Completed the sale of our operations in Germany, Hungary,
Romania and the Czech Republic to Vodafone
Announcing intended tender offers for Class A and Class C
shares of up to an aggregate of $2.5 billion
Disposal of UPC Switzerland remains on track to close in Q4
2019
Q2 2019 operating income down 43.7% YoY to $148.7 million for
continuing operations
Confirming all 2019 guidance targets
Liberty Global (NASDAQ: LBTYA, LBTYB and LBTYK):
Continuing Operations (Including
Switzerland)
Q2 2019
H1 2019
Organic RGU Additions
(28,800
)
(4,100
)
Revenue Growth4
(0.9
)%
(0.7
)%
OCF Growth4
(4.3
)%
(2.4
)%
Cash Flows From:
Operating Activities
$1,322 mm
$1,629 mm
Investing Activities
$(315) mm
$(683) mm
Financing Activities
$(858) mm
$(1,595) mm
OFCF Growth4
14
%
37
%
Adjusted FCF
$552 mm
$(73) mm
P&E Additions
$683 mm
$1,381 mm
Continuing Operations (Excluding
Switzerland)5
Q2 2019
H1 2019
Organic RGU Additions
(800
)
66,800
Revenue Growth4
(0.6
)%
(0.4
)%
OCF Growth4
(3.4
)%
(1.3
)%
OFCF Growth4
34
%
74
%
Adjusted FCF6
$546 mm
$(80) mm
P&E Additions
$605 mm
$1,245 mm
2019 Guidance Targets7
(Excluding Switzerland)5
OCF Growth4
Flat to Down
Adjusted FCF6
$550 - $600 mm
P&E Additions
~$2.7 bn
Liberty Global plc today announced its Q2 2019 financial
results. Our former operations in Austria, Germany, Hungary,
Romania and the Czech Republic, along with our DTH business
(collectively, the "Discontinued Operations") have been accounted
for as discontinued operations. UPC Switzerland will continue to be
included in our continuing operations until the pending sale
transaction is approved by Sunrise shareholders. Unless otherwise
indicated, the information in this release relates only to our
continuing operations.
CEO Mike Fries stated, "Earlier this year we laid out our
strategic and operating priorities for 2019, and I’m pleased to
report that we are making substantial progress across the board. In
July, we completed the sale of our operations in Germany, Hungary,
Romania and the Czech Republic to Vodafone for $21.3 billion1, and
our transaction to sell our Swiss business for $6.3 billion2
remains on track for the end of this year. With the net proceeds
from these deals, all valued at double-digit OCF multiples, our pro
forma cash balance will be over $14 billion3."
"Today we are announcing the first step towards allocating our
capital in a value-accretive manner with the intention to launch
cash tender offers of up to $2.5 billion consisting of up to $625
million Class A ordinary shares at an expected price range of
$25.25 to $29.00 and up to $1.875 billion Class C ordinary shares
at an expected price range of $24.75 to $28.50. We expect to launch
the tender offers around August 12. We are also focused on
enhancing the strategic and financial value of our core operating
businesses, particularly Virgin Media which remains the most
advanced broadband and fixed/mobile provider in the U.K. with
substantial opportunities for expansion and growth. With 500 Mbps
already available to nearly 15 million homes and 1 Gbps speeds just
around the corner, Virgin Media is miles ahead of other U.K.
operators in providing ultrafast broadband, both today and into the
future.”
“We are also delivering on our promise to reduce capital
intensity and optimize free cash flow after three years of
increased network and product expansion. Through June, our P&E
additions were down 25% from last year and our operating free cash
flow was up nearly 40% on a reported basis, and nearly 75% on a
guidance basis which excludes Switzerland. Together with planned
and executed reductions in our corporate costs and the
restructuring of our technology operations to reflect our reduced
customer base and significant TSA revenues, we are on track to hit
both our OCF and free cash flow guidance for the year."
"Our second quarter 2019 earnings call is tomorrow morning at
9:00 a.m. ET."
About Liberty Global
Liberty Global (NASDAQ: LBTYA, LBTYB and LBTYK) is one of the
world’s leading converged video, broadband and communications
companies, with operations in six European countries under the
consumer brands Virgin Media, Telenet and UPC. We invest in the
infrastructure and digital platforms that empower our customers to
make the most of the digital revolution. Our substantial scale and
commitment to innovation enable us to develop market-leading
products delivered through next-generation networks that connect 11
million customers subscribing to 25 million TV, broadband internet
and telephony services. We also serve 6 million mobile subscribers
and offer WiFi service through millions of 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,
LionsGate, the Formula E racing series and several regional sports
networks.
Tender Offers for Ordinary
Shares
Liberty Global today announced its intention to commence
modified Dutch auction cash tender offers for an aggregate value of
up to $625 million of its Class A ordinary shares and an aggregate
value of up to $1.875 billion of its Class C ordinary shares (for
an aggregate total value of up to $2.5 billion) to be purchased at
respective prices within a range, which is currently expected to be
$25.25 to $29.00 per Class A ordinary share and $24.75 to $28.50
per Class C ordinary share. We currently expect to commence the
tender offers on or about August 12, 2019. The tender offers are
expected to be funded with existing cash and cash equivalents. We
can make no assurances regarding the form, timing, price range or
amount of such tender offers, or that we will successfully commence
or complete such tender offers.
Q2 Highlights (on a continuing
operations basis unless otherwise noted)
- Q2 rebased revenue decreased 0.9% to $2,850.4 million
- Q2 residential cable revenue8 decreased 0.4% YoY to $1.9
billion
- Results driven by revenue contractions in Switzerland and
Belgium
- Q2 residential mobile revenue8 increased 0.6% YoY to $0.4
billion
- Strong Swiss results offset by weakness across other
operations
- Q2 B2B9 revenue8 decreased 1.9% YoY to $0.5 billion
- Strong growth in CEE, flat in Switzerland and declines at our
other operations
- Q2 operating income decreased 43.7% YoY to $148.7 million
- Q2 rebased OCF declined by 4.3% to $1,190.7 million
- Q2 property & equipment additions spend at 24.0% of revenue
as compared to 28.6% in Q2 2018
- Completed 165,000 new premises during Q2, including 130,000 new
premises in the U.K. & Ireland
- Repurchased nearly $300 million of stock during Q2 2019
- Solid balance sheet with $3.9 billion of liquidity10 at Q2
- Pro forma for the Vodafone transaction, liquidity increases to
approximately $13.1 billion10
- Net leverage11 of 5.2x for Full Company at Q2, reducing to
3.0x11 pro forma for the Vodafone transaction
- Fully-swapped borrowing cost of 4.1% on debt balance of $29.4
billion
Liberty Global (continuing operations)
Q2 2019
YoY Growth(i)
YTD 2019
YoY Growth (i)
Subscribers
Organic Net RGU Losses
(28,800
)
(4,100
)
Organic Net RGU Additions (Losses) excl.
Switzerland
(800
)
66,800
Financial (in
millions, except percentages)
Revenue
Continuing operations
$
2,850.4
(0.9
%)
$
5,718.4
(0.7
%)
Continuing operations excluding
Switzerland
(0.6
%)
(0.4
%)
Operating income
$
148.7
(43.7
%)
$
254.2
(33.4
%)
OCF:
Continuing operations
$
1,190.7
(4.3
%)
$
2,374.0
(2.4
%)
Continuing operations excluding
Switzerland
(3.4
%)
(1.3
%)
Cash provided by operating activities
$
1,322.2
$
1,628.5
Cash used by investing activities
$
(315.0
)
$
(682.7
)
Cash used by financing activities
$
(857.9
)
$
(1,595.4
)
Adjusted FCF:
Continuing operations
$
552.0
$
(72.5
)
Pro forma continuing operations(ii)
$
546.0
$
(79.9
)
(i)
Revenue and OCF YoY growth rates are on a
rebased basis
(ii)
Pro forma Adjusted FCF gives pro forma
effect to certain adjustments to our recurring cash flows that we
have or expect to realize following the disposition of the
remaining Discontinued Operations and the Switzerland Disposal
Group2. For additional details, see the information and
reconciliation included within the Glossary
Subscriber Growth
Three months ended
Six months ended
June 30,
June 30,
2019
2018
2019
2018
Organic RGU net additions (losses) by
product
Video
(54,900
)
(7,700
)
(115,400
)
(52,900
)
Data
9,600
18,900
52,000
49,400
Voice
16,500
29,600
59,300
34,000
Total
(28,800
)
40,800
(4,100
)
30,500
Organic RGU net additions (losses) by
market
U.K./Ireland
(4,900
)
112,200
54,300
157,100
Belgium
(20,000
)
(21,700
)
(55,700
)
(46,900
)
Switzerland
(28,000
)
(53,800
)
(70,900
)
(97,500
)
Continuing CEE (Poland and Slovakia)
24,100
4,100
68,200
17,800
Total
(28,800
)
40,800
(4,100
)
30,500
Organic Mobile SIM additions (losses)
by product
Postpaid
125,800
81,200
198,100
194,300
Prepaid
(34,000
)
(36,300
)
(79,500
)
(85,700
)
Total
91,800
44,900
118,600
108,600
Organic Mobile SIM additions by
market
U.K./Ireland
33,800
20,700
27,100
45,900
Belgium12
43,500
16,800
64,400
48,600
Other
14,500
7,400
27,100
14,100
Total
91,800
44,900
118,600
108,600
- Cable Product Performance: During
Q2 we lost 29,000 RGUs, as compared to a gain of 41,000 RGUs in the
prior-year period, as improved performances in our CEE operations,
Switzerland and Telenet were more than offset by weakness in Virgin
Media. From a product perspective, gains in data and voice were
more than offset by video losses
- U.K./Ireland: Q2 RGU losses were
5,000 as we maintained a disciplined and balanced approach to
customer acquisition and capital expenditure during a seasonally
soft quarter in which market growth in broadband and video
continued to slow
- Belgium: RGU attrition of 20,000
in Q2 represents a sequential and year-over-year improvement as
losses in the SFR footprint moderated
- Switzerland: Lost 28,000 RGUs in
Q2 compared to a loss of 54,000 in Q2 2018, with improved
performance in all products driven by an enhanced value
proposition
- Continuing CEE (Poland and
Slovakia): Gained 24,000 RGUs in Q2 as compared to 4,000
additions in the prior-year period, mainly driven by improved sales
and churn reduction in Poland
- Mobile: Added 92,000 mobile
subscribers in Q2, as 126,000 postpaid additions were only
partially offset by continued attrition in our low-ARPU prepaid
base
- Q2 U.K./Ireland postpaid mobile net additions of 57,000 were
supported by the launch of our FMC bundles. The postpaid gain was
only partially offset by low-ARPU prepaid losses, resulting in a
net gain of 34,000 mobile subscriptions; 4G subscriptions now
represent 84% of our postpaid base
- Belgium added 44,000 mobile subscribers during Q2 including
54,000 net postpaid additions. This growth was supported by our
converged WIGO offering
- Switzerland added 14,000 mobile subscribers in Q2 driven by
bundling success and a revamped mobile offer following our MVNO
switch in January 2019
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
2019
2018
%
Rebased %
2019
2018
%
Rebased %
in millions, except %
amounts
Continuing operations:
U.K./Ireland
$
1,644.0
$
1,734.9
(5.2
)
0.4
$
3,305.3
$
3,513.1
(5.9
)
0.1
Belgium
713.2
753.9
(5.4
)
(1.5
)
1,425.1
1,513.5
(5.8
)
(1.0
)
Switzerland
315.0
332.2
(5.2
)
(3.6
)
631.0
677.1
(6.8
)
(3.6
)
Continuing CEE
119.1
123.3
(3.4
)
2.9
238.2
252.8
(5.8
)
2.6
Central and Corporate
60.2
72.9
(17.4
)
(19.6
)
120.9
125.6
(3.7
)
(11.4
)
Intersegment eliminations
(1.1
)
(1.6
)
N.M.
N.M.
(2.1
)
(3.0
)
N.M.
N.M.
Total continuing operations
$
2,850.4
$
3,015.6
(5.5
)
(0.9
)
$
5,718.4
$
6,079.1
(5.9
)
(0.7
)
Total continuing operations excluding
Switzerland
(0.6
)
(0.4
)
______________________________
N.M. - Not Meaningful
- Reported revenue for the three and six months ended June 30,
2019 decreased 5.5% and 5.9% year over year, respectively
- The Q2 results were primarily driven by the impact of (i)
negative foreign exchange ("FX") movements, mainly related to the
weakening of the British Pound and Euro against the U.S. dollar,
and (ii) organic revenue contraction
- Rebased revenue declined 0.9% and 0.7% in the Q2 and YTD
periods, respectively. This result included:
- The favorable impact of $5.6 million related to revenue
recognized by Virgin Media during the second quarter of 2019 in
connection with the sale of rights to future commission payments on
customer handset insurance arrangements
- For the YTD period, the favorable impact of a $4.1 million
revenue reversal recorded in Switzerland during the first quarter
of 2018
Q2 2019 Rebased Revenue Growth - Segment
Highlights
- U.K./Ireland: Rebased revenue
increased 0.4% in Q2 driven by the net effect of (i) an increase in
residential cable revenue due to a year-over-year increase in our
subscriber base and modest growth in cable ARPU, (ii) a decrease in
residential mobile revenue driven by a lower volume of handset
sales, partially offset by the aforementioned revenue benefit
arising from the sale of future commissions and (iii) a decline in
B2B revenue due to lower data and installation revenue in our
non-subscription business, which offset the increase in revenue due
to growth in SOHO subscribers
- Belgium: Rebased revenue declined
1.5% in Q2 driven by (i) a decrease in B2B revenue, (ii) a decline
in residential cable revenue primarily due to a decrease in
subscribers and (iii) a decrease in mobile revenue primarily due to
a decline in mobile ARPU
- Switzerland: Rebased revenue
declined 3.6% in Q2, primarily due to the net effect of (i) lower
residential cable subscription revenue, which was primarily driven
by lower average subscriber levels, and (ii) an increase in mobile
revenue driven by an increase in revenue from handset sales and an
increase in subscribers
- Continuing CEE (Poland and
Slovakia): Rebased revenue increased 2.9% in Q2 due to (i)
growth in our B2B business and (ii) an increase in residential
cable subscription revenue driven by new build areas
- Central and Corporate: Rebased
revenue decreased 19.6% in Q2 primarily due to a decrease in CPE
sales to the VodafoneZiggo JV
Operating Income
- Operating income was $148.7 million and $264.1 million in Q2
2019 and Q2 2018, respectively, representing a decrease of 43.7%
YoY. For the six months ended June 30, 2019, our operating income
of $254.2 million reflects a decrease of 33.4% as compared to
$381.7 million in H2 2018
- The decrease in operating income in both the QTD and YTD
periods primarily resulted from the net effect of (i) lower OCF, as
further described below, (ii) a decrease in depreciation and
amortization expense, (iii) an increase in share-based compensation
expense and (iv) an increase in 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
2019
2018
%
Rebased %
2019
2018
%
Rebased %
in millions, except %
amounts
Continuing operations:
U.K./Ireland
$
703.2
$
763.6
(7.9
)
(2.5
)
$
1,411.5
$
1,526.2
(7.5
)
(1.6
)
Belgium
349.4
383.7
(8.9
)
(3.6
)
688.4
741.3
(7.1
)
(0.8
)
Switzerland
169.7
189.0
(10.2
)
(8.7
)
332.8
375.5
(11.4
)
(8.1
)
Continuing CEE
57.9
62.0
(6.6
)
(0.5
)
115.1
124.3
(7.4
)
0.7
Central and Corporate
(89.5
)
(87.9
)
(1.8
)
(11.0
)
(175.2
)
(195.0
)
10.2
(2.9
)
Intersegment eliminations
—
(6.9
)
N.M.
N.M.
1.4
(7.1
)
N.M.
N.M.
Total continuing operations
$
1,190.7
$
1,303.5
(8.7
)
(4.3
)
$
2,374.0
$
2,565.2
(7.5
)
(2.4
)
Total continuing operations excluding
Switzerland
(3.4
)
(1.3
)
______________________________
N.M. - Not Meaningful
- Reported OCF for the three and six months ended June 30, 2019
decreased 8.7% and 7.5% year over year, respectively
- These results were primarily driven by the aforementioned
revenue decline
- Our rebased OCF decline of 4.3% and 2.4% in the Q2 and YTD
periods, respectively, included:
- The aforementioned favorable impacts of certain items on our
revenue, as discussed in the "Revenue Highlights" section
above
- The following current year impacts:
- Unfavorable network tax increases of $11.7 million and $18.2
million for Q2 and YTD, respectively, following an increase in the
rateable value of our U.K. networks, which is being phased in over
a six-year period ending in 2022
- Higher severance costs in U.K./Ireland of $6.6 million and $6.7
million for Q2 and YTD, respectively, associated with revisions to
our operating model and decreases in senior management
personnel
- Unfavorable increases in personnel costs in Central and
Corporate related to a $5.0 million cash bonus associated with the
renewal of an existing executive employment contract on similar
terms
- The following Q2 2018 impacts in U.K./Ireland, which together
have a net impact of $1.5 million:
- Higher costs of $5.3 million resulting from a credit recorded
during the second quarter of 2018 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
- Lower costs of $6.8 million due to the reassessment of an
accrual in U.K./Ireland in the second quarter of 2018
Q2 2019 Rebased Operating Cash Flow Growth
- Segment Highlights
- U.K./Ireland: Our rebased OCF
decline of 2.5% was attributable to the aforementioned revenue
growth and a reduction in service costs from operating efficiencies
which was more than offset by higher programming costs, higher
network taxes and the aforementioned increase in severance
costs
- Belgium: Rebased OCF decline of
3.6% was largely driven by the Medialaan MVNO contract loss
- Switzerland: Rebased OCF decline
of 8.7% in Q2 was largely due to the aforementioned loss of
residential cable subscription revenue
- Continuing CEE (Poland and
Slovakia): Rebased OCF decline of 0.5% was largely driven by
the aforementioned revenue trend which was more than offset by
increased programming spend
Net Earnings (Loss) Attributable to Liberty Global
Shareholders
- Net earnings (loss) attributable to Liberty Global shareholders
was $53.0 million and $912.6 million for the three months ended
June 30, 2019 and 2018, respectively, and $60.0 million and ($273.9
million) for the six months ended June 30, 2019 and 2018,
respectively
Leverage and Liquidity
- Total principal amount of debt and
finance leases: $30.0 billion for continuing operations
- Leverage ratios11: At June 30,
2019, our adjusted gross and net leverage ratios for the Full
Company were 5.4x and 5.2x, respectively
- Q2 net leverage pro forma for Vodafone transaction of
3.0x11
- Average debt tenor13:
Approximately 7 years, with ~73% not due until 2025 or thereafter
for continuing operations
- Borrowing costs: Blended
fully-swapped borrowing cost of our debt was 4.1% for continuing
operations
- Liquidity10: $3.9 billion for our
continuing operations, including (i) $1.3 billion of cash at June
30, 2019 and (ii) aggregate unused borrowing capacity14 under our
credit facilities of $2.6 billion
- Q2 liquidity pro forma for Vodafone transaction of
approximately $13.1 billion10
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 rebased OCF growth, our Adjusted FCF and our P&E additions;
expectations with respect to the intended tender offers, including
the aggregate amount of Class A and Class C ordinary shares that we
expect to offer to purchase in the tender offer, the expected price
ranges, and whether we actually commence and consummate the tender
offers as planned or at all; the anticipated regulatory approval
and closing of the Sunrise transaction; anticipated growth and
opportunities in the U.K.; decisions regarding our capital
allocation; expectations with respect to the development, launch
and benefits of our innovative and advanced products and services,
including the rollout of 1 Gbps speeds; 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, vendors and contractors
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 Form 10-K/A
and Forms 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.
Additional Information and Where to Find It
This press release is for informational purposes only, is not a
recommendation to buy or sell the Company’s ordinary shares, and
does not constitute an offer to buy or the solicitation to sell the
Company’s ordinary shares. The tender offers described in this
press release have not yet commenced, and there can be no
assurances that the Company will commence the tender offers on the
terms described in this press release or at all. The tender offers
will be made only pursuant to the Offer to Purchase, the Letters of
Transmittal and other related materials that the Company expects to
file with the SEC upon commencement of the tender offers.
SHAREHOLDERS ARE URGED TO CAREFULLY READ THE OFFER TO PURCHASE,
LETTERS OF TRANSMITTAL AND RELATED MATERIALS (AND ANY AMENDMENT OR
SUPPLEMENT THERETO) IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION, INCLUDING THE VARIOUS TERMS OF,
AND CONDITIONS TO, THE TENDER OFFERS, THAT SHAREHOLDERS SHOULD
CONSIDER BEFORE MAKING ANY DECISION REGARDING TENDERING THEIR
SHARES. If and when the tender offers are commenced, shareholders
will be able to obtain a free copy of the tender offer materials
(including the Offer to Purchase, the Letters of Transmittal and
other related materials) that the Company will be filing with the
SEC at the SEC’s website at www.sec.gov. In addition, if and when
the tender offers are commenced, the Company will provide contact
information for shareholders if they should have any questions or
assistance.
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 2019, we have
adjusted our historical revenue and OCF for the three and six
months ended June 30, 2018 to (i) include the pre-acquisition
revenue and OCF of entities acquired during 2018 in our rebased
amounts for the three and six months ended June 30, 2018 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, 2019,
(ii) include revenue and costs for the temporary elements of
transitional and other services provided to the VodafoneZiggo JV,
Deutsche Telekom (the buyer of UPC Austria), Liberty Latin America
and M7 Group (the buyer of UPC DTH), to reflect amounts related to
these services equal to those included in our results for the three
and six months ended June 30, 2019 and (iii) reflect the
translation of our rebased amounts for the three and six months
ended June 30, 2018 at the applicable average foreign currency
exchange rates that were used to translate our results for the
three and six months ended June 30, 2019. We have reflected the
revenue and OCF of these acquired entities in our 2018 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 2018
amounts to derive our rebased growth rates for our continuing
operations:
Revenue
OCF
Three months ended June 30,
2018
Six months ended June 30,
2018
Three months ended June 30,
2018
Six months ended June 30,
2018
in millions
Acquisitions
$
15.2
$
31.5
$
2.1
$
3.7
Dispositions(i)
5.7
18.3
4.2
14.0
Foreign Currency
(158.8
)
(367.3
)
(66.1
)
(150.0
)
Total decrease
$
(137.9
)
$
(317.5
)
$
(59.8
)
$
(132.3
)
(i)
Includes rebase adjustments
related to agreements to provide transitional and other services to
the VodafoneZiggo JV, Liberty Latin America, Deutsche Telekom and
M7 Group. These adjustments result in an equal amount of fees in
both the 2019 and 2018 periods for those services that are deemed
to be temporary in nature. The net amount of these adjustments
resulted in increases in revenue and OCF of $5.7 million and $4.2
million and $18.3 million and $15.3 million, respectively,
for the three and six months ended June 30, 2018.
Summary of Debt, Finance 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, finance lease obligations and cash and cash
equivalents at June 30, 2019:
Finance
Debt & Finance
Cash
Lease
Lease
and Cash
Debt(ii), (iii)
Obligations
Obligations
Equivalents
in millions
Liberty Global and unrestricted
subsidiaries
$
1,580.7
$
68.3
$
1,649.0
$
1,018.5
Virgin Media(iv)
15,791.0
69.6
15,860.6
41.7
UPC Holding
6,031.1
29.4
6,060.5
50.4
Telenet
5,999.2
465.0
6,464.2
158.4
Total
$
29,402.0
$
632.3
$
30,034.3
$
1,269.0
______________________________
(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 were not direct obligations of the entities that were
disposed within the UPC Holding borrowing group. Subsequent to June
30, 2019, certain of these obligations were repaid with a portion
of the proceeds from the disposition that was completed on July 31,
2019.
(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 table below highlights the categories of the property and
equipment additions of our continuing operations for the indicated
periods and reconciles those additions to the capital expenditures
of our continuing operations that are presented in the condensed
consolidated statements of cash flows in our 10-Q.
Three months ended June
30,
Six months ended June
30,
2019
2018
2019
2018
in millions, except %
amounts
Customer premises equipment
$
157.7
$
240.4
$
386.3
$
536.1
New Build & Upgrade
162.2
190.4
304.6
378.4
Capacity
77.2
84.9
149.8
211.4
Baseline
154.8
190.5
283.2
356.1
Product & Enablers
130.8
156.6
257.4
364.4
Total P&E Additions
682.7
862.8
1,381.3
1,846.4
Reconciliation of P&E Additions to
capital expenditures:
Assets acquired under capital-related
vendor financing arrangements(i)
(417.4
)
(550.8
)
(926.3
)
(1,186.7
)
Assets acquired under capital leases
(20.4
)
(22.6
)
(32.6
)
(46.5
)
Changes in current liabilities related to
capital expenditures
56.7
21.2
210.5
181.6
Total capital expenditures, net(ii)
$
301.6
$
310.6
$
632.9
$
794.8
Capital expenditures, net:
Third-party payments
$
319.6
$
342.5
$
691.2
$
852.1
Proceeds received for transfers to related
parties(iii)
(18.0
)
(31.9
)
(58.3
)
(57.3
)
Total capital expenditures, net
$
301.6
$
310.6
$
632.9
$
794.8
P&E Additions as % of revenue8
24.0
%
28.6
%
24.2
%
30.4
%
______________________________
(i)
Amounts exclude related VAT of $63.9
million and $86.9 million for the three months ended June 30 2019
and 2018, respectively, and $148.7 million and $183.5 million for
the six months ended June 30, 2019 and 2018, respectively, that
were also financed by our vendors under these arrangements.
(ii)
The capital expenditures that we report in
our condensed consolidated statements of cash flows do not include
amounts that are financed under vendor financing or finance 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
2019
2018
Change
% Change
Liberty Global
$
59.50
$
62.05
(4.1
%)
1.0
%
U.K. & Ireland (Virgin Media)
£
51.35
£
51.11
0.5
%
0.5
%
Belgium (Telenet)
€
57.18
€
55.15
3.7
%
3.7
%
UPC
€
37.13
€
36.80
0.9
%
(1.8
%)
Mobile ARPU
The following tables provide ARPU per mobile subscriber for the
indicated periods:
ARPU per Mobile
Subscriber
Three months ended June
30,
%
Rebased
2019
2018
Change
% Change
Liberty Global:
Including interconnect revenue
$
16.49
$
14.89
10.7
%
(2.6
%)
Excluding interconnect revenue
$
14.15
$
12.43
13.8
%
(2.7
%)
Consolidated Operating Data —
June 30, 2019
Video
Homes Passed
Two-way Homes Passed
Cable Customer
Relationships
Basic Video
Subscribers(i)
Enhanced Video
Subscribers
Total Video
Internet
Subscribers(ii)
Telephony
Subscribers(iii)
Total RGUs
Total Mobile
Subscribers(iv)
Continuing operations:
U.K.
14,636,700
14,630,000
5,531,800
—
3,822,100
3,822,100
5,266,700
4,641,000
13,729,800
3,059,000
Belgium
3,366,100
3,366,100
2,091,600
183,700
1,718,500
1,902,200
1,661,100
1,234,800
4,798,100
2,748,300
Switzerland(v)
2,353,300
2,353,300
1,070,700
441,300
599,400
1,040,700
676,700
510,800
2,228,200
173,400
Ireland
941,400
909,300
434,500
1,100
268,300
269,400
376,200
345,800
991,400
91,500
Poland
3,500,200
3,446,400
1,468,100
177,000
1,058,500
1,235,500
1,203,400
679,000
3,117,900
3,000
Slovakia
616,400
601,700
192,700
27,800
142,400
170,200
138,300
85,600
394,100
—
Total continuing operations
25,414,100
25,306,800
10,789,400
830,900
7,609,200
8,440,100
9,322,400
7,497,000
25,259,500
6,075,200
Subscriber Variance Table -
June 30, 2019 vs. March 31, 2019
Video
Homes Passed
Two-way Homes Passed
Cable Customer
Relationships
Basic Video
Subscribers(i)
Enhanced Video
Subscribers
Total Video
Internet
Subscribers(ii)
Telephony
Subscribers(iii)
Total RGUs
Total Mobile
Subscribers(iv)
Continuing operations:
U.K.
126,000
126,000
(2,400
)
—
(24,600
)
(24,600
)
7,100
23,700
6,200
28,400
Belgium
9,000
9,000
(8,200
)
(7,700
)
(6,900
)
(14,600
)
3,000
(8,400
)
(20,000
)
43,500
Switzerland(v)
8,900
8,900
(21,500
)
13,700
(33,200
)
(19,500
)
(9,500
)
(2,800
)
(31,800
)
14,300
Ireland
11,600
11,700
(3,200
)
(1,800
)
(900
)
(2,700
)
(1,900
)
(6,500
)
(11,100
)
5,400
Poland
20,800
21,400
5,300
(900
)
4,700
3,800
11,100
11,000
25,900
200
Slovakia
1,300
1,400
(2,000
)
500
(1,600
)
(1,100
)
(200
)
(500
)
(1,800
)
—
Total continuing operations
177,600
178,400
(32,000
)
3,800
(62,500
)
(58,700
)
9,600
16,500
(32,600
)
91,800
Organic Change Summary:
U.K.
126,000
126,000
(2,400
)
—
(24,600
)
(24,600
)
7,100
23,700
6,200
28,400
Belgium
9,000
9,000
(8,200
)
(7,700
)
(6,900
)
(14,600
)
3,000
(8,400
)
(20,000
)
43,500
Other Europe
42,600
43,400
(18,000
)
(10,700
)
(5,000
)
(15,700
)
(500
)
1,200
(15,000
)
19,900
Total Organic Change
177,600
178,400
(28,600
)
(18,400
)
(36,500
)
(54,900
)
9,600
16,500
(28,800
)
91,800
Q2 2019 Adjustments:
Q2 2019 Adjustment - Switzerland
—
—
(3,400
)
22,200
(26,000
)
(3,800
)
—
—
(3,800
)
—
Total adjustments
—
—
(3,400
)
22,200
(26,000
)
(3,800
)
—
—
(3,800
)
—
Footnotes for Consolidated Operating
Data and Subscriber Variance Tables
(i)
We have approximately 200,900 “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)
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 73,200 subscribers who have requested and received this
service.
(iii)
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 167,000 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, 2019, our mobile subscriber count included 466,300
and 320,200 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, 2019, Switzerland’s partner networks account for 122,900 Cable
Customer Relationships, 300,000 RGUs, which include 106,800
Enhanced Video Subscribers, 109,000 Internet Subscribers, and
84,200 Telephony Subscribers. Subscribers to our enhanced video
services provided over 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 finance 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.
Footnotes
1
Convenience translation based on USD/EUR
rate of 1.12. The amount of net cash proceeds we received from the
transaction differs from the amount we estimated at the time the
deal was announced in May 2018 primarily due to the net effect of
(i) adverse movement in the EUR/USD
exchange rate, (ii) higher vendor
financing at Unitymedia in the interim period between transaction
announcement and closing, which had the effect of Liberty Global
receiving a corresponding increase in cash generated by Unitymedia
during the period prior to closing, (iii) a debt
recapitalization at Unitymedia, (iv) the
settlement of centrally-procured vendor financing amounts that are
attributable to the disposed operations, (v) changes in the value
of our derivatives associated with the debt at Unitymedia and (vi)
working capital and cash adjustments.
2
Represents the equivalent USD amount based
on the February 27, 2019 agreement date.
3
The pro forma cash balance includes (i)
the net cash proceeds from the Vodafone transaction of $11.3
billion, (ii) the expected net cash proceeds from the Sunrise
transaction of $2.5 billion, (i) the prepayment of the $1.6 billion
term loan at UPC, (iv) an expected $0.9 billion re-levering of our
operations in Poland and Slovakia and (v) the $1.3 billion cash
balance at June 30, 2019. The expected net cash proceeds from the
Sunrise transaction differs from the amount we estimated at the
agreement date due to FX movements.
4
With the exception of OFCF, 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. OFCF growth rates are presented on a reported basis.
5
The term "excluding Switzerland"
represents our continuing operations excluding UPC Switzerland and
certain holding companies within the UPC Holding borrowing group
(together, the "Switzerland Disposal Group"), including the UPC
Holding borrowing group’s existing senior and senior secured notes
(the "UPC Notes"), associated derivatives and certain other debt
items. This is the basis on which analyst consensus estimates for
our key performance indicators are currently derived and on which
we originally provided our 2019 guidance for OCF, Adjusted FCF and
Property and Equipment Additions.
6
Pro forma Adjusted FCF incorporates our
preliminary estimate of (i) assumed interest and related derivative
payments that were made by the UPC Holding continuing operations
during the period and (ii) the net cash flows that we would have
received from transitional services agreements if the sale of the
remaining Discontinued Operations and UPC Switzerland had occurred
on January 1, 2019. A reconciliation of our Adjusted FCF guidance
for 2019 to a U.S. GAAP measure is not provided as not all elements
of the reconciliation are projected as part of our forecasting
process, as certain items may vary significantly from one period to
another.
7
Absolute full-year 2019 U.S. dollar
guidance figures based on FX rates of EUR/USD 1.13 and GBP/USD
1.30
8
Includes subscription and non-subscription
revenue. For additional information regarding how we define our
revenue categories, see note 17 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
Liquidity refers to cash and cash
equivalents plus the maximum undrawn commitments under subsidiary
borrowing facilities, without regard to covenant compliance
calculations. Pro forma liquidity for the Vodafone transaction is
adjusted to reflect certain items, including (i) our preliminary
estimate of the net cash and cash equivalents received upon closing
of the transaction of €10.1 billion ($11.3 billion based on an FX
rate of EUR/USD 1.12) and (ii) the prepayment of $1.6 billion
outstanding principal amount of term loans under the UPC Holding
Bank Facility.
11
Consistent with how we calculate our
leverage ratios under our debt agreements, we calculate our debt
ratios on a Full Company basis, which includes our continuing
operations and our remaining Discontinued Operations, 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 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. For additional information, see note 4 to the
condensed consolidated financial statements included in our 10-Q.
The following table details the calculation of our Full Company
consolidated debt and net debt to annualized consolidated OCF
ratios as of and for the quarter ended June 30, 2019:
As of and for the quarter
ended June 30, 2019
in millions, except
ratios
Consolidated Debt to Annualized
Consolidated OCF:
Debt and finance lease obligations before
deferred financing costs, discounts and premiums
$
39,938.9
Principal related projected derivative
cash payments
(1,373.9
)
ITV Collar Loan
(1,374.1
)
Lionsgate Collar Loan
(82.9
)
Adjusted debt and finance lease
obligations before deferred financing costs, discounts and
premiums
$
37,108.0
Annualized quarterly OCF
$
6,854.0
Consolidated debt to annualized
consolidated OCF ratio
5.4
Consolidated Net Debt to Annualized
Consolidated OCF:
Adjusted debt and finance lease
obligations before deferred financing costs, discounts and
premiums
$
37,108.0
Cash and cash equivalents
(1,278.7
)
Adjusted net debt and finance lease
obligations before deferred financing costs, discounts and
premiums
$
35,829.3
Annualized quarterly OCF
$
6,854.0
Consolidated net debt to annualized
consolidated OCF ratio
5.2
The pro forma net leverage ratio for the
Vodafone transaction is adjusted to reflect certain items,
including (i) the adjustments included in our pro forma liquidity
calculation, as described above in footnote 10, (ii) the removal of
the OCF of our operations in Germany, Hungary, Romania and the
Czech Republic and (iii) the removal of the debt associated with
our operations in Germany, including adjustments associated with
related derivative instruments.
12
Our Q2 2018 mobile subscriber additions
have been restated to correct the overstatement of our and
Telenet's subscriber base in relation to the removal of inactive
"pay as you go subscribers" within Telenet's postpaid subscriber
base as these subscribers do not pay a monthly subscription fee and
are only billed on their effective usage, which resulted in
reductions to our mobile subscriber base of 58,800 at June 30,
2018, 49,400 at March 31, 2018 and 53,000 at December 31, 2017. In
addition, our mobile subscriber counts at March 31, 2018 and
December 31, 2017 have been restated to reflect the removal of
127,300 and 133,200, respectively, of small or medium enterprise
mobile telephony subscribers that, beginning in Q2 2018, are now
reflected as business customers and are no longer included in our
mobile telephony subscriber count.
13
For purposes of calculating our average
tenor, total third-party debt excludes vendor financing.
14
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, 2019 compliance reporting requirements for our
credit facilities, and assuming no further changes from quarter-end
borrowing levels, we anticipate that the full unused borrowing
capacity of our continuing operations will continue to be
available, with the exception of the UPC Holding Bank Facility,
which will have borrowing capacity limited to €730.9 million
($830.2 million). Our above expectations do not consider any actual
or potential changes to our borrowing levels or any amounts loaned
or distributed subsequent to June 30, 2019.
Glossary
10-Q or 10-K: As used herein, the
terms 10-Q and 10-K refer to our most recent quarterly or annual
report as filed with the Securities and Exchange Commission on Form
10-Q or Form 10-K, as applicable.
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 finance 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
remaining Discontinued Operations and the Switzerland Disposal
Group, we also present Adjusted Free Cash Flow on a pro forma basis
for three and six months ended June 30, 2019 as if the sale of the
remaining Discontinued Operations and the Switzerland Disposal
Group had been completed on January 1, 2019.
Three months ended June
30,
2019
2018
2019
2018
Continuing operations
Discontinued Operations
(i)
in millions
Net cash provided by operating
activities
$
1,322.2
$
1,457.8
$
370.1
$
528.0
Cash payments for direct
acquisition and disposition costs
5.6
3.2
—
—
Expenses financed by an
intermediary(ii)
522.1
409.1
138.1
77.8
Capital expenditures, net
(301.6
)
(310.6
)
(102.5
)
(122.4
)
Principal payments on amounts
financed by vendors and intermediaries
(977.6
)
(1,673.1
)
(216.8
)
(132.3
)
Principal payments on certain
finance leases
(18.7
)
(19.6
)
(1.9
)
(3.1
)
Adjusted FCF
552.0
$
(133.2
)
$
187.0
$
348.0
Pro forma adjustments related to
the sale of the remaining Discontinued Operations and the
Switzerland Disposal Group:
Switzerland Disposal
Group(iii)
(65.0
)
Interest and derivative
payments(iv)
(1.0
)
Transitional services
agreements(v)
60.0
Pro forma Adjusted FCF(vi)
$
546.0
Six months ended June
30,
2019
2018
2019
2018
Continuing operations
Discontinued Operations
(i)
in millions
Net cash provided by operating
activities
$
1,628.5
$
2,128.1
$
829.2
$
1,137.0
Cash payments for direct acquisition and
disposition costs
18.0
4.8
—
—
Expenses financed by an
intermediary(ii)
1,086.1
916.4
276.9
128.3
Capital expenditures, net
(632.9
)
(794.8
)
(213.1
)
(284.2
)
Principal payments on amounts financed by
vendors and intermediaries
(2,140.4
)
(3,349.0
)
(426.4
)
(253.2
)
Principal payments on certain finance
leases
(31.8
)
(37.6
)
(4.6
)
(6.1
)
Adjusted FCF
(72.5
)
$
(1,132.1
)
$
462.0
$
721.8
Pro forma adjustments related to the sale
of the remaining Discontinued Operations and the Switzerland
Disposal Group:
Switzerland Disposal Group(iii)
(105.9
)
Interest and derivative payments(iv)
(22.5
)
Transitional services agreements(v)
121.0
Pro forma Adjusted FCF(vi)
$
(79.9
)
_______________
(i)
For the 2019 periods, our Discontinued Operations include our
former operations in Germany, Hungary, Romania and the Czech
Republic, which were sold on July 31, 2019, and our former DTH
business, which was sold on May 2, 2019. For the 2018 period, our
Discontinued Operations also include our former operation in
Austria through July 31, 2018.
(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)
The Switzerland Disposal Group is included within our Continuing
Operations Adjusted FCF. In connection with the pending
disposition, Sunrise will acquire the Switzerland Disposal Group,
the UPC Notes, associated derivatives and certain other debt items.
As a result, this pro forma adjustment represents the Adjusted FCF
of the Switzerland Disposal Group, including 100% of the interest
and related derivative payments made during the applicable period
related to the UPC Notes.
(iv)
Represents the estimated interest and related derivative
payments that have been made by UPC Holding in relation to the
continuing UPC operations in Poland and Slovakia during the
applicable period. These estimated payments are calculated based on
Poland and Slovakia’s pro rata share of UPC Holding's OCF and UPC
Holding's aggregate interest and derivative payments during the
applicable period. Although we believe that these estimated
payments represent a reasonable estimate of the annual interest and
related derivative payments that will occur in relation to the
continuing operations in Poland and Slovakia, no assurance can be
given that the actual interest and derivative payments will be
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.
(v)
Represents our preliminary estimate of the net cash flows that
we would have received from transitional services agreements if the
sale of the remaining Discontinued Operations and the Switzerland
Disposal Group had occurred on January 1, 2019. The estimated net
cash flows are based on the estimated revenue that we expect to
recognize from our transitional services agreements during the
first 12 months following the completion of the sale of the
remaining Discontinued Operations and Switzerland Disposal Group,
less the estimated incremental costs that we expect to incur to
provide such transitional services. As a result, the pro forma
adjustments during the three and six months ended June 30, 2019
include $37.8 million and $76.0 million related to our discontinued
operations in Germany, Hungary, Romania and the Czech Republic,
respectively, $21.9 million and $44.0 million related to the
Switzerland Disposal Group, respectively, and $0.3 million and $1.0
million related to our discontinued DTH business, respectively.
(vi)
Represents the Adjusted FCF that we estimate would have resulted
if the sale of the remaining Discontinued Operations and the
Switzerland Disposal Group had been completed on January 1, 2019.
Actual amounts may differ from the amounts assumed for purposes of
this pro forma calculation. For example, our Pro forma Adjusted FCF
does not include any future benefits related to reductions in our
corporate costs as a result of our operating model rationalization
or any other potential future operating or capital cost reductions
attributable to our continuing or discontinued operations.
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 finance 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
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 for our
continuing operations is presented in the following table:
Three months ended June
30,
Six months ended
June 30,
2019
2018
2019
2018
in millions
Operating income
$
148.7
$
264.1
$
254.2
$
381.7
Share-based compensation expense
87.0
45.5
154.3
88.2
Depreciation and amortization
921.8
964.0
1,861.4
2,004.7
Impairment, restructuring and other
operating items, net
33.2
29.9
104.1
90.6
Total OCF
$
1,190.7
$
1,303.5
$
2,374.0
$
2,565.2
OCF margin: calculated by dividing
OCF by total revenue for the applicable period.
OFCF: As used herein, Operating
Free Cash Flow or "OFCF" represents OCF less property and equipment
additions. OFCF is an additional metric that we use to measure the
performance of our operations after considering the level of
property and equipment additions incurred during the period. For
limitations of OFCF, see the definition of OCF.
OFCF margin: OFCF margin is
calculated by dividing OFCF 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 finance 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 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: Accounting principles
generally accepted in the United States.
YoY: Year-over-year.
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version on businesswire.com: https://www.businesswire.com/news/home/20190807005881/en/
Investor Relations Matt Coates, +44 20 8483 6333 John Rea, +1
303 220 4238 Stefan Halters, +44 20 8483 6211 Corporate
Communications Molly Bruce +1 303 220 4202 Matt Beake +44 20 8483
6428 Corporate Website www.libertyglobal.com
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