Liberty Global Reports Full Year and Fourth Quarter 2018 Results

Liberty Global Reports Full Year and Fourth Quarter 2018 Results

Announced the sale of UPC Switzerland for a total enterprise value of CHF 6.3 billion¹ ($6.3 billion²)

Vodafone transaction remains on track for mid-2019 completion

FY 2018 continuing operations operating income up 10% to $839 million; rebased OCF growth of 3.5% and 4.3% for Full Company³

Achieved all continuing operations full-year 2018 guidance

Full company³ FCF target achieved

Repurchased $2 billion of stock in 2018

Liberty Global (NASDAQ: LBTYA, LBTYB and LBTYK):

Liberty Global plc today announced its three months ("Q4") and full year ("FY") 2018 financial results. Our operations in Germany, Hungary, Romania and the Czech Republic, along with our DTH operations and our former operations in Austria (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 3. 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 4 and 5.

CEO Mike Fries stated, "The past fourteen months have been transformational for Liberty Global. After two decades of buying, building and growing world-class cable operations in Europe, we have announced or completed transactions in six of our twelve markets at premium valuations. Together these deals represent an aggregate enterprise value of $31 billion and net cash proceeds to the company, when completed, of $16 billion⁶. It has long been our ambition to create or enable national champions, and we couldn’t be more proud of these fixed-mobile combinations, which will challenge incumbents, accelerate innovation and benefit customers for years to come.

"After these transactions, in addition to a significant cash balance, a $2 billion⁹ strategic investment portfolio and over $2 billion in net tax assets, we will continue to be the largest cable operator in the U.K., Ireland, Belgium, Poland and Slovakia. Together our operations serve 23 million RGUs and generate $11 billion of annual revenue. We also serve another 10 million RGUs and generate over $4 billion of annual revenue in The Netherlands through our 50/50 JV with Vodafone. Each of these businesses is entering a new period of reduced capital intensity and meaningful operating free cash flow ("OFCF") growth.

"Also, in connection with the changing scope of our business, we initiated a broader reorganization plan in January, which will result in a leaner operating structure. As we move through the year, we will have further updates on this initiative.

"We will be hosting an earnings call this afternoon at 5:00 p.m. EST to discuss our 2018 results, the just announced UPC Switzerland transaction and our 2019 financial guidance. We hope you can join us."

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, LionsGate, the Formula E racing series and several regional sports networks.

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* The figures included in this paragraph include both the continuing and discontinued operations that we owned on December 31, 2018

Full Year and Q4 Highlights (on a continuing operations basis unless otherwise noted)

• FY and Q4 rebased revenue up 2.2% and 1.2%, respectively
  • Q4 residential cable revenue¹⁰ decreased 0.5% year-over-year to $1.9 billion
  • Q4 residential mobile revenue¹⁰ decreased 4.0% year-over-year to $413 million
  • Q4 B2B¹¹ revenue¹⁰ increased 7.2% year-over-year to $501 million
• FY operating income increased 10.3% year-over-year to $839.1 million
  • Q4 operating income increased 73.2% year-over-year to $252.2 million
• FY rebased OCF growth was 3.5% to $5.2 billion, including 2.9% growth in Q4
  • FY results supported by strong performances in Belgium and Virgin Media
• Built 194,000 new premises in Q4
  • Virgin Media delivered 144,000 new premises in the U.K. & Ireland
• Repurchased $2 billion of stock in 2018
• Solid balance sheet with $4.0 billion of liquidity¹²
• Net leverage¹³ of 4.8x for the Full Company
• Fully-swapped borrowing cost of 4.3%

Subscriber Growth

• Cable Product Performance: During Q4 we lost 33,000 RGUs, as compared to a gain of 4,000 RGUs in the prior-year period, as an improved performance in our CEE operations and at Virgin Media was more than offset by weakness in Belgium and Switzerland. From a product perspective, video and data adds showed a year-over-year decrease, while telephony net adds increased year-over-year
• U.K./Ireland: Q4 RGU additions of 23,500 were 3x higher than the prior-year period, driven by success in our Project Lightning footprint
• Belgium: RGU attrition of 54,000 in Q4 was primarily due to intensified competition
• Switzerland: Lost 49,000 RGUs in Q4, compared to a loss of 22,500 in Q4 2017, primarily due to heightened competition
• Continuing CEE (Poland and Slovakia): Gained 47,000 RGUs in Q4, as compared to 30,000 added in the prior-year period, mainly driven by stronger video, broadband and voice adds in Poland
• Mobile: Added 28,000 mobile subscribers in Q4, as 68,000 postpaid additions were partially offset by continued attrition in our low-ARPU prepaid base
  • U.K./Ireland added 17,000 mobile subscribers in Q4 as postpaid growth was partially offset by low-ARPU prepaid losses. The penetration of 4G at Virgin Media increased to 79% of our postpaid base at the end of Q4, and 56% of our mobile base has now migrated to our full MVNO platform in the U.K. allowing us to offer more converged bundles
  • Belgium added 2,000 mobile subscribers during Q4
  • Switzerland added 8,500 mobile subscribers in Q4, driven by bundling success

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:

N.M. - Not Meaningful

⁽ⁱ⁾ For information concerning our discontinued operations, see note 4.

• Reported revenue for the three months and full year ended December 31, 2018, decreased 1.2% and increased 6.2% year-over-year, respectively
  • The full-year 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 1.2% and 2.2% in the Q4 and full-year 2018 periods, respectively. The result in the full-year period included:
  • A $6.4 million headwind from the release of unclaimed customer credits in Switzerland in H1 2017
  • 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
  • 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
  • The favorable impact of $3.8 million of mobile subscription revenue recognized in the U.K. during the third quarter of 2018 related to the expected recovery of certain prior-period VAT payments

Q4 2018 Rebased Revenue Growth - Segment Highlights

• U.K./Ireland: Rebased revenue growth of 2.4% in Q4 reflects (i) 3.0% rebased growth in our residential cable business supported by subscriber growth and accelerating cable ARPU, (ii) 1.3% rebased decline in residential mobile revenue (including interconnect and mobile handset revenue), reflecting a lower volume of mobile handset sales and a reduction in subscription revenue due to lower out-of-bundle usage and regulatory changes such as roam-like-home, and (iii) 3.1% rebased revenue growth in our B2B business, driven by continued growth in our SOHO base
• Belgium: Rebased revenue decline of 0.7% in Q4 was mainly driven by the net effect of (i) higher B2B growth, (ii) lower mobile revenue and (iii) lower cable subscription revenue due to lower video subscribers
• Switzerland: Rebased revenue declined 5.1% in Q4, 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 and (iii) higher mobile revenue
• Continuing CEE (Poland and Slovakia): Rebased revenue declined 0.5% in Q4, due to the net effect of a decrease in residential cable subscription revenue and growth in our B2B business
• Central and Corporate: Rebased revenue increased 22.1% in Q4 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 $252.2 million and $145.6 million in Q4 2018 and Q4 2017, respectively, representing an increase of 73.2% year-over-year. For the year ended December 31, 2018, our operating income of $839.1 million reflects an increase of 10.3% as compared to $760.5 million in YTD 2017
• The increase in operating income in the Q4 period resulted from the net effect of (i) a decrease in depreciation and amortization expense, (ii) an increase in impairment, restructuring and other operating items, net, (iii) an increase in share-based compensation expense and (iv) higher OCF, as further described below
• The increase in operating income in the YTD period resulted from the net effect of (i) higher OCF, as further described below, (ii) an increase in impairment, restructuring and other operating items, net, (iii) an increase in depreciation and amortization expense and (iv) an increase in share-based compensation expense

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:

N.M. - Not Meaningful

(i) For information concerning our discontinued operations, see note 4.

• Reported OCF for the three months and full year ended December 31, 2018 increased 0.9% and 7.5% year-over-year, respectively
  • The YTD result was primarily driven by (i) the aforementioned positive impact of FX movements and (ii) organic growth
• Rebased OCF growth of 2.9% in Q4 and 3.5% in YTD 2018 included:
  • For the YTD period, the net unfavorable impact on our revenue of certain items, as discussed in the "Revenue Highlights" section above
  • Higher costs of $34.3 million in U.K./Ireland in the YTD period resulting from the net impact of credits recorded during the second quarter of 2017 ($28.8 million), the fourth quarter of 2017 ($10.5 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
  • A favorable impact of $29.1 million in the YTD period 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 the fourth quarter of 2017
  • Unfavorable network tax increases of $4.8 million and $22.5 million, respectively, following an increase in the rateable value of our existing U.K. networks, which is being phased in over a six-year period ending in 2022
  • Unfavorable increases in costs in the U.K. of $2.7 million and $9.1 million, respectively, due to accruals in the second and fourth quarters of 2018 related to a fine imposed by OfCom for certain contractual breaches. This was settled in the fourth quarter of 2018 and we are currently appealing this fine
• As compared to the prior-year periods, our Q4 and YTD 2018 OCF margins were up 90 and 50 basis points, respectively, to 44.1% and 43.1%

Q4 2018 Rebased Operating Cash Flow Growth - Segment Highlights

• U.K./Ireland: Rebased OCF growth of 1.2% was attributable to the aforementioned credits recorded in Q4 2017 related to prior-period contractual breaches related to network charges, combined with increased programming costs and higher network taxes, which partially offset revenue growth and lower marketing costs
• Belgium: Rebased OCF growth of 12.1%, largely driven by lower direct costs as a result of the migration of subscribers to our own mobile network
• Switzerland: Rebased OCF decline of 8.0% in Q4, largely due to the aforementioned residential cable subscription revenue decline
• Continuing CEE (Poland and Slovakia): Rebased OCF growth of 3.2% driven by the net effect of a decrease in programming and labor costs and the aforementioned revenue trend

Net Earnings (Loss) Attributable to Liberty Global Shareholders

• Net earnings (loss) attributable to Liberty Global shareholders was $25.1 million and ($992.0 million) for the three months ended December 31, 2018 and 2017, respectively, and $725.3 million and ($2,778.1 million) during the years ended December 31, 2018 and 2017, respectively

Leverage and Liquidity

• Total principal amount of debt and capital leases: $29.9 billion for continuing operations
• Leverage ratios¹³: At December 31, 2018, our adjusted gross and net leverage ratios for the Full Company were 5.0x and 4.8x, respectively.
• Average debt tenor¹⁴: Approximately 7 years, with ~76% not due until 2024 or thereafter for continuing operations
• Borrowing costs: Blended fully-swapped borrowing cost of our debt was 4.3% for continuing operations
• Liquidity¹²: $4.0 billion for our continuing operations, including (i) $1.5 billion of cash at December 31, 2018 and (ii) aggregate unused borrowing capacity¹⁵ under our credit facilities of $2.5 billion

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 OFCF growth, and our reduced capital intensity; expectations with respect to our operating structure reorganization plan; the anticipated closings and impacts of each of the Vodafone, DTH and Switzerland transactions; the estimated cash proceeds from pending disposals to Vodafone, Sunrise and M7, expectations regarding our share buyback program; 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. Further, estimated cash proceeds from pending dispositions are inherently uncertain and represent management’s expectations and beliefs and do not take into account the ultimate use of the proceeds or any other changes in our capital structure or tax effects, directly or indirectly related to the pending dispositions. 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 consolidated balance sheets, statements of operations and statements of cash flows of Liberty Global are in our 10-K.

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 months and year ended December 31, 2017 to (i) include the pre-acquisition revenue and OCF of entities acquired during 2018 and 2017 in our rebased amounts for the three months and year ended December 31, 2017 to the same extent that the revenue and OCF of these entities are included in our results for the three months and year ended December 31, 2018, (ii) exclude the revenue and OCF of UPC Austria to the same extent that the revenue and OCF of UPC Austria is excluded from our results for the three months and year ended December 31, 2018, and to exclude the revenue and OCF of entities disposed of during 2017, (iii) include revenue for the temporary elements of transition and other services provided to the VodafoneZiggo JV, Deutsche Telekom (the buyer of UPC Austria) and Liberty Latin America, to reflect amounts related to these services equal to those included in our results for the three months and year ended December 31, 2018, (iv) 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 (v) reflect the translation of our rebased amounts for the three months and year ended December 31, 2017 at the applicable average foreign currency exchange rates that were used to translate our results for the three months and year ended December, 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:

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 December 31, 2018:

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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 consolidated statements of cash flows in our 10-K.

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ARPU per Cable Customer Relationship

The following table provides ARPU per cable customer relationship for the indicated periods:

Mobile ARPU

The following tables provide ARPU per mobile subscriber for the indicated periods:

Footnotes for Consolidated Operating Data and Subscriber Variance Tables

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.

Footnotes

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 December 31, 2018:

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 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 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 months and year ended December 31, 2018 as if the sale of the Discontinued European Operations had been completed on January 1, 2018.

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