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Moody’s: Liberty Global profitability goals ‘ambitious’

While its European unit’s profitability is likely to improve this year, Liberty Global’s target of 7-9% growth in operating cash-flow in the 2015-18 period “remains ambitious”, according to an assessment by credit ratings agency Moody’s.

According to Moody’s, the international cable outfit is under pressure to deliver higher growth in profitability from this year after achieving 3.3% operating cash-flow growth in the first nine months of last year on a like-for-like basis.

Moody’s expects Virgin Media and UPC Holding to deliver stronger cash-flow this year, with Telenet in Belgium and Ziggo in the Netherlands delivering some synergies from the acquisition of BASE and the Vodafone mobile joint-venture respectively, despite the dilution to margins resulting from the deals.

According to the ratings agency, Liberty’s European businesses will deliver improved or steady revenue growth, but Telenet is likely to grow only by about 2% as it works through the integration of BASE, while Ziggo will remain the weakest performer. However, Ziggo will be deconsolidated from Liberty’s accounts as it is placed in the JV with Vodafone.

Moody’s also expects free cash-flow to be adversely impacted by increased capital expenditure incurred as a result of the group’s network expansion plan.

“Liberty’s profit growth target for its European businesses in 2017

appears ambitious in the light of intense competition across markets.

Moreover, elevated capex commitments on the back of significant network expansion plans in Europe mean the group’s free cash flow generation is unlikely to improve in 2017,” said Gunjan Dixit, a Moody’s vice-president, senior analyst and author of the report.