Liberty Global plc — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars. Liberty Global provides broadband, video, fixed-line and mobile services in Europe. Continuing operations include Switzerland, Belgium, Ireland and Slovakia; the U.K. business is now a 50% equity-method joint venture, and the Poland business is classified as discontinued operations.
Financial performance and position
- Q3 revenue: $1.901 billion, down 33.2% reported year over year, but up 0.8% organically. The reported decline primarily reflects the June 2021 U.K. joint venture transaction; Sunrise added revenue in Switzerland.
- Q3 operating income: $101.0 million, compared with $643.8 million a year earlier. Net earnings attributable to Liberty Global shareholders: $277.1 million, or $0.50 basic and $0.49 diluted per share, versus a $1.023 billion loss and $1.73 loss per share in Q3 2020.
- Q3 Adjusted EBITDA: $758.5 million versus $1.164 billion; organic growth was 1.8%. Adjusted EBITDA is a non-GAAP measure. Belgium’s Q3 margin was 48.9%, Switzerland 39.8%, and Ireland 43.5%.
- Nine-month revenue: $8.391 billion, up 1.9% reported and 1.2% organically. Nine-month Adjusted EBITDA was $3.273 billion versus $3.406 billion, with an organic decline of 0.2%.
- Nine-month earnings: Net earnings attributable to shareholders were $12.791 billion, largely reflecting the U.K. JV transaction gain, rather than recurring operating performance. The transaction generated a $10.791 billion gain for the nine-month period after a Q3 measurement adjustment.
- Cash flow: For the first nine months, continuing-operations operating cash flow was $2.414 billion, down from $2.568 billion. Adjusted free cash flow was $943.8 million versus $473.4 million; this is a non-GAAP measure and includes adjustments for financed expenses and vendor/intermediary repayments.
- Liquidity and debt: September 30 cash and cash equivalents were $766.2 million; corporate-level available liquidity included $495.6 million held by Liberty Global and unrestricted subsidiaries and $2.943 billion in separately managed investments. Total debt and finance lease obligations were $15.084 billion, including $986.5 million current and $14.097 billion long term. Management reported covenant compliance and sufficient resources for the next 12 months.
Material changes and significant events
- On June 1, 2021, Liberty Global contributed its U.K. operations to the 50:50 VMED O2 JV and began accounting for its interest under the equity method. The transaction materially changes year-over-year comparisons and generated the large nonrecurring gain.
- On September 22, Liberty Global agreed to sell UPC Poland for enterprise value of PLN 7.025 billion (approximately $1.764 billion), subject to customary adjustments and regulatory approvals. Closing was expected in the first half of 2022; proceeds were expected to support debt repayment and general corporate purposes.
- Liberty Global formed the 50:50 Atlas Edge JV and recognized a provisional $213.7 million gain in Q3.
- Nine-month capital expenditures were $1.114 billion, up from $919.9 million. The company repurchased $1.027 billion of shares during the period; the 2021 authorization had $378.7 million remaining at quarter-end, and the board committed to minimum repurchases equal to 10% of shares outstanding in each of 2022 and 2023.
Outlook, commentary and risks
- The filing does not provide a specific earnings or revenue guidance range. Management said Q3 COVID-19 effects remained relatively minimal and demand was strong, but warned that prolonged economic disruption could adversely affect future results.
- Management targets subsidiary debt levels generally equivalent to four to five times Adjusted EBITDA. Refinancing needs rise in later years; there is no assurance that refinancing will be available on favorable terms or at all.
- Key exposures include competition, customer and ARPU trends, foreign-exchange and interest-rate movements, programming costs, regulation, and execution and approval risks for transactions. A 50-basis-point increase in variable rates would add an estimated $49.5 million to annual interest expense before derivative effects.
- Belgian regulators require Telenet to provide wholesale network access, which could strengthen competitors and pressure revenue or cash flow. The filing also describes ongoing litigation and contingent matters, including a Proximus claim of €1.4 billion and claims related to the former UPC Austria sale of €106.2 million; no amounts were accrued because losses were not considered probable. Outcomes remain uncertain.
- Management cautioned that gains and losses from derivatives, foreign exchange and fair-value changes are volatile and do not represent reliable recurring income. Potential future goodwill or other asset impairment charges could be significant.
Important facts for investors to verify
- How much of earnings and equity value depends on the provisional valuation and final purchase-accounting adjustments for the VMED O2 JV.
- UPC Poland sale timing, regulatory approval, final proceeds and application of proceeds to debt or other purposes.
- Underlying organic revenue and EBITDA trends by market, particularly Switzerland’s margin following the Sunrise acquisition and Belgian wholesale-access effects.
- Cash availability at the parent versus subsidiary borrowing groups, debt maturities, covenant headroom and the sustainability of buybacks alongside refinancing needs.
- Potential cash or financial effects of tax, litigation and regulatory contingencies, and movements in currencies, interest rates and investment fair values.