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Liberty Global turns in modestly positive quarter

CEO Mike Fries hailed UK operation Virgin Media’s ability to deliver “improved subscriber trends” and its “compelling new fixed-mobile convergence bundles”, despite pressure on cable service ARPU in the market.  He said that the company’s Swiss operation, the sale of which is now under review by the Swiss Competition Authority, was producing “emerging green shoots” following the launch of its Horizon 4 set-top in that market with 130,000 boxes installed to date.

Liberty Global’s overall revenue was down 0.6% to US2.868 billion.

Liberty’s residential cable revenue was down 1.1% year-on-year on a like for like basis to US$1.9 billion, driven lower by pressure in the Swiss and Belgian markets.

Mobile revenue was down 2.4%, with a strong performance in Switzerland failing to offset weakness elsewhere.

Q1 operating income decreased 10.3% year-over-year to $105.5 million

On the upside, lower capex resulted in a near doubling of the company’s free cash-flow performance in the quarter.

The company added 24,700 net new revenue generating units in the quarter, and added 67,600 excluding Switzerland, where it is in the process of selling its operation to local player Sunrise.

Video subs were down 60,500, while data and voice customers were up, thanks in part to new build networks in the UK. The UK added 59,200 RGUs, which together with gains in central and eastern Europe offset losses in Belgium and Switzerland.

Analysts at Jefferies noted that operating cash-flow growth was ahead of consensus and that RGU growth “looks solid”. However, it noted a certain weakness in the increasingly key UK market.

“A soft UK top-line clouds the picture, reflecting not least pressure on the cable service ARPU. This is not expected on this scale and will be a debate,” said Jefferies’ analysts.

“Still, the OCF outlook looks protected, and ultimately the transformative deals remain the key to a further narrowing of a material valuation gap.”

Tech media and telco analyst Paolo Pescatore of PP Insight meanwhile argued that Virgin Media presents a dilemma in what he sees as a broader exit strategy for Liberty Global.

““Overall, a modest quarter given the challenging environment. Virgin Media now remains the crown jewels in Liberty Global’s portfolio, but also a problem child. Moves to divest other assets shows a desire to leave Europe by maximising the value of each asset. However, acquiring Virgin Media would not cheap for any party, and would require significant long term investment to compete with BT other smaller aggressive fibre broadband providers,” said Pescatore.

“The atest moves to strengthen Virgin Media’s portfolio suggests that Liberty Global is committed to the UK for the short to medium term. Given the renewed push towards convergence and importance of owning fixed and mobile assets, due to 5G and more, it is feasible that it might acquire or merge with a UK mobile operator.”