Ziggo N.V.

Ziggo N.V.
Q3 2014 Results
16 October 2014
Disclaimer
This document does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States or any
other jurisdiction. Various statements contained in this document constitute “forward-looking statements” as that term is defined by U.S. federal
securities laws. Words like “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “predict”,
“project”, “should”, and “will” and similar words identify these forward-looking statements. By their nature, forward-looking statements are
subject to numerous assumptions, risks and uncertainties. Many of these assumptions, risks and uncertainties are beyond our control.
Accordingly, actual results may differ materially from those expressed or implied by the forward-looking statements. Such forward-looking
statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we operate.
The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated results or
events: general economic trends and trends in the information, communications and entertainment industries; the competitive environment in
which we operate; fluctuations in interest rates; consumer disposable income and spending levels, including the availability and amount of
individual consumer credit; changes in consumer television viewing, broadband internet and telephony preferences and habits; consumer
acceptance of existing service offerings, including our standard TV, digital pay TV, broadband internet and telephony services; consumer
acceptance of new technology, programming alternatives and broadband internet services that we may offer; our ability to manage rapid
technological changes; our ability to maintain or increase the number of subscriptions to our standard TV, digital pay TV, broadband internet and
telephony services and our average monthly revenue per user; our ability to handle network and IT disruptions and to handle large volumes of
customer service contacts; our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers; the
outcome of any pending or threatened litigation; changes in, or failure or inability to comply with, government regulations in the Netherlands and
adverse outcomes from regulatory proceedings; government intervention that opens our distribution network to competitors; uncertainties
inherent in the development and integration of new business strategies; capital spending for the acquisition and/or development of
telecommunications networks and services; the availability of attractive programming for our digital TV services at reasonable costs; the loss of
key employees and the availability of qualified personnel; and events that are outside of our control, such as terrorist attacks, natural disasters or
other events that may damage our network. We caution readers not to place undue reliance on the forward-looking statements contained herein,
which speak only as of the date of this document, and 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 other change
in events, conditions or circumstances on which any such statement is based.
1
Highlights Q3
• Regulatory approval
– On October 10th, regulatory approval was obtained for the recommended public offer for Ziggo by Liberty Global
– Expiration of equity tender offer on November 4
• Growth in internet, mobile and business bundles and price increase lead to revenue and EBITDA growth
– Solid growth in 2p with broadband net adds of +20k in Q3 (6.2% growth y-o-y)
– Mobile net adds of +32k in Q3 to reach a total of 116k
– Continued growth in B2B with 2.3k bundle net adds (36.7% growth y-o-y)
• Continuous investment in retention programs
– Blended churn in Q3 was 8.3%, down from 8.4% in Q3 2013 and below the average of last four quarters
• Continued revenue growth for B2B of 10.4% y-o-y
– Business bundles for SoHo and SME continues to drive growth with net adds of 2.3k in Q3
• New products and services
– On 1st of September a total of 10 HD TV Channels added to digital TV offering bringing total to 50 (incl. premium tv)
– Introduction of Ziggo Bapp offering high quality calls over WiFi
– Public WiFi roll-out in 15 large to medium cities by use of street cabinets
– Per 1st of October the Royal Dutch Theatre in The Hague is connected by Multi WiFi
2
Financial highlights Q3
• Revenue up 2.9% y-o-y to €402.6 million
– Up 4.2% y-o-y excluding ‘revenue from other sources’
– Consumer growth of 3.6% y-o-y excluding ‘revenue from other sources’
– Business revenue growth of 10.4% y-o-y
• Adjusted EBITDA €228.0 million, up 3.4% y-o-y
– Excluding €3.3 million in non-recurring costs related to the intended acquisition and preparations for
the intended merger
• Net profit of €2.7 million from €86.5 million net profit in Q3 2013 due to
– Non-cash fair value losses on the interest result of hedges following further decline of interest rates
– Amortization of customer relationships of €30.0 million
– Adjusted for these non-cash items net profit would have been €79.9 million
• Net debt amounts to €3.2 billion
– Stable compared to year-end 2013
• Leverage ratio of 3.59x
– Up from 3.50x at year-end 2013
3
Revenue
Continued growth of dual play and Mobile and increase of ARPU
Revenue by product
(€m)
Blended and All-in-1 ARPU1
(€)
~68
Telephony usage
Out of home
Other
B2B
Telephony
Internet
Digital pay TV
Standard TV
391
38
7
394
41
5
394
4
41
2
405
3 3
42
403
3 4
42
77
81
78
118
120
125
127
41
41
41
41
40
111
110
110
109
109
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
77
79
117
• Main drivers for y-o-y revenue growth were:
+6.0%
42.09
Digital
pay TV
44.61
All-in-1
Q3 2013
Q3 2014
All-in-1 + usage
Q3 142
• y-o-y increase in blended ARPU2 of 6.0% or €2.52
– Continued growth in RGUs for internet, partly driven by
focus on dual play (TV + internet)
– Revenue contribution for Ziggo Mobile (€0.56)
– Revenue contribution from Ziggo Mobile
– Churn among lower ARPU TV-only customers
– General price increase consumer products as from April 1
– Price increase as per April 1
• y-o-y revenue growth offset by:
– Further penetration of dual play bundles
– ARPU growth for digital pay TV
– Partly offset by a decrease of ARPU for telephony usage
– Lower RGUs for Standard TV
– Revenue decline from digital pay TV (1.4%), with increase
in VOD transactions of 22.4%
• Continued double digit organic revenue growth in
B2B in Q3
1.
2.
RGUs and ARPU exclude 25k digital pay RGUs, 50k internet RGUs and 40k telephony RGUs serviced over cable networks owned by 3 rd parties
All-in-1 ARPU + digital pay TV ARPU + telephony usage ARPU
4
COGS and Gross Margin
Increasing Gross Margin
COGS1
(€m)
• Gross margin increased to 82.7% from 82.1% in Q3
2013
% Gross
margin
82.1
70.1
Q3 13
1.
81.7
81.9
82.2
72.2
71.3
72.2
Q4 13
Q1 14
Q2 14
82.7
69.5
• COGS down 0.9% due to lower costs for STB offset
by deferred tablet costs
Q3 14
Cost of goods sold includes the costs for purchases of materials and services directly related to revenues and consists of author rights, signal costs and
royalties that we pay to procure our content, interconnection fees that we pay to other network operators, materials and logistics costs relating to the sale of
set-top boxes and materials used to connect customers to our network
5
OPEX
Increased costs for customer services and lower M&S
Change in OPEX1
(€m)
• Opex up 4.5% y-o-y
+4.5%
5.1
• Personnel up 9.2% y-o-y
– Impacted by higher accrued bonuses in Q3 2014 of €2.5m
5.3
105.2
0.5
100.6
and salary increases
– Increase in total headcount of 5.1% fully related to our
4.3
investment program and growth B2B
– Partly offset by increase in capitalized personnel costs
• Contracted work up 36.4% y-o-y
– Higher costs for external call centers following increased call
volumes by over 10% compared to Q3 2013
• M&S down 21.1% due to
– Peak in M&S in Q3 last year
– Change in accounting for costs of tablets
• Opex excluding M&S up 13.1% y-o-y
– 21.2% of revenues versus 19.3% in Q3 2013
Q3 2013
1.
Personnel
Contr.
work
Marketing
& Sales
Office
expense
& Other
Q3 2014
Opex comparison excludes non-recurring costs of €3.3m in 3Q 2014
6
Adjusted EBITDA
Positively affected by gross margin growth
Adjusted EBITDA1
(€m)
As a % of
revenues
56.4
220.4
56.5
222.8
54.0
55.7
225.8
56.6
228.0
213.1
Q3 2014
• Adjusted EBITDA of €228m, up 3.4% compared to
Q3 2013 as a result of
– Revenue growth and lower COGS
– Partly offset by increase in operating expenses of 4.5%
driven by the cost increase of customer services
• Adjusted EBITDA margin is 56.6% vs. 56.4% in Q3
2013
• EBITDA of €224.6m includes €3.3m of nonrecurring costs related to
– Advisory costs in connection with intended acquisition of
Liberty Global
– Merger preparation
Q3 13
1.
Q4 13
Q1 2014
Q2 2014
Q3 2014
Adjusted EBITDA does not include expenses related to the intended offer
7
Financial Income & Expenses
Increase in financing costs due to fair value losses on hedges
Net financial expense
(€m)
122
Q3 2014
• Interest expense down €4.6m or 9.3% to €45.2m
– Excluding borrowing costs, interest expenses decreased by
9.4% or €5.0m
– Average debt €230m higher compared to Q3 2013
73
45
0
– Blended interest rate is 5.9% versus 7.0% in Q3 2013
• Fair value loss of €72.6m compared to a €6.7m gain
in Q3 2013 due to
2
2
2
50
– Significant decrease in interest rates
– Revaluation of USD denominated loans offset by hedge
45
-7
Q3 2013
Q3 2014
Fair value results on
derivative financial instruments
Amortization funding costs
Bank & financing fees
Interest on bank debt and notes
8
CAPEX
Decrease for customer equipment and network growth
Capex1
(€m)
Capex mix, Q3 2014
(%)
-10.0%
100% = €90.3m
100.3
21.8
90.3
20.2
Customer
installations
46.0
34.4
Network
growth
32.5
35.7
Maintenance
& other
Q3 2013
Q3 2014
Customer
installations
22%
40%
Maintenance
& other
38%
Network
growth
Q3 2014
• Capital expenditure of €90.3m, decrease of 10.0% y-o-y
• Decrease by €1.6m y-o-y in Capex for customer equipment resulting from lower # of modems installed
• Decrease of €11.6m y-o-y in Capex for network growth
– Peak in spend for network equipment in Q3 2013
• Maintenance and ‘Other Capex’ increased to €35.7m vs. €32.5m in Q3 2013
– Capitalized hours and contracted work increased for replacement business support systems and service platforms
1.
Our capital expenditure and investments relate primarily to extending, upgrading and maintaining our network, installation of new customers and the cost of
cable modems. Capital expenditure also includes increases in intangible assets, primarily expenditures on software, which we capitalize. Set-top boxes are
sold to customers and therefore recognized as cost of goods sold and not capitalized
9
Free Cash Flow
Slight decline from change in working capital
Free Cash Flow
(€m)
%
change
• Free Cash Flow down 4.0% y-o-y to €130.9m mainly
due to
Q3 2013
Q3 2014
220.4
224.6
1.9%
–
Improvement of EBITDA of approximately €4m
0.3
-3.3
n.a.
–
Decrease of Capex of €10m
18.0
0.9
-95.2%
–
Lower cash inflow from change in working capital
of approximately €17m versus Q3 last year
-100.3
-90.3
-10.0%
-2.3
-1.5
-33.6%
0.1
0.1
1.4%
136.3
130.9
-4.0%
Free Cash Flow as a % of
revenues
34.9%
32.4%
Capex as a % of revenues
25.7%
22.4%
EBITDA
Movement in provisions
Change in net working
capital
Capex
Funding Joint Ventures
Other cash used in
investing activities
Free Cash Flow
10
Management Agenda & Outlook 2014
Management Agenda
Outlook 2014
• Continued preparation of integration Ziggo/UPC
• Continued focus on the top-line
• Further investments in marketing, retention
campaigns and Ziggo Mobile
• EBITDA: Flat compared to FY 2013
• Continued build-out of “Ziggo WifiSpots”
• Extend and build upon of mobile offering
• Execution of development roadmap
• Cost control & discipline
• Capex: around €370 million
– Customer demand from retention programs and
sales
– Investment Program for the development of
business support systems and service platforms
facilitating new services
– Increase in network capacity to accommodate
increased internet video traffic
11
Consumer
Continuous growth in 2p internet
Consumer RGUs
(‘000)
Appendix I
Internet subscribers
(‘000)
+0.1%
+5.4%
6,915
6,925
Telephony
1,553
1,576
Internet
1,831
1,929
848
804
2,247
2,278
436
338
Q3 2013
Q3 2014
Digital pay TV
Analog and digital TV
Analog TV only
• Increase in total consumer RGUs by 10k y-o-y
– Stable in Q3
• Telephony RGUs up 24k or 1.5% y-o-y
• Internet subscribers up 98k or 5.4% y-o-y
– Up 18K in Q3
● Digital pay TV RGUs down 44k or -5.2% y-o-y
– Up 1k in Q3
• Continued decline Standard TV
- Down 16k in Q3 versus 11k in Q3 2013
1,929
1,911
1,889
1,855
1,831
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
• 2P+3P subscribers up 97k or 5.4% y-o-y
– All-in-1 penetration of 56.4% of consumer customer base*
– TV Only declined from 29.6% to 24.2%
Subscribers ‘000
Q3 2013
Q3 2014
Change
TV only
794
634
-160
2P (TV + internet)
336
407
71
58
54
-4
3P (incl. non-bundle)
1,495
1,522
27
Total
2,683
2,616
-67
2P (TV + telephony)
* Excludes 37k customers serviced over cable networks owned by 3 rd parties
13
Net Debt
Leverage ratio in line with year-end 2013
Appendix II
Total Net Debt / Adj. EBITDA1 3
3.87
3.42
3.50
Adj. EBITDA / Interest3
3.59
4.04
4.56
4.37
2013
Q3 2014
3.14
2011
2012
2013
Q3 2014
Net Senior Secured Debt / Adj. EBITDA1 3
2.42
2011
2.05
2.14
2.23
2012
2013
Q3 2014
2011
2012
(Adj. EBITDA – Capex) / Interest2 3
2.76
2.80
2012
2013
2.20
2011
2.51
Q3 2014
1. As of 2012, the MtM value of the derivatives and the accrued interest are included in the debt
2. Capex excludes Capex related to the integration of Ziggo’s predecessors
3. Ratios are at Year-end unless otherwise indicated
14

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