Liberty Global : VodafoneZiggo Reports Preliminary Q3 2019 Results

VodafoneZiggo Reports Preliminary Q3 2019 Results

Sustained Revenue Growth; OCF Guidance now ~3% (previously 2-3%)

Utrecht, the Netherlands November 6, 2019: VodafoneZiggo Group B.V. ("VodafoneZiggo"), a leading Dutch company that provides fixed, mobile and integrated communication and entertainment services to consumers and businesses, is today providing select, preliminary unaudited financial1 and operating information for the three months ("Q3") and nine months ("YTD") ended September 30, 2019, as compared to the results for the same periods in the prior year (unless otherwise noted). The financial and operating information contained herein is preliminary and subject to change. We expect to issue our September 30, 2019 unaudited condensed consolidated financial statements prior to the end of November 2019, at which time the report will be posted to our website.

Highlights for Q3 2019:

• Milestone of 2 million converged2 SIMs achieved
• 104,000 converged households and 244,000 converged SIMs were added during Q3. 39% of all broadband customers and 74% of Vodafone consumer mobile postpaid SIMs are now converged

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Record mobile postpaid net customer additions of 82,000, internet RGUs3 increased by 8,000

Second consecutive quarter of revenue growth, supported by another strong performance in fixed

Approximately €160 million of run rate cost synergies have now been realized

Operating income increased by €6 million or 19% YoY to €38 million

OCF4 grew 2% to €450 million

2019 guidance5 has been narrowed to the higher end of the previous range:

OCF growth of around 3% (previously 2%-3%)

Total cash returns6 to shareholders of around €600 million (previously €400-€600 million)

Jeroen Hoencamp, VodafoneZiggo CEO, commented:

"Our third quarter result confirmed the success of our convergence strategy with growth across all key metrics. We maintained our good commercial momentum with strong mobile postpaid and broadband net additions, and our converged penetration continued to grow having now passed the 2 million converged SIMs milestone. I am excited by the recent commercial launch of our 1 Gbps broadband offer, as we play our part in enabling a Gigabit society. In terms of our financial performance, I am pleased with the sustained growth in both revenue and OCF, with our cable segment delivering another strong quarterly result. The combination of top line growth coupled with ongoing synergy realization enabled us to report our fifth consecutive quarter of OCF growth. Due to this strong operational performance, I am confident that we will achieve around 3% OCF growth for the year, supporting around €600 million of total cash returns to our shareholders."

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Consumer performance for Q3 and YTD 2019:

Total consumer revenue was stable in Q3 and decreased by 1% YTD

Fixed:

Consumer cable revenue7 grew by 3% in Q3 and 1% YTD

• Revenue growth in Q3 was primarily driven by a price increase implemented on 1st July
• Internet RGUs declined by 1,000 in Q3 due to the aforementioned price increase. However, overall customer churn was in line with our expectations
• Q3 consumer cable ARPU8 increased 5% YoY to €49
• Since its launch in March, our next-generation video platform Mediabox Next has already been rolled out to 300,000 customers, and we are seeing positive impacts in Net Promoter Scores
• We recently launched our 1 Gbps broadband offer using DOCSIS 3.1 technology. We expect to be able to offer this to two thirds of our cable footprint by the end of 2020 with nationwide coverage by the end of 2021

Mobile:

Consumer mobile revenue9 decreased by 6% in Q3 and 4% YTD

• The revenue decline in Q3 was primarily driven by (i) differences in phasing of converged discounts compared to the prior year, (ii) a decrease in out-of-bundle revenue partially offset by (iii) an increase in postpaid subscribers
• Mobile postpaid net customer additions were 55,000 in Q3, representing a record quarter for customer growth (since the formation of the JV). YTD net customer additions of 102,000 are already in excess of our full year 2018 result
• Q3 consumer postpaid ARPU decreased 14% YoY to €19 driven by the aforementioned revenue headwinds

Business performance for Q3 and YTD 2019:

Total B2B revenue grew 2% in Q3 and 3% YTD

Fixed:

B2B cable revenue10 increased by 9% in Q3 and 8% YTD

• 19,000 fixed RGUs were added in Q3, which was our best performance since Q1 2018
• Q3 SOHO ("Small Office Home Office") cable ARPU increased 1% YoY to €59 and our Small Business cable ARPU decreased 0.5% YoY to €82

Mobile:

B2B mobile revenue11 decreased 3% in Q3 and 1% YTD

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• The €4 million revenue decline in Q3 was primarily driven by (i) pricing pressure in the large corporate segment, (ii) lower out-of-bundle revenue partially offset by (iii) customer base growth
• We added 27,000 new postpaid customers in Q3, bringing the YTD total to 91,000
• Q3 B2B mobile postpaid ARPU decreased 11% YoY to €18 driven by the aforementioned revenue headwinds

Financial highlights for Q3 and YTD 20191:

Revenue grew 1% YoY in Q3 and was stable YTD. This supported OCF growth of 2% in Q3 and 3% YTD as well as operating income growth of 19% in Q3 and 56% YTD

• The €8 million YoY revenue growth in Q3 was primarily driven by price increases implemented in July 2019 and good commercial momentum
• Reported operating income of €38 million for Q3, compared to €32 million in the corresponding prior year period. The increase was primarily the net result of (i) OCF growth, (ii) a decrease in depreciation and amortization expense and (iii) an increase in impairment, restructuring and other operating items primarily driven by additional costs associated with harmonization of labor contract conditions

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Q3 OCF increased 2% YoY to €450 million, marking five consecutive quarters of growth

Q3 OCF growth was a result of sustained revenue growth while keeping total costs flat

Integration expenses were €1 million for Q3, bringing the YTD total to €8 million

Property and equipment additions12 were 23% of revenue in Q3

Q3 additions increased by €43 million YoY primarily as a result of (i) higher customer premises equipment outlays associated with the high demand for our next-generation Mediabox Next and (ii) an increase in new build related to expansion of the fixed-line network

Integration-related additions amounted to €23 million in Q3, bringing the YTD total to €65 million

• At September 30, 2019, our fully-swappedthird-party debt borrowing cost13 was 4.5% and the average tenor of our third-party debt (excluding vendor financing) was 6.1 years
• During the quarter we completed a handset securitization financing. The cash proceeds were fully utilized to redeem the remaining 2024 7.125% Euro Senior Notes. This transaction has no impact on our overall debt, but will reduce our annual interest costs from 2020 onwards
• In October we completed a series of transactions which were neutral from a leverage perspective:

Issued equivalent of €3.1 billion of new debt, split across €2.25 billion Term Loan H due 2029 and €425 million 2.875% Senior Secured Notes due 2030 and $500 million 4.875% Senior Secured Notes due 2030

Proceeds were used to repay €2.25 billion Term Loan F due 2025 in full and redeem €800 million 3.75% Senior Secured Notes due 2025 and will be used in November 2019 to redeem the remaining €71.7 million 3.625% notes due 2020

These transactions extended the average tenor of our third-party debt (excluding vendor financing) to 7.4 years

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As part of the process we received commitments to extend our Revolving Credit Facility of €800m to 2026. We expect this extension to be implemented during the fourth quarter of 2019

• Additionally, an SPV (VZ Vendor Financing B.V.) issued €500 million 2.5% Vendor Financing Notes due 2024 and will use those proceeds to purchase vendor financing receivables from the vendor financing facility provider, thereby reducing our reliance on our uncommitted, 360 day, vendor financing lines. Vendor financing debt will remain capped at €1 billion
• At September 30, 2019, total third-party debt (excluding vendor financing, other debt and finance lease obligations) was €9.9 billion, which is unchanged from June 30, 2019. Further when taking into consideration the projected principal-related cash flows associated with our cross-currency derivative instruments, the total covenant amount of third party gross debt was €9.5 billion at September 30, 2019, down from €9.7 billion at June 30, 2019. For information concerning the debt balances used in our covenant calculations, see Covenant Debt Information below
• During the quarter, our cash returns to shareholders included €22 million of interest on the Shareholder Notes and €125 million dividends. We have distributed in total €191 million of cash returns to our shareholders for the nine months to date
• At September 30, 2019, and subject to the completion of our corresponding compliance reporting requirements, (i) the ratio of Senior Net Debt to Annualized EBITDA (last two quarters annualized) was 3.78x and (ii) the ratio of Total Net Debt to Annualized EBITDA (last two quarters annualized) was 4.71x, each as calculated in accordance with our most restrictive covenants

Vendor and handset financing obligations are not included in the calculation of our leverage covenants. If we were to include these obligations in our leverage ratio calculation, the ratio of Total Net Debt to Annualized EBITDA would have been 5.31x at September 30, 2019

• At September 30, 2019, we had maximum undrawn Revolving Credit Facility commitments of €800 million. When our Q3 compliance reporting requirements have been completed and assuming no changes from September 30, 2019 borrowing levels, we anticipate that we will continue to have €800 million of our unused Revolving Credit Facility commitments available to be drawn

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Operating Statistics Summary

As of and for the three months

ended September 30,

		2019			2018
Footprint
Homes Passed14		7,238,300			7,182,100
Two-way Homes Passed15		7,224,700			7,168,500
Subscribers (RGUs)
Basic Video16		494,100			530,100
Enhanced Video17		3,379,600			3,389,300
Total Video		3,873,700			3,919,400
Internet18		3,349,000			3,311,800
Telephony19		2,432,900			2,521,500
Total RGUs		9,655,600			9,752,700
Q3 Organic RGU Net Additions (Losses)
Basic Video		(3,300)			(15,200)
Enhanced Video		(6,400)			6,800
Total Video		(9,700)			(8,400)
Internet		7,900			13,000
Telephony		(27,300)			(16,200)
Total organic RGU net losses		(29,100)			(11,600)
Fixed Customer Relationships
Fixed Customer Relationships20		3,878,400			3,923,500
RGUs per Fixed Customer Relationship		2.49			2.49
Q3 Monthly ARPU per Fixed Customer Relationship	€	49		€	46
Fixed Customer Bundling
Single-Play		13.4%			15.5%
Double-Play		24.2%			20.2%
Triple-Play		62.4%			64.4%
Mobile SIMs21
Postpaid		4,408,200			4,164,400
Prepaid		611,000			741,600
Total Mobile		5,019,200			4,906,000
Q3 organic Postpaid net additions		82,300			50,700
Q3 organic Prepaid net losses		(29,800)			(6,600)
Total organic Mobile net additions		52,500			44,100
Q3 Monthly Mobile ARPU
Postpaid (including interconnect revenue)	€	19		€	22
Prepaid (including interconnect revenue)	€	4		€	4
Convergence
Converged Households		1,295,000			1,000,000
Converged SIMs		1,993,000			1,452,000
Converged Households as % of Internet RGUs		39%			30%
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