Liberty Global Reports Second Quarter 2013 Results

Liberty Global Reports Second Quarter 2013 Results

Q2 Rebased Revenue & OCF Growth of 4% on a Combined Basis¹

Adjusted Free Cash Flow up 39% to $259 million for Q2

Virgin Media Synergy Targets Rising

DENVER--(BUSINESS WIRE)-- Liberty Global plc ("Liberty Global," or the "Company") (NASDAQ: LBTYA, LBTYB and LBTYK), today announces financial and operating results for the three months ("Q2") and six months ("YTD") ended June 30, 2013. The results of operations of Virgin Media Inc. ("Virgin Media") are included in our results for the 23 days following our acquisition of Virgin Media on June 7, 2013. Some of the information below concerning Virgin Media relates to periods prior to our ownership of the business. Highlights for Q2 2013 as compared to the same period for 2012 (unless noted) include:

• Q2 RGU² additions of 229,000 (excluding Virgin Media)

• Combined Q2 rebased³ growth of 4% for revenue and Operating Cash Flow ("OCF")⁴

  • Liberty Global (excluding Virgin Media ) delivered Q2 rebased revenue and OCF growth of 5% and 4%, respectively

  • Virgin Media (standalone) realized Q2 rebased revenue growth of 1% and rebased OCF growth of 4%

• Adjusted Free Cash Flow⁵ increased 39% to $259 million

• Share repurchases in excess of $300 million since mid-June 2013

Liberty Global's President and CEO Mike Fries commented, "The highlight of our second quarter was the successful acquisition of Virgin Media. This transaction marks an important milestone in our efforts to consolidate what remains a very fragmented European cable market. Virgin Media significantly enhances both the scale of our business and our levered equity growth strategy."

"Excluding the 23-day stub period for Virgin Media in Q2, we added roughly 600,000 RGUs on an organic basis in the first half of 2013, including 229,000 RGU additions in the seasonally slower second quarter. This volume growth helped propel YTD rebased revenue and OCF growth, excluding Virgin Media, of 6% and 4%, respectively. On a standalone basis for the full six months of 2013, Virgin Media generated rebased revenue and OCF growth of 2% and 6%, respectively, on the strength of its U.K. cable business."

"We are making significant progress integrating Virgin Media into our European operations. The core senior management team has been assembled, led by pay-TV veteran Tom Mockridge, who assumed the CEO role upon closing. Following a detailed review of our synergy targets and, while it's still early days, we are pleased to report that synergies are expected to be significantly higher than our original estimates."

"Our balance sheet at June 30, 2013 remains in great shape and geared to drive equity returns, with over $5.0 billion of consolidated liquidity⁶ and net leverage⁷ of 5.0x. Our interest and currency exposures remain substantially hedged, and the average tenor of our debt exceeds seven years. We remain committed to our share repurchase program, targeting $3.5 billion of stock buybacks over the next two years. We believe our valuation is attractive and equity repurchases will remain a key use of our investable capital."

Virgin Media Acquisition

On June 7, 2013, we acquired Virgin Media in a stock and cash merger (the "Virgin Media Acquisition"). In connection with the completion of the Virgin Media Acquisition, we issued 70.2 million Class A and 52.4 million Class C ordinary shares to holders of Virgin Media common stock and 141.2 million Class A, 10.2 million Class B and 105.6 million Class C ordinary shares to holders of Liberty Global, Inc. ("LGI") Series A, Series B and Series C common stock, respectively. For accounting purposes, the Virgin Media Acquisition has been treated as the acquisition of Virgin Media by Liberty Global (as successor to LGI). In this regard, the equity and cash consideration paid to acquire Virgin Media totaled approximately $14.1 billion, including cash consideration of $4.8 billion.

Unless otherwise noted, the financial and operating metrics presented herein include Virgin Media from the date of acquisition. For additional information on Virgin Media, please see their quarterly and annual investor releases and public filings.

Subscriber Statistics

Across our footprint of 47.0 million homes passed, we provided our 24.5 million unique customers with 47.5 million services at the end of Q2. These services consisted of 21.9 million video, 13.9 million broadband internet and 11.8 million telephony subscriptions. The year-over-year increase of 41% or 13.7 million RGUs was largely driven by the acquisition of Virgin Media in June 2013 and by 1.3 million organic RGU additions during the last twelve months.

At June 30, 2013, 13.5 million customers, or 55% of our customer base, subscribed to more than one product. Of these, roughly 9.5 million, or 71%, took a triple-play bundle from us. A principal component of our growth strategy continues to be the upselling of additional products to our large pool of 11.0 million single-play and 4.0 million double-play customers.

As compared to 364,000 RGU additions in Q2 2012, we added 191,000 RGUs on an organic basis in Q2 2013, consisting of RGU gains of 149,000 and 142,000 in broadband internet and telephony, respectively, and a loss of 100,000 video RGUs. The year-over-year reduction in subscriber additions was due primarily to our German, Central and Eastern European ("CEE") and Dutch operations, as well as the inclusion of Virgin Media for the 23-day stub period.

Specifically, our German business added 129,000 RGUs in Q2 this year, as compared to 189,000 in the prior year period, due to lower promotional activity in the current quarter and a difficult comparison with last year's Q2, which benefitted from our "Go-for-Growth" marketing initiative. Following strong RGU additions over the last several quarters, our CEE operations added 9,000 RGUs in Q2 this year, compared to 64,000 in last year's Q2. This RGU difference was due in part to changes in our pricing and promotional strategies with increasing competition and difficult economic conditions in most markets.

In the Netherlands, we lost 7,000 RGUs during Q2 2013 versus a gain of 14,000 RGUs in Q2 2012. As we have discussed in recent quarters, the Dutch market remains highly competitive. However, we have implemented several strategies designed to improve our competitive positioning, including the unencryption of our basic digital tier as well as the introduction of new bundles with significantly faster broadband speeds. In addition, our consolidated results reflect a loss of 38,000 RGUs during the 23-day stub period for Virgin Media, as the second quarter (particularly in June) is a seasonally weak period, due in large part to student churn at the end of the academic year.

Notable performers in the second quarter included our Belgian operation, which delivered an incremental 14,000 year-over-year increase in RGU additions, and our Latin American businesses,⁸ which increased subscriber additions by 26% year-over-year to 58,000. Our operations in both Chile and Puerto Rico (which benefitted from the November 2012 OneLink acquisition) experienced higher year-over-year subscriber growth.

Across our markets, we are focused on providing superior broadband speeds, attractively-priced voice products and enriching the video experience for our customers through Horizon TV and TiVo. In particular, on broadband, we have raised our top-level broadband speeds such that in each of our European markets, our fastest downstream speeds are now at least 100 Mbps. In terms of our core video business, we continue to expand our Horizon TV platform, with over 270,000 Horizon TV subscribers in the Dutch and Swiss markets as of the end of July. We will continue to grow our Horizon TV reach with roll-outs planned for Ireland and Germany in the coming weeks. In addition, we finished the second quarter with 1.7 million TiVo subscribers in the U.K.

As of June 30, 2013, we had over 4.0 million mobile subscribers, which are reported separately from our RGU counts. Our mobile subscribers increased by 3.1 million in Q2, due primarily to the acquisition of Virgin Media. Collectively, in our other operations, we crossed the 1.0 million mobile subscriber mark in Q2, driven by our Belgian and German operations.

Revenue

Our consolidated revenue increased year-over-year by $637 million to $3.16 billion and $868 million to $5.93 billion for the three and six months ended June 30, 2013, respectively. As compared to the corresponding 2012 periods, these results reflect growth of 25% and 17%, respectively. The principal driver of our reported growth during each period was the inclusion of Virgin Media, which contributed $401 million for the period from June 8 to June 30, 2013. In addition, revenue growth was driven by a combination of RGU and mobile volume growth and positive foreign exchange ("FX") movements.

In terms of rebased revenue growth, which adjusts to neutralize both FX movements and acquisitions, we reported year-over-year growth of 4% and 5% for the three and six months ended June 30, 2013, respectively. Geographically, Western Europe, which accounted for over 75% of our consolidated revenue in Q2, delivered 5% rebased growth during the quarter. In line with previous quarters, our CEE operations reported flat rebased revenue growth during Q2, while outside of Europe, our Chilean operation, posted 9% rebased revenue growth, its best year-over-year result in over two years.

Turning back to Western Europe, our solid rebased revenue performance was led by record top-line rebased growth of 13% in our Belgian operation, driven largely by its successful mobile business. Additionally, our German, Irish and Swiss businesses delivered rebased revenue growth of 8%, 7% and 4%, respectively. As we saw in Q1 2013, our German rebased revenue performance was dampened by the non-recognition of public broadcast carriage fees during the current quarter, as compared to the recognition of approximately $8 million of carriage fees in Q2 2012.

Rounding out Western Europe, our British and Dutch businesses contributed negative rebased revenue growth of 1% and 2%, respectively, during the three months ended June 30, 2013. Virgin Media's rebased performance for the 23-day stub period was impacted in part by a combination of lower business and mobile revenue. The decline in business revenue was due in part to a challenging competitive environment and the decrease in mobile revenue was due in part to lower chargeable usage and regulatory changes to mobile termination rates. For the full Q2 2013 quarter (including the period in which we did not own Virgin Media), Virgin Media posted rebased revenue growth of 1%. Finally, our Dutch business reported modestly lower rebased revenue growth, as compared to its Q1 2013 rebased growth of 1%. Given the lack of recent subscriber growth and the heightened competitive environment, we expect the second half of 2013 in the Dutch market to remain challenging.

Overall, assuming the combination of Virgin Media and Liberty Global for the entire six-month period, rebased revenue growth would have been approximately 4% for both the three- and six-month 2013 periods.

Operating Cash Flow

For the three and six months ended June 30, 2013, our OCF increased 21% to $1.45 billion and 14% to $2.72 billion, respectively, as compared to the corresponding prior year periods. Similar to our top-line results, our reported OCF increased year-over-year primarily as a result of a $175 million OCF contribution from Virgin Media. In terms of our rebased OCF growth, our year-over-year growth was 3% for each of the three and six months ended June 30, 2013, respectively.

Geographically in Q2, our European operations generated rebased growth of 4%, with Western Europe delivering 5% growth, partially offset by a 2% decline in CEE as well as higher year-over-year central and other costs, reflecting in part our increased investment in centralization and product development. Beyond Europe, our Chilean business reported rebased OCF growth of 13%, its best result in over four years, as it began to positively compare against the mobile start-up and launch costs in last year's second quarter.

Underlying our Q2 OCF performance in Western Europe, Ireland, Belgium, Germany and Switzerland all delivered strong results, achieving rebased OCF growth of 15%, 12%, 9% and 6%, respectively. On the other hand, our British and Dutch operations brought down our rebased OCF growth. Specifically, Virgin Media's contribution during the 23-day stub period was a 3% OCF decline, which was negatively impacted by a broadband rate appeal settlement that benefitted OCF during the comparable 23-day period in 2012 by approximately $11 million. Meanwhile, our Dutch business reported a 6% rebased OCF decline as a result of revenue pressure and incremental marketing and sales expenses.

Overall, assuming the combination of Virgin Media and Liberty Global for the entire six-month period, our combined rebased OCF growth for the three- and six-month periods would have been 4% and 5%. Our combined rebased OCF growth would have been even higher, if we were to exclude the favorable prior year one-off of Virgin Media noted above and modest integration costs of approximately $6 million that have reduced our OCF.

We reported consolidated OCF margins⁹ of 46% for each of the three and six months ended June 30, 2013, as compared to 47% for the corresponding prior year periods. The modest year-over-year declines were due largely to several factors including the inclusion of Virgin Media, which had a 44% OCF margin for the 23-day stub period, OCF margin compression in our Dutch business along with higher central costs in our pan-European operations.

Operating Income

We reported operating income of $445 million and $971 million for the three and six months ended June 30, 2013, respectively. As compared to the corresponding prior year periods, our operating income decreased 7% for the three-month period and was flat for the six-month period. On a comparative basis, the impacts of the Virgin Media Acquisition, including increases in depreciation and amortization expense, share-based compensation and impairment, restructuring and other operating items, more than offset OCF growth during the three-month period and largely offset OCF growth during the six-month period.

Net Loss Attributable to Liberty Global Shareholders

For the three and six months ended June 30, 2013, we reported net losses attributable to shareholders of $12 million or $0.04 per basic and diluted share and $13 million or $0.05 per basic and diluted share, respectively. This compares to net earnings attributable to shareholders of $702 million or $2.60 per basic and diluted share and $677 million or $2.49 per basic and diluted share, for the corresponding 2012 three- and six-month periods. The results for both 2012 periods were driven largely by a $924 million gain on the disposition of our Austar interest in the second quarter of 2012. Excluding this gain, our results for each of the 2013 periods showed significantly improved results, as compared to the respective 2012 periods, due largely to lower non-operating expenses during the 2013 periods. Our basic and diluted per share calculations utilized weighted average ordinary shares of 293 million and 275 million for the three and six months ended June 30, 2013, respectively, and 269 million and 271 million for the three and six months ended June 30, 2012.

At July 26, 2013, we had 400 million shares outstanding, as compared to 257 million at April 30, 2013. The share increase over this period is a result of the issuance of approximately 123 million shares to Virgin Media shareholders in satisfaction of the equity portion of the consideration paid in the Virgin Media Acquisition and the issuance of 23 million shares and cash in exchange for approximately 95% of the outstanding principal amount of Virgin Media's 6.50% convertible senior notes.

Property and Equipment Additions & Capital Expenditures

For the three months ended June 30, 2013, we had property and equipment additions¹⁰ of $738 million (23% of revenue), as compared to $600 million (24% of revenue) for Q2 2012. Additionally, for the 2013 year-to-date period, we incurred property and equipment additions of $1.3 billion (21% of revenue), as compared to property and equipment additions of $1.1 billion (22% of revenue) for the year-to-date 2012 period. With respect to our property and equipment additions, the year-over-year decline for both the three- and six-month periods, measured as a percentage of revenue, was due principally to lower spend in Germany and Chile, partially offset by increases in our remaining European operations.

From a cash capital expenditure¹¹ perspective, we are focused on optimizing our working capital and improving our capital efficiency. During both the quarter and year-to-date periods, we increased our use of vendor financing and capital lease arrangements by $91 million for the three-months and $148 million for the six-months, as compared to the respective 2012 periods. As a result, we reported capital expenditures of $490 million (16% of revenue) and $995 million (17% of revenue) for the first three and six months of 2013, respectively, as compared to $473 million (19% of revenue) and $994 million (20% of revenue) for the corresponding prior year periods, respectively.

Free Cash Flow & Adjusted Free Cash Flow

For the three months ended June 30, 2013, we increased our reported Free Cash Flow by 29% to $193 million, as compared to FCF of $149 million for the corresponding prior year period. Similarly, on an adjusted basis, which excludes costs associated with our Chilean wireless project and certain financing costs and withholding taxes paid in connection with the Virgin Media Acquisition, we increased our year-over-year Adjusted FCF by 39% to $259 million for the second quarter of 2013, as compared to $186 million for Q2 2012.

As highlighted by the table on page 17, Virgin Media reduced our Q2 Adjusted FCF by $117 million, largely as a result of interest payments and working capital swings during the 23-day period post-acquisition. However, on a full-period standalone basis, Virgin Media generated Adjusted FCF of approximately $146 million and $317 million during the three- and six-month 2013 periods, respectively. Both results reflect strong year-over-year performance for Virgin Media.

Turning to the 2013 six-month period for Liberty Global, we generated Adjusted FCF of $326 million, as compared to $466 million for the first half of 2012. This year-over-year decrease was largely due to the Virgin Media deficit mentioned above, as well as the expected reversal during Q1 2013 of favorable working capital movements in Q4 2012.

Leverage and Liquidity

We had total debt¹² of $41.9 billion at June 30, 2013, as compared to $30.7 billion at March 31, 2013. The increase in absolute leverage during the quarter largely reflects the impact of the Virgin Media Acquisition, including a full draw down of the term loans under the Virgin Media credit facility, a €460 million ($598 million) margin loan associated with our opportunistic and strategic investment in publicly-traded Ziggo, and the issuance of €350 million ($455 million) principal amount of senior secured notes at Unitymedia KabelBW. In terms of our total debt at quarter-end, over 85% does not come due until 2018 or beyond, and our fully-swapped borrowing cost¹³ was approximately 6.8%.

With respect to our liquidity position at June 30, 2013, we finished with $2.1 billion in cash and cash equivalents after funding, among other items, the cash portion of the Virgin Media purchase consideration and our investment in Ziggo, a portion of which was funded by our aforementioned margin loan. Through June 30, 2013, our aggregate investment in Ziggo totaled €1.0 billion ($1.3 billion), which equates to ownership of approximately 19.8%. Subsequent to quarter-end, we entered into a hedging transaction in relation to a portion of our existing Ziggo shares and in connection with this transaction, we purchased an additional 17.5 million shares of Ziggo. This brings our ownership to approximately 28.5% (based on the number of outstanding shares of Ziggo as of June 30, 2013).

We also repurchased 2.9 million Liberty Global shares during June for $205 million. At June 30, 2013, we had $3.3 billion remaining under our two-year equity repurchase target. Subsequent to Q2, we have repurchased over $100 million of additional shares.

Our consolidated liquidity position at the end of Q2 2013 was approximately $5.3 billion, consisting of cash and cash equivalents of $2.1 billion and aggregate borrowing capacity of $3.1 billion, as represented by the maximum undrawn commitments under each of our credit facilities.¹⁴ When the relevant June 30, 2013 compliance reporting requirements have been completed for our credit facilities and assuming no changes from June 30, 2013 borrowing levels, we anticipate that our availability will be limited to $1.6 billion.

After giving effect to a full quarter of OCF from Virgin Media and excluding $1.5 billion of debt that is backed by the shares we hold in both Sumitomo Corporation and Ziggo, we ended the second quarter with consolidated gross and net leverage ratios of 5.2x and 5.0x, respectively.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our expectations with respect to our operating momentum and 2013 prospects, including our expectations for continued organic growth in subscribers, the penetration of our advanced services, and our ARPU per customer; our assessment of the strength of our balance sheet, our liquidity and access to capital markets, including our borrowing availability, potential uses of our excess capital, including for acquisitions and continued share buybacks, our ability to continue to do opportunistic refinancings and debt maturity extensions and the adequacy of our currency and interest rate hedges; our expectations with respect to the timing and impact of our expanded roll-out of advanced products and services, including Horizon TV; our insight and expectations regarding competitive and economic factors in our markets, the anticipated consequences, synergies and benefits of the Virgin Media acquisition, the availability of accretive M&A opportunities and the impact of our M&A activity on our operations and financial performance 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 the continued use by subscribers and potential subscribers of our services and their willingness to upgrade to our more advanced offerings, our ability to meet challenges from competition and economic factors, the continued growth in services for digital television at a reasonable cost, the effects of changes in technology, law and regulation, our ability to obtain regulatory approval and satisfy the conditions necessary to close acquisitions and dispositions, our ability to achieve expected operational efficiencies and economies of scale, our ability to generate expected revenue and operating cash flow, control property and equipment additions as measured by percentage of revenue, achieve assumed margins and control the phasing of our FCF, our ability to access cash of our subsidiaries and the impact of our future financial performance and market conditions generally, on the availability, terms and deployment of capital, fluctuations in currency exchange and interest rates, the continued creditworthiness of our counterparties, the ability of vendors and suppliers to timely meet delivery requirements, as well as other factors detailed from time to time in our filings with the Securities and Exchange Commission including the most recently filed Forms 10-K/A and 10-Q. These forward-looking statements speak only as of the date of this release. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

About Liberty Global

Liberty Global is the largest international cable company with operations in 14 countries. We connect people to the digital world and enable them to discover and experience its endless possibilities. Our market-leading triple-play services are provided through next-generation networks and innovative technology platforms that connected 24.5 million customers subscribing to 47.5 million television, broadband internet and telephony services at June 30, 2013.

Liberty Global's consumer brands include Virgin Media, UPC, Unitymedia, Kabel BW, Telenet and VTR. Our operations also include Chellomedia, our content division, Liberty Global Business Services, our commercial division and Liberty Global Ventures, our investment fund. For more information, please visit www.libertyglobal.com or contact: