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Liberty Global Ltd. (LBTYA)·Q1 2015 Earnings Summary

Executive Summary

  • Reconfirmed 2015 guidance: mid‑single‑digit rebased OCF growth and $2.5B free cash flow; capital intensity expected at 21–23% as Project Lightning ramps in H2 .
  • Q1 2015 consolidated revenue declined slightly (-0.4% YoY) to $4,516.9M, with organic growth +3.0% offset by FX; broadband and B2B drove category gains while “Other revenue” fell on lower installation/interconnect .
  • Operating cash flow was $2,097.3M (down 1.4% YoY), with Western Europe OCF margin essentially flat and LiLAC margin up YoY; segments saw mix shifts and one‑offs versus Q1 2014 .
  • Strategic catalysts: UK Project Lightning off to a strong start; announced €1.3B purchase of BASE in Belgium (synergy‑adjusted ~4.2x 2015E EBITDA) to secure 4G capacity; LiLAC tracking stock slated for early July .

What Went Well and What Went Wrong

What Went Well

  • “We feel we had a lot of very positive developments”; 2015 guidance reconfirmed; rebased Q1 revenue growth +3% to $4.5B; mobile and B2B grew 16% and 6%, respectively .
  • Project Lightning early trials: penetration and ARPU ahead of plan; capital intensity maintained in 2015 with ramp in H2; “self‑financing” profile highlighted .
  • BASE acquisition (Belgium): €1.3B price (~4.2x 2015 EBITDA incl. synergies; ~5x after network upgrade), securing long‑term 4G capacity and enabling quad‑play at Telenet .

What Went Wrong

  • Net adds “not our best quarter,” driven by video losses and anticipated churn in Germany after rate increases; Netherlands saw disconnects around product harmonization and aggressive KPN discounting .
  • FX headwinds drove consolidated revenue down 0.4% YoY despite +3.0% organic growth; “Other revenue” fell on lower installation/fixed‑line interconnect .
  • OCF down 1.4% YoY; segment margins compressed in NL, DE, BE and CEE versus Q1 2014 due to competition, non‑recurring items in the base period, and mix .

Financial Results

Consolidated results and cash metrics

MetricQ1 2014Q1 2015
Total Revenue ($USD Millions)$4,533.7 $4,516.9
Net Earnings (Loss) – Continuing Ops ($USD Millions)$(420.0) $(521.7)
Operating Cash Flow (OCF) ($USD Millions)$2,127.5 $2,097.3
Cash from Operations ($USD Millions)$1,320.4 $1,373.9
Free Cash Flow ($USD Millions)$336.3 $330.0
Capital Expenditures ($USD Millions)$735.0 $661.2
Interest Expense ($USD Millions)$653.5 $615.9

Subscription and category mix

Category Revenue ($USD Millions)Q1 2014Q1 2015
Video$1,640.5 $1,607.9
Broadband Internet$1,143.9 $1,239.2
Fixed‑line Telephony$826.4 $799.7
Cable Subscription Revenue$3,610.8 $3,646.8
Mobile Subscription Revenue$257.3 $251.7
B2B Revenue$367.0 $373.9
Other Revenue$298.6 $244.5
Total Revenue$4,533.7 $4,516.9

Segment revenue and OCF margins

SegmentQ1 2014 Revenue ($MM)Q1 2015 Revenue ($MM)OCF Margin Q1 2014OCF Margin Q1 2015
U.K./Ireland$1,847.5 $1,711.4 42.8% 44.6%
Netherlands$318.1 $707.4 57.6% 52.0%
Germany$695.9 $597.9 61.6% 60.9%
Belgium$574.2 $502.7 52.6% 49.1%
Switzerland/Austria$463.8 $439.3 57.0% 56.6%
Central & Eastern Europe$323.9 $268.2 48.8% 44.0%
LiLAC – Chile$225.3 $208.8 36.7% 36.4%
LiLAC – Puerto Rico$74.7 $79.0 39.2% 42.4%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Rebased OCF GrowthFY 2015Mid‑single digit (reconfirmed on Q4 call) Mid‑single digit (reconfirmed) Maintained
Free Cash FlowFY 2015~$2.5B ~$2.5B Maintained
P&E Additions / Revenue (Capital Intensity)FY 201521%–23% 21%–23% with H2 ramp (Project Lightning) Maintained
Leverage (Gross/Net)OngoingTarget 4–5x 4.9x gross / 4.8x net at Q1; target unchanged Maintained

Earnings Call Themes & Trends

TopicQ-2 (Q3 2014)Q-1 (Q4 2014)Current Period (Q1 2015)Trend
Project Lightning (UK newbuild)Announced East London infill; strong returns; cautious planning Detailed plan: 4M homes, £3B, self‑financing, 60%+ OCF contribution by 2020; free cash flow cadence noted Trials show penetration/ARPU ahead; 2015 capex <10% of total; ramp in H2 Strengthening execution; conservative phasing
Mobile strategyQuad‑play expansion; MVNO footprint and Wi‑Fi offload UK and BE mobile revenue +10%/+12%; full MVNO benefits BASE acquisition (~4.2x 2015E EBITDA incl. synergies); 4G capacity secured Accelerating via own network where economics fit
B2BSOHO growth and pan‑EU focus UK turnaround; +6% revenue; SOHO growth B2B +6% in Q1; IT/security push in EU Improving momentum
Product/Platform (Horizon, SVOD)Horizon setting standard; MyPrime traction Horizon + TiVo penetration; strong churn/ARPU uplift; RDK cloud path Unified portfolio in NL; Horizon Go roll‑out; next‑gen features Continuous innovation
Regulatory/TaxUK VAT change impact flagged VAT headwind offset by one‑offs; sports rights inflation watch UK VAT changes reduce ARPU; EU single market seen as positive Headwinds managed; constructive EU outlook
Capital structure & buybacksLiquidity $4.6B; leverage ~4.6x; buybacks to resume post‑Ziggo Liquidity $5.2B; average tenure ~8 years; $4B buybacks through 2016 Leverage 4.9x/4.8x; ~$500M Q1 buybacks; $3.5B remaining Ongoing optimization

Management Commentary

  • “We feel we had a lot of very positive developments… confirming our full‑year guidance today for 2015.”
  • On net adds weakness: “With 68,000 net adds this clearly was not our best quarter… April was a big month… gives us increased confidence.”
  • On Project Lightning: “Early trial results are showing penetration levels in line with our expectation and actually ARPU is above what we had hoped.”
  • On BASE acquisition: “€1.3 billion… just 4.2 times estimated 2015 EBITDA including synergies… secures long‑term access to 4G wireless capacity.”
  • On EU single market: “Mostly good things for us… focused on encouraging infrastructure competition, investment, and innovation.”

Q&A Highlights

  • Net adds mix and video losses: Management expects “over 1 million net new RGUs” for FY and a return to historical geographic/product drivers (Germany, NL turn in H2) .
  • Newbuild beyond UK: Germany seen as “interesting and very affordable build opportunities,” though premature to quantify .
  • Dutch market competition: KPN behavior seen as aggressive and “probably unsustainable”; Ziggo synergies: €250M budget with majority in 2016–2017 .
  • Pricing power and churn: 12 of 14 markets took price increases around Q1; strategy is profitable growth without overspending to chase units .
  • Taxes: Telenet cash tax outflow noted; BASE will create shield; overall tax burden manageable vs FCF targets .

Estimates Context

  • Wall Street consensus EPS and revenue for Q1 2015 were not available due to data access limits. Values typically sourced from S&P Global could not be retrieved; therefore, comparisons to consensus are unavailable for this recap.

Key Takeaways for Investors

  • Guidance intact: 2015 targets reaffirmed (mid‑single‑digit OCF growth, ~$2.5B FCF), despite FX and Q1 subscriber softness; capital intensity guided to 21–23% .
  • Broadband/B2B underpin growth while “Other revenue” softness (installation/interconnect) dampens reported sales; watch organic vs reported deltas under FX .
  • UK Project Lightning is a multi‑year value driver with positive early unit economics; conservative phasing should limit FCF/leveraging shocks .
  • Belgian mobile (BASE) adds strategic 4G capacity and synergy runway for Telenet; expect integration capex but attractive multiples .
  • Netherlands integration (Ziggo + UPC) to deliver cost and revenue synergies in H2 and into 2016–2017; competitive pressure persists near term .
  • Balance sheet flexibility remains (avg tenure ~8 years, leverage within target); buybacks continue to be a capital return pillar .
  • Near‑term trading: focus on H2 momentum in net adds, UK build execution, FX sensitivity, and visibility on NL synergies; medium‑term thesis levered to broadband scale, quad‑play, and disciplined capital allocation.

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