Liberty: operating cash flow impressive

John Malone’s international Liberty Global cable operation reported its Q1 results on May 7, and by any measure they make a fascinating read. Digital cable is now supplied to 27% of Liberty’s customers, but the business is still loss-making. John Malone’s strategy over the past 20-odd years has always been to build value, and not worry too obviously about profit, and this past quarter’s results echo that thrust. While the headlines are all excellent, including a seven per cent share buy back over the past 12 months (and another $500m added to the buy back programme), the bottom line is still of losses.

Liberty Media serves 16m clients in Europe, Japan, Chile and Australia. Liberty Global’s president and CEO is Mike Fries, and he revealed that the pay-TV operator’s Q1 metrics were “strong”, with Operating Cash Flow up 34% y-o-y, and now delivering an OCF margin of “over 42%”. Helping drive the machine along were an additional 360,000 voice and/or data RGUs during the quarter, and another 270,000 digital cable subs, up 59% on last year.

“By the end of this month we will have introduced digital cable services in all of our European markets where we're already experiencing better than expected sell-through of high-end video services and applications such as premium tiers, DVR, VoD and HD. The combination of these initiatives and the growth in our digital cable RGUs resulted in an increase in UPC’s digital cable revenue of over 35% in the quarter, as compared to the same period last year,” he said.

However, not all markets grew at quite this spectacular level. “While most of our markets continue to perform in line with or ahead of our OCF expectations, certain of our European operations, in particular Austria, Hungary and Romania, experienced unique competitive challenges during the quarter which also impacted revenue and, to a lesser extent, net additions for the group. We have implemented, and are beginning to see the benefits from, a variety of customer retention strategies and new marketing offers to improve our performance in these markets. For example, our Romanian operation had positive RGU gains in Q1 as compared to an organic loss of 1,600 RGUs last year,” Fries said.

As at March 31, 2008, Liberty’s total RGUs of 24.4m consisted of 14.7m video, 5.6m broadband internet and 4.1m telephony subscribers. During Q1 Liberty added 348,000 RGUs, including 302,000 organic additions.

As to the losses, Liberty’s statement said : “Our net loss for the three months ended March 31, 2008 was $156m compared to our net loss of $136m for the three months ended March 31, 2007. Our net loss increased in the quarter, as a result of increased interest and income tax expenses and higher losses on derivative instruments.