Liberty Global plc — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statements are unaudited. 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
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,754.2 million | $2,989.2 million | $3,607.5 million | $6,489.1 million |
| Operating income | $24.5 million | $537.2 million | $83.3 million | $1,138.4 million |
| Adjusted EBITDA (non-GAAP) | $649.8 million | $1,199.1 million | $1,334.1 million | $2,515.3 million |
| Net earnings attributable to Liberty Global shareholders | $2,786.6 million | $11,128.2 million | $3,824.9 million | $12,513.6 million |
| Net cash from continuing operating activities | Not separately stated | Not separately stated | $1,363.0 million | $1,850.8 million |
| Adjusted free cash flow (non-GAAP) | Not separately stated | Not separately stated | $531.4 million | $610.2 million |
- Comparability: Reported revenue fell 41.3% in Q2 and 44.4% for the half, largely because the U.K. business was contributed to VMO2 in June 2021 and is now accounted for as an equity-method investment. Excluding currency and transaction effects, revenue grew 0.5% in Q2 and 1.2% for the half. Organic Adjusted EBITDA declined 6.3% in Q2 and 2.2% for the half.
- Earnings quality: Q2 shareholder earnings include a $693.3 million gain on the Telenet tower sale and $848.9 million after-tax gain on the UPC Poland disposal, as well as substantial derivative and foreign-currency gains. These non-operating items make net earnings substantially different from recurring operating performance. The comparison period included an $11.1 billion gain on the U.K. JV transaction.
- Cash flow and investment: Six-month cash from continuing operations decreased $487.8 million year over year. Net capital expenditures were $634.2 million, down from $842.4 million. Investing cash flow included $1,568.1 million from the Poland sale and $779.9 million from the tower sale. Share repurchases used $1,042.0 million of cash in continuing financing activities.
- Margins: Q2 Adjusted EBITDA margins were 36.1% in Switzerland, 47.9% in Belgium and 42.8% in Ireland; six-month margins were 36.4%, 47.4% and 41.3%, respectively. Consolidated results include different business scope year over year.
- Debt and liquidity: June 30 cash and cash equivalents were $2,391.1 million; short-term investments were $1,527.0 million on the balance sheet. Total debt and finance lease obligations were $13,248.4 million, including $764.8 million current and $12,483.6 million long-term. The company reported $1,434.6 million of unused borrowing capacity, subject to conditions and covenants. Borrowing groups were in covenant compliance.
- Balance sheet: Total assets were $44,159.6 million, total liabilities $19,354.0 million and total equity $24,805.6 million at June 30, 2022. Foreign-currency translation losses reduced accumulated other comprehensive earnings during the first half.
Material changes and unusual items
- Liberty Global completed the sale of UPC Poland on April 1, 2022 for net cash proceeds of $1,568.1 million; the business is reported as discontinued operations. Part of the proceeds funded debt repurchases.
- Telenet completed the sale of substantially all passive tower infrastructure on June 1, 2022 for $779.9 million net proceeds and recognized a $693.3 million gain. Telenet leased the assets back for an initial 15-year term, adding $615.1 million of operating lease liabilities and right-of-use assets.
- Operating results reflected high volatility from derivatives and currency movements: six-month derivative gains were $1,122.2 million and foreign-currency transaction gains were $1,723.7 million. Management cautions these gains are not a reliable recurring income source.
- In July, the board authorized an additional $400 million of 2022 share repurchases. A separate authorization permits repurchases of 10% of outstanding shares in 2023, subject to program terms.
- In July 2022, Telenet and Fluvius agreed to form a Belgian infrastructure company, initially owned 66.8% by Telenet and 33.2% by Fluvius. Closing, currently expected in early 2023, is subject to regulatory and shareholder approvals.
Outlook, risks and contingencies
- The filing provides no specific earnings or revenue guidance. Management says it expects sufficient resources to meet foreseeable liquidity requirements over the next 12 months, while anticipating future refinancing or maturity extensions; there is no assurance refinancing will be available on favorable terms or at all.
- Management cites competition, customer and ARPU trends, rising energy and other operating costs, foreign-exchange and interest-rate exposure, regulatory changes, programming costs, and economic conditions as factors affecting results. COVID-19 impacts were described as relatively minimal in Q2, but future effects remain uncertain.
- Belgian regulation requires Telenet to provide competitors access to parts of its network; management says this may pressure revenue, cash flow and investment returns. Litigation and regulatory outcomes remain uncertain.
- Commitments not recorded as balance-sheet liabilities totaled $3,504.5 million, including $2,085.5 million for network and connectivity, $619.8 million for purchases and $464.7 million for programming. The filing notes programming payments may exceed the listed amounts because future contractual price increases are excluded.
- The Proximus dispute in Belgium includes a claim for €1.4 billion, although Liberty Global does not expect the ultimate resolution to materially affect its financial position, results or cash flows and has accrued no amount. Other legal, tax and regulatory contingencies also remain; potential losses are not always reasonably estimable.
Investor verification priorities
- Separate recurring operations from the Poland disposal and Telenet tower gain, and from derivative, foreign-exchange and investment fair-value movements.
- Review organic revenue and Adjusted EBITDA trends by market, including Belgium’s regulatory exposure and the cost pressures described by management.
- Assess accessible corporate liquidity versus cash held within borrowing groups, and review debt maturities, covenant restrictions, interest-rate sensitivity and refinancing needs.
- Evaluate the ongoing cash requirements from share repurchases, lease obligations, vendor financing and contractual commitments.
- Track the Fluvius NetCo transaction, the Proximus and other contingencies, and whether subsequent developments change the reported risk or financial outlook.