Bezeq The Israel Telecommunication Corp. Ltd (BEZQ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Bezeq's Third Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded and broadcasted over the web. At this time, I would like to turn the call over to Mr. Naftali Sternlicht, Investor Relations Manager for Bezeq. Mr. Sternlicht, please go ahead.

Thank you, operator, and welcome, everyone. Thank you for joining us on the call today. With us from Bezeq Group's senior management team, we have: Mr. Gil Sharon, Bezeq's Chairman; Mr. Dudu Mizrahi, Bezeq's CEO; and Mr. Tobi Fischbein, Bezeq's CFO. Before we start, I would like to draw your attention to the safe harbor statement on Slide #2, which also applies to any statement made during today's call. The speaker's comments will generally follow the slide presentation, which is available under the Slides tab on the webcast link and may also be downloaded from Bezeq's IR website. You can go through the presentation by clicking on the arrows on the left- or right-hand side. Let me now turn the call over to our Chairman, Mr. Gil Sharon, for prepared remarks. Tobi will then continue the presentation on group financial highlights, followed by Dudu discussing Bezeq Fixed-Line results. Tobi will pick up with results of our subsidiaries, after which management will present the group's business strategy. Gil, please go ahead.

Thank you, Naftali. Let's start on Slide #3 to address the key highlights reached during the third quarter earnings. Revenues in the quarter totaled ILS 2.1 billion. Adjusted EBITDA rose 2.6% to ILS 938 million with adjusted EBITDA margin of 43.8%. Adjusted net profit grew by 1.7% to almost ILS 300 million. Free cash flow also increased 32% to ILS 377 million. Net debt decreased by ILS 1 billion as we improved our coverage ratios. Also relevant to the quarter was Bezeq Fixed-Line massive fiber deployment, which enabled us to reach already 1 million homes passed, well ahead of our annual target. In terms of the operating metrics, we increased the number of retail broadband Internet subscribers for the sixth consecutive quarter while ARPU rose 7%. Pelephone posted strong financial results with service revenues increasing 5% and EBITDA, 38%. 5G subscribers grew and reached 500,000 as of today. yes recorded a 16% free cash flow increase with stable number of subscribers while IP subscriber base rose to 38%. And finally, as mentioned before, as part of our strategic plan, the merger of Bezeq International into yes has been approved. And we look forward for building a new growth engine. It is also worth noting that Bezeq recently issued a comprehensive corporate responsibility report. And we can already see its highly positive impact on improving Bezeq's ESG scores. We will continue to showcase Bezeq's environmental, social and governance efforts. Now let me turn the call to Tobi to talk about the financial results.

Thank you, Gil. Turning to Slide 4. We continue to push forward our strategy while delivering results. We posted strong group results for the third quarter and first 9 months of the year due to Bezeq's offering of end-to-end telecom products, our ability as a group to generate strong results even in challenging times and our continued investment in infrastructure, products, services and customer service. Revenues in the third quarter amounted to ILS 2.14 billion, a decline of 1.7% year-over-year. Our operating expenses of ILS 742 million declined 6.1%, mainly due to lower equipment expenses and interconnect payments to telecom operators. Salary expenses were also down 1.3% as headcount at subsidiaries declined as part of their efficiency program. On Slide #5, we show an adjusted EBITDA of ILS 938 million, up 2.6% year-over-year with an adjusted EBITDA margin of 43.8%. Our adjusted net profit increased 1.7% year-over-year to ILS 295 million. CapEx in the third quarter totaled ILS 445 million compared to ILS 442 million in 2020. The increase was due to an increase in investments in Bezeq Fixed-Line due to the launch of the fiber deployment project. Free cash flow in the third quarter totaled ILS 377 million compared to ILS 285 million in 2020, an increase of 32.3%. The increase in free cash flow was due to primarily -- was primarily due to changes in working capital. Now Dudu will share with you updates on Bezeq Fixed-Line operations. Dudu?

Yes. Thanks, Tobi. Turning to Slide 11 and 12. We finished another strong quarter with stable overall revenues despite the 13.4% decrease in telephony revenues. Broadband Internet services grew with retail subscribers recording growth for the sixth consecutive quarter. Retail ARPU reached ILS 107 due to fiber deployment and robust sales of equipment. In the business segment, we continue to post significant gains with an 8% increase year-over-year in revenues from transmission and data and 12.7% year-over-year growth in revenues from cloud and digital services. During the quarter, we continued full speed ahead with our fiber optic rollout project. Bezeq fiber network has already reached 1 million home passed, an unprecedented rollout phase in the world, allowing us to reach earlier our 2021 targets. The average broadband speed at Bezeq exceeded the 100-meg threshold for the first time, growing within a year by no less than 46%. The result of operation in the business sector are breaking records, relying on uncompromising level of service and Bezeq's technological power. In the coming year, we will continue to deploy fiber at rapid pace with the emphasis now shifting outside city centers to rural localities, the periphery and private homes. On Slide 13, as we continue to upgrade the Internet speed, key metrics of our broadband services are showing results. Revenue from broadband services of ILS 407 million was stable year-over-year despite the decrease in wholesale services. The number of retail broadband lines grew for the sixth consecutive quarter while weaker ARPU grew both quarter-by-quarter and year-over-year. Our Internet is the only product in Israel telecommunication market with growing ARPU while we are constantly adding new services and products to our customers. With that, I'll now turn the call back to Tobi to talk about Bezeq subsidiaries.

Thank you, Dudu. Turning to Slide 23, we had a strong quarter. Pelephone and yes posted subscriber growth and profitability metrics, which improved, while free cash flow grew in all three subsidiaries. 38% of yes customers are watching TV through IP broadcasting. And we saw subscriber growth at Pelephone with accelerated deployment of the 5G network. On Slide 28, we see the performance across financial metrics. Pelephone revenues were down 0.7%, mainly due to the decline in equipment revenues due to the global chip shortage and COVID-19 effects. Subscriber growth rose for the fifth consecutive year. Adjusted EBITDA rose 39.2% to ILS 167 million. Moving to Slide 31, yes key operational and financial metrics. Revenues for the third quarter grew 1.6% to ILS 318 million. Adjusted EBITDA rose 11.5% to ILS 68 million. ARPU in the third quarter grew by ILS 2 to ILS 188. In summary, the Bezeq Group reported strong financial results for the period, increasing revenues and net profit. We made significant investments in advanced infrastructure to support the group's growth and leadership in the telecommunications industry in Israel. The group's financial strength led to an improvement of the debt profile, allowing for further net debt reduction. We aim to maintain significant liquidity. We have the ability to increase investments that will benefit the group's ability to meet its growth potential. And we are excited about the future ahead and implementation of our medium-term plan. We look forward to continue delivering additional shareholder value. Now let me turn the call back to Gil to go through our business strategy presentation published today.

Hi, everyone. So I'd like to say a few words about the importance of strategy. I think twofold: one is to align and focus the Board, management and employees around a coherent plan with a set of goals and priorities; and two, also to send a clear message and transparent to investors about the company's plans. So let us go together on the presentation. So we'll start on Slide #3. And we call this presentation From Defense to Growth. Because we think that in the last, I would say, 4 years, the group, for several reasons, was mainly in defense because of regulation, because of the issues with the former shareholders, et cetera, so -- and now we want to go forward and put a plan for the strategy around growth by identifying the growth engines. So if we go to Slide #4, the summary of the strategy. So one, fiber as a growth engine. Bezeq is leading the fiber evolution in Israel. It's already the largest footprint in Israel. And within the next few years, most of Israeli homes will have access to fiber. The second pillar is yes. Yes is a triple-play growth engine to accelerate fiber growth. The merger of Bezeq International's consumer division with yes' TV business is expected to enable marketing of TV and Internet bundle while the company is migrating into full IP. So this will be a strong marketing arm for the group. 5G as a revenue growth driver at Pelephone. Pelephone is leading the 5G revolution in Israel. And also in the next few years, most of its subscribers will migrate into 5G, which will lead to ARPU growth and revenue growth and usage growth. Number four, establishing of a leading ICT company. We will do a spinoff from the existing Bezeq International ICT division to an independent company focusing on the growing areas of the ICT market in Israel, which is migration, companies migrating to public cloud, and we'll talk a lot about that in a moment, and cybersecurity services. Number five, business portfolio diversification to create additional growth sources. The group will identify opportunities for entering into new adjacent areas, which are relevant to our core capabilities. I will talk further about that shortly. And six, maintain balanced capital structure and return to dividend distribution. The group strives to return to dividend distribution while maintaining the optimal leverage and credit rating within the AA group. So the essence of the strategy is creation of significant growth engines while continuing streamlining the business. So if we turn to Page #5, we see that we're in a very interesting situation, where we're in transition period in most of our businesses in terms of transition of technology. So in Bezeq, after many years of copper, we're now moving into fiber optics. We see that as an important opportunity to seizing, we're seizing it full force. And this will lead to revenue and ARPU growth. In the cellular market, the move to 5G, again we will put efforts in that. And I will talk about that very soon, but revenues, again revenue growth and also subscriber growth. And in television, we're migrating from satellite to IPTV. This will lead to significant decrease in expenses and CapEx and also help reduce churn. So these significant changes in technologies will also help us increase revenues, ARPUs, et cetera. So turning to Page 6. Let's talk about the group's mid-term ambitions: expansion of fiber subscriber base, reaching 2 million house -- home passed; continued leadership and growth in the business segment with a broad and diverse value proposition; a triple-play offering by yes and full migration to IPTV will support subscriber base growth and reduction in OpEx and CapEx; development -- deployment of 5G network will help increase subscriber growth and ARPU; the spinoff of the ICT company and also some acquisitions to build strength in the area; and ESG as part of our current business. So we're talking about adjusted EBITDA growth, free cash flow growth and maintaining high liquidity and credit rating. Just a second. Okay, let's talk about telecom market's major trends. So turning to Page #8. We see all over the world and also in Israel, the telecom market is going under significant changes in regulation. For the first time in many years in Israel, the regulator is encouraging infrastructure deployment, which is important for us not only talking about price, price, price but also understands the importance of infrastructure and especially broadband infrastructure. There's a new competitive order, I would say, by the big guys entering with hyperscale data centers and services, which is also interesting. Consumer behavior, I would mention the TV streaming as a major trend and also the technology changes that we talked about. So all of these -- next page, all of these lead to the growing demand for advanced communication infrastructure, which is great for us. So if we turn to the next page, #10, we see already the demand for communication and data services is growing. Both on fixed line and in mobile Internet, traffic is growing exponentially. So let's move to Page 11 and talk a little bit about the Israeli economy. So if we turn to Page 12, we see that Israel economy is stronger and growing much more than the European OECD economies. So we see that the increase in household expenditure is almost double than the OECD average and also the population growth rate is almost triple the OECD annual average rate. And also, if we turn to the next slide, #13, we see growth in real GDP, much higher than in developed countries. So Israel is a growing country and very interesting. So let's turn to 14, a few words about Bezeq Group. And I'll share with you our group vision. You can see it on Page 15, Bezeq Group, the largest and leading communication group in Israel, will lead and promote the digital revolution in Israel through advanced infrastructure and services for consumers and businesses while striving for operational excellence and continuous improvement in business results. This is our group vision. If we turn to Page 16, we see the group current structure. Bezeq holds four major subsidiaries. And if we move to the next page, 17, we see that very soon, we intend that Bezeq International will be split, part of it merged into yes, creating a new triple-play company, and a new ICT company, which we'll all talk about it in a moment. Next page, we see the leading group, myself, Dudu, Ran and Tobi. Most of you know us already. So let's turn to Tobi to talk a little bit about some of our financial data.

So I'm on Slide #20. And we show here that over the past few years, we've seen a moderate decline in revenue. But in 2021, in the first 9 months, we actually are seeing a change here with some small increase in revenues for the first time in several years. And on the adjusted EBITDA, we see stable EBITDA over the last few years. Moving to slide -- I'm going to skip 21 because you are well aware of our KPIs. But when you go to Slide 22, we see that our financial standing has strengthened over the last 3, 4 years with a decline of approximately 30% in gross and net debt, which allow us to maintain our high credit ratings. And with this strong financial profile, we feel encouraged to go on and deploy this business strategy that's being shared with you today, including large CapEx deployment projects such as fiber, 5G and the rest of the strategy. Moving to Slide #23. I'm sure that you are well aware of the size, of the relative size of Bezeq in the telecom market in Israel, both in terms of revenues and EBITDA. But not less interesting is to ask consumers what they think about the different players. And when a third party, not us, goes and does a survey about perception and image of between players on the Internet, on the broadband space, Bezeq comes up at the top with a wide margin over the rest of these companies. And also, and I'm on Slide 24, when we look at the different parameters that form the image and the perception of the consumer, we see that Bezeq leads in most of them, such as fairness, innovation, leadership, excellent and quality service. But it doesn't lead in prices because we command premium prices, and this is also well-known. But still, we bring most value for money or more value for money than our peers. And there is one thing where we would aim to improve, which is the overall telecom -- our ability to offer an overall offering, which is obviously constrained by regulation. The structural separation does not allow us to become a one-stop shop for the consumer while others can in this market. We also want to share with you, on Slide 25, an international comparison that we made on a few key financial parameters. You see that Bezeq comes up very well in terms of EBITDA margin right at the top. We are in a good place also in terms of our liquidity coverage ratios and financial standing. And on the return on capital employed, we are also at the high end of the spectrum with 15% over a number of years. So I will turn it back now to Gil to cover the key points of the business strategy. Gil?

Okay. So let's dive deep into our business strategy and go to Slide #27. And we see the four pillars of our strategy: one, accelerated deployment of fiber optics and transition into unified Internet, which regulation now will allow us, and this will be a strong growth engine for Bezeq Fixed-Line and the group; second, Bezeq International's consumer division merged with yes, which will offer triple-play bundles combining with Internet and TV; three, Pelephone 5G to increase ARPU and revenues; and the spin-off of Bezeq International's ICT division to a new company oriented at the ICT growth. So we're focused on development of infrastructure and growth engines. So let's move to Slide 28. When formulating the strategy, we identified four business arenas that we're operating in: the first is the household arena, communication, data and content services for households; the second is business telecom services; then cellular services; and ICT services for businesses. The strategic initiative or direction in the first, for households, is invest to grow; in business telecom, maintain position; in cellular services, maintaining and strengthening the position; and in the ICT services, invest to grow. So the growth engines will be fiber optics, reliable broadband transmission and data services, 5G for cellular and focused acquisitions in the ICT arena. So let's go to the next slide, 29. We'll go into the first business segment, which is the communications and data and content for households. We go to Page 30. Let's go to Page 30. So when we talk here, what are our main points? So first of all, we adopt a customer-centric approach, the household. We want to be -- Bezeq will become the gateway to the household with both fiber optics and through yes. The strong content of yes and the triple-play will be part of our strategy in the homes. If we go to Page 31, we see that until a year ago, the penetration of fiber in Israel was very, very low, about 10%. But if we go to the next page, 32, we see that with Bezeq entering this field, we already have more than 1 million homes passed. And in the next few years, we will reach 2 million and a little above. If we turn to the next page, 33, then we have the strong TV brand, yes, with actually two brands, STING as the discount brand and yes+ as our premium brand. So if we combine Bezeq International, you can see on Page 34, we combine the strength of Bezeq International in the Internet area and yes in the TV, we create a strong force, a strong company that will be focused on delivering growth in households with a TV and Internet bundle. And this will be another force for the group in enhancing fiber take-up rate. If we go to the next arena, the business telecom services on Page 36. So the main points of our strategy is increasing total income from businesses through a wide grade of services, and most importantly, maintaining high-quality service and reliability and technical support. So these are some of the key issues that we focus on as a leader in the business segment. If we go to 37, we see our revenue growth in the business segment on the left side. And we can also see that Bezeq has an 80% market share in terms of revenues in this segment. So let's go to the third arena on Page 38, cellular services, and immediately to 39. So here again, our main point is continued growth in the consumer segment with the right optimal value proposition with again serving with the fastest cellular network in Israel. We'll continue deployment of 5G, which will help increase subscriber base and ARPU. If we go -- if we talk about ARPU, let's go to Page 40. And we see that our cellular ARPU compared to international and especially all European countries, we see that Israel's ARPU is the lowest in comparison to all European countries and actually, our packages are even larger. So if we go to the next page, we see some of the potential for improving ARPU. On Page 41, we see that currently, 20% of our subscriber base at Pelephone are on 5G packages or price plans, and we see in the near future growing to 80%. But as you see below, currently, 5G packages are sold for approximately ILS 8.50 more than the average 4G packages. So you can see here part of the potential for ARPU improvement. And on the next page, 42, as well as recovery of roaming revenues, we see on the graph, this is international travel. And of course, by COVID, it took a great hit. But sooner or later, it will go back on track. And then we -- recovery of the volume of international travel holds a potential of -- for ILS 3 to ILS 4 increase in ARPU due to roaming activity. So if we go to the next arena on Page 43, the ICT services for businesses, and immediately to Page 44, what are the major -- the main strategy points? So the ICT market in Israel is enjoying strong growth. It's fueled by the transition of services and platforms to the cloud, to the public cloud. And Bezeq International new company will enable management focus and resources allocation to achieve growth in this area. And we want to invest in order to build capabilities, also especially in human resources and acquisition of some small companies with a lot of talent, that will help us achieve significant growth. So here, we see an area which we believe there's hidden unlocked value that we can unlock. If we go to the next slide, on 45, we see this market in Israel. The IT market is huge in Israel, ILS 8.4 billion, which is much larger -- $8.4 billion revenues per year, which is much larger than the telecom market in Israel. And we're especially interested in the services portion, which is almost half, which is more than $4 billion per year with over 7% growth. And actually, parts of this are growing even much faster. So if we go to 46, we are already -- our business already is about ILS 600 million in this area. We're operating mostly in the bottom part, as you can see, integration and communication services. These are our traditional strongholds. But we also have already some business in cloud, some business in cybersecurity and data centers. So our strategy is to enhance these new business lines of public cloud, which we'll talk about it in a minute, in cybersecurity and data centers. These are the growing areas of the IT business. And we believe that with our market presence, with our strong customer base, we can definitely achieve that. If we go to the next slide, 47, we see why there's accelerated growth expected in Israel because of the public cloud. The government issued a huge tender called Nimbus Project to set up in Israel hyperscale data centers. And two companies won this, Google and AWS. And they are setting up hyperscale, what they call, regions in Israel, which is not very common for these companies. Also, except for Amazon and Google, also Microsoft and Oracle will also set hyperscales in Israel. So this will accelerate the transition of governmentals, military and also private sector, large companies to the public cloud. And someone has to help them do that, enable them the migration. And this is where we want to come in. So now we talked about the four arenas and our strategy within them. So let's talk about some other important things. Turning to 48, it's also important to improve the fundamentals, which is operational excellence, digital transformation, so we will work on that. Continued synergies between the companies and the subsidiaries and the merger will also help us that. And we will continue to strive for removal of structural separation, which also enable us to realize additional synergies. Talking about that, let's look at 49. We see on the left-hand side in the subsidiaries, we decreased -- over the last few years, we decreased headcount by 1,400 employees and we decreased total salary costs by a net of ILS 174 million per year. But actually, the decrease was even more than that. But also, there are some salaries going up for the remaining employees. So this is the net improvement. And we are planning in the next 3 years, I would say, a further reduction of 500 more employees in these subsidiaries. And above that, another some 200 more that will go down in the call center and service centers while the ISP business is going down at Bezeq International and actually moving into Bezeq Fixed-Line with not that many additional customer service reps. So in addition to all that, I think we should also be looking, on Page 50, on some -- to give some thoughts to diversification of our portfolio. We are operating in a market which is not a very growing market, quite stable and we have high market share. So we identified, in the four arenas, growth engines, but we also need to look outside our business. So the group will seek investment opportunities in areas adjacent to our core capabilities, which are mass market in the Israeli market, marketing, selling and servicing all the Israeli households and businesses. So we will look for investment and acquisition opportunities in these areas to reach some new sources of revenue growth. So let's look a little bit about our, I would say, some vectors of our KPIs, where we're going further. Tobi, please?

Thank you, Gil. We have described here our mid-term ambitions. And when we say mid-term, we mean in the next 3 to 5 years. So I'm on Slide 52, focusing first on the communications, data and content services for households arena. It's the first arena that Gil described beforehand. When we see the retail Internet, we see subscribers growing by 150,000 to 200,000 over this period. Remember that today, we have about 60% market share in Internet infrastructure, retail and wholesale with the ARPU actually growing from ILS 99 to over ILS 130. Now this growth is composed by a combination of existing strengths today in the copper network that we have, also with the customer premises strategy that we have successfully executed on. And now moving into fiber, we will -- we expect to continue to see ARPU expansion. Plus there is a regulatory change ahead of us in April 2022, which will see Bezeq being able to offer a unified Internet offering by which we expect also to capture the value of the ISP side, which is not today in Bezeq Fixed-Line part of the business. So this explains also why we are going to higher than ILS 130, whereas the ILS 99 that you have in 2020 obviously did not include that ISP component. When we look into TV activities, we see subscriber expansion to over 600,000. And we see actually ARPU erosion. But this is a combination actually of the mix of the premium and the basic offerings of yes. yes has a very successful STING basic offering, which is an element through which we will be able also to support subscriber base and also reduce churn. And this is why, among others, we would see actually this kind of a reduction in ARPU. Moving to the next slide to the cellular KPIs. We see Pelephone continuing the growth that it experienced over the past several years on the subscriber base to over 2.7 million with ARPU actually increasing to the ILS 60 to ILS 65 range based on existing trends and what Gil explained before about catalysts on the roaming side on one hand and also the contribution from 5G on the other hand. On the next slide, we present actually our capital management strategy. And the Board of Directors has adopted this approach, which calls for trading value for shareholders while maintaining our rating -- credit rating within the AA group. So first of all, allowing for CapEx investments that provide and ensure long-term growth for the group, allowing for debt and coverage ratio levels that enable us to maintain those high credit ratings. Being able to make those investments or acquisitions as needed and as opportunities arise, and Gil spoke about it a few minutes ago, as well as a return to dividend distribution while maintaining financial strength and the group stability and flexibility. With that, I will summarize the mid-term ambitions, which call for growth in adjusted EBITDA, increasing free cash flow as compared to 2021. We would see a temporary increase in CapEx due to the fiber project and also the deployment of 5G over the next several years. But then we would see CapEx coming back to the multiyear average, and as aforementioned, return to dividend distribution while maintaining high credit rating. Not least, we have brought into the strategy, ESG, because we want to make sure that when we make business decisions, we are conscious of ESG considerations. And we have actually worked on this over the past 2 years, try to map our activities and see what are the opportunities to improve. Our ratings have already improved on ESG over the past 2 years quite significantly, but there is still a lot of work to do. And we plan to continue to be focused on this and actually to increase our focus. With that, let me turn to Gil to summarize.

Okay. So the last slide on Page 58 is actually returning us to the summary that we presented on the first slide. So we see the six pillars that we talked about, the fiber, the triple-play at yes, the 5G, the ICT, business portfolio diversification and balanced capital structure and dividend -- return to dividend distribution. So I think with our well-proven execution capability, we can deliver on this strategic plan and to achieve our financial goals. So thank you very much, and we're open to questions and discussion.

Operator, we can go to the Q&A session.

[Operator Instructions] The first question is from Tavy Rosner of Barclays.

This is Chris Reimer on for Tavy. You've mentioned in the presentation and in your opening comments the intention to resume dividends. Can you give any details on maybe when that would happen?

Actually, what we have mentioned is an approach to our financial policy that will call for the return of dividends. We have not yet decided on a specific dividend policy. But once the Board of Directors will adopt one, of course, we will announce it.

Okay. And regarding fiber subs, competitors are giving numbers as to active subscribers. Just wondering why you haven't done the same. And if not, can you talk about the pace of pickup maybe in the higher speeds you're offering?

This is Dudu. We are not yet publishing the take-up due to the fact that we are only at the beginning of the deployment and staffing offering services. So this is the third quarter basically since we started offering services. And I think that once numbers will be significant, we will publish them. I think we are quite satisfied with the take-up. We are carefully looking on what our competitors are doing. And I think we are quite satisfied with the current take-up and we are still on a growing trend. So I think we will discuss the question whether to publish the numbers on the annual report.

The next question is from Jerry Dellis of Jefferies.

I have two questions, please. You mentioned a CapEx pickup in the near term. Could you quantify what sort of CapEx pickup you might be looking at and for how long, please? And then secondly, just related to the acquisition policy that you're contemplating, I'd be interested to understand your sort of appetite for risk when you're thinking about potential acquisition targets in sort of adjacent areas. You mentioned the sort of leverage parameters and so forth. But I'd be most interested in your appetite for risk and the sort of return on capital thresholds that are likely to accompany that.

Thank you, Jeremy, this is Tobi. I'll take the CapEx question and then let Gil answer the acquisitions one. So if you look at our CapEx group-wide level, you see that we are now going over the 20% CapEx to sales level. And we have increased our guidance on CapEx for 2021 from ILS 1.7 billion to ILS 1.8 billion. And we believe we will remain more or less in this area also at least for the next year. I would expect that in the next year or 2, CapEx will remain at the similar CapEx to sales levels and then will start to come back again below 20%, in line with our past average before we got into the fiber growth.

If we answer your second question, so we can go back to Slide 55, where we talked about our cash flow and capital management. And we see sort of our hierarchy. So when we talk about managing our cash, so the hierarchy is sort of, first, have the right amount of CapEx for growth. And this is related to your first question. Then the second is our debt coverage and to maintain credit rating of AA. The third is the acquisition. So only after we ensure that we have enough cash for CapEx and enough cash for remaining in the AA group, then we look at acquisitions and dividends. And dividend is again returning the dividend is also a very important part of our strategy. So I think we're not looking at huge acquisitions. But we're looking at acquisitions that we can do and see them evolving into high growth and high returns in the future. So the -- I think I explained the appetite for it.

[Operator Instructions] There are no further questions at this time. I would like to remind participants that a replay is scheduled to begin in a period of 3 hours on the company's website at www.bezeq.co.il. Mr. Fischbein, would you like to make your concluding statement?

Yes. Thank you. We appreciate your attendance of our quarterly earnings call. We look forward to meeting you in investor meetings over the next few months and then talk again on the full year 2021 earnings call in March. Thank you all.

Thank you. This concludes Bezeq's Third Quarter 2021 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.