Business context and reporting period
Liberty Global plc’s unaudited Form 10-Q covers the three months ended March 31, 2018. The company provides video, broadband, fixed-line, mobile and business communications services in 11 European countries; it also owns a 50% noncontrolling interest in the VodafoneZiggo joint venture in the Netherlands. The LiLAC Group split-off was completed in December 2017, so its prior-year results are presented as discontinued operations.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $4,156.1 million | $3,519.0 million |
| Operating income | $493.1 million | $427.1 million |
| Adjusted OIBDA | $1,898.9 million | $1,600.6 million |
| Loss from continuing operations | $1,178.6 million | $256.3 million |
| Net loss attributable to Liberty Global shareholders | $1,186.5 million | $320.2 million |
| Basic and diluted loss per share from continuing operations | $1.47 | $0.35 |
| Net cash from operating activities | $1,279.3 million | $904.4 million |
| Capital expenditures | $646.0 million | $500.4 million |
- Reported revenue rose 18.4%; management’s organic measure, excluding foreign-exchange effects and transaction impacts, increased 4.0%. Adjusted OIBDA rose 19.2% reported and 4.5% organically; Q1 2018 Adjusted OIBDA was about 45.7% of revenue.
- Reported revenue and segment results benefited materially from stronger euro and sterling translation. Broadband and B2B revenue grew organically, while video, fixed-line and residential mobile subscription revenue declined organically.
- Segment Adjusted OIBDA margins: U.K./Ireland 42.9% (42.8% prior year); Belgium 47.1% (44.9%); Germany 62.9% (61.1%); Switzerland/Austria 53.6% (59.6%); Central and Eastern Europe 42.0% (41.0%).
- Operating cash flow increased, but adjusted free cash flow was negative $625.1 million versus negative $331.0 million. The company’s measure deducts substantial repayments of vendor and intermediary financing.
- Cash and cash equivalents were $554.9 million at quarter-end, down from $1,672.4 million at year-end; cash plus restricted cash was $572.8 million. Cash from investing activities was an outflow of $671.1 million, and financing activities used $1,732.4 million.
- Total debt and capital lease obligations had a carrying amount of $42,566.7 million, including $4,290.7 million classified as current; long-term obligations were $38,276.0 million. The company reported leverage of 5.3x debt and 5.2x net debt to annualized quarterly Adjusted OIBDA. Weighted-average interest rate on aggregate indebtedness, including specified derivative effects, was 4.20%.
- Working capital was negative. Management said it expected sufficient resources to repay or refinance current maturities and meet foreseeable liquidity needs for the next 12 months. Unused borrowing capacity under subsidiary facilities was reported as available, subject to facility terms.
Material changes versus the prior period
- The larger net loss primarily reflects a $766.1 million income tax expense, compared with $102.2 million in Q1 2017, alongside higher non-operating expenses. The 2018 tax expense included a $1,210.5 million charge for the U.S. Mandatory Repatriation Tax, partly offset by a valuation-allowance benefit; the estimated tax liability recorded was $417.9 million and remained subject to change.
- Net derivative losses were $300.3 million versus $241.8 million. Interest expense was $487.8 million versus $453.2 million; management said it declined 5.3% excluding foreign-exchange effects.
- Capital expenditures increased from $500.4 million to $646.0 million. Total property and equipment additions, including vendor-financed and leased assets, were $1,251.4 million versus $884.4 million.
- Cash used in financing included $480.1 million of share repurchases; the equity statement reports $496.3 million including direct acquisition costs. The remaining repurchase authorization was $1,571.5 million.
- Comparisons are affected by the 2017 LiLAC split-off, the 2017 SFR BeLux acquisition, foreign-exchange movements and the January 2018 adoption of new revenue-recognition guidance. The filing’s 2017 organic comparisons are presented pro forma for that accounting adoption.
Outlook, risks and unusual items
- No specific consolidated revenue, earnings or cash-flow guidance is provided. Management described ongoing network-extension investment and said programs may be continued, modified or cancelled at its discretion.
- The planned sale of UPC Austria, with an enterprise value of approximately €1.9 billion ($2.3 billion), remained subject to regulatory approval and was not expected to close until the second half of 2018. Proceeds may be used for general corporate purposes, including debt reduction, reinvestment or share repurchases.
- Risks highlighted include intense competition, particularly in Switzerland, the U.K. and VodafoneZiggo’s mobile business; foreign-exchange and interest-rate exposure; Brexit uncertainty; and possible tighter credit-market access or refinancing risk.
- Belgian regulatory decisions may require Telenet to provide competitors access to its network. The company also disclosed a range of legal and tax matters, including a Proximus claim for €1.4 billion (rejected by an appeals court, with further appeal rights), U.K. VAT disputes, and ongoing U.S. and European tax audits. The filing states that no loss accrual was recorded for certain matters because loss was not considered probable.
- Q1 restructuring charges were $58.3 million, including $39.2 million related to Telenet’s completed migration of mobile subscribers from an MVNO arrangement to its own network. Management also cited potential future impairment charges if operating results or cash flows deteriorate.
- Management reported that disclosure controls were effective as of March 31, 2018 and that no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Track organic revenue and Adjusted OIBDA growth separately from reported growth, especially the effects of foreign exchange and one-off items such as Germany’s carriage-fee settlement.
- Assess whether operating cash generation can cover capital investment, vendor-financing repayments, debt service and shareholder returns; reconcile the negative adjusted free cash flow to its definition.
- Review the timing and funding plan for near-term maturities and the company’s ability to refinance, given leverage and negative working capital.
- Monitor the final Mandatory Repatriation Tax assessment, future effective tax expense and outcomes of tax examinations.
- Follow UPC Austria sale approval and proceeds, and developments in Belgian access regulation, VodafoneZiggo competition and material litigation or VAT contingencies.