Liberty Global plc — FY2017 Form 10-K
Reporting period: Year ended December 31, 2017; the filing also includes fourth-quarter information. Results are for continuing operations unless stated otherwise. Liberty Global operated cable, broadband, video, fixed-line and mobile businesses in 12 European countries. The Netherlands business is now a 50% equity-method investment, and the Latin American and Caribbean LiLAC Group was spun off on December 29, 2017.
Key financial metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $15.049 billion | $17.285 billion |
| Operating income | $1.948 billion | $2.482 billion |
| Adjusted OIBDA | $7.086 billion | $8.164 billion |
| Adjusted OIBDA margin | 47.1% | 47.2% |
| Continuing-operations net income (loss) | $(1.866) billion | $1.995 billion |
| Net cash from continuing operating activities | $5.135 billion | $5.472 billion |
| Adjusted free cash flow | $1.551 billion | $1.979 billion |
| Cash and cash equivalents at year-end | $1.672 billion | $1.077 billion |
| Debt and capital lease obligations | $42.215 billion | $37.511 billion |
FY2017 net loss attributable to Liberty Global shareholders was $2.778 billion, including an $855.1 million loss from discontinued operations. The company reported a $2.29 loss per share from continuing operations attributable to shareholders.
Business and operating performance
- At year-end, the company’s networks passed 45.2 million homes and served 22.0 million cable customer relationships, 45.8 million RGUs and 6.45 million mobile subscribers.
- Revenue fell 12.9% reported, primarily because the Netherlands operations were deconsolidated after the VodafoneZiggo joint venture was formed, and because of the LiLAC spin-off. On an organic basis, revenue grew 2.4%.
- Organic residential cable subscription revenue increased 1.2%; broadband subscription revenue rose 6.3%, while video revenue declined 1.5% and fixed-line telephony declined 2.0%. Residential mobile subscription revenue fell 5.8%. Organic B2B revenue grew, including 28.5% growth in B2B subscription revenue.
- Adjusted OIBDA declined 13.2% reported, but increased 4.3% organically. Segment margins varied: Germany 62.8%, Switzerland/Austria 59.7%, Belgium 45.4%, U.K./Ireland 45.2% and Central and Eastern Europe 43.6%.
Cash flow, debt and liquidity
- Continuing operating cash flow was $5.135 billion, down $337 million year over year. Cash provided by investing activities was $79 million, versus $3.475 billion used in 2016, reflecting affiliate distributions and the VodafoneZiggo transaction equalization payment, among other items.
- Cash capital expenditures were $1.953 billion. Total property and equipment additions, including vendor-financed and leased assets, were $4.765 billion, or 31.7% of revenue. Adjusted free cash flow is a company-defined measure and declined to $1.551 billion.
- Gross debt and capital leases totaled $42.2 billion, including $4.165 billion classified as current. Management reported gross leverage of 5.1x and net leverage of 4.9x on its stated calculation basis. All borrowing groups were in covenant compliance at year-end.
- Management said it had sufficient resources to repay or refinance current maturities and meet foreseeable liquidity needs for the next 12 months, while noting reliance on future refinancing as maturities increase. Year-end working capital was negative.
- Cash was concentrated outside the borrowing groups: $1.558 billion was held by Liberty Global and unrestricted subsidiaries and $115 million by borrowing groups. Debt restrictions, taxes and other considerations may limit access to subsidiary cash.
Material changes, outlook and risks
- The December 2017 LiLAC split-off moved Latin American and Caribbean businesses into a separate public company; those operations are presented as discontinued operations. Liberty Global also agreed to sell UPC Austria for an enterprise value of approximately €1.9 billion, subject to regulatory approval, expected in the second half of 2018.
- Management expects 2018 property and equipment additions of around $5.1 billion, subject to exchange rates and operating conditions. Network extensions are expected to continue in 2018, but may be modified or cancelled based on returns and other factors. DOCSIS 3.1 gigabit technology was planned for launch in 2018.
- Management cited intense competition, particularly in Switzerland and the U.K., and pressure on subscriber counts and average revenue in some markets. Programming costs, construction costs and network infrastructure charges are also rising. The company expects programming costs to remain under pressure.
- Net non-operating expense increased to $3.504 billion, including a $1.412 billion net derivative loss, $343 million of debt-modification and extinguishment losses, and $1.890 billion of interest expense. These volatile items contributed to the continuing-operations loss. The 2016 comparison included a $1.347 billion income tax benefit, including a $1.1 billion Netherlands valuation-allowance release; FY2017 recorded $310 million of tax expense.
- The company was still evaluating the 2017 U.S. tax law’s potential mandatory repatriation tax and said the impact could be material. Other key risks include Brexit-related uncertainty, foreign exchange and interest-rate movements, regulatory access obligations in Belgium, litigation and tax disputes, and the high debt burden.
- Liberty Global repurchased shares for approximately $2.895 billion in 2017; $2.1 billion remained authorized at year-end. It stated it had no present intention to pay cash dividends.
Investor verification priorities
- Reconcile the reported revenue and earnings changes with the Netherlands deconsolidation, LiLAC spin-off and other portfolio changes; assess organic growth by market.
- Review the drivers and cash consequences of the $1.412 billion derivative loss, refinancing costs and tax expense, including the unresolved U.S. tax-law exposure.
- Assess debt maturities, vendor financing, covenant headroom and whether subsidiary cash and committed facilities are accessible when needed.
- Test the expected returns and cost assumptions for the $5.1 billion 2018 property and equipment plan and network extensions.
- Track regulatory clearance and sale terms for UPC Austria, the Multimedia acquisition status, and potential competition and access remedies in Belgium and the Netherlands.
Audit note: KPMG issued an unqualified opinion on the consolidated financial statements and internal controls were reported effective. The internal-control assessment excluded acquired SFR BeLux, which contributed $496.5 million of assets and $36.0 million of revenue in 2017.