Liberty Global plc — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; amounts are U.S. dollars unless noted. This is an annual report, not a quarterly filing. Liberty Global provides broadband, video, fixed-line telephony and mobile services in the U.K., Ireland, Belgium, Switzerland, Poland and Slovakia, and holds a 50% interest in the VodafoneZiggo Netherlands joint venture, which is not consolidated.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $11.980 billion | $11.542 billion |
| Organic revenue change | Down 1.5% | — |
| Adjusted EBITDA | $4.896 billion | $4.860 billion |
| Adjusted EBITDA margin | 40.9% consolidated | 42.1% consolidated |
| Operating income | $2.118 billion | $745.5 million |
| Loss from continuing operations | $1.467 billion | $1.409 billion |
| Net loss attributable to Liberty Global shareholders | $1.628 billion | Net earnings of $11.521 billion |
| Cash from continuing operating activities | $4.186 billion | $3.714 billion |
| Adjusted free cash flow | $1.070 billion | $631.3 million |
| Capital expenditures, net | $1.350 billion | $1.243 billion |
Reported revenue rose 3.8%, including acquisition contributions—principally Sunrise—and currency effects; on an organic basis it fell 1.5%. Organic residential revenue declined 2.1%, while B2B revenue increased 2.6%. Broadband subscription revenue was nearly flat organically; fixed-line telephony and video subscription revenue fell organically. Adjusted EBITDA was up 0.7% reported but down 4.3% organically. Segment margins were U.K./Ireland 40.6% (42.4% in 2019), Belgium 48.1% (47.9%), Switzerland 44.1% (49.9%) and Central and Eastern Europe 44.3% (45.2%).
The sharp increase in operating income and decrease in depreciation and amortization largely reflect classification of the U.K. JV Entities as held for sale from May 2020, which stopped depreciation and amortization on those assets; they should not be read as straightforward underlying operating improvement. FY2019 shareholder earnings included $12.3 billion of disposal gains and $730.3 million from discontinued operations, so the year-over-year net result is not directly comparable.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.327 billion at year-end, versus $8.142 billion in 2019. The cash flow statement reports $4.717 billion of cash and restricted cash, including $3.383 billion of restricted cash classified within assets held for sale.
- Management reported $3.13 billion of corporate-level available liquidity: $33.1 million held by Liberty Global, $1.132 billion at unrestricted subsidiaries and $1.966 billion of investments under separately managed accounts. Access to subsidiary funds may be restricted.
- Debt and finance lease obligations were reported at approximately $15.1 billion, including $1.1 billion current and $13.1 billion not due until 2026 or later. The balance sheet separately classifies U.K. JV Entity obligations as held for sale. The company reported that borrowing groups complied with debt covenants and believed it could meet foreseeable liquidity requirements for the next 12 months.
- Net cash used in investing activities was $8.874 billion, primarily reflecting the Sunrise acquisition and investment purchases. Financing activities provided $1.084 billion; cash and restricted cash decreased by $3.464 billion overall.
- Liberty Global repurchased $1.072 billion of its shares during 2020; $1.0 billion remained authorized at year-end. It reported no present intention to pay cash dividends.
Material changes, outlook and risks
- Sunrise acquisition: Completed November 11, 2020 for a preliminary purchase price of $5.428 billion. Liberty Global owned 98.9% at year-end and expected the Swiss-law squeeze-out to finish in the first half of 2021. Purchase-price allocations remained preliminary. Sunrise contributed $314 million of 2020 revenue after acquisition.
- Proposed U.K. joint venture: Liberty Global and Telefónica agreed to combine Virgin Media’s U.K. operations with Telefónica’s U.K. mobile business in a 50:50 venture. The transaction remained subject to regulatory clearance; management expected closing in mid-2021. U.K. JV assets and liabilities were presented as held for sale, not discontinued operations.
- COVID-19: Management said the pandemic had not caused an overall material adverse impact in 2020 and estimated its net effect on Adjusted EBITDA was relatively minimal. Lower churn and reduced sales and customer-service costs helped offset weaker sports-related, handset, broadcasting, roaming and interconnect revenue. Management cautioned that prolonged economic disruption could affect customers’ ability to pay and future results.
- Investment outlook: Network extensions connected approximately 561,000 premises in 2020. The company expected to continue extensions in 2021 and forecast 2021 property and equipment additions to remain relatively stable versus 2020; actual spending could vary. Network extensions may be changed or cancelled at management’s discretion.
- Significant risks: Competition and pricing pressure; regulatory access and pricing obligations, including in Belgium; U.K. contract-notification rules that management expected to have further adverse effects; high leverage and refinancing needs; foreign-exchange and interest-rate volatility; content costs; integration and execution risks; and uncertainty around COVID-19 and the U.K. JV.
- Notable items: 2020 loss from continuing operations included $1.416 billion of foreign-currency transaction losses, $879 million of derivative losses and $233 million of debt-extinguishment losses. These volatile non-operating items materially affected reported earnings. A Virgin Media database accessed without permission contained information on approximately 900,000 people; the company said regulators closed the matter without enforcement action in 2020.
Most important facts for investors to verify
- Reconcile reported growth with the 1.5% organic revenue decline and 4.3% organic Adjusted EBITDA decline, including acquisition, foreign-exchange and held-for-sale effects.
- Confirm the final Sunrise purchase-price allocation, integration progress and remaining squeeze-out cost.
- Track regulatory clearance, closing terms, equalization payment and retained cash or debt treatment for the proposed U.K. joint venture.
- Assess accessible liquidity against debt maturities, vendor-financing repayments, capital needs and commitments; distinguish continuing operations from U.K. JV liabilities held for sale.
- Monitor UK contract-notification impacts, Belgian wholesale-access rules, litigation and tax contingencies, and the sustainability of cash flow and share repurchases.