Liberty Global plc — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The filing identifies the registrant as Liberty Global plc. Continuing operations provide broadband, video, fixed-line and mobile services in the U.K. and Ireland, Belgium, Switzerland, Poland and Slovakia; Liberty Global also owns 50% of the VodafoneZiggo joint venture. Prior-year comparisons include businesses sold in 2019 as discontinued operations.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $2,722.9 million | $2,850.4 million | $5,598.7 million | $5,718.4 million |
| Operating income | $526.8 million | $148.7 million | $807.4 million | $254.2 million |
| Continuing-operations earnings (loss) | $(503.8) million | $(339.6) million | $513.9 million | $(646.5) million |
| Liberty Global shareholder earnings (loss), continuing operations | $(524.2) million | $(369.1) million | $425.6 million | $(684.7) million |
| Adjusted EBITDA | $1,188.5 million | $1,190.7 million | $2,338.8 million | $2,374.0 million |
| Operating cash flow | Not presented separately in the provided cash-flow summary | $1,591.9 million | $1,628.5 million |
Q2 revenue fell 4.5% reported and 4.0% organically; first-half revenue declined 2.1% reported and 2.2% organically. Q2 Adjusted EBITDA was nearly flat reported, down 0.5% organically. Consolidated Adjusted EBITDA margin was approximately 43.6% in Q2 versus 41.8% a year earlier, benefiting in part from lower costs; this is a non-GAAP measure. For the first half, Adjusted EBITDA declined 1.5% reported and 2.2% organically.
Q2 shareholder loss per share from continuing operations was $0.86; first-half diluted earnings per share from continuing operations were $0.68. Results included substantial non-operating volatility: Q2 recorded $478.0 million of foreign-currency transaction losses, $319.7 million of derivative losses and $165.6 million of debt-extinguishment losses. First-half results included $917.6 million of derivative gains, partly offset by $377.5 million of fair-value losses on certain investments and debt and $220.1 million of debt-extinguishment losses.
For the first half, operating cash flow was $1,591.9 million, capital expenditures net of $649.6 million, and adjusted free cash flow (a non-GAAP measure) $138.7 million, compared with negative $72.5 million in 2019. Investing activities used $3,634.4 million, primarily reflecting investment purchases, including securities held under separately managed accounts. Financing activities used $1,721.3 million. Cash and cash equivalents were $4,360.6 million at June 30, versus $8,142.4 million at year-end 2019.
Reported debt and finance-lease obligations were $12.24 billion, including $1.87 billion current; this balance-sheet presentation excludes U.K. joint-venture entities classified as held for sale. Those entities’ held-for-sale liabilities included $15.43 billion of debt and finance leases. Liberty Global reported $2.99 billion of short-term investments and $4.22 billion of cash at the parent and unrestricted subsidiaries; availability of subsidiary cash is subject to legal, tax and debt restrictions. Remaining debt maturities were concentrated after 2025, and management said over 75% of debt was not due until 2026 or later. The reported weighted-average interest rate, including specified derivative effects but excluding deferred financing costs, was 3.31%.
Material changes and business developments
- Effective May 7, 2020, the U.K. business was classified as held for sale in connection with the proposed 50:50 joint venture with Telefónica. The transaction was pending regulatory clearance at quarter-end. Liberty Global expected to receive about £1.4 billion ($1.7 billion) in total after transaction-related recapitalizations and equalization payments, subject to adjustments and closing conditions. The U.K. business’s operating results were not reclassified as discontinued operations.
- Revenue weakness reflected declines in residential cable, mobile non-subscription and B2B non-subscription revenue. B2B subscription revenue grew organically. COVID-19 effects included lower sports, handset, broadcasting, roaming and interconnect revenue; credits for sports content, reduced costs and lower customer churn largely offset the Q2 EBITDA impact, which management characterized as minimal.
- Operating income increased year over year, while depreciation and amortization declined substantially, partly because depreciation stopped on U.K. assets classified as held for sale. Reported earnings also reflected large, volatile currency and derivative movements and financing costs.
- Liberty Global repurchased shares for $700.2 million in the first half, including direct costs; $370.0 million remained authorized at June 30. It also refinanced debt in several borrowing groups, with associated redemption premiums and write-offs contributing to debt-extinguishment losses.
Outlook, risks and contingencies
The filing provides no specific consolidated revenue, earnings or cash-flow guidance. Management said it believed liquidity was sufficient for foreseeable requirements over the next 12 months and reported borrowing groups in covenant compliance. It cautioned that prolonged COVID-19-related disruption could adversely affect customer payments, operations, financial condition and future results. Competition, foreign-exchange and interest-rate movements, Brexit uncertainty, refinancing access and regulation remain risks.
Other items to monitor include Belgian wholesale-access rules and the final access-tariff reduction effective July 1, 2020; U.K. customer contract-notification requirements; and ongoing tax, litigation and regulatory matters. These include a Belgian Telenet dispute with claimed damages of €1.4 billion, U.K. VAT appeals, and asserted claims relating to the prior UPC Austria sale. Management generally had not accrued amounts where loss was not considered probable. A database accessed without permission contained information relating to approximately 900,000 people; the company said it did not expect a material financial impact. The filing also warns that future goodwill or long-lived-asset impairment charges could be significant.
Important facts for investors to verify
- Completion conditions, timing, final cash proceeds and debt allocation for the proposed U.K. joint venture.
- Underlying operating trends by market, including subscriber levels, churn, ARPU and the sustainability of cost savings and EBITDA margins.
- Accessible corporate liquidity versus cash held in subsidiaries, and the distinction between reported debt and debt classified as held for sale.
- Future refinancing needs, interest-rate and currency exposures, and the effect of debt repayments and vendor financing on free cash flow.
- Developments in the listed regulatory, tax, litigation and data-security matters, including potential financial exposure.