Welcome everyone, and thank you for joining us on Bezeq's 2024 Q2 earnings call. I am Toby Fischman, CFO of the Bezeq Group. Joining us from the senior management team today, we have Mr. Tomer Raved, Bezeq's chairman, Mr. Nir David, Bezeq's Fixed Line CEO, and Mr. Ilan Sigal, CEO of Pelephone and yes. Before we start the call, I would like to direct your attention to the safe harbor statement on slide two of our Q2 2024 investor presentation, which also applies to any statements made during today's call. We would like to inform you that this event is being recorded. After presenting our quarterly results, we will have a Q&A session. With that said, let me now turn the call over to Tomer for his opening remarks.
After his introduction, I will continue the presentation of our group's financial highlights, followed by Nir, who will discuss Bezeq Fixed Line results, and Ilan, who will cover the results from Pelephone and yes. I will conclude the presentation with Bezeq International results. Tomer?
Thank you, Toby. Welcome, everyone. Good afternoon, good morning. We'll start on slide three. Interesting times and a lot to say. We continue to see the growth in our strategic drivers, which actually resulted in a 64% year-over-year increase in fiber takeup, 28% in 5G subs plan, and 6% increase in retail broadband ARPU. Both the Q2 and the first half of the year results were affected by the continuation of the conflict in Israel. But despite the complex period, the group has shown stable core revenues and continued progress in our strategy execution, which is what we care about the most in both fiber, 5G, and the transition of TV subs to IP, along with very strong free cash flow year to date.
The group's profitability year-over-year was negatively impacted by the second tranche of the MOC telephony reform, which you are all aware and familiar with, as well as several infrastructure projects that had positively impacted the corresponding quarter Q2 2023 last year. Additionally, there were non-material impacts from the war, given the decrease in cellular roaming revenues and the voluntary non-billing of evacuated communities in both the South and the North. In addition, the quarter saw several developments in the regulatory environment, more specifically in the process for the removal of structural separation by the MOC, a hearing on the shutting down or decommissioning of the copper network and the wholesale market, and the Universal Fund , which we explain in more detail in our earnings results.
The board of directors recommended the distribution of ILS 407 million in accordance with our 70% payout policy, resulting in a 4% increase in total dividends compared to the corresponding quarter. On the following slide, we see the highlights of the quarter. I want to point out that Free Cash Flow declined this quarter, mainly due to timing differences in working capital, but we reported almost 11% growth for the first half of the year, consistent with our expectations. The next slide shows KPIs for the business. Bezeq Fixed Line had 59,000 fiber net adds in Q2, and the retail broadband ARPU is growing nicely, increasing to ILS 129, consistent and on pace to get to the 140 in the midterm.
On the mobile side, we saw continued growth in our 5G subs plan, reaching 1.2 million subs as of today, which correspond to 52% of total postpaid subscribers. On slide six, the slide you're familiar with, we see where we are today in the evolution of all of our businesses, as well as the roadmap for the midterm, which is very important. We are on target to reach the completion of our fiber rollout with a 40% take-up rate, which to reach 80% of mobile sub and 5G plan in the midterms, and complete our satellite migration in the yes and the TV business.
Our execution on our strategy continued to be successful, and we will remain focused on the free cash flow growth in the midterm and reiterate the guidance for the year, which is consistent, and we hope to, and we plan not to significantly deviate from. Now, I would like to turn over the call to Toby to discuss the financial results in more detail.
Thank you, Tomer. Slide seven shows a 0.9% decline in core revenues due to lower revenue from infrastructure projects in Bezeq Fixed Line and lower roaming revenues in Pelephone, impacted by the conflict. Adjusted EBITDA and adjusted net profit were impacted by lower telephony revenues, timing of infrastructure projects, and the impact of the war, lower Pelephone roaming revenues, and the non-billing of customers in the line of conflict, mainly in Bezeq Fixed Line and yes. In the next slide, half-year results show a 0.6% increase in core revenues, with free cash flow growth of almost 11%. Free cash flow in the last 12 months was approximately ILS 1.4 billion. Turning to the next slide, we show our operational metrics.
I would like to highlight a 6% increase year-over-year in our retail broadband ARPU, along with a continued increase in cellular and 5G subscribers, as well as a sequential increase in cellular and TV ARPU. The next slide shows a decrease of ILS 400 million or 7% year-over-year in our net debt to ILS 5 billion. We remain committed to maintaining our high credit rating, which improved in Q2, and provide further support to our dividend policy, which, as of today, reflects a 7% dividend yield. I will now turn the call over to Nir, who will share more detailed results from our fixed line operations.
Thank you, Toby. On the next slide, fixed line core revenues decreased 1.8% due to lower revenues from infrastructure projects, and we are partially offset by higher revenues from broadband services and transmission and data communication. Fiber take-up continued to grow, while broadband retail ARPU rose 5.787% to 129 ILS. This quarter, we launched our electricity supply activities and joint venture with PowerGen. On the following two slides, we show that revenues and profitability metrics in the second quarter and in the first half were impacted by the MOC telephony tariff reduction in July 2023, as well as timing of infrastructure projects. Turning to slide 14, in the Q2 , we saw moderate growth in broadband revenues, mainly due to decrease in wholesale tariffs from use of the passive network.
Moving to the next slide, we show that take-up trend Q2, so 35,000 retail fiber net adds and 24,000 wholesale fiber net adds. Turning to the next slide, we saw continued fiber deployment with an increased focus on take-up. Today, we have over 2.3 million homes, plus and more than 700,000 active subscribers in our fiber network, resulting in continued growth of our take-up rate, which has reached approximately 30% as of today. Slide 17 shows continued revenue growth in the second quarter end of 2024 in transmission and data communication. Telephony revenue decline, as explained, due to the second reduction in MOC tariffs, and our revenues were impacted by the completion of the various infrastructure project in the corresponding quarter, include Bezeq's part in the Blue-Raman submarine cable.
Next slide shows a 5.1% increase in operating expenses due to lower subcontractor expenses related to fiber deployment and infrastructure projects, partially offset by higher advertising expenses. With that, I will now turn the call to Ilan to discuss Pelephone and yes.
Thank you, Nir. Moving to the next slide, Pelephone posted growth in revenues, Adjusted EBITDA and Free Cash Flow, despite the impact of the war on roaming revenues. The results were driven by higher ARPU from cellular plans and an increase in equipment revenues. In addition, 5G subscriber plans continued to grow, with 60,000 net adds in the quarter. Moving to slide 20, we show 5G subscriber plans reached approximately 1.2 million subscribers as of today. Subscribers on 5G plans amounted to 45% of total subscribers and 52% of total postpaid subscribers. Revenues from services were stable year-over-year, despite the impact of the war on roaming revenues. On the next slide, total revenues rose 1.2% and Adjusted EBITDA increased 2.1%.
Free Cash Flow improved significantly due to the payment of frequency fees for all 2023 in the corresponding quarter, when compared to the quarterly payments in 2024. We saw similar trends in the half year results. Slide 23 shows the Q2 key operating metrics. As you can see, we saw a continued increase in postpaid subscribers, including 5G subscriber plans, and a decline in prepaid subscribers due to the impact of the war. ARPU rose 1 ILS from the previous quarter, despite the impact of the war on roaming revenues. This is our second consecutive quarter with an increase in ARPU. Turning to yes, on the next slide, we continued the migration from satellite to IP, with 440,000 IP customers today. We continue to grow in fiber subscribers and have reached 60,000 as of today.
In addition, we recently signed an agreement with Partner for the distribution of STING+ to its customers, customers, which is subject to certain approvals. The Q2 and half year financial highlight slides show decline in revenues and profitability, mainly due to increase in market competition and the non-billing of customers in the line of conflicts due to the war, as well as higher sales of content in the corresponding periods. The decrease was partially offset by higher revenues from the TV and fiber bundle. On slide 27, we show yes Q2 key operational metrics. yes saw continued growth in IP-based TV subscribers, which increased 18.4% in the period as of today. 80% of our, of yes subscribers are watching TV through IP. We also saw continued growth in fiber subscribers, up 163%.
With that, let me now turn the call back to Toby.
Thanks, Ilan. Moving on to Bezeq International. Revenues were impacted by lower consumer and business ISP revenues due to the MOC unified internet regulatory reform, as well as lower international long-distance revenues. The decrease was partially offset by higher ICT revenues from cloud services and data centers. On the next slides, we saw similar trends in the quarterly and half-year results. Let me point out that adjusted net profit in Q2 2024 increased to ILS 19 million from ILS 13 million in Q2 of last year, mainly due to lower depreciation expenses. Free cash flow in the quarter and half year was impacted by employee severance payments, as well as timing differences in working capital.
Turning to the last slide, I want to reiterate that we remain focused on executing our strategy by focusing on our key growth drivers: robust fiber take-up in Bezeq and Yes, and a consistent growth in 5G subscriber plans in Pelephone. We continue to focus on ESG, and were recently awarded a platinum rating for the first time by Maala Rating Agency in Israel. Finally, I would also like to mention that we will be attending the following three conferences in September to further engage with international investors. We will participate in Citi's Global TMT Conference in New York at the beginning of September, September 4, Jefferies Tech Trek in Tel Aviv on September 11, and Goldman Sachs European Communications Conference in London on September 18. We look forward to meeting you there, and with that, I will open the Q&A session.
If you would like to ask a question, please raise your hand virtually. As you hear your name, please be sure to unmute your microphone and ask your question. For the benefit of the people in the room, please introduce yourself and share the name of the company you represent. We will address questions as we see the hands raised. I will now pause to poll for questions. First question? First question, Sabina. Hello.
Hi, good afternoon, Sabina Levy from Leader Capital Markets. I wanted to ask about the results of the fixed segment, especially the infrastructure segment. So, we're still seeing a decrease in the number of subscribers, in the retail subscribers. The quarter looks a little bit better than the previous one, but still the numbers are negative. So I was wondering how should we forecast the, you know, the next quarters, and if this trend should continue, or you're taking measures in order to, you know, to improve the trend?
And also, I saw some decrease in the total connections, in total fiber connection, wholesale and retail together in the quarter, and I was wondering if it represents the trend going forward, or is it something just for this quarter?
So, I'll address that also from a group perspective, and thank you, Sabina, for the question. First, thanks for the smart questions. First, remember that from the fiber rollout perspective, we are targeting de facto a smaller market, meaning if copper subs represent 100% of the households, we elected to deploy slightly less than 90% of the country. So the market share that Bezeq targeting is 90% on fiber versus 100%, okay? We're not allowed to roll out or compete in the 10%, more than 10%, which are areas that are covered by the Universal Fund, as you're familiar with. So put that into perspective.
Secondly, from a group perspective, while retail subs was slightly less on the Bezeq side, although in line with expectations, we also have yes, a very strong growth driver from a retail customers perspective. So together, you actually see a growth in our market share, in retail market share from a group perspective. And from that perspective, it's very important, as we count these customers as part of the group. On the wholesale market, we did see slightly slower pace this quarter, but we still see all the players playing on our infrastructure, including Cellcom and Partner, you know, taking more and more subs on the on wholesale. And we expect to continue, as you see more and more deployment of fiber, which is actually more than or faster than the pace we planned.
You will see the take-up growing in line on both the retail and the wholesale side.
And I would like to complement those comments with two important facts. One is that, you know, the economics of a fiber subscriber are much better than a copper one, and we are actually increasing our fiber market share, and you've seen this over the previous quarters as well. So this is very important. And the other factor is that we are also an infrastructure company, so the blend between retail and wholesale in fiber, as we see the market upgrading itself over to fiber, is an important trend that will benefit Bezeq in the long term.
Thank you.
Thank you, Sabina. Next question from Tavy. Hi, Tavy.
Hi, guys. Thanks for taking my questions. I, I only have one. It's about the regulatory outlook. So in, in your prepared remarks in the press release this morning, you, you mentioned seeing a positive horizon for regulation. And I, I'm always skeptical when we talk about positive outlook for things that are beyond the company's control. So I'm wondering, is it because you have high degree of confidence that the outlook will improve, or it's just based on conversation with the MOC, or based on committees happening right now? Anything that you can share would be great.
So thank you, Tavy. I'll start. So first, I don't think we mentioned positive, although, I think we mentioned meaningful. And there were meaningful announcement by the MOC over the past few months, active regulator with a few significant developments. Some relate to the competition, some relate to the wholesale market, and some to the fixed line market. I highlighted a few of them. One, the discussion around the wholesale market, which we reported, the MOC evaluating, you know, the need to intervene in the active wholesale market, and it's actually significantly reduced the rates on the passive wholesale market. It has obviously negative, marginal, but negative impact on the group. Secondly, the announcement regarding structural separation. The first is the fact that it's under review.
It's positive, doesn't mean we have a timeline or can quantify the chances of that happening. In addition to that, the decommissioning of the Copper Network, currently adhering, is an important development for the market and for the evolution of the communication market. So all these announcements were meaningful. I don't wanna grade them as positive or negative, but they are meaningful to the market, to the competition, and to the group, specifically.
Great. That's all for me. Thank you. Have a good day.
Thank you, Tavy.
Thank you, Tavy. Next question from Liran Lublin. Hi, Liran.
Hi, guys. Thanks for taking my question. My question is on the TV market and specifically on YES. We're seeing some movements in the market after long years of nothing really happening. We see the impact, or it's the first time that you stated there's an impact of the free TV, and then there's your agreement with Partner. And still, the numbers from YES are not very good, to say the least. How do you look at it for the next coming years? How do you see the Israeli TV market?
First of all, thank you, Liran, for the question. The Q2 results was impacted by about. First of all, by the war, because we stopped charging the subscribers in the conflict areas. In the north, in the south, we stopped in October seventh till now. It's a few ILS million every month. This is one. Second, the competition is also reflected in the results, because we see a trend that our customers move from premium packages to STING+ to discount packages. And third, there was a one-time impact from Q2 2023, that we sold content, the Beauty Queen of Jerusalem, and we didn't see this one in this year's quarter.
There is a competition in the market right now, but what YES is doing is doing a lot to move, to transfer customers from the satellite to IP, and we'll see those things that we are doing impacted in the next few quarters till we go down from the satellite in 2026. So, that's the main impacts that we see right now on YES.
I would like to add that, even the ARPU metric, we, you know, has grown sequentially. I think it's important in a challenging market, as Liran has described before, Liran. yes is utilizing, you know, various tools to try to, you know, keep up with both the subscriber base, revenue base, and at the end of the day, you know, undergo this migration from satellite to IP that will enable it, as of 2026, to reduce a significant amount of OpEx, and as well as CapEx going forward. This is very important for yes and for the group.
Thank you very much.
Thank you. If there are no further questions. Okay, so we see you have another question. It's Ondrej from UBS. Hi, Ondrej.
Hi, everyone. Thank you for the presentation and for taking my question. I've got two, please. Maybe just first of all, if you could speak about the non-billed revenues that you highlighted were a bit of a headwind this quarter. Can you just put some numbers on that, where primarily they are? I presume they're maybe across more services, but presumably maybe just on the connectivity side. And you know, what is the outlook going forward? Is this something that you know you see as very temporary, or is this something that could even get worse over the next couple of quarters? That's one question, please. And then the second question would be, if you could elaborate a bit more on the impacts that you're seeing in international.
I think specifically, you mentioned some kind of, you know, retail impact, primarily due to some migrations of sellers. If you could speak a bit about that, please. Thank you.
Okay, Ondrej, I apologize, but I don't think any of us have heard, you know, the last part of your second question. If you could please raise your voice a little bit.
Okay.
I got the first question.
Yeah.
And the second one is about international-
Yeah.
I guess, investments.
No, this is you. You flagged in the report today some negative impacts from international, and I think it was related to you know some customer migrations. So if you could maybe elaborate on that and you know the future of that drag, that would be helpful. Thank you.
Okay. So you mean at Bezeq International, right?
Yes.
Okay. So I'll explain. In terms of the non-billing, both Bezeq Fixed Line and yes, since the beginning of the conflict, as of Q4 of last year, have voluntarily stopped billing customers in the conflict areas. That's specifically in the south, near Gaza and in the north, you know, close to the border. In the first half of this year, these amounts are not significant for the group, obviously, but still are about a couple dozen million ILS, together, both for Bezeq and for yes. Of course, for yes, even the relative size is more significant. It's a couple ILS on the ARPU for them. So that's on the first question.
On the second question, if I got it correct, Bezeq International is seeing a transition, you know, as a result of the regulatory reform of the unified Internet, where we see actually the consumer business coming down. Most of those consumers, which were on the ISP side, are moving over to Bezeq at the fixed line. And the company seeks increasingly focusing on growing the ICT space, and so far it's going, it's going well. We see growth in cloud activity, we see growth in data centers, and also in some of the integration activities that they are promoting. But this is a relatively a longer transition. It's not just, you know, half a year or even not one year. It takes a number of years.
I think we said that in the past, and we should also highlight that the company, along this transition, is being able to streamline their operations and expenses, and I think you've seen that in the quarter and also in the first half of the year.
Thank you. And just to follow up, so the ISP ARPU, like, what's happening in the market? Is there pressure on that, or it's just a case of pure migration, one-to-one from international to fixed? Or is there maybe more competition that is leading to some of the dilution now that the, you know, regulatory changes is allowing for the ISP unification with the infrastructure bit?
So I wanna address this and also give couple of sentences of backdrop on this. The first step in removing structural separation, taking you three years back, structural separation was basically TV, ISP, and infrastructure. And the first major step in removing that, because of the, you know, different milestones that the market and the company achieved, was fully removing the separation between ISP and infrastructure, allowing Bezeq to offer a unified service that exist in the rest of the world. What this results in the past two years, is basically the migration of the customers from Bezeq International to Bezeq Fixed Line. Today, roughly 80% of Bezeq customers are unified customers, meaning they have ISP and infrastructure together. I know, Andre, for you, it's obvious, but for us in Israel, it took a couple of decades to get there.
So these are the trends that you see in the ISP. The results of that, we basically went into a restructuring plan and a retransition of the business to an ICT business services and telco services, which include the subsea cable and telco and data centers and, you know, integration services. With, you know, basically, a newborn ICT that is now, you know, reaching ILS 1 billion short of revenues, mostly without these ISP customers, the legacy revenue. In our core revenue that we report, we exclude this ISP revenue because it's just going away from one side of the house to the other. So don't get confused by the standalone Bezeq International picture.
In terms of the ARPU that you asked about, although we don't disclose ISP ARPU, you know, at Bezeq Fixed Line, you know, it's just internet service, and, you know, we charge what we charge for that. We disclose the ARPU. You've seen that it has increased nicely. So there are two effects here. On one hand, subscribers that leave Bezeq International, of course, stop paying Bezeq International and are paying what they are paying, you know, to Bezeq Fixed Line or maybe to other players. But at the same time, Bezeq International is able to reduce payments to Bezeq in terms of transmission services to provide those services to the ISP consumers, and at the same time, to streamline, you know, their operations, as I said before.
Thank you.
Thank you, Andre. We have a question from Si, from Citi. Hi, Si.
Hello. Hi, good afternoon. Si from Citi. I just have two questions, please. The first one, I just wanna circle back to your comments on the more competition in the TV market. Just wondering if you can just talk us through where do you see the competition coming from? Are they streaming services or your traditional telco operators? And if I can also elaborate on this question, is whether you can talk about the competition in general in Israel, on the fixed and the mobile side. And my second question is, I'm wondering if you can give us some indication of the drag from the MOC changes and also the roaming, and how should we think about the development for the rest of the year? Thank you.
Okay, I'll start, and I'll let the team add. So the setup, you know, different from the rest of the market, we, you know, sell fixed line and fiber on one side of the house, and TV, and also bundled on the other side of the house, right?
So our competition deviates between internet only players and bundle players. The TV market in Israel, most of the players are streaming or skinny bundle ones. There are only two real, MVPD, players, Hot-
Multichannel.
Hmm?
Multichannel TV.
Multichannel TV players, yes and Hot. And you see, a migration to skinny bundles, discount model, but still a lot of the households are buying, you know, multichannel TV, MVPD. And you can see the, this market under very fierce competition, but still, most of the households are not going into cord cutting or, or cord never type trend that you see elsewhere. More than 70% of the households are still, buying a TV, whether it's discount or premium, and we have both. But it is the market that is probably under the most fierce competition between fixed line, cellular, and TV. TV, the most competitive one, with a lot of, rising, discount players. Free TV is one of them, and others are also, skinny bundles one.
On the fixed line market, you know, we play both the retail and wholesale you're familiar with. It's a two infrastructure market, which we have the benefit of being the largest infrastructure, with now more than 2.3 million households. We will finish the co-deployment of most of the country by mid-next year, as previously communicated. But there you see a rational market, with competitive rational market, with stable prices, with very, very high demand for fiber. And I think both Bezeq, Yes, and the rest of the players in the market are benefiting from the demand for fiber, both in the number of subscribers and also in the ARPU and the demand for higher speeds from 300 to 600 to 1 gig.
To actually now, people buying slightly more, 2.5 and 5 gigs, which is what we're probably gonna see more in the next three to five years. We enjoy both worlds, right, the retail and the wholesale market as well.
I'll add mobile? I'd the TV and the mobile. First of all, there's intense competition in the Israeli TV market. Five players, skinny bundle and regular players, the multichannel TV, and also the streaming from abroad, international streamers like Netflix and Disney also in Israel. But as Tomer mentioned, we see that still 70%-80% of our customers are still using our premium packages as a multichannel TV. And what also we are doing with the competition is that we sell bundles, the TV and fiber together, and that holds our customers in Yes and not moving to other companies. Also, the mobile market is very intensive competition.
There's nine players in the mobile market, but Pelephone is doing well. As you saw, we are growing 15,000 in this quarter, and 60,000 postpaid subscribers, and Pelephone has around 25% market share.
I will address the last part of your question, Si, which, if I understood correctly, was about the impact of the MOC telephony tariff reduction and the impact on roaming in terms of the conflict. Is that right?
Yes.
Okay. So in telephony, and we disclose these figures on our reports, on our materials. You know, telephony revenues came down by almost ILS 40 million in the quarter and close to ILS 80 million in the first half of the year. This was fully expected and as planned, due to just, you know, the second and last tranche of those MOC-driven tariff reductions. In and on the roaming side, we do not disclose specifically the amounts of. But I can say that if you look at our core revenues, you know, the figure has still increased in the first half of the year by 0.6%, despite the impact of the conflict on roaming revenues and on the non-billing at Bezeq and yes.
Had it not been for the war, we would have been at a positive core revenue figure, in terms of change in the quarter and, you know, a much higher growth in the first half of the year. And I think that that underlines the importance of remaining focused on our strategy and on the growth engines that we have, defined in this strategy.
Thank you very much.
Thank you, Si. If there are no further questions at this time, I would like to thank you all for taking the time to join us today. Should you have any follow-up questions, please feel free to contact our investor relations department. We look forward to speaking to you on the third quarter earnings call. Thank you.