Liberty Global plc — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. Unless otherwise indicated, amounts are in U.S. dollars. Liberty Global provides broadband, video, fixed-line and mobile services in Europe. Consolidated operations include Switzerland, Belgium and Ireland, alongside a 50% interest in the U.K. VMO2 joint venture and a 50% interest in the Netherlands VodafoneZiggo joint venture.
Financial performance and position
- Revenue: Q2 revenue was $1.848 billion, up 5.3% reported but down 0.2% organically year over year. First-half revenue was $3.716 billion, up 3.0% reported and 0.3% organically. Acquisitions contributed to reported growth.
- Profit and operating performance: Q2 operating loss was $49.2 million and net loss attributable to Liberty Global shareholders was $499.6 million ($1.13 loss per share). For the first half, operating loss was $11.8 million and attributable net loss was $1.221 billion ($2.73 loss per share). Adjusted EBITDA, a non-GAAP measure, was $601.4 million in Q2, down 7.4%, and $1.226 billion for the first half, down 8.1%.
- Margins: Consolidated Adjusted EBITDA was approximately 32.5% of revenue in Q2 versus 37.0% a year earlier, and 33.0% for the first half versus 37.0%. Segment margins varied; Belgium’s first-half margin fell to 42.6% from 47.1%, while Switzerland’s fell to 33.9% from 35.1%.
- Cash flow and capital spending: First-half operating cash flow was $999.6 million, versus $1.363 billion in 2022. Cash capital expenditures were $688.4 million, compared with $634.2 million. Adjusted free cash flow, a non-GAAP measure, was $150.3 million versus $531.4 million. The filing attributes lower operating cash flow partly to reduced JV distributions, higher interest payments and lower Adjusted EBITDA.
- Liquidity: June 30 cash and cash equivalents were $1.565 billion. Cash plus investments held under separately managed accounts (SMAs) totaled $3.859 billion; the filing identifies $438.3 million of cash at Liberty Global and unrestricted subsidiaries and $2.293 billion of SMA investments as corporate-level available liquidity, subject to tax and legal considerations. Cash held in borrowing groups may be restricted from upstreaming.
- Debt: Debt before deferred financing costs, discounts and premiums was $14.801 billion; total debt and finance lease obligations had a $15.110 billion carrying amount. Weighted average borrowing cost including derivatives and certain other effects was 3.21%. The company reported covenant compliance and said it expects resources to cover the next 12 months’ foreseeable liquidity needs, while anticipating future refinancing or maturity extensions.
- Other metrics: The company reported 7.90 million homes passed, 4.12 million fixed-line customers and 5.87 million mobile subscribers at June 30. It repurchased shares for $625.5 million in the first half.
Material changes versus the prior period
- Reported revenue growth exceeded organic growth, reflecting acquisition effects and foreign-exchange movements; organic performance was nearly flat in Q2 and modestly positive for the first half.
- Operating costs increased. First-half programming and direct service costs rose 10.7% reported, while other operating costs rose 15.9% and SG&A rose 5.1%. Management cited inflation-related energy and personnel costs, among other factors.
- Interest expense increased to $414.6 million for the first half from $267.1 million, primarily due to higher weighted average interest rates.
- Net results were materially affected by volatile non-operating items. First-half investment fair-value losses were $416.3 million; foreign-currency transaction losses were $246.5 million. These compared with large gains in both categories in 2022.
- Comparability is also affected by 2022 transactions: the Telenet tower sale generated a $693.3 million gain, and the UPC Poland sale generated an $848.9 million gain. Poland is presented as a discontinued operation.
Outlook, commentary and risks
- The filing provides no specific consolidated revenue or earnings guidance. Management expects significant interest expense to continue and anticipates refinancing or extending debt maturities as they approach.
- Management cited intense competition, inflation in labor, programming, energy and other costs, and uncertainty about passing higher costs through to customers. First-half consolidated residential fixed revenue declined organically, while B2B revenue grew organically.
- Belgian regulation requires Telenet to provide competitors access to its network; the company warns this could pressure revenue, cash flow and competitive position. Other principal risks include foreign-exchange and interest-rate volatility, investment-value changes, programming costs, regulatory developments, cyber risks and the ability to refinance debt.
- Unusual and subsequent events: A second-quarter extension of certain share appreciation rights and director options increased share-based compensation expense by $27.1 million. On July 1, 2023, Telenet and Fluvius formed Wyre, with Telenet initially owning 66.8%; consolidation begins in Q3. Following the initial Telenet takeover-bid acceptance period, Liberty Global expected to pay approximately €728 million for tendered shares on July 26 and expected to own 93.23% of Telenet after transfer. A further acceptance period was scheduled for August–September.
- Contingencies: Significant disclosed matters include a U.S. tax suit seeking approximately $284 million (with a related company refund claim of approximately $110 million), a Swisscom claim of approximately CHF 90 million, and Proximus litigation seeking €1.4 billion. The company has not accrued amounts for these matters, stating that loss was not considered probable; outcomes remain uncertain.
Most important facts for investors to verify
- Whether revenue and Adjusted EBITDA trends improve organically, and whether cost growth continues to outpace revenue.
- Cash conversion and the sustainability of adjusted free cash flow, including vendor-financing additions and repayments, capital spending and JV distributions.
- Debt maturities, refinancing terms, interest-rate exposure, covenant headroom and the availability of subsidiary cash to the parent.
- The final financing, ownership and operating effects of the Telenet takeover and Wyre formation.
- Developments in the disclosed tax, litigation and regulatory matters, and the fair-value sensitivity of investments and derivatives.