Liberty Global plc — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Liberty Global provides broadband, video, fixed-line and mobile services in Europe. Its consolidated operations include Switzerland, Belgium and Ireland; it also holds 50% interests in the U.K.’s VMO2 and the Netherlands’ VodafoneZiggo joint ventures. Poland is reported as a discontinued operation following its 2022 sale.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,854.5m | $1,746.3m | $5,570.9m | $5,353.8m |
| Operating income (loss) | $(27.4)m | $108.9m | $(39.2)m | $192.2m |
| Adjusted EBITDA | $597.7m | $664.0m | $1,823.6m | $1,998.1m |
| Net earnings (loss) attributable to Liberty Global shareholders | $659.2m | $2,348.0m | $(561.8)m | $6,172.9m |
| Net cash from operating activities | Not separately provided | Not separately provided | $1,326.7m | $1,903.5m |
| Adjusted free cash flow | Not separately provided | Not separately provided | $48.0m | $678.9m |
Margins and organic trends: Adjusted EBITDA fell 10.0% in Q3 and 8.7% for the nine-month period. Consolidated segment margins were lower year over year: Switzerland 36.2% versus 37.1% in Q3; Belgium 43.8% versus 47.6%; Ireland 36.6% versus 39.9%. Revenue rose 6.2% in Q3 and 4.1% year to date as reported, but declined organically by 4.1% and 1.2%, respectively. Foreign exchange and acquisitions contributed to reported growth. Q3 residential revenue was organically down 0.3%; B2B revenue was down 0.6%.
Financial position and liquidity
- At September 30, 2023, cash and cash equivalents were $1,741.6m; short-term investments were $1,557.0m. Corporate-level liquidity, including cash at Liberty Global and unrestricted subsidiaries and investments held under separately managed accounts, was approximately $2.4bn. Some subsidiary cash may be restricted or difficult to access.
- Total debt and finance lease obligations were $15,191.6m, including $633.3m current and $14,558.3m long-term on the balance sheet. Debt before financing costs was $15,289.9m, up from $13,370.2m at year-end 2022. The company reported a 3.48% weighted average borrowing rate after specified derivative and other effects; variable-rate debt was $11.3bn at a 6.7% stated weighted average rate before hedges.
- Unused borrowing capacity across the UPC Holding, Telenet and VM Ireland facilities totaled approximately $1.54bn. Management said borrowing groups were covenant-compliant and that it expected sufficient resources for the next 12 months, while noting future maturities may require refinancing.
- Nine-month capital expenditures, net, were $1,016.2m, compared with $929.3m. Cash and restricted cash increased $16.1m over the period.
Material changes and unusual items
- Operating cash flow declined $576.8m year over year, principally reflecting lower JV dividend distributions, weaker Adjusted EBITDA and working-capital effects, and higher interest payments. Adjusted free cash flow decreased to $48.0m from $678.9m.
- Interest expense increased to $241.4m in Q3 from $149.7m and to $656.0m for nine months from $416.8m, largely due to higher weighted average interest rates.
- Q3 earnings included a $377.8m gain from the Telenet Wyre transaction, $664.4m in foreign-currency transaction gains and $177.1m in derivative gains. For nine months, foreign-currency gains were $417.9m and derivative gains $193.8m. These items are volatile; management cautioned that such gains are not a reliable source of income. The nine-month period also included $344.8m of investment fair-value losses and $341.1m of losses from affiliates.
- In July, Telenet and Fluvius formed Wyre, an infrastructure company initially owned 66.8% by Telenet and 33.2% by Fluvius. Liberty Global recognized the $377.8m gain on settlement of a pre-existing network-leasing relationship.
- After the quarter, Liberty Global completed the Telenet takeover squeeze-out; Telenet became wholly owned on October 19, 2023. The takeover was funded using borrowings and existing liquidity.
- Liberty Global repurchased shares for $1,149.2m during the first nine months. By October 30, it had repurchased shares equal to 15% of year-end 2022 shares outstanding and targeted approximately $300m of further repurchases through January 2024.
Outlook, commentary and risks
The filing provides no specific consolidated revenue or earnings guidance. Management identified competition, inflation in labor, programming, energy and other costs, and an uncertain ability to pass cost increases through to customers as pressures on results, cash flow and liquidity. It also expects significant interest expense to continue and anticipates refinancing or extending debt maturities as they approach.
Notable risks and contingencies include Belgian network-access regulation that could strengthen competitors and affect Telenet’s revenue and cash flows; a Swisscom claim against Sunrise seeking approximately CHF 90m, which Liberty Global intends to contest and for which no loss was accrued; and Proximus litigation concerning Telenet’s historical Interkabel arrangement, including a damages claim of €1.4bn. The filing states outcomes are uncertain. The U.S. Department of Justice also sued a subsidiary over approximately $284m of alleged 2018 taxes and penalties; no amount was accrued. Unrecognized tax benefits were $442.7m, with possible reductions of up to $176m over the next 12 months. The company warned that adverse economic, regulatory, competitive or operating developments could lead to significant impairment charges.
Important facts for investors to verify
- Whether organic revenue and Adjusted EBITDA trends improve, particularly given declining reported segment margins and competitive pressure.
- The drivers and sustainability of low nine-month adjusted free cash flow, including JV distributions, interest costs and vendor-financing repayments.
- Debt funding, maturity and refinancing plans following the Telenet takeover, and the extent to which borrowing-group liquidity is accessible to the parent.
- Post-quarter effects of full Telenet ownership, Wyre operations and the planned additional share repurchases.
- Developments in the identified tax, regulatory and litigation matters, as well as investment and derivative fair-value volatility.