Liberty Global plc — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Liberty Global provides broadband, video, fixed-line and mobile services in Europe. Continuing operations include consolidated businesses in Switzerland, Belgium and Ireland, and 50%-owned joint ventures in the U.K. (VMO2) and the Netherlands (VodafoneZiggo). Poland is reported as discontinued operations following its sale in April 2022.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $1,868.4 million | $1,853.3 million; up 0.8% reported and organically |
| Operating income | $37.4 million | $58.8 million |
| Adjusted EBITDA | $624.5 million | $684.3 million; down 8.7% reported and 6.1% organically |
| Net loss attributable to Liberty Global shareholders | $721.4 million; loss per share $1.59 | Net earnings of $1,038.3 million; earnings per share $2.00 |
| Operating cash flow | $307.8 million | $605.6 million |
| Adjusted free cash flow | $(178.4) million | $104.4 million |
| Cash and cash equivalents | $1,446.2 million | $1,726.2 million at December 31, 2022 |
| Debt and finance lease obligations | $15.05 billion carrying amount; $758.5 million current | $13.76 billion at December 31, 2022 |
Consolidated Adjusted EBITDA margin was approximately 33.4% of revenue, versus 36.9% in Q1 2022. Segment margins also declined: Switzerland 32.6% (35.4%), Belgium 40.1% (46.7%) and Ireland 33.7% (37.0%). The company presents 100% of joint venture revenue and Adjusted EBITDA in segment tables despite owning 50%; its share of their results is recorded in share of results of affiliates.
Q1 2023 non-operating expense included $200.9 million of interest expense, $302.9 million of foreign-currency transaction losses and $238.6 million of losses from affiliates. These items, which include volatile and potentially non-cash effects, contrasted with large derivative and foreign-currency gains and affiliate earnings in Q1 2022. The company cautions that such gains are not a reliable source of income. Cash interest paid was $284.1 million.
Material changes and cash, debt and liquidity
- Revenue was broadly flat overall. Organic growth in Belgium and Central and Other offset declines in Switzerland and residential revenue overall. B2B revenue grew organically 3.1%; residential revenue declined organically 1.6%.
- Adjusted EBITDA fell as cost growth outpaced revenue: organic programming and direct costs increased 3.5%, other operating expenses 7.8%, and SG&A 3.9%. Management cited energy, network/IT, personnel, consulting and marketing costs.
- Operating cash flow decreased $297.8 million year over year. The filing attributes the decline to lower cash contribution from Adjusted EBITDA and working capital, lower VodafoneZiggo distributions, higher interest payments and foreign exchange effects, partly offset by derivative cash receipts and higher interest receipts.
- Investing cash outflow was $1.42 billion, substantially affected by investment purchases, including the Vodafone investment, as well as $377.2 million of cash capital expenditures and $93.8 million of acquisition payments. Financing provided $813.8 million, including $1.22 billion of debt borrowings.
- Adjusted free cash flow was negative after cash capital expenditures and repayments of vendor financing and finance leases. The company defines this non-GAAP measure as supplementary, not a substitute for GAAP liquidity measures.
- At March 31, cash plus investments held under separately managed accounts totaled $3.86 billion. Corporate-level available liquidity included $339.5 million of cash at Liberty Global and unrestricted subsidiaries and $2.41 billion of SMA investments; $1.11 billion of cash was held within borrowing groups and may be subject to access restrictions.
- Total debt before deferred financing costs, discounts and premiums was $14.76 billion. The company reported $1.49 billion of unused borrowing capacity across subsidiary facilities and stated that each borrowing group was covenant-compliant. It targets subsidiary debt generally at four to five times consolidated Adjusted EBITDA and expects to refinance or extend maturities as needed.
Outlook, management commentary and risks
The filing provides no specific consolidated revenue, earnings or cash-flow guidance. Management said it believes resources are sufficient for current debt maturities and foreseeable liquidity needs over the next 12 months, but cautioned that future refinancing is not assured. Management expects significant interest expense to continue and notes that inflation, competition and regulation may pressure operating results, cash flows and liquidity.
- In Q1, Liberty Global acquired 1.335 billion Vodafone shares for an aggregate purchase price of about $1.49 billion, funded partly with cash and largely through the Vodafone Collar Loan. The loan had a $1.37 billion carrying amount at quarter-end, zero coupon and an average implied yield of 2.95%; pledged shares may be reused by the counterparty, subject to recall provisions.
- After quarter-end, the company arranged a €1.0 billion term loan facility intended to finance a voluntary conditional public bid for Telenet shares it does not already own. The Telenet/Fluvius NetCo transaction was expected to close in mid-2023, subject to conditions and approvals.
- Risks include inflation in energy, labor and programming; competitive pressure and customer/ARPU trends; foreign exchange and interest-rate volatility; debt refinancing and liquidity restrictions between borrowing groups; and adverse regulatory developments, particularly network-access obligations in Belgium.
- Contingencies include a Belgian claim seeking €1.4 billion in damages relating to the Interkabel acquisition, a Swisscom claim of approximately CHF 90 million, and a U.S. tax dispute involving approximately $284 million claimed by the Department of Justice. The company had not accrued amounts for these matters, stating that loss was not considered probable. Outcomes remain uncertain.
- Management warned that adverse economic, competitive or regulatory developments could require significant impairment charges. It also disclosed $3.26 billion of commitments for network, purchase, programming and other items, excluding certain variable or undeterminable obligations.
Investor verification priorities
- Reconcile the sources of the Q1 net loss and distinguish recurring operating performance from volatile foreign-currency, derivative, investment and affiliate items.
- Assess the sustainability of Adjusted EBITDA and margins, particularly given weaker joint venture results, cost inflation and residential revenue trends.
- Review adjusted free cash flow, working-capital movements, vendor-financing repayments and cash conversion alongside GAAP operating cash flow.
- Confirm the Vodafone investment’s financing, collar terms, share-reuse and dividend provisions, and the effect on debt and corporate liquidity.
- Evaluate debt maturities, refinancing capacity, covenant headroom and the extent to which cash held in subsidiary borrowing groups is accessible to the parent.
- Monitor the Telenet bid and NetCo transaction, regulatory developments in Belgium, and the status and potential exposure of the disclosed legal and tax matters.