B Communication — Investor Presentation 2017

Dec 6, 2017

The Bezeq Era

December 2017

Forward-Looking Statements

This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that are not historical facts and may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Those factors include the factors indicated in our filings with the Securities and Exchange Commission (SEC). For more details, refer to our SEC filings and the amendments thereto, including our Annual Report on Form 20-F and Current Reports on Form 6-K. We undertake no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in our expectations, except as may be required by law.

About BCOM

• B Communications Ltd. ("BCOM") is a holding company with a controlling interest (approximately 26.3%) in Bezeq, The Israel Telecommunication Corp. ("Bezeq"), Israel's largest telecommunications provider (TASE: BEZQ).
• BCOM is a subsidiary of Internet Gold and part of the Eurocom Group in Israel. The Company, which was formerly known as 012 Smile Communications, went public on Nasdaq in November 2007.

At A Glance
Ticker	BCOM
Exchange	NASDAQ & TASE
Headquarters	Ramat Gan, Israel
Stock Price	\$15.45
52 Week Range	\$12.20-\$22.64
Shares Outstanding	29.9 Million
Market Capitalization	\$454 Million
As of November 30, 2017

Investment Considerations

• Owns a controlling stake in an asset with strong, consistent cash flow generation.
• Trades at a discount to Net Asset Value.
• 14% dividend yield from dividend distribution in 2016 of NIS 355 million. BCOM made three dividend payments during 2015 in the total amount of NIS 127 million as part of its commitment to return capital to shareholders.
• Decreased net debt from more than NIS 5 billion in April 2010 (when BCOM acquired the controlling interest in Bezeq) to just NIS 1.9 billion as of September 30, 2017.
• Successful refinance of the Company's 7⅜% Senior Secured Notes with the new Series C Debentures will decrease the Company's annual financial expenses and increase its net profit by approximately NIS 150 million starting in 2017.

Company's Management

Shaul Elovitch

Founder & Chairman Over 40 years experience building leading communications businesses and other major investments businesses

Doron Turgeman

CEO since 2011 & CFO from 2001 till 2011 20 years experience in management 18 years experience in communications

Proven capabilities in:

• Strategy creation & strategic planning
• Marketing & brand development
• Operational & financial management
• Management of mergers & acquisitions
• Capital raising 16 major transactions
  • 2 IPOs IGLD and BCOM
  • 12 bond issues
  • \$800 million Rule 144A offering

Eurocom Group is one of the leading holding companies in Israel, highly experienced in the telecommunications market

• Eurocom was founded in 1979.
• One of the largest holding companies in Israel.
• Owned by Shaul Elovitch, Chairman of the Board of Directors (80% ownership) and Yossef Elovitch, Director (20% ownership).
• Investments in telecommunications, satellite services, renewable energy, media, consumer electronics, real estate and additional fields.

Key Milestones for BCOM

From small entrepreneurial business to large holding company

1999 to 2006	 Founded in 1999 under the name Gold – E Ltd. (subsequently changed to Goldtrade Electronic Trading Ltd.), operating in the field of e-commerce, as a subsidiary of IGLD, and as the operator of the e commerce web site P 1000  In 2004, IGLD increased its holdings in the Company to 100%  Restructure of IGLD into a holding company owning Smile Communications and Smile Media  As part of the restructure Goldtrade changes its name to Smile Communications, transfers its e commerce activities to Smile Media and receives IGLD's communications activities Acquisition and merger with 012 Golden Lines to form 012 Smile Communications   Successful IPO and listing of 012 Smile Communications on NASDAQ and TASE (SMLC)
2007 to 2009	 Continuous organic growth Crystallization of the strategy to become a leader in the Israeli telecom market  Preparation for the next major M&A transaction while examining several opportunities 
2010 to 2017	Sale of legacy 012 Smile Communications assets  Acquisition of the controlling interest in Bezeq – Israel's telecom market leader   On February 19, 2014, BCOM announced the completion of an international offering of US\$ 800 million senior secured notes that was used to fully refinance the bank and institutional debt that it incurred to acquire its controlling interest in Bezeq On February 2, 2016, BCOM announced the sale of 4.18% of Bezeq's shares for NIS 982 million  On September 18, 2016 BCOM completed ssuccessful refinancing of the Company's 7⅜% Senior  Secured Notes with the new Series C Debentures  From April 2010 through September 2017, BCOM decreased its net debt from more than NIS 5 billion to only NIS 1.9 billion

Group Structure

Source: Bezeq's investors presentation – http://ir.bezeq.co.il.

• (1) Net debt and holding percentage figures are as of September 30, 2017.
• (2) Market cap figures are as of November 30, 2017.

Market Value of BCOM's holding in Bezeq Vs. LTV

Market value of BCOM's holding in Bezeq BCOM's LTV

8

Reduction in BCOM's Net Debt From the Bezeq acquisition until September 2017

Our Base Asset

Bezeq is Israel's largest telecom group and the most comprehensive infrastructure and service provider

Note: LTM results, KPIs and Subscriber based market share data are as of 4Q '16

¹Company estimates; Captures private and business sector

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²Breakdown based on gross revenue (pre elimination of inter-company revenues)

³Breakdown based on aggregate EBITDA generated by Bezeq Fixed-Line, Pelephone and Bezeq International (pre elimination of inter-company items)

⁴ Company estimates; Based on total broadband Internet infrastructure access services subscribers in the market

The Israeli economy combines the advantages of developed markets and emerging economies

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calculations

Source: Central Bureau of Statistics data and Bank of Israel calculations Source: Central Bureau of Statistics data and Bank of Israel Source : Credit Suisse; Israel – Bank of Israel

Unemployment rate Inflation rate Nominal GDP Growth, 2016

Bezeq is the historical incumbent and since its privatization in 2005 has been controlled under a Control Permit attached to the 30% stake

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Control permit

• Control in Bezeq is held by holders of a pre-approved permit from the Israeli Prime Minister and the Ministry of Communications ("Control Permit")
• Only a party that holds a Control Permit may exercise its holdings in such a manner as to direct the activities of Bezeq
• BCOM is the only shareholder that has a permit to direct the activities of Bezeq
• BCOM has nominated all of the members of Bezeq's board of directors who were elected by shareholders¹
• BCOM consolidates Bezeq's financial statements based on its de-facto control of Bezeq

Source: Company information

¹ Excluding employee representatives on the Board whose nominations require the prior approval of our ultimate controlling shareholder, Mr. Shaul Elovitch, as chairman of Bezeq's Board of Directors, pursuant to Bezeq's collective bargaining agreement

The Bezeq Group in numbers - 2016

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Bezeq's leading position is supported by its fully owned advanced network infrastructure and technology across all lines of business

Bezeq Fixed-Line Pelephone

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Madrid

Valencia

London PoP

• Leading broadband provider in Israel with over 1.56 million subscribers, approximately 69% market share, offering up to 100 Mbps.
• FTTC, all IP, infrastructure for consumer and business customers, covering 99% of Israeli households.
• Provides customers with high speed data transmission and ultra-fast Internet services over existing copper lines and fiber.

• FTTB rollout is on track to cover 1.3 million households by the end of 2016.

• 2.40 million cellular customers

• Nationwide HSPA network; wide deployment of 4G (LTE) network.
• Strong platform for advanced data services (Cyber service, Big data solutions, IOT starter kit, etc.).
• Host of value added services (cloud, music, TV, ringtones, etc.).

Bezeq International YES

• Leading broadband Internet service provider in Israel approximately 44% Internet market share.
• Israel's largest data center. Amsterdam
• Direct ownership of modern and high-speed submarine cable system deployed between Israel and Europe. Frankfurt PoP Brussels Prague

Bucharest

• Increasing bandwidth at affordable rates. Paris Zurich Budapest Bratislaw Vienna
  • International telephony Milan

• Leading brand for content innovative applications and customer service
• Approximately 40% market share.
• Rich content offering with extensive agreements with first –tier content producers.
• Over 160 channels including 39 Yes branded channels.
• Fully digital with nationwide deployment.

Bezeq Financials (NIS Millions)

EBITDA 4,507 4,254 4,060 4,000 49.8% 42.6% 40.3% 2015 2016 2017F

Net Income

Free Cash Flow

Bezeq's Dividend Policy

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Source: Bezeq

• Dividend yield is based on average market cap during the period
• Based on its ownership interest, BCOM will receive ~ 26.3% of Bezeq's annual dividends.
• Since 2006, Bezeq has paid over NIS 27.2 billion (\$ 7.7 billion) in dividends.

Bezeq – Key Take Aways

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BCOM Financials

BCOM Unconsolidated Financial Results (NIS Millions)

	Q4/2016	Q1/2017	Q2/2017	Q3/2017
G&A expenses	(5)	(2)	(2)	(2)
Tax expenses	(4)	-	-	-
Financing net expenses ,	(19)	(30)	(27)	(19)
Total expenses	(28)	(32)	(29)	(21)
Bezeq's Interest in income net	49	92	94	85
PPA amortization net ,	(17)	(21)	(20)	(25)
income Net	4	39	45	39

BCOM Unconsolidated Balance Sheet (NIS millions)

	December 31 2016 ,	September 30 2017 ,
	Audited	Unaudited
Assets
Cash and cash equivalents	114	71
Short-term investments	321	291
Dividend receivable	-	186
Other receivables	1	-
Total current assets	436	548
Investment in Bezeq	3 342 ,	3 205 ,
Total non-current assets	3 342 ,	3 205 ,
Total assets	3 778 ,	3 753 ,
Liabilities
Short-term debentures	226	226
Other payables	64	31
Total liabilities current	290	257
Debentures	2 318 ,	2 208 ,
Total liabilities non-current	2 318 ,	2 208 ,
Total liabilities	2 608 ,	2 465 ,
Total equity	1 170 ,	288 1 ,
Total liabilities and equity	3 778 ,	3 753 ,

BCOM Unconsolidated Net Debt

	December 31 ,	September 30 ,
	2016	2017
	NIS millions	NIS millions
Financial liabilities
debentures Series B	693	453
debentures Series C	881 1 ,	2 005 ,
liability Tax	34	7
Total	2 608 ,	2 465 ,
Liquidity balances
Cash and short investments term	388	326
Dividend receivable *	-	186
Pledged account	47	36
Total	435	548

* The dividend was paid by Bezeq on October 16, 2017.

Projection of Future Debt Repayments (NIS millions)

• All amounts include future estimated interest payments
• Repayment schedule as of September 30, 2017.

The Bezeq Era

Thank you

Use of Non-IFRS Financial Measures

We and the Bezeq Group's management regularly use supplemental non-IFRS financial measures internally to understand, manage and evaluate its business and make operating decisions. The following non-IFRS measures are provided in the press release and accompanying supplemental information because management believes these measurements provide consistent and comparable measures to help investors understand the Bezeq Group's current and future operating cash flow performance and are useful for investors and financial institutions to analyze and compare companies on the basis of operating performance.

These non-IFRS financial measures may differ materially from the non-IFRS financial measures used by other companies.

Reconciliations between the Bezeq Group's results on an IFRS and non-IFRS basis with respect to these non-IFRS measurements are provided below. lts. The non-IFRS financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with the financial statements prepared in accordance with IFRS.

Reconciliation for Non-IFRS Measures

The following is a reconciliation of the Bezeq Group's net profit to EBITDA:

	Three months period ended	Trailling twelve months ended
millions NIS	September 30 2017 ,
Net income	322	1 215 ,
Income tax	128	562
Share of loss equity-accounted in investee	-	5
Financing net expenses ,	94	433
and Depreciation amortization	436	1 696 ,
EBITDA	980	3 911 ,

The following table shows the calculation of the Bezeq Group's free cash flow:

NIS millions	Three months period ended September 30 2017 ,
Cash flow from operating activities	982
Purchase of , plant and equipment property	(255)
intangible and deferred Investment in assets expenses	(98)
Proceeds from the sale of , plant and equipment property	48

Reconciliation for Non-IFRS Measures

The following table shows the calculation of the Group companies net debt:

NIS Millions	September 30, 2017
	Bezeq	BCOM	IGLD
Short term bank loans and credit and debentures	555	257	185
Non-current bank loans and debentures	10,978	2,208	613
Cash and cash equivalents	(2,471)	(257)	(20)
Investments	(94)	(291)	(177)
Net Debt	8,968	1,917	601
The following table shows the calculation of the BCOM's and IGLD's NAV:
As at September 30, 2017 NIS millions

NIS millions
	BCOM	IGLD
Value of shares held *	3,817	1,231
Net debt	1,917	601
NAV	1,900	630

* Please refer to glossary.

Reconciliation for Non-IFRS Measures

The following table shows the calculation of the Bezeq Group's EV and EV to EBITDA:

	Millions NIS
Bezeq's equity market * cap.	14 491 ,
Bezeq's Net Debt	8 968 ,
Bezeq's Enterprise Value	23 459 ,
TTM EBITDA	3 911 ,
EV/EBITDA	6 0

* Based on Bezeq's stock price as of November 27, 2017.

The following table shows the calculation of BCOM's LTV:

(In millions NIS)	As at September 30 2017 ,
BCOM's Debt Net	1 917 ,
Market value of shares Bezeq	held by 3 Bcom 817 ,
BCOM's LTV	50%

Glossary

Term	Definition
TTM	Trailing twelve months
LTM	Last twelve months
KPI	Key performance indicator
TMT	Telecom, Media & Technology
Liquidity balances	Cash and cash equivalents and short term investments.
Net debt	Long and short term bank loans and debentures minus cash and cash equivalents and short term investments.
Loan To Value – LTV	Unconsolidated net debt to Company's share in Bezeq's market cap.
Dividend yield	Total dividends paid by Bezeq during last 12 months to Bezeq's average market cap. during last 12 months.
EBITDA	Net profit plus income tax expenses, share of loss in equity accounted investee, net financing expenses and depreciation and amortization.
Net debt to EBITDA	Net debt divided by trailing twelve months EBITDA.
Enterprise Value - EV	Market cap of shareholders' equity plus net debt.
B Communications' NAV	Value of BCOM's share in Bezeq's market cap less BCOM's unconsolidated net debt.

Glossary

Term	Definition
Internet Gold's NAV	Value of IIGLD's share in BCOM's NAV less IGLD's unconsolidated net debt.
Net debt / EBITDA	Proportional net debt to EBITDA according to holding percentage in subsidiary.
Market Capitalization	Market cap. Figures in this presentation are as of November 30, 2017.
Free cash flow	Cash from operating activities less cash used for the purchase/sale of property, plant and equipment, and intangible assets, net.
Enterprise Value	Market cap plus net debt.