Liberty Global plc — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; the filing was dated February 13, 2020. The company provides broadband, video, fixed-line and mobile services in the U.K., Ireland, Belgium, Switzerland, Poland and Slovakia, and holds a 50% interest in the VodafoneZiggo joint venture in the Netherlands. FY 2019 results reflect major disposals, including the sale of operations in Germany, Romania, Hungary and the Czech Republic in July.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $11.54 billion | $11.96 billion |
| Operating income | $745.5 million | $839.1 million |
| Loss from continuing operations | $1.41 billion | $1.41 billion |
| Net earnings attributable to Liberty Global shareholders | $11.52 billion | $725.3 million |
| Net cash from continuing operating activities | $3.71 billion | $3.99 billion |
| Cash capital expenditures | $1.24 billion | $1.45 billion |
| Adjusted free cash flow (non-GAAP) | $631.3 million | $107.8 million |
| Debt and finance lease obligations | $28.18 billion | $29.81 billion |
| Cash and cash equivalents | $8.14 billion | $1.48 billion |
Reported revenue fell 3.5%; management reported an organic decline of 0.7%, excluding foreign-exchange effects and specified acquisition and disposition impacts. Organic broadband subscription revenue grew 3.3%, while fixed-line telephony subscription revenue declined 8.1%. Adjusted OIBDA was $4.86 billion, down 5.7% reported and 3.1% organically; its implied consolidated margin was approximately 42.1%, versus 43.1% in 2018. Segment margins also declined: U.K./Ireland 42.4%, Belgium 47.9%, Switzerland 49.9%, and Central and Eastern Europe 45.2%.
Continuing operations ended the year with 25.0 million fixed-line RGUs and 6.3 million mobile subscribers. The company connected approximately 649,000 additional premises through network extensions during 2019.
Material changes and unusual items
- The $11.52 billion attributable net earnings figure was driven by a $12.32 billion after-tax gain on the Vodafone Disposal Group sale. Continuing operations remained loss-making; the headline net earnings figure should not be treated as recurring operating performance.
- The disposals generated $11.20 billion of net cash proceeds. The company used part of the proceeds to repay $1.645 billion of UPC Holding debt; $295.2 million remained in Vodafone-related escrow accounts at year-end.
- FY 2019 continuing cash from operations declined $270.9 million. Investing cash flow included substantially higher disposal proceeds, while financing cash outflows included $3.22 billion of Liberty Global share repurchases.
- Cash capital expenditures fell, but total property and equipment additions were $2.88 billion, including substantial vendor-financed and leased additions. Additions were 25.0% of revenue, compared with 31.0% in 2018.
- Net derivative losses were $192.0 million, compared with net gains of $1.13 billion in 2018. Debt modification and extinguishment losses were $216.7 million, including redemption premiums and write-offs of financing costs.
- Share-based compensation expense rose to $305.8 million from $206.0 million. Restructuring charges were $89.9 million; the filing also recorded a $54.0 million U.K. VAT litigation provision.
Fourth quarter: Revenue was $2.98 billion, operating income $282.5 million, and loss from continuing operations $1.35 billion. The filing does not provide a clear explanation in the quarterly table for the unusually large fourth-quarter continuing-operations loss; full-year results include volatile tax, derivative, foreign-currency and other non-operating items.
Liquidity, debt and capital allocation
Management reported a 5.4x consolidated debt-to-LTM-Adjusted-OIBDA ratio and a 3.7x net-debt ratio. Approximately $3.9 billion of debt and finance lease obligations was current, while $20.7 billion was not due until 2025 or later. The company said it had sufficient resources to repay or refinance current maturities and meet foreseeable liquidity needs for the next 12 months; it expects to refinance or extend later maturities. All borrowing groups were in covenant compliance at year-end. Cash availability is subject to subsidiary debt, legal and tax restrictions; most cash was held outside the borrowing groups.
The board authorized an additional $1.0 billion share repurchase program in February 2020, following $3.22 billion of repurchases in 2019. The company stated it had no present intention to pay cash dividends. Its stated leverage objective was generally 4–5x consolidated Adjusted OIBDA, though the year-end gross ratio was 5.4x.
Outlook, risks and contingencies
- Management expected network extensions to continue in 2020 and property and equipment additions to decline from 2019 levels. It did not provide specific revenue or earnings guidance in the supplied filing text.
- Management warned that competition, customer losses and pricing pressure had adversely affected revenue, RGUs and ARPU. Programming costs, network investment requirements and the returns on new builds remain important uncertainties.
- Belgian regulators’ wholesale access requirements could pressure Telenet’s pricing and cash flows. New U.K. rules effective February 2020 requiring contract-end and best-price notices could adversely affect revenue and Adjusted OIBDA. U.K. network infrastructure charges were expected to increase by approximately £17 million in 2020 versus 2019.
- The company cited uncertainty about the U.K.-EU relationship following the U.K.’s January 2020 departure from the EU, as well as exposure to foreign exchange, interest rates, refinancing markets, regulation, taxation, cybersecurity and data protection risks.
- Other matters include a U.K. VAT appeal, approximately €91.1 million of asserted claims from the buyers of UPC Austria (not accrued because loss was not considered probable), possible tax indemnities related to disposals, and a Belgian legal challenge to the Telenet/PICs transaction. The filing says outcomes and potential losses may be uncertain.
- The proposed sale of UPC Switzerland was terminated in November 2019 after a dispute; Liberty Global received a $50.4 million termination fee. The company also disclosed potential future impairment risk for goodwill and its VodafoneZiggo investment.
Important facts for investors to verify
- Separate recurring continuing-operations performance from the large disposal gain when assessing FY 2019 earnings.
- Review the composition and accessibility of the $8.14 billion cash balance, including restrictions on subsidiary cash and the Vodafone escrow balance.
- Assess the near-term maturity and refinancing profile, vendor financing, and the sustainability of the 5.4x gross leverage ratio.
- Track organic revenue, subscriber and ARPU trends by segment, particularly fixed-line telephony declines and pressure in Belgium and Switzerland.
- Monitor the Belgian wholesale access decision, U.K. VAT litigation and infrastructure charges, and the UPC Austria claims and disposal-related indemnities.
- Evaluate share repurchases against debt reduction, investment needs and the company’s stated leverage objectives.