Record Q2 Virgin Media rebased revenue growth and subscriber
additions
Q2 continuing operations operating income up 31.0%
year-over-year to $263.9 million
Q2 continuing operations rebased OCF growth of 3.3%, led by
Belgium
Reconfirming all 2018 guidance
_____________________________________________________________________________
Q2 Revenue & YoY Growth4$3.0bn |
+2.7%
Q2 OCF & YoY Growth4$1.3bn | +3.3%
Q2 Revenue & YoY Growth4$4.0bn |
+3.1%
Q2 OCF & YoY Growth4$1.9bn | +3.7%
Liberty Global plc today announced its three months ("Q2") and
six months ("YTD" or "H1") 2018 financial results. Our operations
in Germany, Austria, Hungary, Romania and the Czech Republic
(collectively, the "Discontinued European Operations") and the
former LiLAC Group have been accounted for as discontinued
operations. Unless otherwise indicated, the information in this
release relates only to our continuing operations. As used in this
release, the term "Full Company" includes our continuing operations
and the Discontinued European Operations. For additional
information, including the reasons that we present selected
information on a Full Company basis, see note 1. In addition, on
January 1, 2018, we adopted new revenue recognition rules on a
prospective basis and a new presentation of certain components of
our pension expense on a retrospective basis. All information in
this release is presented on a comparable basis with respect to
both of these accounting changes. For additional information
concerning our discontinued operations and these accounting
changes, see notes 2 and 3.
2018
Guidance5 Rebased
OCF Growth
P&E
Additions
New Build
& Upgrade
Adjusted FreeCash Flow
Continuing Operations
~4% $4.0 BN $0.8 BN
Not provided Full Company
~5% $5.1 BN $1.2
BN $1.6 BN
CEO Mike Fries stated, "Our second quarter results were
underpinned by continued momentum at Virgin Media, which generated
record Q2 rebased4 revenue and subscriber growth, delivering a 4.1%
top-line increase while adding 112,000 net RGU additions. Enhanced
broadband speeds and the continued roll out of our V6 set top box
helped deliver a substantial increase in our triple-play
acquisitions, improved growth on our existing footprint and
increased ARPU. Our other operations delivered mixed results, with
Germany achieving a solid performance, offset by challenging
competitive markets in Switzerland and Belgium.
"We recently announced several management changes that highlight
our commitment to putting the best and brightest in critical
positions. Enrique Rodriguez was named our Chief Technology
Officer. Enrique brings a wealth of C-level experience to the table
and we’re excited to tap his deep industry and technical knowledge.
At Virgin Media, we announced the appointment of Lutz Schüler as
Chief Operating Officer. Over the past eight years, Lutz has guided
Unitymedia in Germany to unprecedented success, and we couldn't be
happier to keep him in the Liberty family. Finally, we announced
the appointments of Severina Pascu as CEO of UPC Switzerland and
Eric Tveter as Chairman of our Swiss business and CEO of our
operations in Eastern Europe.
Last week, we announced the closing of the sale of UPC Austria
for over $2 billion or ~11x OCF, generating net proceeds of
approximately $1.1 billion after taking into account the repayment
of debt that we attribute to UPC Austria. These net proceeds will
be used to increase our share repurchase program by $500 million
and to repay additional debt across select credit pools of Liberty
Global. With respect to the Vodafone deal announced back in May, we
continue to target a mid-2019 closing.
At June 30, 2018, our continuing operations had an average debt
tenor6 of more than seven years, a fully-swapped borrowing cost of
4.0% and a liquidity7 position in excess of $3 billion. During Q2
we significantly ramped our share repurchase activity and bought
back nearly $800 million of stock."
About Liberty Global
Liberty Global (NASDAQ: LBTYA, LBTYB and LBTYK) is the world’s
largest international TV and broadband company, with operations in
10 European countries under the consumer brands Virgin Media,
Unitymedia, Telenet and UPC. We invest in the infrastructure and
digital platforms that empower our customers to make the most of
the video, internet and communications revolution. Our substantial
scale and commitment to innovation enable us to develop
market-leading products delivered through next-generation networks
that connect 21 million customers subscribing to 45 million TV,
broadband internet and telephony services. We also serve 6 million
mobile subscribers and offer WiFi service through 12 million
access points across our footprint.*
In addition, Liberty Global owns 50% of VodafoneZiggo, a joint
venture in the Netherlands with 4 million customers subscribing to
10 million fixed-line and 5 million mobile services, as well as
significant investments in ITV, All3Media, ITI Neovision, Casa
Systems, LionsGate, the Formula E racing series and several
regional sports networks.
* The figures included in this paragraph include both our
continuing and discontinued operations, adjusted for our July 31,
2018 sale of UPC Austria
YTD and Q2 Highlights (on a continuing
operations basis unless otherwise noted)
- YTD and Q2 rebased revenue up 2.7% in
each period
- Q2 residential cable revenue8 of $2.0
billion decreased 1.8% year-over-year
- Q2 residential mobile revenue8
increased 7.1% year-over-year to $0.4 billion
- Q2 B2B9 revenue8 increased 8.0%
year-over-year to $0.5 billion
- YTD operating income decreased 6.7%
year-over-year
- Q2 operating income grew 31.0%
year-over-year
- YTD rebased OCF growth was 2.8% to $2.6
billion, including 3.3% growth in Q2
- YTD results supported by strong
performances in Belgium and Virgin Media
- RGU additions of 17,000 in H1 2018,
including 43,000 in Q2
- Built over 150,000 new premises in Q2
- Virgin Media delivered 118,00010 new
premises in the U.K. & Ireland
- Solid balance sheet with $3.5 billion
of liquidity before considering the net proceeds received from
our disposition of UPC Austria
- Net leverage11 of 4.9x for the Full
Company
- Fully-swapped borrowing cost of
4.0%
- Completed sale of UPC Austria to
T-Mobile Austria in July
Liberty Global(continuing
operations unless otherwise noted)
Q2 2018
YoYGrowth(i)
YTD 2018
YoYGrowth/(Decline)(i)
Subscribers
Organic RGU Net Additions12 42,900 14.4 % 17,400 (89.3 %)
Financial (in USD
millions)
Revenue Continuing operations $ 3,045.1 2.7 % $ 6,139.6 2.7 % Full
Company 3.1 % 3.6 % OCF: Continuing operations $ 1,309.8 3.3 % $
2,581.6 2.8 % Full Company 3.7 % 4.2 % Operating income $ 263.9
31.0 % $ 384.3 (6.7 %) Adjusted FCF: Continuing operations $
(131.1 ) $ (1,127.9 ) Pro forma continuing operations(ii) $ (81.1 )
$ (991.8 ) Full Company $ 214.8 $ (410.3 ) Cash provided by
operating activities $ 1,464.9 $ 2,142.9 Cash used by investing
activities $ (389.1 ) $ (896.3 ) Cash used by financing activities
$ (1,387.6 ) $ (3,037.5 ) (i) Revenue and OCF YoY growth
rates are on a rebased basis. (ii) Pro forma Adjusted FCF gives pro
forma effect to certain increases in our recurring cash flows that
we expect to realize following the disposition of the Discontinued
European Operations. For additional details, see the information
and reconciliation included within the Glossary.
Subscriber Growth
Three months ended Six months
ended June 30, June 30, 2018
2017 2018 2017 Organic
RGU net additions (losses) by product Video (11,500 ) (16,200 )
(72,600 ) (26,200 ) Data 22,000 44,800 52,700 138,900 Voice 32,400
8,900 37,300 50,500 Total 42,900
37,500 17,400 163,200
Organic RGU
net additions (losses) by market U.K./Ireland 112,200 78,100
157,100 236,100 Belgium (8,400 ) (15,300 ) (29,900 ) (27,300 )
Switzerland (53,800 ) 6,100 (97,500 ) (2,800 ) Continuing CEE
(Poland, Slovakia and DTH) (7,100 ) (31,400 ) (12,300 ) (42,800 )
Total 42,900 37,500 17,400 163,200
Organic Mobile SIM additions (losses) by product
Postpaid 90,600 89,200 194,200 173,700 Prepaid (36,400 ) (92,900 )
(85,800 ) (165,900 ) Total 54,200 (3,700 ) 108,400
7,800
Organic Mobile SIM additions (losses) by
market U.K./Ireland 20,700 (7,500 ) 45,900 (4,100 ) Belgium
26,100 (3,100 ) 48,400 400 Other 7,400 6,900 14,100
11,500 Total 54,200 (3,700 ) 108,400
7,800
- Cable Product
Performance: During Q2 we added 43,000 RGUs, a 14.4%
improvement over the prior-year period, mainly driven by improved
volumes in all regions except for Switzerland. On the fixed product
side, data showed a year-over-year decrease, while video adds were
largely in-line. Telephony net adds increased year-over-year
- U.K./Ireland: Record Q2 RGU additions of 112,000
were higher than the prior year, with a larger contribution from
both new build areas and our existing footprint. This was driven by
our core offers in the U.K. focused on triple-play bundles, which
included a doubling of broadband speeds combined with our
cutting-edge V6 set-top box
- Belgium:
RGU attrition of 8,000 in Q2 was primarily due to continued
intensified competition. Our converged quad-play package additions
continued to grow, as we gained 18,000 new "WIGO" subscribers
during Q2
- Switzerland: Lost 54,000 RGUs in Q2, compared to a
gain of 6,000 in Q2 2017, primarily due to heightened
competition
- Continuing CEE
(Poland, Slovakia and DTH): Lost 7,000 RGUs in Q2, as
compared to a loss of 31,000 in the prior-year period
- Next-Generation
Video Penetration (including Horizon TV, Horizon-Lite, TiVo, Virgin
TV V6 and Yelo TV): Added 158,000 subscribers to our
advanced platforms in Q2 and reached 6.7 million or 77% of our
total cable video base (excluding DTH) by the end of the
quarter
- WiFi Connect
Box: Deployments of our latest WiFi Connect box increased by
over 360,000 in Q2, ending the quarter with an installed base of
nearly 5.1 million or 55% of broadband subscribers across our
continuing operations
- Mobile:
Added 54,000 mobile subscribers in Q2, as 91,000 postpaid additions
were partially offset by continued attrition in our low-ARPU
prepaid base
- Belgium added 29,000 mobile subscribers
during Q2, a strong year-over-year improvement, as the prior-year
period was negatively impacted by the regulated prepaid
registration process and its related churn
- U.K./Ireland added 21,000 mobile
subscribers in Q2 as postpaid growth was partially offset by
low-ARPU prepaid losses. The penetration of 4G at Virgin Media
increased to 68% of our postpaid base at the end of Q2 and 36% of
our U.K. mobile base has been migrated to our full MVNO platform,
which went live in Q4 2017
- Switzerland mobile subscriber additions
were in-line year-over-year with 8,000 mobile subscriber additions
in Q2, driven by continued penetration of mobile in the fixed
customer base
Revenue Highlights
The following table presents (i) revenue of each of our
consolidated reportable segments for the comparative periods and
(ii) the percentage change from period to period on both a reported
and rebased basis:
Three months ended
Increase/(decrease) Six months ended
Increase/(decrease) June 30, June
30, Revenue
2018
2017(3)
%
Rebased %
2018
2017(3)
%
Rebased % in millions, except %
amounts Continuing operations: U.K./Ireland $
1,734.9 $ 1,563.8 10.9 4.1 $ 3,513.1 $ 3,066.3 14.6 4.7 Belgium
753.9 684.8 10.1 (1.0 ) 1,513.5 1,344.8 12.5 (1.1 ) Switzerland
332.2 338.7 (1.9 ) (1.9 ) 677.1 669.0 1.2 (1.6 ) Continuing CEE
152.9 141.8 7.8 0.3 313.4 276.3 13.4 0.7 Central and Corporate 72.0
42.7 68.6 59.3 123.8 83.5 48.3 31.8 Intersegment eliminations (0.8
) (0.9 ) N.M. N.M. (1.3 ) (4.0 ) N.M. N.M. Total
continuing operations $ 3,045.1 $ 2,770.9 9.9
2.7 $ 6,139.6 $ 5,435.9 12.9 2.7
Discontinued European Operations(i):
Germany 4.5 7.3 Austria 4.4 3.5
Discontinued CEE 4.1 5.7
Full Company
3.1 3.6
N.M. - Not Meaningful
(i) For information concerning our discontinued operations, see
note 2.
- Reported revenue for the three and six
months ended June 30, 2018, increased 9.9% and 12.9%
year-over-year, respectively
- These results were primarily driven by
the impact of (i) positive foreign exchange ("FX") movements,
mainly related to the strengthening of the British Pound and Euro
against the U.S. dollar, and (ii) organic revenue growth
- Rebased revenue grew 2.7% in each of
the Q2 and H1 2018 periods. The result in the YTD period included:
- A $5.6 million headwind from the
expected recovery of VAT paid in prior periods with respect to
copyright fees in Belgium, which benefited revenue in H1 2017
- A $6.4 million headwind from the
release of unclaimed customer credits in Switzerland in H1
2017
- The unfavorable $3.9 million impact due
to the reversal during the first quarter of 2018 of revenue in
Switzerland that was recognized during prior-year periods
- Our residential cable business reported
a rebased revenue decline of 1.8% in Q2 and grew 0.4% in H1
2018
- Our B2B business (including SOHO and
non-subscription revenue) reported rebased revenue growth of 8.0%
in Q2 and 7.9% in H1 2018
- Our residential mobile business
(including interconnect and handset sales) posted 7.1% rebased
revenue growth in Q2 and 6.9% in H1 2018
Q2 2018 Rebased Revenue Growth - Segment
Highlights
- U.K./Ireland: Rebased revenue growth of 4.1% in Q2
reflects (i) 2.5% growth in our residential cable business
supported by subscriber growth and accelerating cable ARPU, (ii)
16.1% rebased growth in residential mobile revenue (including
interconnect and mobile handset revenue), reflecting higher revenue
from mobile handset sales that was partially offset by lower mobile
subscription revenue, and (iii) 2.7% rebased revenue growth in our
B2B business, driven by continued growth in the SOHO segment
- Belgium:
Rebased revenue decline of 1.0% in Q2 was mainly driven by the net
effect of (i) growth in B2B revenue, (ii) lower residential cable
revenue and (iii) lower mobile revenue
- Switzerland: Rebased revenue declined 1.9% in Q2,
primarily due to the net effect of (i) lower residential cable
subscription revenue, which was driven primarily by competitive
pressures, (ii) an increase in B2B revenue, (iii) higher mobile
revenue and (iv) higher revenue from the distribution of MySports
channels
- Continuing CEE
(Poland, Slovakia and DTH): Rebased revenue growth of 0.3%
in Q2 due to the net effect of (i) growth in our B2B business and
(ii) lower residential cable revenue
- Central and
Corporate: Rebased revenue increased 59.3% in Q2 due largely
to the low-margin sale of customer premises equipment to the
VodafoneZiggo JV, which began in the second quarter of 2018
Operating Income
- Operating income of $263.9 million and
$201.3 million in Q2 2018 and Q2 2017, respectively, representing
an increase of 31.0% year-over-year. For the six months ended June
30, 2018, our operating income of $384.3 million million reflects a
decrease of 6.7% as compared to $412.0 million in H1 2017
- The increase in operating income in the
QTD period primarily resulted from higher OCF, as further described
below, partially offset by increases in depreciation and
amortization. The decrease in operating income in the YTD period
primarily resulted from higher OCF that was more than offset by
increases in depreciation and amortization and impairment,
restructuring and other operating items, net
Operating Cash Flow Highlights
The following table presents (i) OCF of each of our consolidated
reportable segments for the comparative periods, and (ii) the
percentage change from period to period on both a reported and
rebased basis:
Three months ended
Increase/(decrease) Six months ended
Increase/(decrease) June 30, June
30, OCF 2018
2017(3)
% Rebased % 2018
2017(3)
%
Rebased % in millions, except %
amounts Continuing operations: U.K./Ireland $
763.6 $ 701.0 8.9
2.4
$ 1,526.2 $ 1,343.9 13.6
3.9
Belgium 383.7 316.7 21.2 9.0 741.3 613.2 20.9 5.8 Switzerland 189.0
212.4 (11.0 ) (11.0 ) 375.5 416.1 (9.8 ) (12.3 ) Continuing CEE
67.9 64.8 4.8 (2.5 ) 139.8 123.1 13.6 0.8 Central and Corporate
(83.6 ) (98.7 ) 15.3 21.9 (182.7 ) (191.7 ) 4.7 13.0 Intersegment
eliminations (10.8 ) (8.4 ) N.M. N.M. (18.5 ) (16.2 )
N.M. N.M. Total continuing operations $ 1,309.8 $ 1,187.8
10.3 3.3 $ 2,581.6 $ 2,288.4
12.8 2.8 OCF margin - continuing operations
43.0 % 42.9 % 42.0 % 42.1 %
Discontinued European
Operations(i): Germany 4.3 8.0
Austria 3.5 2.9 Discontinued CEE 9.1 8.9
Full Company 3.7 4.2
N.M. - Not Meaningful
(i) For information concerning our discontinued operations, see
note 2.
- Reported OCF for the three and six
months ended June 30, 2018, increased 10.3% and 12.8%
year-over-year, respectively
- This result was primarily driven by (i)
the aforementioned positive impact of FX movements and (ii) organic
OCF growth
- Rebased OCF growth of 3.3% in Q2 and
2.8% in H1 2018 included:
- The net unfavorable impact on our
revenue of certain items, as discussed in the "Revenue Highlights"
section above
- Higher costs of $23.8 million in
U.K./Ireland during both 2018 periods resulting from the net impact
of credits recorded during the second quarter of 2017 ($28.8
million) and the second quarter of 2018 ($5.0 million) in
connection with a telecommunications operator's agreement to
compensate Virgin Media and other communications providers for
certain prior-period contractual breaches related to network
charges
- Unfavorable network tax increases of
$4.6 million and $13.0 million, respectively, following an April 1,
2017 increase in the rateable value of our existing U.K. networks,
which is being phased in over a five-year period to 2021
- Favorable impacts of $12.7 million and
$19.4 million, respectively, due to the expected settlement of a
portion of our 2018 annual incentive compensation with Liberty
Global ordinary shares through a shareholding incentive program
that was implemented in 2018
- An unfavorable $6.4 million increase in
costs during the 2018 periods due to the reassessment of an accrual
in the U.K.
- As compared to the prior-year period,
our Q2 and H1 2018 OCF margins were up 10 and down 10 basis points,
respectively, to 43.0% and 42.0%
Q2 2018 Rebased Operating Cash Flow Growth
- Segment Highlights
- U.K./Ireland: Rebased OCF growth of 2.4% was
negatively impacted by the aforementioned increase in U.K. costs
relating to compensation for prior period contractual breaches
related to network charges, the reassessment of an accrual and
higher network taxes. Aside from these items, rebased OCF growth
resulted from the net effect of (i) increased revenue, (ii) higher
handset costs and (iii) lower marketing costs
- Belgium:
Rebased OCF growth of 9.0%, largely driven by the net effect of (i)
lower direct costs as a result of the migration of subscribers to
our own mobile network and (ii) the aforementioned revenue
decrease
- Switzerland: Rebased OCF decline of 11.0% in Q2,
due to the aforementioned revenue decline, an increase in
interconnect costs and an increase in expenses associated with the
MySports Platform that was launched in Q3 2017
- Continuing CEE
(Poland, Slovakia and DTH): Rebased OCF declined 2.5%,
driven by the net effect of (i) the aforementioned revenue trend
and (ii) the accrual of $2.6 million of additional costs during the
second quarter of 2018 following the reassessment of an operational
contingency
Net Earnings (Loss) Attributable to Liberty Global
Shareholders
- Net earnings was $912.6 million for the
three months ended June 30, 2018, as compared to a net loss of
$683.2 million for the prior-year period. On a YTD basis, our net
loss was $273.9 million and $1,009.7 million during the 2018 and
2017 periods, respectively
Leverage and Liquidity
- Total capital
leases and principal amount of third-party debt: $31.8
billion for continuing operations
- Leverage
ratios11: At June 30, 2018, our
adjusted gross and net leverage ratios for the Full Company were
5.0x and 4.9x, respectively.
- Average debt
tenor : Over 7 years, with ~72% not due until 2024 or
thereafter for continuing operations
- Borrowing
costs: Blended fully-swapped borrowing cost of our
third-party debt was 4.0% for continuing operations
- Liquidity:
$3.5 billion, including (i) $0.9 billion of cash at June 30, 2018
and (ii) aggregate unused borrowing capacity13 under our credit
facilities of $2.6 billion, for our continuing operations
Forward-Looking Statements and Disclaimer
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including statements with respect to our strategies, future
growth prospects and opportunities; expectations with respect to
our OCF growth, our Adjusted FCF, our new build and upgrade and our
P&E additions, each on a continuing operations and full company
basis; expectations with respect to the development, enhancement
and deployment of our innovative and advanced products and
services; the anticipated closing of the Vodafone transaction;
expectations with respect to the use of proceeds from the sale of
UPC Austria; expectations regarding our share buyback program; the
expected settlement of a portion of our 2018 annual incentive
compensation with Liberty Global ordinary shares; the strength of
our balance sheet and tenor of our third-party debt; and other
information and statements that are not historical fact. These
forward-looking statements involve certain risks and uncertainties
that could cause actual results to differ materially from those
expressed or implied by these statements. These risks and
uncertainties include events that are outside of our control, such
as the continued use by subscribers and potential subscribers of
our and our affiliates’ services and their willingness to upgrade
to our more advanced offerings; our and our affiliates’ ability to
meet challenges from competition, to manage rapid technological
change or to maintain or increase rates to subscribers or to pass
through increased costs to subscribers; the effects of changes in
laws or regulation; general economic factors; our and our
affiliates’ ability to obtain regulatory approval and satisfy
regulatory conditions associated with acquisitions and
dispositions; our and affiliates’ ability to successfully acquire
and integrate new businesses and realize anticipated efficiencies
from acquired businesses; the availability of attractive
programming for our and our affiliates’ video services and the
costs associated with such programming; our and our affiliates’
ability to achieve forecasted financial and operating targets; the
outcome of any pending or threatened litigation; the ability of our
operating companies and affiliates to access cash of their
respective subsidiaries; the impact of our operating companies' and
affiliates’ future financial performance, or market conditions
generally, on the availability, terms and deployment of capital;
fluctuations in currency exchange and interest rates; the ability
of suppliers and vendors (including our third-party wireless
network providers under our MVNO arrangements) to timely deliver
quality products, equipment, software, services and access; our and
our affiliates’ ability to adequately forecast and plan future
network requirements including the costs and benefits associated
with network expansions; and other factors detailed from time to
time in our filings with the Securities and Exchange Commission,
including our most recently filed Forms 10-K and 10-Q. These
forward-looking statements speak only as of the date of this
release. We expressly disclaim any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in our
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based.
Balance Sheets, Statements of Operations and Statements of
Cash Flows
The condensed consolidated balance sheets, statements of
operations and statements of cash flows of Liberty Global are in
our 10-Q.
Rebase Information
For purposes of calculating rebased growth rates on a comparable
basis for all businesses that we owned during 2018, we have
adjusted our historical revenue and OCF for the three and six
months ended June 30, 2017 to (i) include the pre-acquisition
revenue and OCF of entities acquired during 2018 and 2017 in our
rebased amounts for the three and six months ended June 30, 2017 to
the same extent that the revenue and OCF of these entities are
included in our results for the three and six months ended June 30,
2018, (ii) include revenue and certain operating and SG&A
expenses associated with the framework services agreement with the
VodafoneZiggo JV to reflect amounts equal to the framework services
agreement amounts included in our results for the three and six
months ended June 30, 2018, (iii) exclude the revenue and OCF of
entities disposed of during 2017, (iv) include revenue for the
temporary elements of the Split-off Agreements with Liberty Latin
America as if the Split-off Agreements had been in place at the
beginning of 2017, (v) reflect the January 1, 2018 adoption of the
new revenue recognition standard (ASU 2014-09, Revenue from
Contracts with Customers) as if such adoption had occurred on
January 1, 2017 and (vi) reflect the translation of our rebased
amounts for the three and six months ended June 30, 2017 at the
applicable average foreign currency exchange rates that were used
to translate our results for the three and six months ended June
30, 2018. We have reflected the revenue and OCF of these acquired
entities in our 2017 rebased amounts based on what we believe to be
the most reliable information that is currently available to us
(generally pre-acquisition financial statements), as adjusted for
the estimated effects of (a) any significant differences between
U.S. GAAP and local generally accepted accounting principles, (b)
any significant effects of acquisition accounting adjustments, (c)
any significant differences between our accounting policies and
those of the acquired entities and (d) other items we deem
appropriate. We do not adjust pre-acquisition periods to eliminate
nonrecurring items or to give retroactive effect to any changes in
estimates that might be implemented during post-acquisition
periods. As we did not own or operate the acquired businesses
during the pre-acquisition periods, no assurance can be given that
we have identified all adjustments necessary to present the revenue
and OCF of these entities on a basis that is comparable to the
corresponding post-acquisition amounts that are included in our
historical results or that the pre-acquisition financial statements
we have relied upon do not contain undetected errors. The
adjustments reflected in our rebased amounts have not been prepared
with a view towards complying with Article 11 of Regulation S-X. In
addition, the rebased growth percentages are not necessarily
indicative of the revenue and OCF that would have occurred if these
transactions had occurred on the dates assumed for purposes of
calculating our rebased amounts or the revenue and OCF that will
occur in the future. The rebased growth percentages have been
presented as a basis for assessing growth rates on a comparable
basis, and are not presented as a measure of our pro forma
financial performance.
The following table provides adjustments made to the 2017
amounts to derive our rebased growth rates:
Revenue OCF
Three months endedJune
30,
Six months endedJune 30,
Three months endedJune
30,
Six months endedJune 30,
2017 2017 2017 2017 in millions
Continuing operations: Acquisitions $ 23.6 $ 40.9 $ 9.8 $ 19.5
Revenue Recognition (ASU 2014-09) (4.0 ) (8.8 ) (7.6 ) (13.4 )
Dispositions(i) (6.4 ) (15.0 ) (2.6 ) (7.1 ) Foreign Currency 175.6
516.2 72.4 211.7 Total increase $ 188.8
$ 533.3 $ 72.0 $ 210.7
Discontinued European Operations: Revenue Recognition (ASU 2014-09)
$ (4.9 ) $ (9.9 ) $ (3.2 ) $ (5.1 ) Foreign Currency 74.3
206.6 43.7 119.2 Total increase $ 69.4
$ 196.7 $ 40.5 $ 114.1 Full Company:
Acquisitions $ 23.6 $ 40.9 $ 9.8 $ 19.5 Revenue Recognition (ASU
2014-09) (8.9 ) (18.7 ) (10.8 ) (18.5 ) Dispositions(i) (6.4 )
(15.0 ) (2.6 ) (7.1 ) Foreign Currency 249.9 722.8
116.1 330.9 Total increase $ 258.2 $ 730.0
$ 112.5 $ 324.8
(i)
Includes rebase adjustments related to agreements to provide
transitional and other services to the VodafoneZiggo JV and Liberty
Latin America. These adjustments result in an equal amount of fees
in both the 2018 and 2017 periods for those services that are
deemed to be temporary in nature. The net amount of these
adjustments resulted in decreases in both revenue and OCF of $0.8
million for the three months ended June 30, 2017 and decreases in
revenue and OCF of $1.7 million and $1.5 million, respectively, for
the six months ended June 30, 2017.
Summary of Debt, Capital Lease Obligations & Cash and
Cash Equivalents
The following table(i) details the U.S. dollar equivalent
balances of the outstanding principal amount of our continuing
operations debt, capital lease obligations and cash and cash
equivalents at June 30, 2018:
Capital Debt
& Capital Cash Lease
Lease and Cash Debt(ii), (iii)
Obligations Obligations Equivalents in
millions Liberty Global and unrestricted subsidiaries $ 2,170.9
$ 57.1 $ 2,228.0 $ 670.6 Virgin Media(iv) 16,824.8 73.5 16,898.3
38.2 UPC Holding 6,980.1 80.6 7,060.7 5.9 Telenet 5,320.5
461.6 5,782.1 147.7 Total $ 31,296.3 $ 672.8
$ 31,969.1 $ 862.4
______________________________
(i) Except as otherwise indicated, the amounts reported in
the table include the named entity and its subsidiaries. (ii) Debt
amounts for UPC Holding and Telenet include notes issued by special
purpose entities that are consolidated by the respective
subsidiary. (iii) Debt amounts for UPC Holding include those
amounts that are not a direct obligation of the entities to be
disposed within the UPC Holding borrowing group. Certain of these
obligations have been or are expected to be repaid with portions of
the proceeds from the disposition of UPC Austria and the Vodafone
Disposal Group. (iv) The Virgin Media borrowing group includes
certain subsidiaries of Virgin Media, but excludes the parent
entity, Virgin Media Inc. The cash and cash equivalents amount
includes cash and cash equivalents held by the Virgin Media
borrowing group, but excludes cash and cash equivalents held by
Virgin Media Inc. This amount is included in the amount shown for
Liberty Global and unrestricted subsidiaries.
Property and Equipment Additions and Capital
Expenditures
The tables below highlight the categories of the property and
equipment additions for the indicated periods and reconcile those
additions to the capital expenditures that are presented in the
condensed consolidated statements of cash flows in our 10-Q.
Three months ended June 30, 2018
2017 2018
2017 2018 2017
Continuingoperations
DiscontinuedEuropean
Operations
Full Company in millions, except % amounts Customer
premises equipment $ 242.3 $ 218.0 $ 58.0 $ 86.2 $ 300.3 $ 304.2
New Build & Upgrade 190.4 233.4 73.9 72.1 264.3 305.5 Capacity
84.9 139.8 33.7 23.2 118.6 163.0 Baseline 190.7 153.0 48.1 47.9
238.8 200.9 Product & Enablers 156.6 209.0 31.1
21.2 187.7 230.2 Total P&E Additions 864.9
953.2 $ 244.8 $ 250.6 $ 1,109.7 $ 1,203.8
Reconciliation of P&E Additions to capital expenditures: Assets
acquired under capital-related vendor financing arrangements(i)
(551.6 ) (605.0 ) Assets acquired under capital leases (22.6 )
(71.3 ) Changes in current liabilities related to capital
expenditures 21.1 (19.3 ) Total capital expenditures,
net(ii) $ 311.8 $ 257.6 Capital expenditures,
net: Third-party payments $ 343.7 $ 358.5 Proceeds received for
transfers to related parties(iii) (31.9 ) (100.9 ) Total capital
expenditures, net $ 311.8 $ 257.6 P&E
Additions as % of revenue3 28.4 % 34.4 %
Six months ended June 30, 2018
2017 2018 2017
2018 2017
Continuingoperations
DiscontinuedEuropean
Operations
Full Company in millions, except % amounts Customer
premises equipment $ 539.9 $ 440.9 $ 136.7 $ 159.3 $ 676.6 $ 600.2
New Build & Upgrade 378.4 364.6 148.8 130.7 527.2 495.3
Capacity 211.4 239.6 60.1 40.0 271.5 279.6 Product & Enablers
364.4 318.4 59.2 37.5 423.6 355.9 Baseline 356.3 268.2
105.5 89.0 461.8 357.2 Total P&E
Additions 1,850.4 1,631.7 $ 510.3 $ 456.5 $ 2,360.7
$ 2,088.2 Reconciliation of P&E Additions to capital
expenditures: Assets acquired under capital-related vendor
financing arrangements(i) (1,187.9 ) (1,164.1 ) Assets acquired
under capital leases (46.5 ) (97.9 ) Changes in current liabilities
related to capital expenditures 181.8 218.3 Total
capital expenditures, net(ii) $ 797.8 $ 588.0
Capital expenditures, net: Third-party payments $ 855.1 $ 782.9
Proceeds received for transfers to related parties(iii) (57.3 )
(194.9 ) Total capital expenditures, net $ 797.8 $ 588.0
P&E Additions as % of revenue3 30.1 % 30.0 %
______________________________
(i) Amounts exclude related VAT of $88 million and $94
million during the three months ended June 30, 2018 and 2017,
respectively, and $186 million and $184 million during the six
months ended June 30, 2018 and 2017, respectively, that were also
financed by our vendors under these arrangements. (ii) The capital
expenditures that we report in our consolidated statements of cash
flows do not include amounts that are financed under vendor
financing or capital lease arrangements. Instead, these
expenditures are reflected as non-cash additions to our property
and equipment when the underlying assets are delivered, and as
repayments of debt when the related principal is repaid. (iii)
Primarily relates to transfers of centrally-procured property and
equipment to our discontinued operations and the VodafoneZiggo JV.
ARPU per Cable Customer Relationship
The following table provides ARPU per cable customer
relationship for the indicated periods:
Three months ended June 30,
% Rebased 2018
2017(3)
Change % Change Liberty Global $ 58.73 $ 54.58
7.6 % 1.0 % U.K. & Ireland (Virgin Media) £ 51.11 £ 50.29 1.6 %
1.6 % Belgium (Telenet) € 55.15 € 55.04 0.2 % 0.6 % UPC € 30.83 €
33.39 (7.7 %) (2.4 %)
Mobile ARPU
The following tables provide ARPU per mobile subscriber for the
indicated periods:
ARPU per Mobile Subscriber Three months
ended June 30, %
Rebased 2018
2017(3)
Change % Change Liberty Global: Including
interconnect revenue $ 18.88 $ 19.15 (1.4 %) (3.5 %) Excluding
interconnect revenue $ 15.08 $ 15.36 (1.8 %) (4.5 %)
Footnotes for Consolidated Operating Data and Subscriber
Variance Tables
(i) We have approximately 197,000 “lifeline” customers that
are counted on a per connection basis, representing the least
expensive regulated tier of video cable service, with only a few
channels. (ii) Our Internet Subscribers exclude 36,200 digital
subscriber line (“DSL”) subscribers within Austria that are not
serviced over our networks. Our Internet Subscribers do not include
customers that receive services from dial-up connections. In
Switzerland, we offer a 2 Mbps internet service to our Basic and
Enhanced Video Subscribers without an incremental recurring fee.
Our Internet Subscribers in Switzerland include 79,400 subscribers
who have requested and received this service. (iii) Our Telephony
Subscribers exclude 28,300 subscribers within Austria that are not
serviced over our networks. In Switzerland, we offer a basic phone
service to our Basic and Enhanced Video Subscribers without an
incremental recurring fee. Our Telephony Subscribers in Switzerland
include 141,200 subscribers who have requested and received this
service. (iv) In a number of countries, our mobile subscribers
receive mobile services pursuant to prepaid contracts. As of June
30, 2018, our mobile subscriber count included 501,000 and 442,700
prepaid mobile subscribers in Belgium and the U.K., respectively.
(v) Pursuant to service agreements, Switzerland offers enhanced
video, broadband internet and telephony services over networks
owned by third-party cable operators (“partner networks”). A
partner network RGU is only recognized if there is a direct billing
relationship with the customer. At June 30, 2018, Switzerland’s
partner networks account for 129,000 Cable Customer Relationships,
301,100 RGUs, which include 108,200 Enhanced Video Subscribers,
110,100 Internet Subscribers, and 82,800 Telephony Subscribers.
Subscribers to enhanced video services provided by partner networks
receive basic video services from the partner networks as opposed
to our operations. Due to the fact that we do not own these partner
networks, we do not report homes passed for Switzerland’s partner
networks.
Additional General Notes to
Tables:
Most of our broadband communications subsidiaries provide
telephony, broadband internet, data, video or other B2B services.
Certain of our B2B revenue is derived from SOHO subscribers that
pay a premium price to receive enhanced service levels along with
video, internet or telephony services that are the same or similar
to the mass marketed products offered to our residential
subscribers. All mass marketed products provided to SOHOs, whether
or not accompanied by enhanced service levels and/or premium
prices, are included in the respective RGU and customer counts of
our broadband communications operations, with only those services
provided at premium prices considered to be “SOHO RGUs” or “SOHO
customers.” To the extent our existing customers upgrade from a
residential product offering to a SOHO product offering, the number
of SOHO RGUs or SOHO customers will increase, but there is no
impact to our total RGU or customer counts. With the exception of
our B2B SOHO subscribers, we generally do not count customers of
B2B services as customers or RGUs for external reporting
purposes.
In Germany, homes passed reflect the footprint and two-way homes
passed reflect the technological capability of our network up to
the street cabinet, with drops from the street cabinet to the
building generally added, and in-home wiring generally upgraded, on
an as needed or success-based basis. In Belgium, Telenet leases a
portion of its network under a long-term capital lease arrangement.
These tables include operating statistics for Telenet's owned and
leased networks.
While we take appropriate steps to ensure that subscriber
statistics are presented on a consistent and accurate basis at any
given balance sheet date, the variability from country to country
in (i) the nature and pricing of products and services, (ii) the
distribution platform, (iii) billing systems, (iv) bad debt
collection experience and (v) other factors add complexity to the
subscriber counting process. We periodically review our subscriber
counting policies and underlying systems to improve the accuracy
and consistency of the data reported on a prospective basis.
Accordingly, we may from time to time make appropriate adjustments
to our subscriber statistics based on those reviews.
Subscriber information for acquired entities is preliminary and
subject to adjustment until we have completed our review of such
information and determined that it is presented in accordance with
our policies.
Consolidated Operating Data — June 30, 2018
Video
Homes
Passed
Two-way
Homes
Passed
CableCustomerRelationships
Basic Video
Subscribers(i)
EnhancedVideoSubscribers
DTH
Subscribers
Total
Video
Internet
Subscribers(ii)
Telephony
Subscribers(iii)
Total
RGUs
Total Mobile
Subscribers(iv)
Continuing operations: U.K. 14,229,900 14,218,100
5,473,200 — 3,888,400 — 3,888,400 5,166,500 4,486,100 13,541,000
3,034,400 Belgium 3,333,300 3,333,300 2,159,200 220,200 1,783,000 —
2,003,200 1,679,400 1,295,500 4,978,100 2,724,900 Switzerland(v)
2,302,500 2,302,500 1,168,500 469,200 665,300 — 1,134,500 725,100
530,400 2,390,000 129,400 Ireland 903,500 869,800 435,100 10,700
260,100 — 270,800 371,100 352,500 994,400 64,200 Poland 3,408,400
3,351,900 1,430,200 180,600 1,029,300 — 1,209,900 1,147,800 636,800
2,994,500 3,500 Slovakia 609,200 594,400 192,800 26,700 140,200 —
166,900 133,300 81,100 381,300 — DTH — — 778,300
— — 778,300 778,300 10,900
10,900 800,100 —
Total continuing
operations 24,786,800 24,670,000
11,637,300 907,400 7,766,300
778,300 9,452,000
9,234,100 7,393,300 26,079,400
5,956,400 Discontinued European
Operations: Germany 13,037,900 12,959,500 7,164,600 4,665,400
1,640,400 — 6,305,800 3,541,000 3,311,400 13,158,200 292,900
Austria 1,420,300 1,420,300 657,400 92,600 359,200 — 451,800
524,900 472,600 1,449,300 81,200 Romania 3,137,400 3,097,600
978,400 245,800 685,800 — 931,600 589,800 557,300 2,078,700 —
Hungary 1,807,300 1,789,800 853,200 77,400 610,300 — 687,700
680,300 652,700 2,020,700 99,000 Czech Republic 1,537,100
1,517,300 615,800 174,000 360,400 —
534,400 501,400 178,800 1,214,600
—
Total Discontinued European Operations
20,940,000 20,784,500 10,269,400
5,255,200 3,656,100 —
8,911,300 5,837,400
5,172,800 19,921,500 473,100
Subscriber Variance Table - June 30, 2018
vs March 31, 2018
Video
Homes
Passed
Two-way Homes
Passed
CableCustomerRelationships
Basic Video
Subscribers(i)
EnhancedVideoSubscribers
DTH
Subscribers
Total
Video
Internet
Subscribers(ii)
Telephony
Subscribers(iii)
Total
RGUs
Total Mobile
Subscribers(iv)
Continuing operations: U.K. 142,600 142,600 20,600 —
48,400 — 48,400 31,000 40,100 119,500 16,400 Belgium 7,000 7,000
(15,600 ) (12,900 ) 4,000 — (8,900 ) 3,200 (2,700 ) (8,400 )
(101,200 ) Switzerland(v) 12,100 12,100 (37,000 ) (26,800 ) (8,800
) — (35,600 ) (13,100 ) (5,100 ) (53,800 ) 7,700 Ireland 7,100
7,800 (3,100 ) (3,000 ) — — (3,000 ) (1,500 ) (2,800 ) (7,300 )
4,300 Poland 33,200 33,400 (2,400 ) (2,900 ) 2,600 — (300 ) 2,600
2,800 5,100 (300 ) Slovakia 2,800 2,700 (2,100 ) 400 (1,300 ) —
(900 ) (200 ) 100 (1,000 ) — DTH — — (11,200 ) —
— (11,200 ) (11,200 ) — — (11,200 ) —
Total continuing operations 204,800
205,600 (50,800 ) (45,200
) 44,900 (11,200 )
(11,500 ) 22,000 32,400
42,900 (73,100 )
Discontinued European Operations: Germany 33,400 34,000
6,400 (11,500 ) (2,700 ) — (14,200 ) 38,200 37,100 61,100 (11,000 )
Austria 5,400 5,400 1,300 400 (4,100 ) — (3,700 ) 3,600 6,500 6,400
8,400 Romania 17,300 20,400 (3,000 ) (9,100 ) 5,600 — (3,500 )
2,600 9,500 8,600 — Hungary 10,400 10,400 3,700 (6,200 ) 8,600 —
2,400 6,700 12,000 21,100 5,100 Czech Republic 4,800 4,900
(1,600 ) (900 ) 2,500 — 1,600 600
5,700 7,900 —
Total Discontinued
European Operations 71,300 75,100
6,800 (27,300 ) 9,900
— (17,400 ) 51,700
70,800 105,100 2,500
Subscriber Variance Table - June 30, 2018
vs March 31, 2018
Video
HomesPassed
Two-wayHomesPassed
CableCustomerRelationships
Basic Video
Subscribers(i)
EnhancedVideoSubscribers
DTH
Subscribers
Total
Video
Internet
Subscribers(ii)
Telephony
Subscribers(iii)
Total
RGUs
Total Mobile
Subscribers(iv)
Organic Change Summary: U.K. 142,600 142,600
20,600 — 48,400 — 48,400 31,000 40,100 119,500 16,400 Belgium 7,000
7,000
(15,600
) (12,900 ) 4,000 — (8,900 ) 3,200 (2,700 ) (8,400 ) 26,100 Other
Europe 55,200 56,000 (55,800 ) (32,300 ) (7,500 )
(11,200 ) (51,000 ) (12,200 ) (5,000 ) (68,200 ) 11,700
Total Organic Change 204,800 205,600 (50,800 )
(45,200 ) 44,900 (11,200 ) (11,500 ) 22,000 32,400
42,900 54,200
Q2 2018
Adjustments: Q2 2018 Belgium Adjustment — —
— — — — — — —
— (127,300 )
Net Adds (Reductions) 204,800
205,600 (50,800 ) (45,200 ) 44,900 (11,200 )
(11,500 ) 22,000 32,400 42,900 (73,100 )
Footnotes
1 The term "Full Company" includes our continuing operations
and our the Discontinued European Operations, which is the basis
(i) on which analyst consensus estimates for our key performance
indicators are currently derived and on which we originally
provided our 2018 guidance for OCF, Adjusted FCF and Property and
Equipment Additions and (ii) that we use to calculate our
respective leverage ratios for debt covenant compliance purposes.
We present revenue, OCF, Adjusted FCF and Property and Equipment
Additions on a Full Company basis in order to allow readers to
track our performance against analyst consensus estimates and our
original 2018 guidance, as applicable. We plan to provide Full
Company information with respect to our original 2018 guidance in
our third and fourth quarter 2018 earnings releases so that
investors can continue to track our progress against this guidance.
2 On December 29, 2017, the former LiLAC Group was split-off into a
separate public company, and on May 9, 2018, we agreed to sell our
operations in Germany, Hungary, Romania and the Czech Republic.
Previously we had agreed to sell our operations in Austria and this
transaction was completed on July 31, 2018. As a result of the
foregoing, the former LiLAC Group and our operations in Germany,
Austria, Hungary, Romania and the Czech Republic have all been
accounted for as discontinued operations in our June 30, 2018 Form
10-Q (“10-Q”). Unless otherwise indicated, the information in this
release relates only to our continuing operations. For a summary of
selected quarterly information of our continuing and discontinued
operations, as adjusted to give pro forma effect to the adoption of
ASU 2014-09 and retrospective effect to the adoption of ASU 2017-07
(as further discussed below in note 3), see the Appendix. For
additional information regarding our discontinued operations, see
note 4 to the condensed consolidated financial statements included
in our 10-Q. 3 Effective January 1, 2018, we adopted Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers
(“ASU 2014-09”), on a prospective basis. All applicable 2017
amounts in this release are presented on a pro forma basis that
gives effect to the adoption of ASU 2014-09 as if such adoption had
occurred on January 1, 2017. In addition, on January 1, 2018, we
adopted ASU No. 2017-07, Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU
2017-07”) on a retrospective basis. Accordingly, the operating
income and OCF amounts for the 2017 periods in this release have
been retrospectively revised to reflect the impact of ASU 2017-07.
For a summary of selected quarterly information of our continuing
and discontinued operations, as adjusted to give pro forma effect
to the adoption of ASU 2014-09 and retrospective effect to the
adoption of ASU 2017-07, see the Appendix. For additional
information regarding these accounting changes, see note 2 to the
condensed consolidated financial statements included in our 10-Q. 4
The indicated growth rates are rebased for acquisitions,
dispositions, FX and other items that impact the comparability of
our year-over-year results. Please see Rebase Information for
information on rebased growth. 5 Based on FX rates as of February
13, 2018. New build and upgrade spend excludes related CPE. 6 For
purposes of calculating our average tenor, total third-party debt
excludes vendor financing. 7 Liquidity refers to cash and cash
equivalents plus the maximum undrawn commitments under subsidiary
borrowing facilities, without regard to covenant compliance
calculations. 8 Includes subscription and non-subscription revenue.
For additional information regarding how we define our revenue
categories, see note 16 to the condensed consolidated financial
statements included in our 10-Q. 9 Total B2B includes subscription
(SOHO) and non-subscription revenue. B2B and SOHO growth rates
include upsell from our residential businesses. 10 During the first
six months of 2018, we have recognized in Virgin Media's
program–to–date totals a further 8,100 premises where construction
was completed in prior periods, but serviceability was confirmed
during 2018. These 8,100 premises have been included in our Q2
Project Lightning build number, in addition to the 109,800 premises
constructed in Q2. 11 Consistent with how we calculate our leverage
ratios under our debt agreements, we calculate our debt ratios on a
Full Company basis, with the gross and net debt ratios defined as
total debt and net debt, respectively, divided by annualized OCF of
the latest quarter. Net debt is defined as total debt less cash and
cash equivalents. For purposes of these calculations, debt is
measured using swapped foreign currency rates, consistent with the
covenant calculation requirements of our subsidiary debt
agreements, and excludes the loans backed or secured by the shares
we hold in ITV plc, Sumitomo Corporation and Lions Gate
Entertainment Corp. We have not presented leverage ratios on a
continuing operations basis as we believe that such a presentation
would overstate our leverage and would not be representative of the
actual leverage ratios that we will report once all dispositions
are completed. This is due to the fact that our continuing
operations exclude all of the OCF of the entities to be disposed
but include a portion of the debt that we expect to repay with the
proceeds from such dispositions. For additional information, see
the details of our pro forma Adjusted FCF within the Glossary and
note 4 to the condensed consolidated financial statements included
in our 10-Q. 12 Organic figures exclude RGUs of acquired entities
at the date of acquisition and other nonorganic adjustments, but
include the impact of changes in RGUs from the date of acquisition.
All subscriber/RGU additions or losses refer to net organic
changes, unless otherwise noted. 13 Our aggregate unused borrowing
capacity of $2.6 billion represents the maximum undrawn commitments
under the applicable facilities of our continuing operations
without regard to covenant compliance calculations. Upon completion
of the relevant June 30, 2018 compliance reporting requirements for
our credit facilities, and assuming no further changes from
quarter-end borrowing levels, we anticipate that the borrowing
capacity of our continuing operations would be $2.3 billion.
Glossary
Adjusted Free Cash Flow (FCF): net
cash provided by our operating activities, plus (i) cash payments
for third-party costs directly associated with successful and
unsuccessful acquisitions and dispositions and (ii) expenses
financed by an intermediary, less (a) capital expenditures, as
reported in our condensed consolidated statements of cash flows,
(b) principal payments on amounts financed by vendors and
intermediaries and (c) principal payments on capital leases
(exclusive of the portions of the network lease in Belgium and the
duct leases in Germany that we assumed in connection with certain
acquisitions), with each item excluding any cash provided or used
by our discontinued operations. We believe that our presentation of
Adjusted Free Cash Flow provides useful information to our
investors because this measure can be used to gauge our ability to
service debt and fund new investment opportunities. Adjusted Free
Cash Flow should not be understood to represent our ability to fund
discretionary amounts, as we have various mandatory and contractual
obligations, including debt repayments, which are not deducted to
arrive at this amount. Investors should view Adjusted Free Cash
Flow as a supplement to, and not a substitute for, U.S. GAAP
measures of liquidity included in our condensed consolidated
statements of cash flows.
The following table provides a reconciliation of our net cash
provided by operating activities from continuing operations to
Adjusted Free Cash Flow for the indicated periods. In addition, in
order to provide information regarding the changes to our Adjusted
Free Cash Flow that we expect will occur following the sale of the
Discontinued European Operations, we also present Adjusted Free
Cash Flow on a pro forma basis for three and six months ended June
30, 2018 as if the sale of the Discontinued European Operations had
been completed on January 1, 2018.
Three months ended June 30, 2018
2017((i))
2018
2017((i))
2018
2017((i))
Continuing operations Discontinued European
Operations Full Company in millions Net
cash provided by operating activities of our continuing operations
$ 1,464.9 $ 1,085.1 $ 520.9 $ 423.4 $ 1,985.8 $ 1,508.5 Cash
payments for direct acquisition and disposition costs 3.2 4.2 — —
3.2 4.2 Expenses financed by an intermediary(ii) 409.1 314.0 77.8
32.8 486.9 346.8 Capital expenditures, net (311.8 ) (258.0 ) (121.2
) (186.2 ) (433.0 ) (444.2 ) Principal payments on amounts financed
by vendors and intermediaries (1,675.3 ) (984.5 ) (130.1 ) (82.6 )
(1,805.4 ) (1,067.1 ) Principal payments on certain capital leases
(21.2 ) (22.3 ) (1.5 ) (1.0 ) (22.7 ) (23.3 )
Adjusted FCF (131.1 ) $ 138.5 $ 345.9 $ 186.4
$ 214.8 $ 324.9 Pro forma adjustments for sale
of the Discontinued European Operations related to: Interest and
derivative payments(iii) (0.5 ) Transition services agreements(iv)
50.5 Pro forma Adjusted FCF(v) $ (81.1 )
Six months ended June 30, 2018
2017((i))
2018
2017((i))
2018
2017((i))
Continuing operations Discontinued
European Operations
Full company in millions Net cash provided by
operating activities of our continuing operations $ 2,142.9 $
1,558.4 $ 1,122.2 $ 854.5 $ 3,265.1 $ 2,412.9 Cash payments for
direct acquisition and disposition costs 4.8 6.0 — — 4.8 6.0
Expenses financed by an intermediary(ii) 916.4 577.2 128.3 67.4
1,044.7 644.6 Capital expenditures, net (797.8 ) (588.0 ) (281.2 )
(356.6 ) (1,079.0 ) (944.6 ) Principal payments on amounts financed
by vendors and intermediaries (3,353.3 ) (1,944.4 ) (248.9 ) (136.9
) (3,602.2 ) (2,081.3 ) Principal payments on certain capital
leases (40.9 ) (41.8 ) (2.8 ) (1.9 ) (43.7 ) (43.7 )
Adjusted FCF (1,127.9 ) $ (432.6 ) $ 717.6 $
426.5 $ (410.3 ) $ (6.1 ) Pro forma
adjustments for sale of Discontinued European Operations related
to: Interest and derivative payments(iii) 33.6 Transition services
agreements(iv) 102.5 Pro forma Adjusted FCF(v) $ (991.8 )
_______________
(i) Adjusted free cash flow for the three and six months
ended June 30, 2017 has been restated to reflect our January 1,
2018 adoption of ASU 2016-18, Restricted Cash. (ii) For purposes of
our condensed consolidated statements of cash flows, expenses
financed by an intermediary are treated as hypothetical operating
cash outflows and hypothetical financing cash inflows when the
expenses are incurred. When we pay the financing intermediary, we
record financing cash outflows in our condensed consolidated
statements of cash flows. For purposes of our Adjusted Free Cash
Flow definition, we add back the hypothetical operating cash
outflow when these financed expenses are incurred and deduct the
financing cash outflows when we pay the financing intermediary.
(iii) No debt, interest or derivative instruments of the UPC
Holding borrowing group, other than amounts that are direct
obligations of the entities to be disposed, was allocated to
discontinued operations in the condensed consolidated financial
statements that are included in our 10-Q. Notwithstanding the
foregoing, we expect to use proceeds from the disposition of the
Vodafone Disposal Group and have used proceeds from the July 31,
2018 sale of UPC Austria to repay debt of the UPC Holding borrowing
group to the extent necessary to maintain a leverage ratio that is
approximately four to five times UPC Holding's Covenant EBITDA. As
a result, this pro forma adjustment represents the estimated
interest and related derivative payments that would not have been
made by UPC Holding if the sale of the Discontinued European
Operations had been completed on January 1, 2018. These estimated
payments are calculated based on the Discontinued European
Operation's pro rata share of UPC Holding's OCF and the weighted
average interest rate of the UPC Holding borrowing group at June
30, 2018. Although we believe that these estimated payments
represent a reasonable estimate of the reduction in annual interest
and related derivative payments that will occur as a result of the
sale of the Discontinued European Operations, no assurance can be
given that the actual debt repayments will result in reductions
equivalent to the amounts presented. No pro forma adjustments are
required with respect to Unitymedia's interest and derivative
payments as substantially all of Unitymedia’s debt and related
derivative instruments are direct obligations of entities within
the Vodafone Disposal Group. As a result, the interest and related
derivative payments associated with such debt and derivative
instruments of Unitymedia are included in discontinued operations .
(iv) Represents our preliminary estimate of the net cash flows that
we would have received from transition services agreements if the
sale of the Discontinued European Operations had occurred on
January 1, 2018. The estimated net cash flows are based on the
estimated revenue that we expect to recognize from our transition
services agreements during the first 12 months following the
completion of the sale of the Discontinued European Operations,
less the estimated incremental costs that we expect to incur to
provide such transition services. (v) Represents the Adjusted FCF
that we estimate would have resulted if the sale of the
Discontinued European Operations had been completed on January 1,
2018. Actual amounts may differ from the amounts assumed for
purposes of this pro forma calculation.
ARPU: Average Revenue Per Unit is
the average monthly subscription revenue per average cable customer
relationship or mobile subscriber, as applicable. Following the
adoption of ASU 2014-09, subscription revenue excludes interconnect
fees, channel carriage fees, mobile handset sales and late fees,
but includes the amortization of installation fees. Prior to the
adoption of ASU 2014-09, installation fees were excluded from
subscription revenue. ARPU per average cable customer relationship
is calculated by dividing the average monthly subscription revenue
from residential cable and SOHO services by the average number of
cable customer relationships for the period. ARPU per average
mobile subscriber is calculated by dividing residential mobile and
SOHO revenue for the indicated period by the average number of
mobile subscribers for the period. Unless otherwise indicated, ARPU
per cable customer relationship or mobile subscriber is not
adjusted for currency impacts. ARPU per RGU refers to average
monthly revenue per average RGU, which is calculated by dividing
the average monthly subscription revenue from residential and SOHO
services for the indicated period, by the average number of the
applicable RGUs for the period. Unless otherwise noted, ARPU in
this release is considered to be ARPU per average cable customer
relationship or mobile subscriber, as applicable. Cable customer
relationships, mobile subscribers and RGUs of entities acquired
during the period are normalized. In addition, for purposes of
calculating the percentage change in ARPU on a rebased basis, we
adjust the prior-year subscription revenue, cable customer
relationships, mobile subscribers and RGUs, as applicable, to
reflect acquisitions, dispositions, FX and the January 1, 2018
adoption of the new revenue recognition standard (ASU 2014-09,
Revenue from Contracts with Customers) on a comparable basis with
the current year, consistent with how we calculate our rebased
growth for revenue and OCF, as further described in the body of
this release.
ARPU per Mobile Subscriber: Our
ARPU per mobile subscriber calculation that excludes interconnect
revenue refers to the average monthly mobile subscription revenue
per average mobile subscriber and is calculated by dividing the
average monthly mobile subscription revenue (excluding handset
sales and late fees) for the indicated period, by the average of
the opening and closing balances of mobile subscribers in service
for the period. Our ARPU per mobile subscriber calculation that
includes interconnect revenue increases the numerator in the
above-described calculation by the amount of mobile interconnect
revenue during the period.
Basic Video Subscriber: a home,
residential multiple dwelling unit or commercial unit that receives
our video service over our broadband network either via an analog
video signal or via a digital video signal without subscribing to
any recurring monthly service that requires the use of
encryption-enabling technology. Encryption-enabling technology
includes smart cards, or other integrated or virtual technologies
that we use to provide our enhanced service offerings. We count
RGUs on a unique premises basis. In other words, a subscriber
with multiple outlets in one premises is counted as one RGU and a
subscriber with two homes and a subscription to our video service
at each home is counted as two RGUs.
Blended fully-swapped debt borrowing
cost: the weighted average interest rate on our aggregate
variable- and fixed-rate indebtedness (excluding capital leases and
including vendor financing obligations), including the effects of
derivative instruments, original issue premiums or discounts and
commitment fees, but excluding the impact of financing costs.
B2B: Business-to-Business.
Cable Customer Relationships: the
number of customers who receive at least one of our video, internet
or telephony services that we count as RGUs, without regard to
which or to how many services they subscribe. Cable Customer
Relationships generally are counted on a unique premises basis.
Accordingly, if an individual receives our services in two premises
(e.g., a primary home and a vacation home), that individual
generally will count as two Cable Customer Relationships. We
exclude mobile-only customers from Cable Customer
Relationships.
Customer Churn: the rate at which
customers relinquish their subscriptions. The annual rolling
average basis is calculated by dividing the number of disconnects
during the preceding 12 months by the average number of customer
relationships. For the purpose of computing churn, a disconnect is
deemed to have occurred if the customer no longer receives any
level of service from us and is required to return our equipment. A
partial product downgrade, typically used to encourage customers to
pay an outstanding bill and avoid complete service disconnection,
is not considered to be disconnected for purposes of our churn
calculations. Customers who move within our cable footprint and
upgrades and downgrades between services are also excluded from the
disconnect figures used in the churn calculation.
DTH Subscriber: a home, residential
multiple dwelling unit or commercial unit that receives our video
programming broadcast directly via a geosynchronous satellite.
Enhanced Video Subscriber: a home,
residential multiple dwelling unit or commercial unit that receives
our video service over our broadband network or through a partner
network via a digital video signal while subscribing to any
recurring monthly service that requires the use of
encryption-enabling technology. Enhanced Video Subscribers are
counted on a unique premises basis. For example, a subscriber
with one or more set-top boxes that receives our video service in
one premises is generally counted as just one subscriber. An
Enhanced Video Subscriber is not counted as a Basic Video
Subscriber. As we migrate customers from basic to enhanced
video services, we report a decrease in our Basic Video Subscribers
equal to the increase in our Enhanced Video Subscribers.
Homes Passed: homes, residential
multiple dwelling units or commercial units that can be connected
to our networks without materially extending the distribution
plant, except for DTH homes. Certain of our Homes Passed counts are
based on census data that can change based on either revisions to
the data or from new census results. We do not count homes passed
for DTH.
Internet Subscriber: a home,
residential multiple dwelling unit or commercial unit that receives
internet services over our networks, or that we service through a
partner network. Our Internet Subscribers do not include customers
that receive services from dial-up connections.
MDU: Multiple Dwelling Unit.
Mobile Subscriber Count: the number
of active SIM cards in service rather than services provided. For
example, if a mobile subscriber has both a data and voice plan on a
smartphone this would equate to one mobile subscriber.
Alternatively, a subscriber who has a voice and data plan for a
mobile handset and a data plan for a laptop would be counted as two
mobile subscribers. Customers who do not pay a recurring monthly
fee are excluded from our mobile telephony subscriber counts after
periods of inactivity ranging from 30 to 90 days, based on industry
standards within the respective country. In a number of countries,
our mobile subscribers receive mobile services pursuant to prepaid
contracts.
MVNO: Mobile Virtual Network
Operator.
NPS: Net Promoter Score.
OCF: As used herein, OCF has the
same meaning as the term "Adjusted OIBDA" that is referenced in our
Form 10-Q. OCF is the primary measure used by our chief operating
decision maker to evaluate segment operating performance. OCF is
also a key factor that is used by our internal decision makers to
(i) determine how to allocate resources to segments and (ii)
evaluate the effectiveness of our management for purposes of annual
and other incentive compensation plans. As we use the term, OCF is
defined as operating income before depreciation and amortization,
share-based compensation, provisions and provision releases related
to significant litigation and impairment, restructuring and other
operating items. Other operating items include (a) gains and
losses on the disposition of long-lived assets, (b) third-party
costs directly associated with successful and unsuccessful
acquisitions and dispositions, including legal, advisory and due
diligence fees, as applicable, and (c) other acquisition-related
items, such as gains and losses on the settlement of contingent
consideration. Our internal decision makers believe OCF is a
meaningful measure because it represents a transparent view of our
recurring operating performance that is unaffected by our capital
structure and allows management to (1) readily view operating
trends, (2) perform analytical comparisons and benchmarking between
segments and (3) identify strategies to improve operating
performance in the different countries in which we operate. We
believe our OCF measure is useful to investors because it is one of
the bases for comparing our performance with the performance of
other companies in the same or similar industries, although our
measure may not be directly comparable to similar measures used by
other public companies. OCF should be viewed as a measure of
operating performance that is a supplement to, and not a substitute
for, operating income, net earnings or loss, cash flow from
operating activities and other U.S. GAAP measures of income or cash
flows.
A reconciliation of our operating income to total OCF is
presented in the following table:
Three months ended June 30,
Six months ended June 30, 2018
2017(3)
2018
2017(3)
Continuingoperations
FullCompany
Continuingoperations
FullCompany
Continuingoperations
FullCompany
Continuingoperations
FullCompany
in millions Operating income $ 263.9 $ 745.6 $ 201.3
$ 467.6 $ 384.3 $ 1,238.7 $ 412.0 $ 887.0 Share-based compensation
expense 45.5 48.7 51.4 53.4 88.2 94.5 80.3 86.8 Depreciation and
amortization 970.2 1,077.1 922.0 1,178.5 2,017.5 2,373.5 1,789.7
2,306.8 Impairment, restructuring and other operating items, net
30.2 38.9 13.1 18.2 91.6 102.5
6.4 30.0 Total OCF $ 1,309.8 $ 1,910.3
$ 1,187.8 $ 1,717.7 $ 2,581.6 $ 3,809.2
$ 2,288.4 $ 3,310.6
OCF margin: calculated by dividing
OCF by total revenue for the applicable period.
Property and equipment additions (P&E
Additions): includes capital expenditures on an accrual
basis, amounts financed under vendor financing or capital lease
arrangements and other non-cash additions.
RGU: A Revenue Generating Unit is
separately a Basic Video Subscriber, Enhanced Video Subscriber, DTH
Subscriber, Internet Subscriber or Telephony Subscriber. A home,
residential multiple dwelling unit, or commercial unit may contain
one or more RGUs. For example, if a residential customer in our
U.K. market subscribed to our enhanced video service, fixed-line
telephony service and broadband internet service, the customer
would constitute three RGUs. Total RGUs is the sum of Basic Video,
Enhanced Video, DTH, Internet and Telephony Subscribers. RGUs
generally are counted on a unique premises basis such that a given
premises does not count as more than one RGU for any given service.
On the other hand, if an individual receives one of our services in
two premises (e.g., a primary home and a vacation home), that
individual will count as two RGUs for that service. Each bundled
cable, internet or telephony service is counted as a separate RGU
regardless of the nature of any bundling discount or promotion.
Non-paying subscribers are counted as subscribers during their free
promotional service period. Some of these subscribers may choose to
disconnect after their free service period. Services offered
without charge on a long-term basis (e.g., VIP subscribers or free
service to employees) generally are not counted as RGUs. We do not
include subscriptions to mobile services in our externally reported
RGU counts. In this regard, our June 30, 2018 RGU counts exclude
our separately reported postpaid and prepaid mobile
subscribers.
SIM: Subscriber Identification
Module.
SOHO: Small or Home Office
Subscribers.
Telephony Subscriber: a home,
residential multiple dwelling unit or commercial unit that receives
voice services over our networks, or that we service through a
partner network. Telephony Subscribers exclude mobile telephony
subscribers.
Two-way Homes Passed: homes passed
by those sections of our networks that are technologically capable
of providing two-way services, including video, internet and
telephony services.
U.S. GAAP: United States Generally
Accepted Accounting Principles.
YoY: Year-over-year.
Appendix
The former LiLAC Group and the Discontinued European Operations
have been accounted for as discontinued operations. In addition, on
January 1, 2018, we adopted ASU 2014-09 on a prospective basis and
ASU 2017-07 on a retrospective basis. The following table
provides a summary of selected quarterly information for our
continuing operations for the past six quarters that gives pro
forma effect to the adoption of ASU 2014-09 and reflects the
retrospective changes of ASU 2017-07. For additional information
concerning our discontinued operations and these accounting
changes, see notes 2 and 4 to the condensed consolidated financial
statements included in our 10-Q.
Three months ended Continuing
operations
March 31,2017
June 30,2017
September 30,2017
December 31,2017
March 31,2018
June 30,2018
in millions, except ARPU amounts Revenue: U.K./Ireland $
1,502.5 $ 1,563.8 $ 1,609.9 $ 1,709.6 $ 1,778.2 $ 1,734.9 Belgium
660.0 684.8 758.7 758.1 759.6 753.9 Switzerland 330.3 338.7 351.7
345.5 344.9 332.2 Continuing CEE 134.5 141.8 149.9 155.1 160.5
152.9 Central and Corporate and intersegment eliminations 37.7
41.8 50.0 45.2 51.3 71.2
Total revenue $ 2,665.0 $ 2,770.9 $ 2,920.2 $
3,013.5 $ 3,094.5 $ 3,045.1 OCF:
U.K./Ireland $ 642.9 $ 701.0 $ 708.2 $ 805.8 $ 762.6 $ 763.6
Belgium 296.5 316.7 356.4 327.0 357.6 383.7 Switzerland 203.7 212.4
214.1 199.5 186.5 189.0 Continuing CEE 58.3 64.8 70.6 74.7 71.9
67.9 Central and Corporate and intersegment eliminations(i) (100.8
) (107.1 ) (108.8 ) (107.2 ) (106.8 ) (94.4 ) Total OCF $ 1,100.6
$ 1,187.8 $ 1,240.5 $ 1,299.8 $ 1,271.8
$ 1,309.8 Operating income $
210.7 $ 201.3 $ 210.7 $ 149.4 $ 120.4 $ 263.9 Share-based
compensation expense 28.9 51.4 21.5 60.4 42.7 45.5 Depreciation and
amortization 867.7 922.0 953.7 1,070.5 1,047.3 970.2 Impairment,
restructuring and other operating items, net (6.7 ) 13.1
54.6 19.5 61.4 30.2 OCF $ 1,100.6
$ 1,187.8 $ 1,240.5 $ 1,299.8 $ 1,271.8
$ 1,309.8 ARPU per cable customer
relationship: Liberty Global $ 52.94 $ 54.58 $ 57.07
$ 57.43 $ 60.41 $ 58.73 U.K. &
Ireland (Virgin Media) £ 50.64 £ 50.29 £ 50.10
£ 50.73 £ 51.58 £ 51.11 Belgium (Telenet) €
54.43 € 55.04 € 55.07 € 55.18 € 54.90
€ 55.15 Switzerland CHF 70.69 CHF 71.53 CHF 70.55 CHF
70.03 CHF 68.49 CHF 70.36 Continuing CEE € 16.01 € 16.43
€ 16.36 € 16.56 € 16.75 € 16.48
ARPU per mobile subscriber: Excluding interconnect revenue $
14.35 $ 15.36 $ 15.59 $ 15.67 $ 14.80
$ 15.08 Including interconnect revenue $ 17.97
$ 19.15 $ 19.83 $ 19.71 $ 18.60 $ 18.88
_______________
(i) Includes amounts related to transactions between our
continuing operations and Discontinued European Operations, which
eliminations will no longer be recorded subsequent to the disposals
of the Discontinued European Operations.
The following table provides a summary of selected quarterly
information for the Discontinued European Operations for the past
six quarters that gives pro forma effect to the adoption of ASU
2014-09 and reflects the retrospective changes of ASU 2017-07. For
additional information concerning our discontinued operations and
these accounting changes, see notes 2 and 4 to the condensed
consolidated financial statements included in our 10-Q.
Three months ended Discontinued European
Operations
March 31,2017
June 30,2017
September 30,2017
December 31,2017
March 31,2018
June 30,2018
In millions, except ARPU amounts Revenue: Germany $ 616.2 $
642.1 $ 685.3 $ 702.3 $ 782.8 $ 728.9 Austria 92.5 96.1 103.2 104.1
109.7 108.8 Discontinued CEE (Hungary, Czech Republic &
Romania) 136.2 146.6 156.6 162.5 170.3 164.8 Intersegment
eliminations (0.7 ) (0.9 ) (1.0 ) (0.9 ) (1.2 ) (2.2 ) Total
revenue $ 844.2 $ 883.9 $ 944.1 $ 968.0
$ 1,061.6 $ 1,000.3 OCF: Germany $ 381.6 $
409.7 $ 440.5 $ 457.4 $ 492.1 $ 463.4 Austria 49.6 52.9 57.2 58.7
58.8 58.9 Discontinued CEE (Hungary, Czech Republic & Romania)
52.7 58.0 67.4 70.3 67.2 68.6 Intersegment eliminations(i) 8.4
9.3 10.5 11.6 9.0 9.6
Total OCF $ 492.3 $ 529.9 $ 575.6 $ 598.0
$ 627.1 $ 600.5 Operating income $
208.7 $ 266.3 $ 307.0 $ 332.3 $ 372.7 $ 481.7 Share-based
compensation expense 4.5 2.0 1.7 3.5 3.1 3.2 Depreciation and
amortization 260.6 256.5 262.8 263.2 249.1 106.9 Impairment,
restructuring and other operating items, net 18.5 5.1
4.1 (1.0 ) 2.2 8.7 OCF $ 492.3 $ 529.9
$ 575.6 $ 598.0 $ 627.1 $ 600.5
ARPU per cable customer relationship: Germany (Unitymedia) €
25.14 € 25.45 € 25.62 € 25.77 € 25.87
€ 26.15 Discontinued Other Europe (UPC Holding) €
19.72 € 19.82 € 19.88 € 19.78 € 19.89
€ 19.94
_______________
(i)
Includes amounts related to transactions between our
continuing operations and Discontinued European Operations, which
eliminations will no longer be recorded subsequent to the disposals
of the Discontinued European Operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180808005765/en/
Liberty GlobalInvestor RelationsMatt Coates, +44
20 8483 6333John Rea, +1 303 220 4238Stefan Halters, +1 303 784
4528orCorporate CommunicationsBill Myers, +1 303 220
6686Matt Beake, +44 20 8483 6428orCorporate
Websitewww.libertyglobal.com
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