Liberty Global: A Tale of Two Companies?

Alan Breznick
News Analysis
Alan Breznick, Cable/Video Practice Leader, Light Reading
8/9/2018



For Liberty Global, there's increasingly Virgin Media on one side and the rest of its European cable properties on the other.

On the plus side, Virgin Media is performing very nicely in the UK, generating strong subscriber, revenue and operating cash flow (OCF) gains. In the second quarter, for instance, Virgin Media racked up its best spring performance ever, adding 112,200 revenue generating units (RGUs) -- including 48,400 new video subscribers -- and boosting its "rebased" revenue by 4.1% year-on-year to £1.27 billion (US$1.73 billion). (See Eurobites: Virgin Media Boosts Liberty Global's Second Quarter.)

But, on the negative side, there are Liberty Global Inc. (Nasdaq: LBTY)'s Liberty's other European cable systems, all of which are struggling to eke out any gains. Among its continuing cable operations, the company's Belgian, Dutch and Swiss systems all posted subscriber and revenue losses in the second quarter and only the Belgian unit, Telenet, generated higher operating cash flow. The continuing operations do not include Liberty Global's cable holdings in Germany, the Czech Republic, Hungary and Romania, which it's now in the midst of selling to Vodafone Group plc (NYSE: VOD) for €18.4 billion ($21.3 billion). (See Liberty Stages European Retreat .)

As a result, Liberty Global produced a very mixed financial picture again in the second quarter, with its robust gains in the UK more than offsetting its weaknesses on the Continent. Overall, rebased revenue for its continuing operations climbed 2.7% to $3.04 billion and OCF increased 3.3% to $1.31 billion as the operator added 43,000 RGUs.

In fact, Liberty Global's earnings reports increasingly read like a tale of two companies, one that is growing and thriving and the other that is frantically scrambling just to tread water. For one, it's the best of times and for the other, well, things could be a lot better.

In an attempt to address this dichotomy, Liberty Global is shaking up its top executive team. It recently announced a number of management changes, recruiting Enrique Rodriguez as its new CTO, moving Lutz Schüler from its German operations to COO of Virgin Media, and appointing Severina Pascu as CEO of UPC Switzerland and Eric Tveter as chairman of its Swiss business and CEO of its Eastern European operations. (See Rodriguez Bolts Tivo to Be Liberty Global CTO.)

On the company's second-quarter earnings call Thursday morning, Liberty Global CEO Mike Fries and his top lieutenants stressed how else they plan to revitalize their struggling businesses outside the UK, particularly in Switzerland. In that "challenging" market, which the operator has said it's thinking of exiting because of the stiff competition, Liberty Global endured its worst performance in Q2, shedding 54,000 RGUs (two-thirds of them video subscribers) and suffering a 1.9% decline in revenue and an 11% drop in OCF.

"A big part of the focus for us right now is on improving the TV product and the upcoming launch of our next-gen EOS platform, as well as our best-in-class user interface and cloud-based DVR," said Fries, according to a Seeking Alpha transcript of the call. "As I said earlier, I am excited that Severina will be taking over the CEO role here. She has had a great track record with us."


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Questioned closely by analysts about the company's long-term plans for its UPC Switzerland unit, Fries insisted that Liberty Global remains committed to bolstering its operations there and making them profitable again.

"Needless to say, we have a pretty strong turnaround plan for Switzerland," he said. "It doesn't happen overnight, it takes multiple years. But we've been in these positions before, you remember Romania or Holland."

Fries and his team said they're also committed to turning things around in Belgium and the Netherlands, where Liberty Global now operates a joint venture with Vodafone. In Belgium's case, for instance, they are counting on a price hike and the upgrade of Telenet's mobile network to turn things around.

In the wake of this latest earnings report, Liberty Global's share price, which has been falling since reaching a peak of nearly $38 at the end of January, continues to swoon. In mid-afternoon trading on the Nasdaq Exchange, the stock floated around $27.70, down about 1% for the day.

We'll home in on Virgin Media's strong performance and Liberty Global's overall broadband results in an upcoming story on our sister site, Broadband World News.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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