Liberty Global plc — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are U.S. dollars; financial statements are unaudited. Liberty Global provides broadband, video, fixed-line and mobile services in Europe and holds 50% interests in the VodafoneZiggo and VMED O2 joint ventures.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $3,105.5m | $2,722.9m | $6,720.8m | $5,598.7m |
| Operating income | $565.5m | $526.8m | $1,190.8m | $807.4m |
| Adjusted EBITDA (non-GAAP) | $1,252.7m | $1,188.5m | $2,620.0m | $2,338.8m |
| Net earnings (loss) | $11,174.5m | $(503.8)m | $12,614.8m | $513.9m |
| Net earnings (loss) attributable to Liberty Global shareholders | $11,128.2m | $(524.2)m | $12,513.6m | $425.6m |
| Diluted earnings (loss) per share | $19.55 | $(0.86) | $21.69 | $0.68 |
Q2 reported revenue increased 14.1%, but organic revenue growth was 3.2%; six-month reported growth was 20.0%, versus 1.4% organic growth. Reported comparisons reflect the Sunrise acquisition and the U.K. joint venture transaction. Q2 adjusted EBITDA increased 5.4% as reported, but 1.0% organically; six-month adjusted EBITDA increased 12.0% as reported and declined 0.5% organically.
Adjusted EBITDA margin was 40.4% for the U.K. operations through the transaction close, 50.3% in Belgium, 36.2% in Switzerland, 40.3% in Ireland and 45.7% in Central and Eastern Europe. Switzerland’s margin was affected by the lower-margin acquired Sunrise mobile business.
Cash flow, debt and liquidity
- First-half operating cash flow was $1,945.1m, up from $1,591.9m. Capital expenditures, net, were $868.9m, versus $649.6m.
- First-half adjusted free cash flow, a non-GAAP measure, was $717.3m, compared with $138.7m. The company cautions that this measure does not represent cash available for discretionary use.
- Investing activities used $5,433.4m, including $3,424.0m of cash and restricted cash contributed to the VMED O2 JV. Cash and restricted cash fell by $3,836.0m to $881.3m; cash and cash equivalents alone were $874.3m.
- Debt before financing costs was $14,797.3m; debt and finance lease obligations totaled $15,256.7m, including $982.1m current. The weighted average stated debt rate was 3.28%; including specified derivative and financing effects, the reported average was 3.54%.
- Corporate-level available liquidity included $670.4m of cash at Liberty Global and unrestricted subsidiaries plus $3,239.5m of investments held under separately managed accounts. Access to subsidiary cash may be limited by legal, tax and financing restrictions.
- All borrowing groups were in covenant compliance at June 30. Management said it expected sufficient resources to meet foreseeable liquidity needs over the next 12 months, while anticipating that later maturities would require refinancing or extensions.
Material changes and unusual items
- On June 1, Liberty Global contributed its U.K. operations to the 50:50 VMED O2 JV with Telefónica and now accounts for its interest using the equity method. It recorded a pre-tax gain of $11.138bn, net of a $1.2bn cumulative foreign-currency translation loss. The gain was described as non-taxable for the tax reconciliation and overwhelmingly drove reported net income and EPS.
- From June 1 through June 30, VMED O2 JV reported revenue of $1,208.5m, adjusted EBITDA of $411.0m and net loss of $34.6m. These are the JV’s full-period figures, not Liberty Global’s proportionate consolidated revenue.
- Sunrise, acquired in November 2020, materially increased reported Swiss revenue and expenses. The U.K. transaction reduced reported consolidated revenue comparisons because U.K. results are included only through closing in 2021.
- First-half share repurchases totaled $668.6m. In July, the board authorized a new program committing to repurchase a minimum of 10% of equity market capitalization annually for three years; the program may be suspended or discontinued.
- UPC Holding completed refinancing transactions that generally lowered rates and extended maturities, recording a $90.6m debt-extinguishment loss. VM Ireland established a €900m term loan and €100m revolving facility in June.
Outlook, risks and contingencies
The filing gives no quantified consolidated revenue, earnings or cash-flow guidance. Management said COVID-19’s adverse impact remained relatively minimal in Q2 as demand stayed strong, but warned that prolonged economic disruption could materially affect future results. Competition, customer and ARPU trends, programming costs, regulation, foreign exchange, interest rates and access to financing are among the disclosed risks.
Management reported that it received a non-binding Iliad offer for 100% of its Polish operations at 9.3 times estimated 2021 adjusted EBITDA, implying enterprise value of PLN 7.3bn (about $1.9bn). Discussions were ongoing, with no assurance of a transaction. The filing also identifies ongoing legal and regulatory matters, including a Proximus claim of €1.4bn in Belgium and claims by UPC Austria sale counterparties that had risen to €106.2m; no amounts were accrued for these matters because loss was not considered probable. Telenet’s Belgian wholesale network-access regulation and potential tax indemnities are additional matters to monitor.
Important facts for investors to verify
- How much of reported earnings, equity growth and EPS reflects the one-time VMED O2 transaction gain rather than recurring operations.
- Organic revenue and adjusted EBITDA trends, with particular attention to the U.K. transaction’s effect on comparability and Sunrise’s impact on Switzerland.
- Cash available at the parent level versus cash held in borrowing groups, and the use and composition of separately managed account investments.
- Debt maturities, covenant headroom, refinancing needs and the sensitivity of borrowing costs to rates and currency movements.
- Whether the Polish offer progresses, and the outcomes or potential exposure from the disclosed litigation, regulatory matters and tax indemnities.
- The scale, timing and funding of the new three-year share-repurchase commitment relative to investment and liquidity needs.