LGI income up 30%, mulls Ziggo bid?

Liberty's Mike Fries

Liberty Global has announced financial and operating results for the year and the three months ended December 31st, 2011. Highlights include organic RGU additions increased 42 per cent to 1.2 million, revenue up 5 per cent to $9.5 billion and operating income increased 30 per cent to $1.8 billion.

Meanwhile, Dutch daily De Telegraaf reported the group is still contemplating a bid for Dutch cable firm Ziggo, estimated to be worth €8 billion and which is planning an IPO.

Liberty Global’s President and CEO Mike Fries didn’t comment on a possible bid and said of the group’s results: “The operating momentum we exhibited throughout 2011 continued into the fourth quarter with 380,000 net RGU additions, and 1.2 million for the full year. Our broadband bundles are driving demand across our footprint, which is now over 90 per cent upgraded to offer 100+ Mbps speeds.(6) This demand propelled us to a record quarter in both broadband and telephony, as we added approximately 230,000 RGUs of each product in the fourth quarter.

“Strong subscriber growth helped generate rebased revenue growth of 5 per cent in the fourth quarter to $2.4 billion, while OCF also increased 5 per cent on a rebased basis to $1.1 billion. For the full year, we generated revenue of $9.5 billion and OCF of $4.5 billion, reflecting rebased growth of 5 per cent for both. We achieved or exceeded all of our operating guidance targets, including Adjusted Free Cash Flow, which grew 20 per cent to $791 million. Looking ahead, we are optimistic regarding our growth prospects in 2012 given the strong RGU additions that we have seen so far this year.”

“We continued to opportunistically rebalance our geographic footprint into Europe and made significant strides toward this goal in 2011. The highlight was our December acquisition of KBW, the third largest cable operator in Germany. When combined with Unitymedia, Germany is now our largest single market and one of our fastest growing businesses. We also completed the acquisition of Poland’s fourth largest cable operator, Aster, which extended our market-leading position in that country. Finally, we announced the sale of our Australian pay-TV business, Austar, and we remain confident that the transaction will be completed this year.

“Our balance sheet remains strong, with total liquidity of $3.5 billion at December 31, 2011, including cash of $1.7 billion. Following the KBW acquisition, our adjusted gross leverage(8) of 4.9x was toward the high end of our 4 — 5x target range. After taking into account the capital market transactions we’ve completed this year, the average duration on our long-term debt is now seven years. In terms of our $1.0 billion stock repurchase target for 2011, we ended the year surpassing that goal by approximately $100 million. Even though our equity outperformed both our peer group and the broader market last year, we believe it remains attractively priced compared to its intrinsic value, and are targeting a further $1 billion of stock repurchases in calendar 2012.”

On December 15, 2011, we acquired Kabel BW Musketeer GmbH (“KBW Musketeer”), the indirect parent of Kabel BW GmbH (“KBW”), for total consideration before direct acquisition costs of approximately €3.42 billion ($4.44 billion at the transaction date), including EUR1.06 billion ($1.38 billion at the transaction date) in cash for all of the outstanding stock of KBW Musketeer and €2.35 billion ($3.06 billion at the transaction date) in net debt, including capitalized duct lease obligations, at the transaction date. From a financial and subscriber reporting perspective, KBW Musketeer is consolidated from the date of acquisition.

LGI Subscriber Statistics:

At December 31, 2011, we provided a total of 32.8 million subscription services (RGUs), consisting of 18.4 million video, 8.2 million broadband internet and 6.2 million telephony RGUs, to our 19.5 million unique customers. In 2011, we grew our RGU base by 21 per cent or 5.8 million RGUs, including 4.6 million RGUs from acquisitions, primarily KBW in Germany and Aster in Poland, and 1.2 million RGUs from organic growth. Including acquisitions, our bundled customer base increased 27 per cent to 8.1 million over the last twelve months, resulting in 41 per cent of our customers subscribing to multiple services. As a result of our marketing emphasis, 84 per cent of the increase in bundled customers was attributable to growth in our triple-play subscriptions.

In 2011, we added 1.2 million RGUs on an organic basis, including 380,000 in the fourth quarter. These figures reflect year-over-year growth of 42 per cent and 20 per cent, respectively, and represent our highest annual and quarterly additions since 2006. Geographically, our European business accounted for 90 per cent of our full-year RGU additions, with our operations in western Europe(10) adding 14 per cent more RGUs than the prior year, driven by over 450,000 net adds in Germany alone, and significant year-over-year improvement in Switzerland and Ireland. Our Central and Eastern European (“CEE”) operations delivered full-year growth in net additions of 270 per cent, led by Romania and, to a lesser extent, Hungary and Slovakia. Also, our Chilean operation more than doubled its 2010 subscriber gains, adding 113,000 RGUs in 2011.

In terms of our video business, we lost 307,000 customers in 2011, an 18 per cent improvement compared to our video losses in the prior year. During the year, we continued to focus on upselling our analog video customers to digital, as we added 282,000 and 1.0 million digital cable subscribers for the three months and year ended December 31, 2011, respectively. We finished 2011 with a digital cable base of 8.2 million RGUs and digital penetration(11) of 46 per cent, up modestly from 44 per cent at year-end 2010, due largely to the inclusion of the lower digital penetration of KBW, which was only 11 per cent at the date of acquisition. Our continued emphasis on HD and DVR services(12) has been an important factor in driving both digital penetration and video ARPU, and in 2011, we added an aggregate 1.1 million HD and/or DVR subscribers, expanding the penetration of our digital cable base to approximately 50 per cent.

Broadband internet and telephony services remain the principal drivers of our organic subscriber growth and for both, our full-year results reflect record annual volumes. In 2011, we added 765,000 broadband internet subscribers (including 229,000 in Q4) and 734,000 telephony subscribers (including 230,000 in Q4). As compared to our full-year 2010 results, our broadband internet and telephony additions reflect growth of 15 per cent and 35 per cent, respectively. Our quarterly performance on telephony was even more impressive, as we grew 46 per cent year-on-year on voice additions. Our results were largely a function of our ‘3.0’ bundles, which offer a superior consumer value proposition. As we approach 2012, we will look to continue capitalizing on our broadband speed advantage to gain market share.

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