| Note 17 - | Financial Instruments |
| A. | Liquidity risk |
Below are the contractual repayment dates of financial liabilities, including estimated interest payments:
| December 31, 2017 | |||||||||||||||||||||||||
| Carrying | Contractual | 2023 | |||||||||||||||||||||||
| amount | cash flow | 2018 | 2019 | 2020-2022 | and later | ||||||||||||||||||||
| NIS | NIS | NIS | NIS | NIS | NIS | ||||||||||||||||||||
| Non-derivative financial liabilities | |||||||||||||||||||||||||
| Trade and other payables | 1,596 | 1,596 | 1,596 | - | - | - | |||||||||||||||||||
| Bank loans | 5,093 | 5,813 | 855 | 776 | 2,388 | 1,794 | |||||||||||||||||||
| Debentures | 9,202 | 10,448 | 1,381 | 1,367 | 3,675 | 4,025 | |||||||||||||||||||
| Total | 15,891 | 17,857 | 3,832 | 2,143 | 6,063 | 5,819 | |||||||||||||||||||
| Financial liabilities for derivative instruments | |||||||||||||||||||||||||
| Forward contracts on the Israeli CPI | 200 | 200 | 41 | 47 | 112 | - | |||||||||||||||||||
| B. | Linkage and foreign currency risks |
| December 31, 2016 | |||||||||||||
| Foreign | |||||||||||||
| currency linked | |||||||||||||
| Unlinked | Israeli CPI-linked | (mainly US$) | |||||||||||
| NIS | NIS | NIS | |||||||||||
| Current assets | |||||||||||||
| Cash and cash equivalents | 733 | - | 29 | ||||||||||
| Trade receivables | 1,954 | 18 | 28 | ||||||||||
| Other receivables | 20 | 48 | - | ||||||||||
| Investments including derivatives | 719 | 34 | 154 | ||||||||||
| Total current assets | 3,426 | 100 | 211 | ||||||||||
| Non-current assets | |||||||||||||
| Investments including derivatives | 429 | 215 | - | ||||||||||
| Total non-current assets | 429 | 215 | - | ||||||||||
| Total assets | 3,855 | 315 | 211 | ||||||||||
| Current liabilities | |||||||||||||
| Debentures, loans and borrowings | 1,668 | 383 | - | ||||||||||
| Trade and other payables | 1,340 | 56 | 203 | ||||||||||
| Total current liabilities | 3,008 | 439 | 203 | ||||||||||
| Non-current liabilities | |||||||||||||
| Debentures and bank loans | 7,667 | 3,779 | - | ||||||||||
| Other liabilities including derivatives | - | 176 | 9 | ||||||||||
| Total non-current liabilities | 7,667 | 3,955 | 9 | ||||||||||
| Total liabilities | 10,675 | 4,394 | 212 | ||||||||||
| Total exposure in the statement of financial position | (6,820 | ) | (4,079 | ) | (1 | ) | |||||||
| Forward transactions | (2,266 | ) | 1,994 | 272 | |||||||||
| December 31, 2017 | |||||||||||||
| Foreign | |||||||||||||
| currency linked | |||||||||||||
| Unlinked | Israeli CPI-linked | (mainly US$) | |||||||||||
| NIS | NIS | NIS | |||||||||||
| Current assets | |||||||||||||
| Cash and cash equivalents | 2,322 | - | 64 | ||||||||||
| Trade receivables | 1,862 | 36 | 17 | ||||||||||
| Other receivables | 44 | 154 | - | ||||||||||
| Related party | 43 | - | - | ||||||||||
| Investments including derivatives | 445 | 32 | 119 | ||||||||||
| Total current assets | 4,716 | 222 | 200 | ||||||||||
| Non-current assets | |||||||||||||
Trade and other receivables | 372 | 121 | - | ||||||||||
| Investments including derivatives | 51 | - | 67 | ||||||||||
| Total non-current assets | 423 | 121 | 67 | ||||||||||
| Total assets | 5,139 | 343 | 267 | ||||||||||
| Current liabilities | |||||||||||||
| Debentures, loans and borrowings | 1,213 | 645 | - | ||||||||||
| Trade and other payables | 1,344 | 56 | 237 | ||||||||||
| Total current liabilities | 2,557 | 701 | 237 | ||||||||||
| Non-current liabilities | |||||||||||||
| Debentures and bank loans | 9,104 | 3,333 | - | ||||||||||
| Other liabilities including derivatives | - | 159 | 10 | ||||||||||
| Total non-current liabilities | 9,104 | 3,492 | 10 | ||||||||||
| Total liabilities | 11,661 | 4,193 | 247 | ||||||||||
| Total exposure in the statement of financial position | (6,522 | ) | (3,850 | ) | 20 | ||||||||
| Forward transactions | (2,308 | ) | 1,994 | 314 | |||||||||
Information regarding the Israeli CPI and significant exchange rates:
| Year ended December 31 | December 31 | ||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | ||||||||||||||||||||
| Rate of change | Reporting date spot rate | ||||||||||||||||||||||||
| % | % | % | NIS | NIS | NIS | ||||||||||||||||||||
| 1 US dollar | 0.3 | (1.5 | ) | (9.8 | ) | 3.902 | 3.845 | 3.467 | |||||||||||||||||
| 1 euro | (10.1 | ) | (4.8 | ) | 2.7 | 4.247 | 4.044 | 4.153 | |||||||||||||||||
| Israeli CPI in Points | (0.9 | ) | (0.3 | ) | 0.4 | 140.01 | 139.59 | 140.00 | |||||||||||||||||
A change of 1% of the CPI as at December 31, 2016 and 2017 would have immaterial effect on total equity and net income. This analysis assumes that all other variables, in particular interest rates, remain constant. In addition, A change of 10% in the US$ exchange rate as at December 31, 2016 and 2017 would have immaterial effect on total equity and net income.
| C. | Interest rate risk |
| 1. | Profile |
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
| December 31 | |||||||||
| 2016 | 2017 | ||||||||
| NIS | NIS | ||||||||
| Fixed rate instruments | |||||||||
| Financial assets | 2,189 | 1,986 | |||||||
| Financial liabilities | (11,786 | ) | (12,888 | ) | |||||
| (9,597 | ) | (10,902 | ) | ||||||
| Variable rate instruments | |||||||||
| Financial assets | 31 | 30 | |||||||
| Financial liabilities | (1,712 | ) | (1,407 | ) | |||||
| (1,681 | ) | (1,377 | ) | ||||||
| 2. | Fair value sensitivity analysis for fixed rate financial liabilities and derivatives |
The Group does not account for any fixed rate financial liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest swap contracts) as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit or loss.
| 3. | Sensitivity analysis of cash flow for instruments at variable interest |
An increase of 100 basis points in the interest rates at the reporting date would have decreased shareholders’ equity and profit or loss by NIS 10 (2016: NIS 13).
| D. | Cash flow hedge accounting |
Cash flow hedges for CPI-linked liabilities
Bezeq entered into several forward contracts, as described in the table below, in order to reduce its exposure to changes in the CPI for its CPI-linked debentures (Series 6). These transactions hedge specific cash flows of certain of the Bezeq debentures and are recognized as cash flow hedge accounting. The expiry date of these transactions complies with the repayment schedule of the relevant debentures. The fair value of the forward contracts is based on observable market-based data (level 2) in fair value hierarchy.
| Hedge item | Repayment date | Number of Transactions | Nominal Value | Fair value | Capital reserve | ||||||||||||||
| NIS | NIS | NIS | |||||||||||||||||
| December 31, 2016: | |||||||||||||||||||
| Debentures (Series 6) | December 2018 - December 2022 | 9 | 1,994 | (176 | ) | 54 | |||||||||||||
| 1,994 | (176 | ) | 54 | ||||||||||||||||
| December 31, 2017: | |||||||||||||||||||
| Debentures (Series 6) | December 2018 - December 2022 | 9 | 1,994 | (200 | ) | 48 | |||||||||||||
| 1,994 | (200 | ) | 48 | ||||||||||||||||
DBS has forward transaction to reduce exposure to changes in the US$ exchange rate. As at December 31, 2017, the net fair value of these transactions is a liability of NIS 12 (as at December 31, 2016, an asset of NIS 6).
| E. | Fair value |
| (1) | Financial instruments measured at fair value for disclosure purposes only |
The table below shows the difference between the carrying amount and the fair value of groups of financial instruments. The carrying amount of other financial assets and liabilities does not differ significantly from their fair value. The fair value of debentures issued to the public is based on their quoted closing price at the reporting date (Level 1). The fair value of loans and non-marketable debentures is based on the present value of future principal and interest cash flows, discounted at the market rate of interest suitable for similar liabilities plus the required adjustments for risk premium and non-marketability at the reporting date
(Level 2).
| December 31, 2016 | December 31, 2017 | ||||||||||||||||||||
| Fair value | |||||||||||||||||||||
| weighted | |||||||||||||||||||||
| average | |||||||||||||||||||||
| Carrying | Fair | Carrying | Fair | discount | |||||||||||||||||
| amount | value | amount | value | rate | |||||||||||||||||
| NIS | NIS | NIS | NIS | % | |||||||||||||||||
| Secured loans from banks and others | |||||||||||||||||||||
| Unlinked | 2,947 | 3,089 | 4,436 | 4,693 | 2.63 | ||||||||||||||||
| Debentures | |||||||||||||||||||||
| Issued to the public (CPI linked) | 3,473 | 3,656 | 4,088 | 4,338 | 0.52 | ||||||||||||||||
| Issued to the public (Unlinked) | 4,166 | 4,246 | 4,097 | 4,322 | 2.35 | ||||||||||||||||
| Issued to institutional investors (CPI linked) | 830 | 879 | 15 | 17 | 0.73 | ||||||||||||||||
| Issued to institutional investors (unlinked) | 403 | 440 | 302 | 326 | 1.62 | ||||||||||||||||
| 11,819 | 12,310 | 12,938 | 13,696 | ||||||||||||||||||
| (2) | Financial instruments measured at fair value |
The table below analyses financial instruments carried at fair value, by valuation method.
| December 31, 2016 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
| NIS | NIS | NIS | NIS | ||||||||||||||
| Financial assets held for trading | |||||||||||||||||
| Monetary funds and ETFs | 31 | - | - | 31 | |||||||||||||
| Marketable securities | 321 | - | - | 321 | |||||||||||||
| Derivatives not used in hedging | |||||||||||||||||
| Forward contracts on CPI | - | (170 | ) | - | (170 | ) | |||||||||||
| Contingent consideration for a | |||||||||||||||||
| business combination | - | - | (84 | ) | (84 | ) | |||||||||||
| 352 | (170 | ) | (84 | ) | 98 | ||||||||||||
| December 31, 2017 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
| NIS | NIS | NIS | NIS | ||||||||||||||
| Financial assets held for trading | |||||||||||||||||
| Monetary funds and ETFs | 14 | - | - | 14 | |||||||||||||
| Marketable securities | 307 | - | - | 307 | |||||||||||||
| Derivatives not used in hedging | |||||||||||||||||
| Forward contracts | - | (212 | ) | - | (212 | ) | |||||||||||
| Contingent consideration for a | |||||||||||||||||
| business combination | - | - | 43 | 43 | |||||||||||||
| 321 | (212 | ) | 43 | 152 | |||||||||||||
| a. | The fair value of investments in financial funds and ETFs is determined by reference to their average quoted selling price at the reporting date (Level 1). |
| b. | The fair value of forward contracts on the CPI or foreign currency is based on discounting the difference between the price in the forward contact and the price of the present forward contact for the balance of the contract term until redemption, at an appropriate interest rate (Level 2). The estimate is made under the assumption that a market participant takes into account the credit risks of the parties when pricing such contracts. | |
| c. | Information about fair value measurement of contingent consideration in a business combination (Level 3) |
Below is the fair value of the contingent consideration liability for a business combination, as described in Note 12B:
| December 31, 2016 | December 31, 2017 | ||||||||||||||||
| Maximum | Maximum | ||||||||||||||||
| additional | additional | ||||||||||||||||
| consideration | consideration | ||||||||||||||||
| under the | under the | ||||||||||||||||
| agreement | Fair value | agreement | Fair value | ||||||||||||||
| NIS | NIS | NIS | NIS | ||||||||||||||
| Additional consideration for the business results of DBS (second additional consideration) | 170 | 84 | 170 | 43 | |||||||||||||
| F. | Offset of financial assets and liabilities |
The Group has agreements with various communication companies to supply and receive communication services. The table below presents the carrying amount of the balances as stated in the statement of financial position:
| December 31, | |||||||||
| 2016 | 2017 | ||||||||
| NIS | NIS | ||||||||
| Trade and other receivables, gross | 119 | 115 | |||||||
| Offset amounts | (97 | ) | (99 | ) | |||||
| Trade and other receivables presented in the statement of financial position | 22 | 16 | |||||||
| Trade payables, gross | 147 | 143 | |||||||
| Offset amounts | (97 | ) | (99 | ) | |||||
| Trade and other payables presented in the statement of financial position | |||||||||