Liberty Global reverses Q3 losses
November 6, 2014
Liberty Global has released its financial and operating results for the three months and nine months (“YTD”) ended September 30th 2014.
Mike Fries, Chief Executive Officer, stated, “We continue leveraging the scale of their core distribution platform and the substantial investments we’re making to bring innovative products to market. As a result, their third quarter results were driven in large part by record volume growth, underpinned by strong consumer demand for their next-generation video platforms, their market-leading broadband speeds, and their increasingly converged products that provide their customers with connectivity and entertainment outside of the home. These robust subscriber gains helped us deliver a 6 per cent increase in rebased OCF to $6.4 billion YTD and a 45 per cent rise in Adjusted Free Cash Flow to $1.4 billion on a combined basis.”
“We are pleased to report that Liberty Global completed their Ziggo tender offer and Liberty Global will own 100 per cent of their outstanding shares. Liberty Global expect to immediately begin the integration of Ziggo and UPC Netherlands, which Liberty Global expect will drive substantial cost and revenue synergies over the coming years. In another strategic development, Liberty Global recently announced a plan to establish a tracking stock for their Latin American and Caribbean operations, which Liberty Global believe will benefit shareholders through the creation of a “pure-play” Latin American stock.”
“Upon closing of the Ziggo offer, Liberty Global will look to use their substantial liquidity position to reignite their share repurchase programme. their buybacks will resume imminently, and Liberty Global expect to repurchase approximately $2.6 billion of stock over the next fourteen months, which will bring their cumulative total to more than $13 billion since the company’s formation in 2005. Liberty Global are excited about their current operational momentum and their strong organic growth prospects for next year as Liberty Global leverage the incremental scale provided by Ziggo, which will expand their total customer base to 27 million households taking more than 55 million subscription services.”
At the end of Q3, Liberty Global provided their 24.5 million unique customers with 49.2 million subscription services (“RGUs”) across their footprint of 47.5 million homes passed. During the third quarter of 2014, Liberty Global increased their subscriber base by a Q3 record of 344,000 organic RGU additions. By September 30, 2014, Liberty Global crossed the 15.0 million broadband internet subscriptions mark, increased telephony subscribers to 12.6 million and finished with a video base of 21.6 million subscribers.
During Q3, Liberty Global increased their customer base organically by 29,000 customer relationships. Driven by the continued traction of their bundles, which are powered by their market-leading broadband and entertainment products, over 58 per cent of their customers subscribed to double- and triple-play products, yielding a bundling ratio of 2.0x. At the end of Q3, Liberty Global had 10.4 million triple-play customers, which exceeded their single-play customer base (10.1 million) for the first time.
For the three and nine months ended September 30, 2014, Liberty Global generated organic subscriber additions of 344,000 and 928,000, reflecting year-over-year increases of 10 per cent and 6 per cent, respectively. Both year-over-year improvements were led by stronger broadband RGU additions and reduced video attrition, partly offset by lower telephony additions.
From a geographic perspective, their Q3 RGU growth consisted of 262,000 additions in Western Europe, 57,000 in Central and Eastern Europe (“CEE”) and 25,000 in Latin America5. their record Q3 performance in Western Europe was led by 70,000 RGU additions in the U.K., an improvement of 77,000 compared to a 7,000 RGU loss in Q3 2013, in large part driven by the attractiveness of their new “Big Bundles”. their German operation delivered 121,000 RGU additions during Q3, in-line with the corresponding prior year period, despite executing select video price increases in September. In the Netherlands, a combination of increased promotional activities by their competitors, their previously announced notification of an October 1st price increase and lower demand for their telephony product resulted in an RGU loss of 4,000 for the third quarter of 2014.
Our CEE operations added 57,000 RGUs in Q3, an increase of 16 per cent compared to Q3 2013, mainly driven by churn improvements in the Czech Republic and Poland. Rounding out their geographic footprint, their operation in Chile added 9,000 RGUs, which was below their Q3 2013 performance of 29,000, while their Puerto Rican operation reported 16,000 RGU additions, their best Q3 performance ever.
We continue to enhance their customers’ video experience with their next-generation TV platforms, which include recent innovations like MyPrime and Horizon Go. These next-generation platforms, which are helping to reduce video churn, contributed to the improved Q3 video loss of 46,000 RGUs, the lowest third quarter video attrition in seven years. their Western European region delivered a particularly strong result led by their British operation, which added 5,000 video RGUs in Q3, a turnaround from a 13,000 loss in Q3 2013. Meanwhile, their Dutch and German operations both showed lower video attrition in Q3, as compared to the same period in 2013. During Q3, Liberty Global added 261,000 next-generation video subscribers, increasing their TiVo subscriber base to 2.4 million in the U.K. and their Horizon TV base to 770,000 subscribers across the Netherlands, Switzerland, Germany and Ireland. Liberty Global finished Q3 2014 with a total of 13.5 million digital subscribers, representing 65 per cent digital penetration6, of which 3.2 million or 23 per cent were TiVo or Horizon TV subscribers.
In terms of their broadband internet and telephony performances, Liberty Global added 239,000 and 151,000 organic RGUs, respectively, during the third quarter. their broadband additions represented a record third quarter performance, with Germany and the U.K. contributing 77,000 and 49,000 RGU additions, respectively. Meanwhile, their telephony additions were nearly identical to their performance in Q3 2013, as lower results in the Netherlands and Switzerland were offset by improved performance in the U.K. With respect to their mobile business, Liberty Global finished the quarter with 4.4 million mobile subscribers7, which represents a sequential increase of 98,000 subscribers and doubles their Q3 2013 additions. This growth was led by an increase of 48,000 subscribers in Belgium, Telenet’s best performance in the last five quarters, while Germany, the U.K. and Chile added 22,000, 18,000 and 11,000, respectively. In late October, Liberty Global launched their full-MVNO mobile service in the Netherlands for select customers in the first phase of a controlled roll-out and Liberty Global are currently planning to launch additional full-MVNOs in the months to come.
For the three and nine months ended September 30, 2014, their revenue increased 5 per cent to $4.5 billion and 36 per cent to $13.6 billion, respectively, as compared to the corresponding prior year periods. their Q3 2014 reported increase was driven by organic growth, net positive foreign currency (“FX”) movements, mainly related to the appreciation of the British pound against the U.S. dollar, and, to a lesser extent, a few small in-market acquisitions. The principal driver of their reported growth for the year-to-date period was the inclusion of Virgin Media and, to a lesser extent, organic growth, net positive FX movements and small acquisitions. When adjusting to neutralize the impact of acquisitions and FX, Liberty Global recorded year-over-year rebased revenue growth of 3 per cent for each of the three and nine months ended September 30th 2014.
Western Europe, which accounted for over 85 per cent of their consolidated revenue in Q3, delivered 3 per cent rebased revenue growth for the quarter. their CEE operations posted 2 per cent rebased revenue growth, its best quarterly revenue performance in more than three years, helped by growth in Romania and Poland. Outside of Europe, their Latin American operations reported 4 per cent rebased revenue growth, in-line with recent quarters.
Turning back to Western Europe, their performance was led by their Belgian operation, which delivered 6 per cent rebased top-line growth in Q3, their best result this year, driven by the ongoing success of compelling bundles and a larger mobile customer base. In addition, their German operation posted 5 per cent rebased revenue growth for Q3, largely driven by 507,000 organic RGU additions during the last twelve months and higher ARPU8, partially offset by lower interconnect revenue. Meanwhile, their Swiss operation delivered 4 per cent rebased revenue growth in Q3, its tenth consecutive quarter of rebased growth in excess of 3.5 per cent, primarily due to growth in broadband Internet.
Rounding out their top five Western European operations, their British operation reported 2 per cent year-over-year rebased growth in Q3 supported by a 3 per cent increase in cable subscription revenue, a 10 per cent increase in mobile subscription revenue and a 6 per cent increase in business (“B2B”) revenue. These results were partially offset by the $18 million negative impact of the Value Added Tax (“VAT”) legislation that was enacted in May 2014 and lower revenue from other sources, including lower interconnect revenue and lower revenue from Virgin Media’s off-net business. Finally, the aforementioned competitive situation in the Dutch market resulted in a modest rebased revenue decline of 1 per cent in the Netherlands, in-line with their Q2 performance, but an improvement as compared to the 4 per cent decline in Q3 2013.