USD
|
Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Second year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro |
USD
|
Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Second year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro |
USD
|
Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Second year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro |
USD
|
Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Second year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro | USD | Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
157
|
322
|
0 |
0
|
0
|
435
|
914
|
|||||||||||||||||||||
Second year
|
157
|
322
|
0 |
0
|
0
|
420
|
899
|
|||||||||||||||||||||
Third year
|
157
|
2,331
|
0 |
0
|
0
|
405
|
2,893
|
|||||||||||||||||||||
Fourth Year
|
157
|
2,331
|
0 |
0
|
0
|
339
|
2,827
|
|||||||||||||||||||||
Fifth year and thereafter
|
365
|
10,236
|
0 |
0
|
0
|
679
|
11,280
|
|||||||||||||||||||||
Total
|
993
|
15,542
|
0 |
0
|
0
|
2,278
|
18,813
|
|
Principle repayment
|
Gross interest
|
||||||||||||||||||||||||||
|
payments
|
|||||||||||||||||||||||||||
|
(excluding
|
Total
|
||||||||||||||||||||||||||
|
NIS
|
NIS
|
deduction of
|
by
|
||||||||||||||||||||||||
(CPI linked)
|
(Not linked)
|
Euro | USD | Other |
tax)
|
years
|
||||||||||||||||||||||
First year
|
0
|
90,300
|
0 |
0
|
0
|
576
|
90,876
|
|||||||||||||||||||||
Second year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Third year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fourth Year
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Fifth year and thereafter
|
0
|
0
|
0 |
0
|
0
|
0
|
0
|
|||||||||||||||||||||
Total
|
0
|
90,300
|
0 |
0
|
0
|
576
|
90,876
|
CELLCOM ISRAEL LTD. | |||
Date: For March 17, 2021
|
By:
|
/s/ Liat Menahemi Stadler | |
Name: Liat Menahemi Stadler | |||
Title: VP Legal and Corporate Secretary |