UPC Holding Reports First Quarter 2013 Results

UPC Holding Reports First Quarter 2013 Results

AMSTERDAM--(BUSINESS WIRE)-- UPC Holding B.V. ("UPC Holding") is today providing selected, preliminary unaudited financial and operating information for the three months ended March 31, 2013 ("Q1 2013"). UPC Holding is a wholly-owned subsidiary of Liberty Global, Inc. ("Liberty Global") (NASDAQ: LBTYA, LBTYB and LBTYK). A copy of this press release will be posted to Liberty Global's website (www.lgi.com). In addition, UPC Holding's unaudited condensed consolidated financial statements with the accompanying notes are expected to be posted prior to the end of May 2013.

Financial and operating highlights for the quarter ended March 31, 2013, as compared to the results for the same period last year ("Q1 2012") (unless noted), include:

  • Total RGUs1 of 18.9 million, including organic RGU additions of 162,000 in Q1 2013
    • Broadband internet and telephony RGUs surpassed the 5.5 million and 4.0 million RGU milestones, respectively
  • Revenue increased to €1.08 billion, reflecting rebased2 growth of 3%
  • Operating cash flow ("OCF")3 improved to €512 million, representing rebased growth of 3%
  • Operating income increased 14% to €271 million
  • Recent refinancing transactions have improved our maturity profile, with over 90% of consolidated third-party debt not due until 2017 and beyond

Financial Results

For the three months ended March 31, 2013, our consolidated revenue increased 3% to €1.08 billion, as compared to the corresponding prior year period. This performance was driven largely by continued organic revenue growth, especially from our broadband internet offering. Adjusting for both the minor impact of acquisitions and foreign exchange movements ("FX"), we achieved year-over-year rebased revenue growth of 3% for the first three months of 2013. This result is our seventh consecutive quarter of 3% rebased revenue growth.

In terms of regional performance, our Chilean business ("VTR"), which accounted for 17% of our Q1 revenue, generated rebased revenue growth of 4% in Q1 2013, similar to VTR's full-year 2012 rebased result. Turning to our European operations ("UPC Europe"), we delivered 3% rebased revenue growth in the quarter with our Western European region achieving 3% rebased growth and our Central and Eastern European ("CEE") region posting 1% rebased revenue growth. In the quarter, European standouts included our Irish and Swiss businesses, which generated rebased revenue growth of 9% and 5%, respectively, as each benefitted from more than 100,000 advanced service RGU additions4 during the last twelve months. Furthermore, our Swiss operation continued to demonstrate strong quarterly top-line growth, supported not only by volume growth but also by a video price increase in the quarter.

As compared to the corresponding prior year period, OCF increased 3% on a reported basis to €512 million for the three months ended March 31, 2013. Similarly, our rebased OCF growth was 3%, as our Chilean operation delivered 13% rebased growth, our Western European operations generated 3% rebased growth and our CEE business posted 1% rebased growth. Similar to revenue, our Western European performance was led by our operations in Ireland and Switzerland, which generated 12% and 4% rebased OCF growth, respectively.

Notwithstanding the positive contribution from those two markets as well as Chile, our rebased OCF growth was partially muted by a flat result in the Netherlands, stemming from increased competition over the last three quarters. Within Europe, we also realized a €6 million year-over-year increase in costs in our central and other category resulting in part from our centralization and procurement initiatives. As a result of these factors, we experienced a slight contraction in our consolidated OCF margins5 to 47.4% during Q1 2013 from 47.6% during the corresponding prior year period.

We reported additions to property and equipment6 of €228 million, which represents 21% of revenue for Q1 as compared to €197 million or 19% of revenue for the corresponding prior year period. Our aggregate spend in the quarter was weighted towards customer premises equipment, which accounted for 54% of our property and equipment additions as compared to 47% for Q1 2012. This was due in part to our Horizon TV roll-out in the Netherlands and Switzerland.

Subscriber Statistics

At March 31, 2013, our 10.3 million unique customers received 18.9 million services, reflecting a 4% increase (including acquisitions) in our RGU base since March 31, 2012. On a product level, our RGU base consisted of 9.2 million video, 5.6 million broadband internet and 4.1 million telephony subscriptions at quarter-end. Bundling remains an important driver of our subscriber growth, particularly sales of triple-play product offers, as nearly one-third of our customer base, or 3.3 million customers, subscribed to our triple-play packages at March 31, 2013. In total, we finished the first quarter with aggregate bundled customers of 5.3 million (or 51% of our customer base), which reflects an approximate 350,000 customer increase (including acquisitions) over the last twelve months.

During Q1 2013, we added 162,000 RGUs, with our CEE, Chilean and Western European businesses accounting for 70,000, 50,000 and 42,000 RGUs, respectively. Our total RGU additions were lower than our Q1 2012 total of 198,000 RGU additions, primarily due to our softer performance in the Netherlands. Notably, CEE's subscriber performance, which increased 30% year-over-year, reflected its strongest first quarter result in five years and was led by our Polish operation's 39,000 RGU additions, which more than doubled its prior year first quarter result. This was driven by captivating triple-play offers that mainly improved churn levels, particularly in Poland's Aster footprint. Additionally, on the back of a compelling digital video offering, our Chilean business achieved a 65% increase in RGU additions as compared to Q1 2012, realizing its best first quarter RGU result since 2007.

Our Western European operations added 42,000 RGUs in Q1 2013 as compared to 114,000 in Q1 2012. The lower growth was largely attributable to our Dutch operation, which lost 3,000 RGUs in Q1 2013, as compared to a gain of 42,000 in Q1 2012. However, this result is consistent with our Dutch subscriber performance in both the third and fourth quarters of 2012, as the Dutch market remains very competitive. To that point and subsequent to quarter-end, we further strengthened our customer proposition in the Netherlands, as we introduced basic digital unencryption and launched new triple-play bundles that include increased broadband speeds, with our primary bundle offering 100 Mbps along with the introduction of a 200 Mbps internet product in certain areas.

In terms of our products, we added 107,000 broadband internet RGUs during the quarter, as we continue to harvest the benefits of our network investments. Key contributors in Q1 2013 were our Swiss, Chilean and Polish operations. In particular, our 22,000 Swiss broadband internet additions in Q1 2013 partly resulted from the market-leading speeds included in our Horizon bundles. From a voice perspective, we added 113,000 telephony subscribers in Q1 2013, largely mirroring our broadband internet growth, as we look to upsell our single- and double-play customer base to triple-play services.

From a video standpoint, we lost 58,000 subscribers during the quarter, which was modestly better than the corresponding prior year period, with improved performances in each of Chile and CEE. A key development that has taken shape over the last six months is that we have introduced basic digital unencryption to promote the digitalization process and enhance our competitive position in a number of markets, including Switzerland, the Netherlands (as noted earlier), Austria, Romania and the Czech Republic. By unencrypting the digital signal, we are providing our customers with incremental value and an easy introduction to our basic digital video product. Furthermore, we continue to promote Horizon TV in our Dutch market and we launched this platform in January 2013 in our Swiss market. At the end of April, we had over 200,000 Horizon TV subscribers with more than 145,000 in the Netherlands and over 55,000 in Switzerland. In addition, we launched our unique Horizon Online platform with 45 channels in Ireland in mid-April and have plans to launch the full Horizon TV platform this summer in the Irish market.

Summary of Third-Party Debt and Cash and Cash Equivalents

At March 31, 2013, we reported €9.8 billion of third-party debt and €58 million of cash and cash equivalents. As compared to December 31, 2012, our third-party debt rose by €199 million. This increase in carrying value was mainly attributable to the strengthening of the U.S. dollar relative to the euro and, to a lesser extent, the incremental capital we raised during Q1 2013. The fully-swapped borrowing cost7 of our third-party debt balance was approximately 7.8% as of Q1 2013.

We continued to implement our strategy of extending our debt maturity schedule and capitalizing on an attractive capital market environment. In March 2013, we issued 6.75% senior notes due 2023 in the principal amounts of €450 million and CHF 350 million (€288 million). In April 2013, we used the net proceeds from the issuance to redeem in full our €300 million 8.0% senior notes due 2016 and our €400 million 9.75% senior notes due 2018. The two tranches of notes were legally discharged in March 2013.

With respect to the UPC Broadband Holding Bank Facility, in March and April 2013, we entered into two new facility accession agreements ("Facility AG" and "Facility AG1", collectively "Facility AG"), two term loan facilities in an aggregate amount of approximately €1,554 million. Facility AG matures in 2021 and carries an interest rate of EURIBOR + 3.75%. As a result of these transactions, €145 million of Facility R, €659 million of Facility S and all €751 million of Facility U were effectively rolled into Facility AG.

Furthermore, we completed an additional facility accession agreement ("Facility AH") in April 2013, which matures in 2021 and has an interest rate of LIBOR + 2.5% with a LIBOR floor of 0.75%. Term loan Facility AH has an aggregate principal amount of $1,305 million (€1,018 million). Following the closing of this transaction, all $260 million (€203 million) of Facility T and all $1,043 million (€813 million) of Facility X, which both carried an interest rate of LIBOR +3.5%, were effectively rolled into Facility AH. Adjusting for the impact of Facilities AG and AH, over 90% of our total debt is not due until 2017 and beyond.

The following table details the carrying value of our consolidated third-party debt and cash and cash equivalents as of the dates indicated:8

  March 31,   December 31,
2013 2012
in millions
UPC Broadband Holding Bank Facility

4,182.4

4,142.5

UPCB Finance Limited 7.625% Senior Secured Notes due 2020 496.7 496.6
UPCB Finance II Limited 6.375% Senior Secured Notes due 2020 750.0 750.0
UPCB Finance III Limited 6.625% Senior Secured Notes due 2020 779.9 757.7
UPCB Finance V Limited 7.25% Senior Secured Notes due 2021 584.9 568.3
UPCB Finance VI Limited 6.875% Senior Secured Notes due 2022 584.9 568.3
UPC Holding 8.00% Senior Notes due 2016 300.0
UPC Holding 9.75% Senior Notes due 2018 380.5
UPC Holding 9.875% Senior Notes due 2018 295.8 286.8
UPC Holding 8.375% Senior Notes due 2020 640.0 640.0
UPC Holding 6.375% Senior Notes due 2022 594.8 594.7

UPC Holding 6.75% € Senior Notes due 2023

450.0
UPC Holding 6.75% CHF Senior Notes due 2023 287.7
Other debt, including vendor financing and capital lease obligations   145.6   108.3
Total third-party debt

9,792.7

9,593.7

 
Cash and cash equivalents

58.0

58.3

 

UPC Broadband Holding Bank Facility

The following table details the key terms of the UPC Broadband Holding Bank Facility at March 31, 2013:

    As of March 31, 2013
Facility Final
maturity
Interest
rate
 

Facility
amount 9

 

Unused
borrowing
capacity

 

Carrying
value 10

in millions

Facility Q

July 31, 2014 E + 2.75%

30.0

30.0

Facility R

Dec. 31, 2015 E + 3.25%

290.7

290.7

Facility S

Dec. 31, 2016 E + 3.75%

1,204.5

1,204.5

Facility T

Dec. 31, 2016 L + 3.50%

260.2 201.9

Facility U

Dec. 31, 2017 E + 4.00%

750.8

750.8

Facility V

Jan. 15, 2020 7.625%

500.0

500.0

Facility W

Mar. 31, 2015 E + 3.00%

144.1

144.1

Facility X

Dec. 31, 2017 L + 3.50%

$

1,042.8 813.3

Facility Y

July 1, 2020 6.375%

750.0

750.0

Facility Z

July 1, 2020 6.625%

$

1,000.0 779.9

Facility AA

July 31, 2016 E + 3.25%

904.0

904.0

Facility AC

Nov. 15, 2021 7.250%

$

750.0 584.9

Facility AD

Jan. 15, 2022 6.875%

$

750.0 584.9

Facility AE

Dec. 31, 2019 E + 3.75%

535.5

535.5

Facility AF

Jan. 31, 2021

L + 3.00%11

$

500.0 385.7
Elimination of Facilities V, Y, Z, AC and AD in consolidation     (3,199.7 )
Total

1,078.1

4,182.4

 
 

The following table details the key terms of the UPC Broadband Holding Bank Facility at March 31, 2013, adjusted to reflect the impact of Facility AG and Facility AH:

    As of March 31, 2013
Facility Final
maturity
Interest
rate
  Facility
amount
 

Unused
borrowing
capacity

 

Carrying
value

in millions

Facility Q

July 31, 2014 E + 2.75%

30.0

30.0

Facility R

Dec. 31, 2015 E + 3.25%

146.0

146.0

Facility S

Dec. 31, 2016 E + 3.75%

545.5

545.5

Facility V

Jan. 15, 2020 7.625%

500.0

500.0

Facility W

Mar. 31, 2015 E + 3.00%

144.1

144.1

Facility Y

July 1, 2020 6.375%

750.0

750.0

Facility Z

July 1, 2020 6.625%

$

1,000.0 779.9

Facility AA

July 31, 2016 E + 3.25%

904.0

904.0

Facility AC

Nov. 15, 2021 7.250%

$

750.0 584.9

Facility AD

Jan. 15, 2022 6.875%

$

750.0 584.9

Facility AE

Dec. 31, 2019 E + 3.75%

535.5

535.5

Facility AF

Jan. 31, 2021 L + 3.00%

$

500.0 385.7

Facility AG

Mar. 31, 2021 E + 3.75%

1,554.4

1,554.4

Facility AH

June 30, 2021

L + 2.50%12

$

1,305.0 1,017.8
Elimination of Facilities V, Y, Z, AC and AD in consolidation     (3,199.7 )
Total

1,078.1

4,184.9

 
 

Borrowing Capacity & Covenant Calculations

UPC Broadband Holding B.V. ("UPC Broadband Holding"), our wholly-owned subsidiary, is a borrower under the UPC Broadband Holding Bank Facility, which we guarantee. As of March 31, 2013, UPC Broadband Holding had maximum undrawn commitments under Facilities Q, W and AA of the UPC Broadband Holding Bank Facility of €1.1 billion. We estimate that approximately €542 million of this amount will be available upon completion of our first quarter compliance reporting requirements.

Based on the results for the quarter ended March 31, 2013 and subject to the completion of our first quarter bank reporting requirements, (i) the ratio of Senior Debt to Annualized EBITDA (last two quarters annualized), as defined and calculated in accordance with the UPC Broadband Holding Bank Facility, was 3.69x and (ii) the ratio of Total Debt to Annualized EBITDA (last two quarters annualized), as defined and calculated in accordance with the UPC Broadband Holding Bank Facility, was 4.75x.13

About UPC Holding

UPC Holding connects people to the digital world and enables them to discover and experience its endless possibilities. Our market-leading triple-play services are provided through next-generation networks and innovative technology platforms in 10 countries that connect 10 million customers subscribing to 19 million television, broadband internet and telephony services as of March 31, 2013.

Disclaimer

This press release contains forward-looking statements, including our expectations with respect to our strategy and future growth prospects, including our expectations for continued organic growth in subscribers and further grow the penetration of our advanced services and our assessment of our liquidity and access to capital markets, including our borrowing availability; our expectations with respect to the timing and impact of our expanded roll-out of advanced products and services, including Horizon TV; our assessment of the impacts of the unencryption of our basic digital channels; our insight and expectations regarding competitive and economic factors in our markets; the impact of our M&A activity on our operations and financial performance; and other information and statements that are not historical fact. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. These risks and uncertainties include the continued use by subscribers and potential subscribers of our services and their willingness to upgrade to our more advanced offerings, our ability to meet challenges from competition and economic factors, the continued growth in services for digital television at a reasonable cost, the effects of changes in technology and regulation, our ability to achieve expected operational efficiencies and economies of scale, our ability to generate expected revenue and operating cash flow, control property and equipment additions as measured by a percentage of revenue and achieve assumed margins, the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital, as well as other factors detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission including Liberty Global's most recently filed Forms 10-K/A and 10-Q. These forward-looking statements speak only as of the date of this release. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

We are required under the terms of the indentures for the UPC Holding senior notes and the UPCB Finance Limited, UPCB Finance II Limited, UPCB Finance III Limited, UPCB Finance V Limited and UPCB Finance VI Limited senior secured notes to provide certain financial information regarding UPC Holding to bondholders on a quarterly basis. UPC Broadband Holding, our wholly-owned subsidiary, is a borrower and we are a guarantor of outstanding indebtedness under the UPC Broadband Holding Bank Facility, which also requires the provision of certain financial and related information to the lenders. This press release is being issued at this time, in connection with those obligations, due to the contemporaneous release by Liberty Global of its March 31, 2013 results. The financial information contained herein is preliminary and subject to change. We presently expect to issue our March 31, 2013 unaudited condensed consolidated financial statements prior to the end of May 2013, at which time they will be posted to the investor relations section of the Liberty Global website (www.lgi.com) under the fixed income heading. Copies will also be available from the Trustee for the senior notes and the senior secured notes.

____________________________________

1   Please see footnotes to the operating data table for the definition of revenue generating units ("RGUs"). Organic figures exclude RGUs of acquired entities at the date of acquisition, but include the impact of changes in RGUs from the date of acquisition. All subscriber/RGU additions or losses refer to net organic changes, unless otherwise noted.
2 For purposes of calculating rebased growth rates on a comparable basis for all businesses that we owned during 2012 and 2013, we have adjusted our historical revenue and OCF for the three months ended March 31, 2012 to (i) include the pre-acquisition revenue and OCF of certain entities acquired during 2012 in the respective 2012 rebased amounts to the same extent that the revenue and OCF of such entities are included in our 2013 results and (ii) reflect the translation of our rebased amounts for the 2012 periods at the applicable average exchange rates that were used to translate our 2013 results. Please see page 8 for supplemental information on rebased growth.
3 Please see page 10 for our definition of operating cash flow and a reconciliation to operating income.
4 Advanced service RGUs represent our services related to digital video, including digital cable and direct-to-home satellite ("DTH"), broadband internet and telephony.
5 OCF margin is calculated by dividing OCF by total revenue for the applicable period.
6 Additions to property and equipment include our capital expenditures on an accrual basis and our vendor financing, capital lease and other non-cash additions.
7

Our fully swapped debt borrowing cost represents the weighted average interest rate on our aggregate variable and fixed rate indebtedness, including the effects of derivative instruments, discounts and commitment fees, but excluding the impact of financing costs.

8

UPCB Finance Limited, UPCB Finance II Limited, UPCB Finance III Limited, UPCB Finance V Limited and UPCB Finance VI Limited are special purpose financing companies created for the primary purpose of issuing senior secured notes and are owned 100% by charitable trusts. We used the proceeds from the senior secured notes to fund Facilities V, Y, Z, AC and AD under the UPC Broadband Holding Bank Facility, with UPC Financing, our direct subsidiary, as the borrower. These special purpose financing companies are dependent on payments from UPC Financing under Facilities V, Y, Z, AC and AD in order to service their payment obligations under the senior secured notes. As such, these companies are variable interest entities and UPC Financing and its parent entities, including UPC Holding, are required by accounting principles generally accepted in the U.S. ("U.S. GAAP") to consolidate these companies. Accordingly, the amounts outstanding under Facilities V, Y, Z, AC and AD eliminate within our condensed consolidated financial statements.


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