[May 09, 2012]

B Communications Reports First Quarter 2012 Financial Results

B Communications Ltd. (NASDAQ Global Market: BCOM) (TASE: BCOM) ("B Communications" or "The Company") today reported its financial results for the quarter ended March 31, 2012.

Bezeq - On-Track Performance: The Bezeq Group reported another stable quarter, delivering revenues of NIS 2.7 billion ($ 738 million) and operating profit of NIS 850 million ($ 229 million) for the period. Bezeq's EBITDA for the first quarter of 2012 totaled NIS 1.2 billion ($ 323 million), representing an EBITDA margin of 44.1%. Net profit attributable to Bezeq shareholders for the period totaled NIS 582 million ($ 157 million).

Dividend from Bezeq: On April 24, 2012, the general meeting of Bezeq's shareholders, approved a dividend distribution of NIS 1,074 million ($ 289 million) to Bezeq's shareholders of record on May 4, 2012. The dividend, which is in line with Bezeq's stated dividend distribution policy, is expected to be paid on May 21, 2012. B Communications expects to receive approximately NIS 334 million ($ 90 million) representing its share of the dividend.

On May 21, 2012, Bezeq is also expected to distribute the third NIS 500 million installment of the NIS 3.0 billion special dividend that was approved by its shareholders on January 24, 2011. Accordingly, B Communications expects to receive an additional NIS 155 million ($ 42 million) on the payment date, representing its share of the special dividend. On March 29, 2012 and on April 4, 2012, objections were filed with the Economic Division of the Tel Aviv District Court, opposing the continued payments of such distribution. Both objections were filed by holders of the Company's Debentures (Series 5), who filed similar objections in the second half of 2011. Bezeq denied the arguments set forth in the objection and asserted that there is no basis for the relief sought. The Court heard the closing arguments on the objections on May 2, 2012.

Cash Position: As of March 31, 2012, B Communications' unconsolidated cash and cash equivalents totaled NIS 393 million ($ 106 million), its unconsolidated total debt was NIS 4.5 billion ($ 1.2 billion), and its net debt totaled NIS 3.6 billion ($ 973 million).

B Communications' First Quarter Consolidated Financial Results

B Communications' revenues for the first quarter were NIS 2,740 million ($ 738 million), a 5.9% decrease compared with NIS 2,913 million ($ 784 million) reported in the first quarter of 2011. For both the current and the prior-year periods, B Communications' revenues consisted entirely of Bezeq's revenues.

B Communications' net income attributable to shareholders for the first quarter totaled NIS 16 million ($ 4 million), compared to a net loss attributable to shareholders of NIS 55 million ($ 15 million) reported in the first quarter of 2011. B Communications' net income reflects the impact of the following two significant expenses:

• Amortization of tangible and identifiable intangible assets resulting from the Bezeq acquisition: According to the rules of business combination accounting, the total purchase price of the Bezeq interest was allocated to Bezeq's tangible and identifiable intangible assets based on their estimated fair values as determined by an analysis performed by an independent valuation firm. B Communications is amortizing certain of the acquired identifiable intangible assets in accordance with the economic benefit expected from such assets using an accelerated method of amortization.
  
  During the first quarter of 2012, we recorded NIS 302 million ($ 81 million) net, in amortization expenses related to the Bezeq purchase price allocation ("Bezeq PPA"). From the date of the acquisition of the Bezeq interest (April 14, 2010) until the end of the first quarter of 2012, we amortized approximately 44% of the total Bezeq PPA. We expect to amortize an additional 13% over the next three quarters of 2012.
  
  The Bezeq PPA amortization expense is a non-cash expense which is subject to adjustment. If, for any reason, the Company finds it necessary or appropriate to make adjustments to amounts already expensed, it may result in significant changes to future financial statements.

• Financial expenses: B Communications' unconsolidated financial expenses for the first quarter totaled NIS 58 million ($ 16 million). These expenses consisted primarily of interest on the long-term loans incurred to finance the Bezeq acquisition, which totaled NIS 53 million ($ 14 million) and expenses related to the Company's debentures, which totaled NIS 12 million ($ 3 million). These expenses were partially offset by income from marketable securities and exchange differences which totaled NIS 7 million ($ 2 million).

Comments of Management

Commenting on the results, Mr. Doron Turgeman, the CEO of B Communications, said, "As we move into 2012, we continue to be very pleased with all aspects of the Bezeq acquisition, which generates a steady return that continues to enhance our overall financial position and capabilities. We remain exceedingly confident regarding Bezeq's positioning in Israel's communications market and continue seeking out appropriate high-potential opportunities further afield."

Bezeq Group's Q1 consolidated Results

Revenues of the Bezeq Group in the first quarter of 2012 amounted to NIS 2.74 billion compared with NIS 2.91 billion in the corresponding quarter of 2011, a decrease of 5.9%. Most of the decrease in the Bezeq Group's revenues is due to the erosion of revenues from cellular services and from the sale of cellular handsets.

Operating profit of the Bezeq Group amounted to NIS 850 million in the first quarter of 2012, compared with NIS 665 million in the corresponding quarter of 2011, an increase of 27.8%. EBITDA in the first quarter of 2012 was NIS 1.21 billion (EBITDA margin of 44.1%), compared with NIS 1 billion (EBITDA margin of 34.3%) in the corresponding quarter of 2011, an increase of 20.8%.

The increase in operating profit and EBITDA is primarily attributable to a provision of NIS 281.5 million for employee retirement expenses recorded in the first quarter of 2011 and the absence of a similar provision in the current quarter.

Net profit attributable to Bezeq shareholders increased by 43.0% and amounted to NIS 582 million in the first quarter of 2012, compared with NIS 407 million in the corresponding quarter of 2011. The increase in net profit is primarily attributable to the provision for employee retirement expenses recorded in the first quarter of 2011, as noted above. In addition, Bezeq recorded a gain of NIS 44 million in the first quarter of 2012 from the sale of assets by Stage One Venture Capital Fund, in which it holds a 71.8% interest.

Cash flow from operating activities of the Bezeq Group in the first quarter of 2012 increased by 28.8% and amounted to NIS 998 million compared with NIS 775 million in the corresponding quarter of 2011.

Gross capital expenditures (CAPEX) amounted to NIS 462 million in the first quarter of 2012 compared with NIS 513 million the corresponding quarter of 2011, a decrease of 9.9%. The decrease is due to lower investments in fixed-line operations as the NGN project progresses. The Bezeq Group's CAPEX to consolidated revenues ratio in the first quarter of 2012 was 16.9%, compared with 17.6% in the corresponding quarter of 2011.

As a result of the improved cash flow from operating activities and the decrease in CAPEX payments, free cash flow increased by 26.6% and amounted to NIS 585 million in the first quarter of 2012, compared with NIS 462 million in the corresponding quarter of 2011.

As of March 31, 2012, the gross financial debt of the Bezeq Group was NIS 9.42 billion, compared with NIS 5.64 billion as of March 31, 2011. The net financial debt of the Bezeq Group was NIS 6.65 billion compared with NIS 4.94 billion as of March 31, 2011. At the end of March 2012, the Bezeq Group's net debt to EBITDA ratio was 1.37, compared with 1.00 at the end of March 2011.

To provide further insight into its results, the Company has provided the following summary of the consolidated financial report of the Bezeq Group's quarter ended March 31, 2012. For a full discussion of Bezeq's results for the quarter, please refer to http://ir.bezeq.co.il.

Notes:

About B Communications Ltd.

B Communications is a telecommunications-oriented holding company and its primary holding is its controlling interest in Bezeq The Israel Telecommunication Corp., Israel's largest telecommunications provider (TASE: BZEQ). B Communications shares are traded on NASDAQ and the TASE under the symbol BCOM For more information, please visit the following Internet sites:

www.eurocom.co.il
www.igld.com
www.bcommunications.co.il
www.ir.bezeq.co.il

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, general business conditions in the industry, changes in the regulatory and legal compliance environments, the failure to manage growth and other risks detailed from time to time in B Communications' filings with the Securities and Exchange Commission. These documents contain and identify other important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statement.

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