Liberty Global plc — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Liberty Global provides video, broadband, fixed-line, mobile and business communications services across Europe, Latin America and the Caribbean. Figures are in U.S. dollars unless stated otherwise. Comparisons are affected by the December 2016 transfer of the Netherlands business to the 50%-owned VodafoneZiggo joint venture, acquisitions and foreign-exchange movements.
Key financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $4,785.4 million | $5,207.2 million | $13,799.9 million | $14,869.3 million |
| Operating income | $335.8 million | $902.7 million | $1,546.9 million | $1,977.1 million |
| Net loss | $779.0 million | $205.1 million | $1,698.6 million | $468.7 million |
| Net loss attributable to Liberty Global shareholders | $791.6 million | $249.5 million | $1,786.1 million | $517.2 million |
| Operating cash flow | Not separately stated | Not separately stated | $4,033.1 million | $4,045.5 million |
| Capital expenditures (cash-flow basis) | Not separately stated | Not separately stated | $1,824.9 million | $1,945.0 million |
| Adjusted free cash flow | Not separately stated | Not separately stated | $653.6 million | $915.1 million |
- Revenue and operating performance: Reported revenue declined 8.1% in Q3 and 7.2% in the nine-month period. Excluding foreign exchange and estimated acquisition/disposition effects, revenue rose 2.1% and 2.0%, respectively. Segment Adjusted OIBDA was $2,195.1 million in Q3 (down 9.1% reported, up 3.0% organically) and $6,255.0 million for nine months (down 8.5% reported, up 4.2% organically). Segment margins in Q3 were 48.6% for the European Division and 39.7% for LiLAC.
- Drivers: Organic broadband revenue grew, and B2B revenue increased; residential mobile subscription revenue and video revenue declined. The Netherlands JV transaction reduced reported comparisons substantially. Nine-month comparisons also reflect acquisition timing, including C&W and BASE.
- Cash and liquidity: Cash and equivalents were $2,110.1 million at September 30, versus $1,629.2 million at year-end 2016. Investing activities provided $52.8 million for the nine months, compared with $3,136.6 million used in 2016, helped by affiliate distributions and the VodafoneZiggo transaction equalization payment. Financing activities used $3,702.3 million, including $2,658.0 million of share repurchases in the cash-flow statement.
- Debt: Debt and capital lease obligations totaled $47,995.7 million carrying value, including $4,268.7 million current and $43,727.0 million long-term. Debt before premiums, discounts and financing costs was $46,849.7 million. Management reported leverage of 5.1x debt and 4.9x net debt to annualized quarterly Adjusted OIBDA, using its stated covenant-style debt definition. All borrowing groups were covenant-compliant at quarter-end, but Puerto Rico covenant pressure was expected.
- Other items: Q3 impairment, restructuring and other operating charges were $416.6 million, including $342.6 million of hurricane-related impairments and a $40 million legal settlement. Nine-month interest expense was $1,691.0 million; net derivative losses were $1,149.5 million. These fair-value and currency-related items contributed to the reported net loss.
Material changes and outlook, risks and contingencies
- Hurricanes Irma and Maria severely damaged networks in Puerto Rico and certain C&W markets. Liberty Global estimated Q3 hurricane impacts of $19 million revenue and $15 million Adjusted OIBDA at Liberty Puerto Rico, and $3 million revenue and $9 million Adjusted OIBDA at C&W. For Q4, it estimated Puerto Rico revenue declines of $80–$100 million and Adjusted OIBDA declines of $60–$80 million, with negative total quarterly Adjusted OIBDA; C&W Q4 revenue and Adjusted OIBDA impacts were estimated at $15–$25 million. These were preliminary estimates, before insurance recoveries.
- Restoring the Puerto Rico network was expected to require more than $100 million of property and equipment additions; restoring affected C&W networks, more than $50 million. The company said hurricane effects could continue through 2018 and beyond, and it had not recognized potential insurance proceeds. Puerto Rico’s ability to meet future LPR Bank Facility leverage covenants was uncertain; management expected a shortfall for December 2017 and said it might use permitted cures or seek lender relief.
- For 2017 property and equipment additions as a percentage of revenue, management expected 29%–31% for the Liberty Global Group and revised LiLAC’s range downward to 19%–21%. These are outlook estimates, not guaranteed results.
- Management cited intense competition, foreign-exchange and interest-rate volatility, regulatory access obligations (particularly in Belgium), programming costs, and macroeconomic and political uncertainty. The filing also discusses Brexit and Puerto Rico’s economic and fiscal challenges.
- Contingencies include a €1.4 billion damages claim relating to Telenet’s Interkabel agreement (not accrued; loss not considered probable), tax disputes, and other legal and regulatory matters. Multimedia’s proposed Polish cable acquisition faced a regulator’s statement of objection; completion in 2017 was not expected.
- Liberty Global had announced an intended split-off of its LiLAC businesses around the end of 2017. The filing describes internal separation steps but does not establish that the transaction would close on that timetable.
Most important facts for investors to verify
- Progress, cost and timing of hurricane recovery, customer reconnections, insurance recoveries, and Puerto Rico covenant compliance and liquidity.
- Underlying operating trends after separating the VodafoneZiggo transaction, acquisitions, foreign exchange and one-off items—especially broadband growth, video/mobile declines and organic Adjusted OIBDA.
- Debt maturities, refinancing terms, covenant headroom and the extent to which cash held at subsidiaries is accessible to the parent.
- Actual capital additions versus management’s 2017 ranges, including hurricane restoration spending and vendor-financed additions.
- Developments in the LiLAC split-off, the Multimedia acquisition review, and material litigation, tax and regulatory contingencies.