Business context and reporting period
Liberty Global plc filed this unaudited Form 10-Q for the three months ended March 31, 2021. The company provides broadband, video, fixed-line and mobile services in the U.K., Ireland, Belgium, Switzerland, Poland and Slovakia, and owns a 50% interest in the VodafoneZiggo joint venture in the Netherlands.
Comparability is affected by the November 2020 Sunrise acquisition and the pending U.K. joint venture transaction. U.K. JV entities are classified as held for sale on the balance sheet, but their results remain in the statements of operations and cash flows.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $3,615.3 million | $2,875.8 million; up 25.7% reported, down 0.2% organically |
| Operating income | $625.3 million | $280.6 million |
| Net earnings attributable to Liberty Global shareholders | $1,385.4 million; diluted EPS $2.37 | $949.8 million; diluted EPS $1.50 |
| Adjusted EBITDA | $1,367.3 million | $1,150.3 million; up 18.9% reported, down 1.9% organically |
| Operating cash flow | $821.2 million | $449.8 million |
| Capital expenditures, net | $475.8 million | $347.8 million |
| Adjusted free cash flow | $93.1 million | $(317.0) million |
Adjusted EBITDA is a non-GAAP measure. Reported revenue growth primarily reflects Sunrise and foreign exchange: the acquisition contributed an estimated $486.7 million of revenue growth. Organic revenue was nearly flat. Q1 net earnings included substantial non-operating gains, including $811.1 million from derivatives, $303.1 million of foreign-currency gains and $194.6 million from investment and debt fair-value changes; these can be volatile and are not a reliable recurring earnings source.
At March 31, 2021, total assets were $57.4 billion and total equity was $13.5 billion. Cash and cash equivalents were $928.7 million; cash, cash equivalents and restricted cash, including amounts in assets held for sale, totaled $4.3 billion. Total debt and finance lease obligations were approximately $14.3 billion, including $1.1 billion current. The stated weighted-average interest rate on debt was 3.27% before certain financing adjustments; including specified derivative and other effects, the weighted-average rate was 3.67%. Corporate-level available liquidity was $650.4 million of cash at Liberty Global and unrestricted subsidiaries, plus $1,961.2 million of investments held under separately managed accounts, subject to access and tax/legal considerations.
Material changes versus the prior comparable period
- Revenue rose 25.7% reported, but declined 0.2% organically, excluding acquisition and foreign-exchange impacts. Residential cable subscription revenue fell organically 2.3%; B2B revenue increased organically 3.3%.
- Adjusted EBITDA rose 18.9% reported but fell 1.9% organically. Switzerland’s reported increase reflected Sunrise; its organic revenue and Adjusted EBITDA declined 5.3% and 12.9%, respectively.
- Operating income more than doubled, while depreciation and amortization declined, partly because U.K. JV assets classified as held for sale ceased to be depreciated or amortized.
- Operating cash flow increased by $371.4 million. Investing cash outflow narrowed substantially, mainly due to lower net investment purchases, while capital expenditures increased. Share repurchases totaled $323.4 million, versus $199.3 million of cash outflow for repurchases in Q1 2020.
- Net earnings rose, but were influenced by volatile fair-value, derivative and currency gains. Comprehensive earnings attributable to shareholders were $388.6 million, reflecting a $996.8 million foreign-currency translation loss.
Outlook, commentary, risks and unusual items
- Management expected the U.K. JV transaction to close in June 2021, subject to conditions including regulatory approval; following closing, Liberty Global expected to account for its 50% interest using the equity method. This was an expectation, not a guarantee.
- Management said Q1 COVID-19 effects were relatively minimal and demand remained strong, while cautioning that prolonged disruption could materially affect future results.
- Competition, customer and ARPU trends, programming costs, currency and interest-rate movements, and regulation remain risks. U.K. contract-notification requirements had adversely affected revenue and could have greater future effects. Belgian wholesale network-access requirements may also affect Telenet’s revenue and cash flows.
- Liberty Global reported $2.5 billion of commitments excluding U.K. JV entities, plus $2.1 billion of commitments attributable to those entities. Programming, network and purchase obligations are significant liquidity needs; stated programming commitments exclude some future inflation and price adjustments.
- Contingencies include Proximus litigation in Belgium, a U.K. VAT dispute, claims related to the former UPC Austria sale, tax indemnities and other regulatory and tax matters. No loss was accrued for the noted matters where management did not consider a loss probable; outcomes remain uncertain.
- The company reported covenant compliance and stated it believed resources were sufficient for foreseeable requirements over the next 12 months. Its target is generally consolidated debt of four to five times Adjusted EBITDA; refinancing future maturities remains a risk.
- Q1 included $31.3 million of restructuring charges and $18.4 million of direct acquisition and disposition costs, primarily related to the pending U.K. JV. The filing provided no clear quantified full-year earnings or revenue guidance.
Most important facts for investors to verify
- How much of reported growth and earnings reflects Sunrise, foreign exchange and non-cash or volatile gains, versus underlying operating performance.
- Progress, regulatory conditions, timing and eventual financial and debt treatment of the U.K. JV transaction.
- Cash available to the parent versus cash held in borrowing groups or within assets held for sale, and the practical restrictions on accessing it.
- Debt maturities, refinancing plans, covenant headroom and the effects of interest-rate and currency changes.
- Organic customer, ARPU and margin trends by market, particularly the U.K. regulatory impact and Swiss post-acquisition performance.
- Developments in the cited litigation, tax matters and regulatory proceedings, including any changes to expected exposure.