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Liberty Global Reports Q3

Reports pro forma revenues grew by 20 percent to $1.3B and pro forma net customer adds by 74% during Q3; net loss of $153M compared with net income of $79M

November 11, 2005

10 Min Read

DENVER, Colo. -- Liberty Global, Inc. ("Liberty Global") (Nasdaq: LBTYA - News, LBTYB - News, LBTYK - News), today announces financial and operating results for the three months ended September 30, 2005. Highlights for the quarter compared to the results of Liberty Global's predecessor Liberty Media International, Inc. ("LMI") for the same period last year include:

  • Pro forma(1) revenue growth of 20% to $1.30 billion(2)

  • Pro forma(1) Operating Cash Flow (OCF) growth of 16% to $463 million(3)

  • Net loss of $153 million compared to net income of $79 million

  • Organic increase of 309,500 RGUs(4), a 74% pro forma(1) increase in net additions



Mike Fries, President and Chief Executive Officer of Liberty Global, said, "The Company has continued the strong operating momentum exhibited in the second quarter during what historically has been a slow, summer period for many of our operations. During the third quarter, we posted record organic RGU additions and strong sequential growth in revenue and OCF over our second quarter 2005 results. Our core broadband businesses, including UPC in Europe, J:COM in Japan, and VTR in Chile, have benefited from aggressive marketing and new product launches during the summer season."

"We added 309,500 RGUs during the third quarter on an organic basis, driven primarily by the success of our digital phone (VoIP) and broadband Internet products. With VoIP services launched in France, the Netherlands and Hungary, we are currently adding over 6,000 RGUs per week in Europe, an acceleration from our second quarter. Additionally, we added 155,500 organic broadband Internet RGUs in the third quarter, our fourth consecutive quarter of over 100,000 subscribers and our best quarter ever in terms of additions."

"Our financial results for the third quarter were also very strong. On a pro forma basis as if J:COM's results were consolidated last year, our revenue for the three months increased 20% to $1.30 billion and OCF increased 16% to $463 million. Adjusting for foreign currency movements, acquisitions and the May 1, 2005 consolidation of NTL Ireland, our pro forma, year-over-year revenue and OCF growth rates for the third quarter were 11% and 10%, respectively. If we exclude the Netherlands from our organic calculation, which experienced an increase in operating costs associated with our recently launched "digital for all" (D4A) initiative, our organic OCF growth rate for the third quarter would have been 17% over the prior year quarter."

"With respect to our core operating objectives, we have made substantial progress. In terms of our digital video products, J:COM continues to deliver strong growth with nearly 90,000 subscribers added this quarter, achieving a digital penetration of 31% of total video subscribers. Also of note, our D4A launch in the Netherlands began last month and has received a positive reception from both regulators and customers. We also launched branded mobile services in the Netherlands in August, which has started off strong with over 23,000 customers added by September 30, 2005. We also recently announced the launch, scheduled for March 2006, of J:COM branded mobile services. This new "Quad-Play" opportunity is expected to reduce customer churn and generate incremental profitability in our core markets. In addition, we are well positioned with respect to wireless opportunities, and have been opportunistically acquiring low-cost spectrum licenses in selected markets."

"We also continue to pursue a disciplined and opportunistic acquisition strategy. In Europe, we have closed three acquisitions since completion of the second quarter including the previously announced acquisitions of Canal Plus, the Dutch premium content business, and Astral, the largest cable operator in Romania. The content business of Canal Plus is highly complementary to our digital rollout in the Netherlands, and the combination of Astral with our existing Romanian cable business creates the leading broadband cable operator in that market."

"In October, we completed the acquisition of Cablecom, the largest cable operator in Switzerland. Cablecom expands our European footprint into the highly attractive Swiss market, which is characterized by high analog TV penetrations and an affluent customer base. We recently received approval from the Irish Competition Authority, subject to certain conditions, with respect to our announced acquisition of NTL Ireland and are optimistic that we will close this acquisition in 2005. In addition to our acquisition activity in Europe, we also made significant progress in Japan, completing the acquisition of Odakyu Cable Vision and increasing our stake to a majority interest in Cable Television Kobe, that together will add over 500,000 homes passed to J:COM's consolidated footprint."

"From a balance sheet and liquidity perspective, we successfully accessed the capital markets on several occasions. In particular, we financed our acquisition of Cablecom with a combination of cash and approximately $1.0 billion of new debt, which we raised on attractive terms. At VTR, through strong cash flow generation and a new credit facility, we have been able to upstream approximately $196 million in cash within the last year. Additionally, we continue to be focused on rationalizing non-core assets, as evidenced by our third quarter monetization of our News Corporation stake and our recent sale of our SBS Broadcasting interest, which combined, generated gross proceeds exceeding $400 million."

Third Quarter 2005 Financial and Operating Results

Our consolidated operating subsidiaries in Europe include UPC -- our broadband cable division with operations in 14 countries, and chellomedia -- our media and programming division. In Asia, our consolidated subsidiary is J:COM, the largest broadband cable operator in Japan. In the Americas, our primary consolidated operation is VTR, the largest broadband cable operator in Chile. Although we consolidate 100% of their revenue and OCF, at September 30, 2005, we owned an indirect 80% interest in VTR and, through our interest in Super Media, an indirect 36.8% interest in J:COM. Please refer to the appropriate sections herein for additional segment financial information. Additionally, the pro forma data contained herein assumes J:COM was consolidated for the comparable period in the preceding year.

Operating Statistics

At September 30, 2005, we had 15,203,300 total RGUs(5) which represented an organic(6) increase of 309,500 RGUs from June 30, 2005. The organic RGU additions represent a 74% improvement from last year's third quarter net gain, pro forma to include the consolidation of J:COM. Our RGU figures use a "single count" method whereby we do not "double count" a digital video subscriber as an analog video subscriber and we do not currently count mobile telephony customers as subscribers.

In terms of net RGU additions by product, the breakdown of our 309,500 organic additions for third quarter 2005 includes 155,500 broadband Internet subscribers, 117,500 telephony subscribers and 36,500 video subscribers. Our broadband Internet subscriber addition increase was driven by continued strong demand for the multiple tiers of high-speed access services that we offer across most of our markets, with Central and Eastern Europe demonstrating accelerating growth over the second quarter. Our telephony additions were driven primarily by the continued success of our digital phone offerings in the Netherlands, France and Hungary, as well as strong organic telephone adds in Japan and Chile.

The increase in our video subscribers consisted of an increase of 107,900 digital video and DTH subscribers, offset by a reduction of 71,400 analog video and MMDS subscribers. The digital video RGU increase was driven primarily by upgrades from our analog video subscriber base. J:COM achieved particular success in this regard, generating a third quarter organic increase of 87,900 digital RGUs. With respect to our analog video business, the third quarter is seasonally soft in Europe as we typically experience an increase in disconnects during the summer months.

Revenue

Total consolidated revenue for the three months ended September 30, 2005 increased 83% on a reported basis to $1.30 billion as compared to the same period last year. The increase was principally due to acquisitions and the consolidation of J:COM as of January 1, 2005 and the consolidation of NTL Ireland as of May 1, 2005. On a pro forma basis, as if J:COM's results had been consolidated in last year's third quarter, revenue increased 20% year over year.

Excluding the effects of FX movements, revenue on a pro forma basis increased 19% and 25% for the three months and nine months ended September 30, 2005, respectively, as compared to the same periods last year. This increase was driven primarily by acquisitions and internal RGU growth. Additionally, on a pro forma organic basis(7), revenue grew 11% for the quarter, as compared to the same period last year.

In terms of average monthly revenue (ARPU(8)) per RGU and ARPU per customer relationship, UPC Broadband and J:COM experienced sequential growth over the second quarter in both ratios. For the three months ended September 30, 2005, ARPU per RGU and ARPU per customer relationship for UPC Broadband was EUR 16.95 and EUR 20.35, reflecting increases of 0.3% and 1.5% sequentially over the second quarter, respectively. Similarly, J:COM generated ARPU per RGU and ARPU per customer relationship of YEN 4,900 and YEN 8,413 for the three months ended September 30, 2005, which were increases of 1.6% and 3.0% over the second quarter, respectively.

Operating Cash Flow

Operating Cash Flow for the three months ended September 30, 2005 increased 84% on a reported basis to $463 million as compared to the prior year period. The increase was principally due to acquisitions and the consolidation of J:COM as of January 1, 2005 and the consolidation of NTL Ireland as of May 1, 2005. On a pro forma basis as if J:COM's results had been consolidated in last year's third quarter, OCF increased 16% year over year.

Excluding the effects of FX movements, OCF on a pro forma basis increased 15% and 20% for the three months and nine months ended September 30, 2005, respectively, as compared to the comparable periods last year. This increase was driven primarily by acquisitions and increases in RGUs between the periods. On a pro forma organic basis(7), OCF increased 10% for the quarter, as compared to the same period last year. Excluding the Netherlands' results from both periods, our pro forma organic OCF growth rate for the three month period improves to 17%. We are incurring higher operating, marketing and customer care costs in that market related to new product launches, in particular our D4A initiative.

Our reported OCF margin(9) for the three months ended September 30, 2005 was 35.8%. The margin declined as compared to the pro forma OCF margin of 37.0% for last year's third quarter, but improved sequentially as compared to our reported OCF margin of 33.6% for the second quarter. The decline in margin was due primarily to new service launches around digital video and VoIP, the impact of acquisitions and increases in marketing, advertising and commissions expenses and direct costs and labor. The increases in marketing, advertising and commissions expenses primarily are attributable to our efforts to increase RGUs.

Net Earnings (Loss)

Our net earnings (loss) for the three months ended September 30, 2005 was ($153) million or ($0.32) per share. The third quarter 2005 loss compares to net earnings of $79 million or $0.23 per share for the same period last year. The loss in earnings was in large part due to increased interest expense, increased realized and unrealized losses on derivative instruments and higher minority interests in earnings of subsidiaries, partially offset by higher operating income.

Liberty Global Inc.

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