DENVER, Colo. -- Liberty Global plc ("Liberty Global") (NASDAQ: LBTYA, LBTYB, LBTYK, LILA and LILAK), today announces financial and operating results for the three months ("Q2") and six months ("YTD" or "H1") ended June 30, 2017 for the Liberty Global Group and the LiLAC Group*.
CEO Mike Fries stated, "During the first six months of the year, we added 406,000 RGUs across our European markets, including a 16% year-over-year improvement in Western Europe, underpinned by our strongest H1 video performance since 2006 and continued network expansion. Our next-generation video platforms, which include elegant user-interfaces, in-and-out of the home viewing capabilities and robust content line-ups, continue resonating with consumers, as we've added 1 million subscribers across Europe during the last twelve months. In the U.K., we have been proactively rolling out our new 4k-enabled, Virgin TV V6 set-top box, where we are seeing strong demand from both new and existing customers. In our other markets, we continue expanding the reach of Horizon TV and over 40% of our video base in Europe now subscribes to one of our next-generation TV platforms. On the connectivity front, nearly one-third of our 15 million broadband subscribers enjoy our high-speed Connect Box, which provides an impeccable WiFi user experience throughout the home, and our subscribers can now seamlessly access 10 million WiFi spots across Europe."
"From a financial perspective, our Q2 rebased OCF result in Europe showed both sequential and year-over-year improvement, as we delivered 6% rebased OCF growth. This result was fueled by strong performances in Germany, Belgium and CEE, which delivered Q2 rebased OCF growth of 6%, 5% and 7%, respectively, and was further supported by our company-wide indirect cost efficiencies. On top-line growth, we reported a 2% rebased improvement as our B2B business delivered 14% rebased revenue growth in the quarter, partly offset by continued challenges in our mobile business which contracted 6%. As expected, cable ARPU and revenue growth at Virgin Media remained soft, as the discounting and mix effects that impacted growth in Q1 continued in the second quarter. At the same time, we are seeing some early signs of progress and expect the ARPU headwind in the U.K. to lessen in Q4 of this year. We continue to anticipate approximately 5% rebased OCF growth for Liberty Global Group in 2017."
"With respect to Project Lightning, we've made significant strides in solidifying the foundation of the program through the appointment of a dedicated new leadership team, as well as an overhaul of key processes and procedures. During Q2, we built 127,000 new premises at Virgin Media, including a record monthly build performance in June, and our cumulative total now stands at nearly 800,000 premises since the project's inception. Meanwhile, on the European continent, the number of new build and upgraded homes in markets like Germany and CEE continue to broadly track our expectations. In these regions, we have added a cumulative total of 1.4 million newly marketable premises over the last 2 years."
"At LiLAC, we delivered 10.5% rebased OCF growth in Q2 due to double-digit improvements at both VTR and CWC. In the case of CWC, we've taken actions that should help drive organic revenue growth and cost efficiencies in the future. With regard to our planned spin-off of the LiLAC Group, we are pleased to report that we submitted a draft registration statement with the SEC on a confidential basis in July, and we still expect to complete the transaction around the end of the year. We believe the spin-off will benefit LiLAC shareholders by creating a stand-alone, asset-backed equity, while enhancing its potential attractiveness as an acquisition currency for consolidation opportunities in the highly-fragmented Latin American and Caribbean telecommunications markets. In terms of guidance, we continue to anticipate approximately $1.5 billion of OCF for full-year 2017 at LiLAC."
"We remained active in the credit markets during the first half of the year, refinancing over $11 billion of long-term debt in Europe and Latin America combined. At the end of June, our fully-swapped borrowing cost for Liberty Global plc was 4.8%, our average tenor exceeded seven years and we had substantial liquidity of over $6 billion. With respect to our share buyback programs, we took advantage of recent trading levels and repurchased a record $2.2 billion of LBTY equity, as well as $41 million of LiLAC Group stock during the first half of 2017. Going forward, we will continue to manage our business through the lens of our long-standing levered-equity strategy, and will continue to be opportunistic when our stock prices look especially attractive."
European Highlights Q2 2017
162,000 RGU adds as softer broadband & voice growth was partially offset by better video trends
99,000 organic Q2 postpaid mobile additions, driven by a strong performance at Telenet
35% of our Virgin Media postpaid mobile base has migrated to 4G Closed the acquisition of SFR in Belgium in mid-June, adding 91,000 customers
German analog switch-off successfully finalized in early July with limited video churn
Rebased revenue increased 2%, impacted by lower growth at Virgin Media and Switzerland
Residential fixed of $2.7 billion, up 1% year-over-year B2B up 14% year-over-year to $0.5 billion
Residential mobile (incl. handset & interconnect) declined 6% YoY to $0.4 billion
Operating income decreased 5% year-over-year
Rebased OCF growth of 6% with improved sequential growth from nearly all segments
Includes a $32 million nonrecurring benefit associated with a telecom operator's agreement to compensate Virgin Media for prior-period contractual breaches
Connected/built new premises totaling around 500,000 YTD and 295,000 in Q2, of which 127,000 were at Virgin Media in Q2
LiLAC Highlights Q2 2017
Added 8,000 organic customers, bringing the H1 total to 41,000 Subscriber additions of 16,000 in Q2 2017 & 58,000 in H1 2017 VTR's 34,000 net adds partially offset by losses totaling 18,000 at CWC & LCPR
Rebased revenue growth of 2%, including 8% in Chile and 1% at CWC and LCPR Operating income of $159 million versus a $21 million operating loss in Q2 2016
Rebased OCF growth of 10.5%
CWC & VTR each delivered 11% rebased growth
LCPR delivered 7% rebased OCF growth despite macroeconomic headwinds Lowering P&E additions as a % of revenue forecast to 19%-21% for 2017
Cable Product Performance: we added 406,000 RGUs in H1, down 6% year-over-year. During Q2 we gained 162,000 RGUs, a decline of 37% over the prior-year period due to lower additions in CEE, Germany and Belgium. From a Q2 product perspective, our video RGU performance improved, while our broadband and telephony growth slowed year-over-year
The better video result was primarily driven by Virgin Media, which improved its Q2 performance by 50,000 RGUs supported by the relaunch of Virgin TV and the successful rollout of our Virgin TV V6 set-top box. The overall video performance was particularly strong given our focus on the completion of the analog switch-off in Germany, which caused only minimal disruption to our German operations
Next-Generation TV platforms (including Horizon TV, Horizon-Lite, TiVo, Virgin TV V6 and Yelo TV): we added 302,000 subscribers in Q2, as our next-generation subscriber base reached 7.2 million, representing 41% of our total cable video base (excluding DTH). Notable Q2 performances included the U.K. (78,000 additions), Belgium (69,000 additions) and Poland (53,000 additions)
Our new 4K enabled Virgin TV V6 set-top box is resonating with consumers in the U.K. and by June 30, 2017 nearly 10% of video subscribers in the U.K. had a new box. Subscribers to the Virgin TV V6 box have significantly higher NPS scores than those on legacy boxes
WiFi Connect Box: we increased the number of WiFi Connect boxes by more than 800,000 during Q2, ending the quarter with 4.5 million boxes installed across Europe. This represents a 31% penetration of our broadband base of 14.7 million
U.K./Ireland: posted RGU growth of 78,000 additions in Q2, up 56% YoY in a seasonally slower quarter, and improved in both Lightning new build areas and our existing footprint. Similar to Q1, our U.K. video performance materially improved on a year-over-year basis with 35,000 RGU additions, a 42,000 subscriber improvement. Our Q2 U.K. internet RGU growth of 31,000 slowed due to higher year-over-year churn levels but still took an estimated 46% share of national broadband net adds and an even higher share of broadband net adds on our cable footprint in the U.K. during Q2.
Our Irish RGU performance returned to positive territory with improvements across all products due to our latest spring campaign
Germany: reported 54,000 RGU additions in Q2, around half of our Q2 2016 result. The main operational focus in Q2 was the switch-off of the analog TV signal across our video base of 6 million subscribers. The migration to a digital-only video experience was successful, including better year-over-year video performance. We experienced weaker internet and fixed voice RGU growth, partially as a result of (1) a more competitive environment and (2) certain delays in installations for new customers as truck rolls were prioritized for existing customers to assist with the analog switch-off in June. In addition, we have reduced discounts since February 2017, while in the prior-year period we ran our "Highspeed Weeks" promotion
Belgium: Q2 attrition of 15,000 RGUs was broadly in-line with Q1 results, but down year-over-year primarily due to intensified competition. While video losses improved sequentially, internet and telephony performance softened. Our all-in-one converged package "WIGO" reached 224,000 subscribers at June 30, 2017, including a robust Q2 inflow of 36,000 net new "WIGO" subscribers. In addition, Telenet closed its acquisition of SFR Belux in June, resulting in 190,000 nonorganic fixed subscriber additions in Q2 2017
Switzerland/Austria: 11,000 RGU additions in Q2, supported by a sequential and year-over-year improvement across all fixed-line products. This result was driven by our refreshed Swiss Connect & Play portfolio, which launched in mid-May. With respect to this new portfolio, we lowered price points of our high-tier bundles, while lifting price points on the low-end to drive a better tier-mix. We expect to launch our MySports channels in early September featuring exclusive content, such as Swiss, Russian and Swedish ice hockey, and German and Portuguese soccer
CEE: delivered 35,000 RGU additions in Q2, a decline versus the 92,000 gained in Q2 2016. This weaker performance was primarily due to softer RGU performances in Poland, Slovakia and our DTH business. Hungary's strong RGU additions partially offset these weaker results
Mobile: added 6,000 mobile subscribers in total in Q2, as our 99,000 postpaid subscriber additions, were largely offset by attrition in the prepaid subscriber base
Virgin Media's Q2 subscriber base in the U.K. declined by 20,000 as low-ARPU prepaid subscriber losses of 30,000 more than offset the 10,000 postpaid additions. Of note, 4G subscriptions in the U.K. increased by 347,000 in Q2 and now represent 34% of the U.K.'s total postpaid mobile base. Ireland delivered a record 13,000 additions during Q2, supported by our attractive SIM-only postpaid mobile promotion
Telenet in Belgium gained 60,000 postpaid additions in Q2, supported by the continued success of "WIGO" and a refreshed BASE19 postpaid offering with doubled data allowance. This sequential and year-over-year improvement was offset by a decline in our prepaid base of 63,000 during Q2, mainly due to the deactivation of 53,000 prepaid SIM cards following a legislative change to register all legacy prepaid SIMs by June 15, 2017 Switzerland/Austria posted 15,000 postpaid SIM additions on the back of the continued "10 for 10" promotion in Austria and a refreshed mobile portfolio in Switzerland, now including free EU roaming
Revenue Highlights - Liberty Global Group (Europe)
Reported revenue for the three and six months ended June 30, 2017, declined 18% year-over-year in each period
These results were primarily driven by the net impact of (i) the deconsolidation of our operations in the Netherlands in connection with the completion of our joint venture with Vodafone Group plc (the "VodafoneZiggo JV"), (ii) negative foreign exchange ("FX") movements, mainly related to the strengthening of the U.S. dollar against the British pound, and (iii) our organic revenue growth
Rebased revenue grew 2% during each of the Q2 and H1 2017 periods and included the net negative impact of certain items, the most significant of which included:
A reduction in cable subscription revenue of $3 million and $12 million, respectively, resulting from a change in U.K. regulations governing payment handling fees that Virgin Media charges its customers
The favorable $6 million impact in the YTD period of the expected recovery of VAT paid in prior periods with respect to copyright fees in Belgium, which benefited revenue in Q1 2017
In Q2 and H1 2017, we recognized $32 million and $63 million of revenue from the VodafoneZiggo JV pursuant to the framework services agreement.
Our rebased growth calculations include an estimate of the revenue from the framework agreement for the Q2 and H1 2016 periods, as if the framework agreement had been in place at the beginning of 2016
Effective April 1, 2017, we changed the categories that we present in our product revenue table in order to align with our internal reporting. These changes were retroactively reflected in the prior-year periods. The new table presents Residential Cable, Residential Mobile and B2B (Fixed and Mobile) sections, with each section including subscription and non-subscription elements. Our definitions of subscription revenue and ARPU have not changed. For additional details and definitions of our product revenue, see note 15 to the condensed consolidated financial statements included in our quarterly report on Form 10-Q filed on August 7, 2017 (the "Form 10-Q")
Our B2B7 business (including SOHO and non-subscription revenue) reported rebased revenue growth of 14% and 12% in Q2 2017 and H1 2017, respectively Our residential mobile (including interconnect and handset sales) business posted 6% and 7% rebased revenue contractions during Q2 2017 and H1 2017, respectively
Contraction of mobile revenue was due to rebased revenue declines in Belgium and the U.K., which together represent over 90% of our mobile business
The U.K. declines were mainly related to reductions in revenue from Virgin Media's subsidized handset base of $31 million and $67 million, respectively, which more than offset increases related to growth in Virgin Media's split-contract program of $14 million and $29 million, respectively
Additionally, declines in mobile interconnect revenue negatively impacted mobile revenue in both the U.K. and Belgium
Q2 2017 Rebased Revenue Growth - Segment Highlights
U.K./Ireland: the rebased revenue growth of 1% in Q2 2017 was driven by: Rebased residential cable revenue (~70% of total revenue) growth of 2%, driven by the net effect of (i) growth in subscription revenue resulting from RGU additions and (ii) a relatively flat year-over-year Q2 ARPU performance on an FX-neutral basis
Rebased residential mobile revenue (including interconnect and mobile handset revenue) decline of 8%, primarily due to the net reduction in revenue in the U.K., as mentioned above
Rebased business revenue growth of 4%, mainly driven by SOHO and SME Belgium: rebased revenue growth rate of 1% in Q2 was mainly driven by the net effect of (i) strong growth in B2B, (ii) mobile headwinds, partly related to lower mobile subscribers and handset sales and (iii) lower cable revenue, primarily due to RGU attrition
Germany: Q2 rebased revenue growth of 5% was mainly driven by (i) higher cable subscription revenue (~90% of total revenue), as a result of a larger subscriber base and an increase in ARPU per RGU, (ii) higher low-margin mobile handset revenue and (iii) B2B growth in the SOHO segment. Looking ahead, we expect H2 2017 to be adversely impacted by the analog switch-off, as the related loss of analog carriage fees is expected to result in a reduction of revenue and OCF of approximately €7.5 ($8.6) million per quarter
Switzerland/Austria: rebased revenue declined by 1.5% in Q2, mainly driven by the net effect of (i) lower ARPU per RGU, primarily related to a weaker tier-mix and competitive pressures and (ii) a higher contribution from B2B. At the same time, mobile revenue growth was limited as the contribution from the mobile subscriber growth was offset by lower handset sales
CEE: rebased revenue growth of 6% in Q2 driven mainly by (i) strong growth in our B2B business and (ii) higher cable revenue supported by solid RGU additions totaling 302,000 over the LTM period, partly offset by a 1% decline in the ARPU per RGU on an FX-neutral basis
Operating Income - Liberty Global Group (Europe)
Operating income of $483 million and $509 million in Q2 2017 and Q2 2016, respectively, representing a decrease of 5%. For the six months ended June 30, 2017, the operating income of $914 million reflects a decline of 12% as compared to $1.0 billion in H1 2016
The decreases in operating income during both periods primarily resulted from lower OCF, as further described below, and declines in depreciation and amortization. The declines in OCF and depreciation and amortization are primarily attributable to the fact that our Netherlands segment is not included in our 2017 consolidated results
* While the LiLAC Group and the Liberty Global Group have separate collections of businesses, assets and liabilities attributed to them, neither group is a separate legal entity. The LiLAC Group comprises our operations in Latin America and the Caribbean and has attributed to it CWC, VTR and Liberty Puerto Rico. The Liberty Global Group comprises our businesses, assets and liabilities not attributed to the LiLAC Group, including Virgin Media, Unitymedia, UPC Holding, Telenet and, through December 31, 2016, Ziggo Group Holding.
Liberty Global Inc. (Nasdaq: LBTY)