Liberty Global Drops After Reducing Growth Goal on U.K. SlownessBy
Cable operator forecasts pickup in second half of year
Liberty is expanding networks in the U.K., Belgium, Germany
Liberty Global Plc, billionaire John Malone’s cable carrier, slumped after lowering its growth target for Europe this year amid a weaker-than-expected start in the U.K.
Liberty now forecasts operating cash flow growth of 5 percent for 2017, down from February’s outlook of 6 percent to 7 percent, the London-based company said Sunday. The operator lost more customers than expected in the U.K. in the first quarter, following two price increases last year and challenges with the launch of a new video product. Mobile revenue also declined.
“The U.K. is our biggest market, so it has a big impact,” Chief Executive Officer Mike Fries said in an interview. He cast the new target as conservative. The reduction is “more of a bump in the road.”
The shares declined as much as 8.1 percent, the biggest intraday drop since November, and were down 6.1 percent at $32.18 as of 10 a.m. in New York.
The European unit of Malone’s cable and media empire is facing stiff competition in Britain from BT Group Plc and Vodafone Group Plc as the country’s carriers expand on each other’s turfs. A Dutch joint venture that moved ahead with Vodafone in the quarter is doing well in the fixed-line consumer business, but facing challenges in mobile amid competition from Tele2 AB and Deutsche Telekom AG’s T-Mobile, Fries said.
“The real magic will happen when we can start marketing a true quad-play product,” Fries said of the joint venture, which reported a 2 percent revenue decline in the first quarter and 6 percent drop in operating cash flow. Fries said he didn’t have anything fresh to say about whether the partnership could be a prelude to a larger deal between the two companies.
Investors have been fixated on the idea of a merger or asset swap between Liberty and Vodafone, after years of talks between the companies. Even after the agreement to partner in the Netherlands, Fries and Vodafone CEO Vittorio Colao have stoked speculation by publicly commenting on the potential to bring their fixed and mobile assets together and challenge Europe’s incumbent operators.
Liberty is also seen as a potential buyer of U.K. broadcaster ITV Plc -- of which it owns 9.9 percent -- particularly after last week’s announcement that ITV CEO Adam Crozier will step down in June. Crozier’s departure, with no successor named, doesn’t change Liberty’s relationship with ITV, Fries said. Liberty, which has purchased free-to-air broadcasters in Belgium and Ireland, doesn’t see any more immediate deals in the area on the horizon, he said.
In its home U.K. market, Liberty is working to improve execution of a 3 billion pound ($3.9 billion) expansion of its Virgin Media footprint, known as Project Lightning, after revealing in March that it had overstated construction progress. Management changes will probably delay the project this year, with a ramp-up now expected over 12 to 24 months, the company said. The impact of the Project Lightning slowdown isn’t material to company targets, Fries said.
Liberty faces the threat of escalating price competition for broadband in the U.K., where the communications regulator proposed in March to lower some wholesale rates charged by BT for other operators to access its network. Liberty’s expansion project in the country is the company’s biggest, aimed at boosting coverage by almost a third, to another 4 million homes.
While that has led to speculation that Liberty might find U.K. expansion less attractive and in turn scale back its plans, Fries said the project is on track.
“At this point, we are not seeing anything in the market that would reduce our appetite to continue building out to 4 million homes,” Fries said. “The demand is good.”
Excluding the Netherlands, Liberty’s first-quarter operating cash flow rose 4 percent from a year earlier to $1.6 billion. That was down from 7.5 percent growth in the fourth quarter. The company forecasts higher growth in the second half of the year, just as in 2016.
“Numbers for the quarter were rather disappointing,” said Dhananjay Mirchandani, an analyst at Bernstein, in a note. “Organic revenue growth for the quarter in Europe was the slowest in four quarters.”
- Adjusted revenue rose 2.1 percent to $3.52 billion for the quarter, matching the average of analysts’ estimates compiled by Bloomberg.
- Net loss narrowed to $293 million from $334 million.
- The company added 244,300 net accounts in Europe, including video, phone and internet.
- In the U.K. and Ireland, 158,000 net customers joined. Mobile revenue fell 9 percent and average revenue per unit increased 1 percent.
- Sales for the Latin America and Caribbean unit, including the Cable & Wireless Communications business purchased last May, were $911 million.