Liberty Global plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results are presented in U.S. dollars. Liberty Global provides broadband, video, fixed-line and mobile services in Europe. Its continuing consolidated operations include Switzerland, Belgium, Ireland and Slovakia; it also holds 50% interests in the U.K. VMO2 and Netherlands VodafoneZiggo joint ventures.
Financial performance and position
- Revenue: $1.853 billion, down 47.0% reported. The comparison includes $1.635 billion of U.K. revenue in Q1 2021, before the U.K. business was contributed to VMO2 in June 2021. On an organic basis, revenue increased 2.0%.
- Profit: Operating income was $58.8 million versus $601.2 million; earnings from continuing operations were $1.076 billion versus $1.423 billion. Net earnings attributable to Liberty Global shareholders were $1.038 billion versus $1.385 billion. Diluted EPS was $1.95 versus $2.37.
- Non-operating items: Continuing-operations earnings included $508.5 million of derivative gains and $575.0 million of foreign-currency transaction gains, partly offset by $93.6 million of fair-value investment losses. These items are volatile and can be substantially non-cash.
- Adjusted EBITDA: Consolidated continuing-operations Adjusted EBITDA was $684.3 million versus $1.316 billion, with the decline primarily reflecting the U.K. transaction. Organic Adjusted EBITDA increased 1.9%. Segment margins were Switzerland 36.7% (33.5% prior year), Belgium 47.0% (48.1%), and Ireland 39.9% (35.0%).
- Cash flow: Cash from continuing operating activities was $605.6 million versus $771.3 million. Continuing investing activities used $39.4 million, including $372.8 million of cash capital expenditures; continuing financing activities used $655.7 million. Adjusted free cash flow, a non-GAAP measure, was $104.4 million versus $48.4 million.
- Liquidity: Cash and cash equivalents were $843.4 million at quarter-end, down from $910.6 million at year-end. Management reported $610.4 million held by Liberty Global and unrestricted subsidiaries and $2.333 billion in investments under separately managed accounts as corporate-level available liquidity; access to subsidiary cash may be restricted by legal, tax and debt terms. The borrowing groups had $233.0 million in cash and $1.518 billion of stated unused borrowing capacity, subject to facility conditions.
- Debt: Debt and finance lease obligations totaled $14.597 billion, including $815.3 million current and $13.781 billion long-term. Weighted average stated interest on debt was 3.42%; including specified derivative and other effects, the filing reports 3.35%. The company said its borrowing groups were covenant-compliant. Most debt maturities are in 2028 or later.
- Other balance-sheet items: Total assets were $45.548 billion and total equity was $25.007 billion. Current assets were $5.644 billion and current liabilities were $3.953 billion.
Material changes and transactions
- The June 2021 contribution of the U.K. business to the VMO2 JV materially affects year-over-year reported comparisons. Liberty Global now accounts for its 50% VMO2 interest using the equity method; Q1 2022 share of affiliate results included $187.1 million from VMO2.
- UPC Poland was reported as a discontinued operation and its sale closed April 1, 2022, just after quarter-end. Poland generated $109.5 million of Q1 revenue and $34.6 million of net earnings attributable to Liberty Global shareholders. The sale agreement specified enterprise value of PLN 7.025 billion (approximately $1.673 billion).
- In April, UPC Holding used part of the Poland sale proceeds to repurchase or extinguish portions of several debt instruments and settle related derivatives. The filing does not give a single aggregate post-transaction debt reduction.
- Telenet agreed to sell substantially all passive infrastructure and tower assets for €745 million (approximately $825.6 million), with a 15-year initial leaseback. The transaction was expected to close in Q2 2022.
- Liberty Global repurchased 18.7 million Class C shares for $496.1 million, including acquisition costs, at an average $26.55 per share. It reported authorization for up to 34.1 million additional share repurchases during 2022.
Outlook, commentary and risks
- No numerical full-year revenue, earnings or cash-flow guidance is stated in the supplied filing text. Management said it expected sufficient resources to meet foreseeable liquidity needs over the next 12 months and generally seeks subsidiary debt levels equivalent to four to five times consolidated Adjusted EBITDA.
- Management said the first-quarter impact of COVID-19 was relatively minimal and demand remained strong, but warned that prolonged economic disruption could harm results. It also identified the ongoing Russia-Ukraine invasion among events that could affect outcomes.
- Management cited competition, customer and ARPU trends, foreign-exchange and interest-rate movements, regulation, programming costs, vendor delivery, and access to capital as risks. Belgian wholesale network-access regulation could strengthen competitors and pressure Telenet revenue and cash flows.
- The company had $2.696 billion of disclosed contractual commitments, excluding recorded liabilities; programming commitments omit certain future inflation and price adjustments. It also noted that operating obligations are a significant liquidity requirement, particularly over the next 12–24 months.
- Contingencies include a Belgian dispute in which Proximus seeks damages of €1.4 billion and a separate UPC Austria claim of €126.3 million plus interest. No amounts were accrued for these matters because loss was not considered probable. The filing cautions that other legal, tax and regulatory outcomes could still materially affect a period.
- Management warned that further impairment charges could be significant if equity values or business performance deteriorate. Derivative and currency gains are volatile and not a reliable recurring earnings source. The company also expects to amend certain debt agreements during 2022 to replace LIBOR references.
Important facts for investors to verify
- Assess underlying performance using organic revenue and EBITDA comparisons, separating the U.K. JV transaction and foreign-exchange effects from reported declines.
- Review the sustainability of reported earnings given the scale and volatility of derivative and foreign-currency gains.
- Confirm the Poland sale proceeds, post-sale debt repayments and remaining debt, as well as the timing and final terms of Telenet’s tower sale-and-leaseback.
- Evaluate liquidity availability at the parent level versus subsidiary borrowing groups, debt maturities, covenant restrictions and committed operating obligations.
- Monitor competition and regulation in Belgium, unresolved litigation and tax matters, and the effects of currency, interest rates and broader economic conditions.