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Higher Prices Drive Liberty Global PLC's Growth

By Travis Hoium - Feb 16, 2018 at 2:55PM

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Customers aren't dropping cable as fast as feared and that's helping Liberty Global grow heading into 2018.

Liberty Global PLC (LBTYK -1.79%) reported fourth-quarter 2017 earnings this week and showed continued progress growing its business. Improving technologies are driving adoption in Europe and a price increase has helped drive higher operating cash flow. 

Below are the raw numbers Liberty Global reported, but they were negatively impacted by currency fluctuations, so investors should keep in mind the rebased numbers (provided below) as well.

A person holding a phone with overlay of a globe.

Image source: Getty Images.

Liberty Global: The raw numbers

Metric Q4 2017 Q4 2016 Year-Over-Year Change
Sales $3.99 billion $4.22 billion  (5.4%) 
Operating cash flow $1.91 billion  $2.04 billion  (6.1%) 
Free cash flow $844 million  $1.01 billion  (16.4%) 

Data Source: Liberty Global PLC Q4 2017 earnings release. 

What happened with Liberty Global this quarter? 

Trends that have been in place for years continued in the fourth quarter. Data and mobile subscriptions were up and cable subscriptions fell, which shouldn't shock anyone. Here's a look at the details of the business last quarter.

  • Currency fluctuations can make comparable numbers look better or worse depending on the quarter, and they negatively impacted the fourth quarter. On a rebased basis, revenue was up 2.9% versus a year ago and operating cash flow was up 4.3%.
  • Organic revenue generating units (RGUs) were up 149,200 in the quarter, driven by 116,000 data additions, 87,700 voice additions, and the loss of 54,500 video customers.
  • Central and Eastern Europe were the strongest markets, adding 117,300 RGUs in the quarter. Belgium and Switzerland/Austria lost 11,800 and 19,100, respectively. 
  • Next generation video, which Liberty Global has been building out for a couple of years, added 210,000 subscribers and reached 7.7 million, or 43%, of the video cable base. 
  • Fully swapped borrowing costs were down 500 basis points to 4.2%, and net leverage (net debt divided by annualized operating cash flow) was 4.9 times at the end of the year. 
  • The spinoff of Liberty Global's Latin America business was also completed at the end of the year, creating two more regionally focused companies and a slightly easier to understand corporate structure. 

What management had to say

CEO Mike Fries said price increases implemented in November improved cash flow and new products for Wi-Fi and video are helping drive growth. He sees a strong 2018, too:

Looking ahead, in 2018 we expect to deliver around 5% rebased OCF [operating cash flow] growth, Adjusted Free Cash Flow of $1.6 billion and P&E [profit and earnings] additions of $5.1 billion, including $1.2 billion of spend for new build and upgrade for the full year. These investments, which underpin our customer-centric focus, leave us well placed to deliver long-term sustainable growth.

Guidance includes adjusted free cash flow of $1.6 billion for 2018 and management also expects rebased operating cash flow to grow about 5% from $7.09 billion in 2017. New products and higher prices are driving better economics and long-term sustainability.

Looking forward

Slow and steady growth is the name of the game in telecommunications today and Liberty Global is executing well. The fact that data and voice activations are much higher than lost video customers is a positive sign and I think new video products will stem the losses as well.

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