B Communication

Investor Presentation • Aug 29, 2019

BEZEQ Q2 2019 INVESTOR PRESENTATION

August 29, 2019

Forward-Looking Information and Statement

This presentation contains general data and information as well as forward looking statements about Bezeq The Israel Telecommunications Corp., Ltd ("Bezeq"). Such statements, along with explanations and clarifications presented by Bezeq's representatives, include expressions of management's expectations about new and existing programs, opportunities, technology and market conditions. Although Bezeq believes its expectations are based on reasonable assumptions, these statements are subject to numerous risks and uncertainties. These statements should not be regarded as a representation that anticipated events will occur or that expected objectives will be achieved. In addition, the realization and/or otherwise of the forward looking information will be affected by factors that cannot be assessed in advance, and which are not within the control of Bezeq, including the risk factors that are characteristic of its operations, developments in the general environment, external factors, and the regulation that affects Bezeq's operations.

This presentation includes revenue and other figures that are based on external sources and various surveys and studies. Bezeq is not responsible for the content thereof. The information included in this presentation is based on information included in Bezeq's public filings. However, some of the information may be presented in a different manner and/or breakdown and/or is differently edited. In any event of inconsistency between Bezeq's public filings and the information contained in this presentation - the information included in the public filings shall prevail.

The information contained in this presentation or which will be provided orally during the presentation thereof, does not constitute or form part of any invitation or offer to sell, or any solicitation of any invitation or offer to purchase or subscribe for, any securities of Bezeq or any other entity, nor shall the information or any part of it or the fact of its distribution form the basis of, or be relied on in connection with or relating to any action, contract, commitment or to the securities of Bezeq. The presentation does not constitute a recommendation or opinion or substitute for the discretion of any investor.

Bezeq - Largest Telecom Group in Israel (Q2 2019)

Bezeq Group Strategy

The Bezeq Group is continuing to implement its comprehensive strategic plan that includes significant steps towards streamlining and improving business performance. The program addresses the challenges faced by the Group and the future needs that are emerging in the telecommunications market environment, taking into consideration the complex regulatory limitations imposed on the Company

• Business oriented examination lines, focus, and models of the Group companies
• Focus on streamlining, improving performance and profitability
• Significant decisions on all core issues of the Group for coming years migration from satellite to IPbased broadcasting platform; deployment of 5G; investment in ultra-fast Internet infrastructure

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Maintaining Bezeq as a strong and financially sound company

Working on all of the above while taking a "360 degree view" of all stakeholders and ensuring transparency and corporate governance

Bezeq Fixed-Line

Bezeq Fixed-Line – Focus on Customer Premises

Bezeq Fixed-Line is putting the customer's premises at the center and is working to deepen the customer experience through a variety of services

Strengthening the wireless network at the customer's premises

• BE router Since its launch in April 2018, more than 215 thousand customers have upgraded to the BE router (about 21% of total Bezeq broadband retail lines)
• BE and Bspot services significantly reduce churn rate

Launching of products which improve Internet deployment at home alongside value added services such as antivirus, network support, smart homes, etc

Bezeq Fixed-Line - Leadership in Business Segment

Bezeq leads in business solutions and serves ~180,000 SMEs in Israel

• Bezeq is enhancing its services in the business sector while providing tailor made solutions to suit customer needs

• Selling diversified business oriented telecommunications solutions such as virtual exchanges, smart businesses, business call router, IPC, business camera, WIFI, remote backup, cyber for businesses

• Technological and infrastructure advantage High speed Internet based on fiber optic network

• Simplifying service and sales processes through digitalization of client interfaces

Bezeq Fixed-Line - Marketing of Terminal Equipment

In 2019 Bezeq Fixed-Line entered the terminal equipment market - in the first stage through the sale of smartphones and televisions and in the future, the offering will expand to additional enduser equipment

In Israel there is a significant market for terminal equipment. The smartphone market alone is estimated at more than 3 million handsets sold each year at annual sales of NIS 6-7 billion

Harnessing the power of the Bezeq brand and marketing strength is expected to significantly increase the overall revenue potential of this sector

Bezeq Fixed-Line - Employee Streamlining

Plan

The Company intends to take advantage of the total potential of the retirement plan for hundreds of additional employees under the terms of the current collective agreement (until 2021)

Q2 2019 employee streamlining already helped offset ongoing wage creep in the quarter

Retirement expenses per employee are expected to be lower in the future as a result of the accounting provision recorded in 2018 for all of the Government transferred employees

Bezeq Fixed-Line - Reduction in operational real estate sites and sales of redundant assets

Actions Taken

The sale of the "Sakia" complex resulted in capital gains of NIS 403 million and net cash flow of NIS 174 million in Q2 2019

The Company signed an agreement to transfer Bezeq's headquarters from Tel Aviv to Holon in 2021. The move is expected to result in savings of tens of millions of shekels in operating expenses.

Bezeq has begun to convert some of its properties to Data Centers utilizing the Company's physical layout, communication connections and energy durability in currently owned buildings

Plan

Real estate sites have been reviewed and the Company is examining the sale of property in the amount of hundreds of millions of shekels in the coming years (Megapops, Rishon Letzion property, etc.)

Pelephone – Growth alongside Innovation

Subscriber Growth

• Subscriber growth for over 3 consecutive years
• Wide retail distribution
• Advanced cellular network in Israel
• Leading operator in business sector and cellular provider for Government offices

Innovation

• Connected cars, PTT, IOT, Big Data, Cyber, Cloud, ESIM
• Winner of leading IOT projects in Israel

Frequency Tender Pelephone is preparing for the frequency tender published by the MOC. The frequencies will also be used for 5G

Pelephone - Subscriber Growth

Postpaid Subscribers* (in thousands)

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*After adjusting for the disconnection and write off of CDMA subscribers in Q2-16 (101k) and Q2-17 (13k)

Competition in Cellular Market

• ✓ The Israeli cellular market has 6 MNOs and additional MVNOs
• ✓ Highly competitive market

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• ✓ Competition is mainly focused on pricing
• ✓ The competitive dynamic and lack of recovery expected in the short-term resulted in Pelephone updating its financial forecasts

✓ Leading ISP in Israel

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• ✓ Advanced value added services for Internet customers
• ✓ Operates high quality infrastructure including ownership of submarine cable

• ✓ ICT solutions for business sector
• ✓ Growth engines and diversified solutions: cyber; cloud for businesses; DR, storage and backup
• ✓ Wide distribution of data centers
• ✓ Professional services in the areas of installation; service and project management in cyber security networking and systems

Bezeq International is a significant player in a growing market ¹⁵

Quality viewing experience

In March 2019 yes won 21 awards at the Israeli Academy Awards

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Subscribers (in thousands)

*According to the Globes index of 2018

**Includes a retroactive adjustment of 7,000 subscribers due to a change in the definition of a business subscriber

Transition to IP Broadcasting to Enhance Viewing Experience and Reduce Costs

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yes will gradually migrate from satellite to IP broadcasting in order to significantly upgrade the viewing experience as well as allow for the transfer of operations over the Group's infrastructure

Over the next few years, yes will gradually replace set top boxes until full transition to IP service

The fixed cost for satellite infrastructure will be replaced by the use of the Group's infrastructures

Logistical flexibility and decrease in expenses such as: acquisition of set top boxes, installation and service costs

Shelf STBs to replace tailor made - flexible operating system for the customer

Migration process to begin before the end of ¹⁷ 2019

Key Processes - Synergies and Streamlining

Play Launch

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• ✓ Adapting the offering to customer needs including Internet services, TV and home phone of Bezeq International and yes
• ✓ The triple play, which combines the companies services, will result in operating efficiencies in sales and services

Maximizing Synergies in Subsidiaries – Employees and Labor Relations

yes – Synergies and streamlining agreement for 2019-2021

Enables retirement of 325 employees as well as the non-recruitment of additional employees over the agreement period

Streamlining procedures were implemented in 2019 in accordance with the agreement

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Bezeq International – Collective agreement for 2019-2021

Enables retirement of 325 employees as well as the non-recruitment of additional employees over the agreement period.

Implementation of the agreement is in process

Pelephone

Ongoing negotiations with labor union and implementing processes to reduce the number of employees by closing non profitable activities

Subsidiary companies – Decrease in Salary Expenses (NIS m) 217 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 7%

7% y-o-y decrease in salary expenses in Q2 2019 ²¹

Maximizing Synergies and Streamlining – Additional Processes Implemented

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• ✓ Transition to integrated management team while lowering number of senior managers by 50%; streamlining decision-making processes while saving millions of shekels per year
• ✓ Financial savings due to joint purchasing

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✓ RFP published for unified CRM system for subsidiary companies

Maximizing Synergies in Subsidiaries – Processes in the Pipeline

Plan

Cross-selling - Improve marketing capability for customers who do not currently receive service from the three companies (by operating joint IT systems) One point of contact with the customer improve service and reduce churn

Maximize synergies of the various distribution and service channels of the three companies - ONE STOP SHOP

Streamline salaries and other operating expenses through improved processes and joint purchasing

Q2 2019 Financial Results

Extraordinary Items in Q2 2019 Financial Results

The financial results in the second quarter of 2019 were impacted by three extraordinary items

• ✓ Write-off of the balance of the tax asset in respect of losses from yes of NIS 1.166 billion
• ✓ Impairment loss in Pelephone assets of NIS 951 million

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✓ Capital gains of NIS 403 million for the sale of the "Sakia" complex

Bezeq Group – Revenues ^| (NIS millions)

Bezeq Group – Salaries | (NIS millions)

Bezeq Group – Operating & General Expenses ^| (NIS millions)

Bezeq Group - ADJUSTED EBITDA* ^| (NIS millions)

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*EBITDA adjusted for other operating expenses/income, net and one-time losses from impairment of assets

Bezeq Group - Net Profit/Adjusted Net Profit* ^| (NIS millions)

Bezeq Group - Free Cash Flow | (NIS millions)

Bezeq Group - CAPEX | (NIS millions)

Continued investments will maintain the future leadership and operational efficiency of the Bezeq Group

*Includes payment of NIS 149 million for betterment levy in Q2 2019 and payment of NIS 112 million for permit fees in Q2 2018 in connection with the "Sakia" transaction

Bezeq Group - KPIs

ARPU (NIS per month)

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Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019

Broadband Internet Trends | Retail and Wholesale

Bezeq Group – Net Debt

Debt continuing to decrease over time

Financial Debt

Bezeq's responsible and prudent management of all financial aspects of the Company will solidify its financial strength and provide flexibility with its existing debt

Principles of financial debt management:

• I. Seek to maintain prudent debt coverage ratios and AA credit rating range
• II. Continue to adapt the Company's debt structure to its needs, inter alia, through extension of maturities (in 2019 the average duration of debt increased from 3.5 to 3.9) with the raising of long-term debt and repayment of short-term debt

III. In 2019, the Company raised NIS 1.39 billion and made early repayments of debt of NIS 438 million

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IV. Operate with high cash balances

Bezeq Group - 2019 Updated Guidance

Due to extraordinary items in the second quarter of 2019 (write-off of the tax asset, impairment loss in Pelephone assets and the recording of capital gains from the sale of the "Sakia" complex) as well as the inclusion of estimated costs for early retirement in the Outlook, the Bezeq Group is updating its Outlook for 2019, as originally published in the Company's periodic report as of December 31, 2018 ("Original Outlook") as follows:

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• Net loss : Approximately NIS 1.1 billion (compared to net profit of NIS 900 million NIS 1.0 billion in the Original Outlook)
• EBITDA: Approximately NIS 2.9 billion (compared to NIS 3.9 in the Original Outlook)
• CAPEX*: Approximately NIS 1.7 billion (unchanged)

The Company shall report, as required, deviations of more/less than 10% of the amounts stated in the Outlook.

Bezeq Group - 2019 Updated Guidance (cont'd)

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The Group's updated Outlook includes the write-off of the balance of the tax asset in respect of losses from yes of NIS 1.166 billion, an impairment loss in Pelephone assets of NIS 951 million, capital gains of NIS 403 million from the sale of the "Sakia" complex and provisions of NIS 380 million for the early retirement of employees in Bezeq Fixed-Line, Pelephone, Bezeq International and yes. It is noted that NIS 360 million of the total forecasted provisions for early retirement have not yet been recorded as actual provisions in the financial statements and represents an estimate that may not be realized.

The Company's forecasts in this section are forward-looking information, as defined in the Securities Law. The forecasts are based on the Company's estimates, assumptions and expectations and do not include the effects, if any, of the cancellation of the Group's structural separation and the merger with the subsidiary companies and everything involved therein in 2019. The Group's forecasts are based, inter alia, on its estimates regarding the structure of competition in the telecommunications market and regulation in this sector, the economic situation and accordingly, the Group's ability to implement its plans in 2019. Actual results may differ from these estimates taking note of changes which may occur in the foregoing, in business conditions, and the effects of regulatory decisions, technology changes and developments in the structure of the telecommunications market, and so forth, or the realization of one or more of the risk factors listed in sections 2.20, 3.19, 4.14 and 5.19 of the Periodic Report of 2018, and specifically the risk factor detailed in section 2.20.12 of the Periodic Report of 2018 regarding the impairment of assets in the subsidiary companies.

Thank You

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