Ziggo N.V.
Q2 2014 Results
17 July 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 Q2
• Growth in internet, mobile and business bundles and price increase lead to solid revenue growth
– Broadband internet net adds of +25k in Q2 (7.7% growth y-o-y)
– Mobile net adds of +21k in Q2 to reach a total of 84k
– Price increase for main consumer products by €1
• Revised telephony rate plan supports growth
- Flat fee bundles covering calls to Dutch landlines and mobile numbers (subscriptions up by over 130k since
announcement)
• Strong growth in 2p offsets lower growth in 3p, supported by improved service offering
– Further roll-out of popular WifiSpots with over 1.2 million modems activated end of Q2
– Increase of internet speeds for all bundles (up to 180Mb/s)
– Introduction of Ziggo Bapp offering high quality calls over Wi-Fi
• Investment in retention program successful, customer churn continues to decline
– Blended churn in Q2 was 7.6%, down from 9.5% in Q2 2013 and down from 8.6% in previous quarter
– Churn for Standard TV hit lowest level in many years
• Continued organic revenue growth for B2B of 11.9% y-o-y
– Business bundles for SoHo and SME continues to drive growth with net adds of 3.1k in Q2
• New developments with Ziggo Mobile
– Introduction of new SIM-Only low price bundle of € 7.50
– Handsets offering in combination with subscriptions in partnership with the Phone House
2
Financial Highlights Q2
• Revenue up 3.4% y-o-y to €405.1 million
– Up 4.5% y-o-y adjusted for Esprit Telecom and excluding ‘other revenue’
– Consumer back to growth with 3.7% y-o-y
– Revenue growth of 20.8% y-o-y including Esprit Telecom and 11.9% on a like for like basis
• Adjusted EBITDA €225.8 million, up 2.2% y-o-y
– Adjusted for Esprit Telecom, up 1.9% y-o-y
• Net loss of €29.5 million from €88.9 million net profit in Q2 2013 due to
– Fair value losses on hedges of €125.5 million
– Amortization of customer relationships of €30.0 million
– Adjusted for these non-cash items net profit would have increased by 7.1%
• Net debt amounts to €3.2 billion
– Stable compared to year-end 2013
• Leverage ratio of 3.62x
– Up from 3.50x at year-end 2013
– Increase caused by negative value effect of hedges
3
Consumer
Continuous growth in 2p internet and All-in-1 Bundle
Consumer RGUs
(‘000)
Internet subscribers
(‘000)
+1.1%
Telephony
Internet
Digital pay TV
Analog and digital TV
+6.8%
6,846
6,923
1,516
1,577
1,831
1,788
1,911
848
803
2,236
2,273
Analog TV only
458
Q2 2013
1,911
1,889
1,855
1,788
359
Q2 13
Q2 2014
• Increase in total consumer RGUs by 78k y-o-y
– Down 27k in Q2
• Telephony RGUs up 61k or 4.1% y-o-y
• Internet subscribers up 122k or 6.8% y-o-y
– Up 22K in Q2
● Digital pay TV RGUs down 45k or -5.3% y-o-y
– Down 34k in Q2
• Continued decline churn Standard TV
- Down 12k in Q2 versus 36k in Q2 2013
Q3 13
Q4 13
Q1 14
Q2 14
• 2P+3P subscribers up 119k or 6.5% y-o-y
– All-in-1 penetration of 56.1% of consumer customer base*
–
TV Only declined from 31.5% to 25.4%
Subscribers ‘000
Q2 2013
Q2 2014
Change
TV only
848
668
-180
2P (TV + internet)
330
388
58
57
54
-3
3P (incl. non-bundle)
1,459
1,523
64
Total
2,694
2,633
-61
2P (TV + telephony)
* Excludes 37k customers serviced over cable networks owned by 3 rd parties
4
Revenues
Continued growth of dual- and triple play and increase of ARPU
Revenue by product
(€m)
Out of home
Other
B2B
Telephony
Internet
Digital pay TV
Standard TV
392
35
391
10
38
Blended and All-in-1 ARPU1
(€)
+3.4%
7
394
41
5
Telephony usage
394
4
41
2
405
3 3
42
77
81
118
120
125
41
41
41
41
113
111
110
110
109
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
77
77
79
115
117
42
~69
• Main drivers for y-o-y revenue and ARPU growth
were:
+6.6%
41.98
Digital
pay TV
44.74
All-in-1
Q2 13
Q2 2014
All-in-1 + usage
Q2 142
• Y-o-y increase in blended ARPU2 of 6.6%
• Q2 ARPU growth driven by:
– Continued growth in internet and telephony usage
following revised rate plan per April 1
– Further penetration of dual and triple play bundles
– Revenue contribution from Ziggo Mobile
– ARPU growth for digital pay TV
– General price increase consumer products as from April 1
• Y-o-y revenue growth offset by:
– Churn among lower ARPU TV-only customers
– Slight increase of ARPU for telephony usage
– Price increase as per April 1
– Lower RGUs for Standard TV
– Revenue decline from digital pay TV (2.8%)
• B2B contributes in Q2 to 10.4% of total revenues
– (Q1 2012: 6.6%)
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
5
COGS and Gross Margin
Increasing Gross Margin
COGS1
(€m)
• COGS adj. for Esprit down 7.4% due to lower costs
for STB offset by deferred tablet costs
% Gross
margin
80.7
82.1
75.8
70.1
81.7
72.2
81.9
71.3
82.2
72.2
• Gross margin adj. for Esprit increased to 82.5%
from 80.7% in Q2 2013
• The gross margin of Esprit is dilutive to the total
gross margin (34.2% for Esprit Telecom)
• Improved gross margins on internet, telephony
and B2B (adj. for Esprit Telecom)
• Negative margin contribution on STBs reduced as
more STBs capitalized instead of expensed
Q2 13
1.
Q3 13
Q4 13
Q1 14
Q2 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
6
OPEX
Increased investments in M&S and customer services
Change in OPEX1
(€m)
2
• M&S up 10.3% driven by
+16.7%
107.2
1.9
1.3
4.4
95.1
– Sales and advertising campaigns Ziggo Mobile
• Opex excluding M&S up 12.4% y-o-y
– 21.5% of revenues versus 19.6% in Q2 2013
• Personnel up 7.9% y-o-y
3.8
– Impacted by release of accrued bonuses in Q2 2013 of
0.7
€1.5m
– Number of employees flat
– Increase in total headcount of 9.7% fully related to our
investment program
– Offset by increase in capitalized personnel costs
• Contracted work up 33.6% y-o-y
– Higher costs for external call centers
– Call volumes rose by over 36% compared to Q2 2013
• Office expenses up 9.6% y-o-y
Q2 2013
1.
2.
Esprit
Personnel
Contr. Marketing Office Q2 2014
work
& Sales expense
& Other
– Due to increased housing and energy costs for two newly
rented datacenters
Opex comparison excludes non-recurring cost of €1.7m
Adjusted for Esprit Telecom
7
Adjusted EBITDA
Impacted by higher M&S and cost for customer services
Adjusted EBITDA1
(€m)
As a % of
revenues
56.4
221.0
56.4
220.4
56.5
222.8
Q2 2014
54.0
55.7
• Adjusted EBITDA of €225.8m, up 2.2% compared
to Q2 2013
225.8
213.1
• Adj. for Esprit Telecom, Adjusted EBITDA up 1.9%
as a result of
– Revenue growth and lower COGS
– Party offset by increase in operating expenses of 12.0%
driven by the cost increase of marketing & sales and
customer services
• Adjusted EBITDA margin is 55.7%
– Adj. for Esprit, Adjusted EBITDA margin is 56.0% versus
56.4% in Q2 2013 due to higher Opex
Q2 13
1.
Q3 13
Q4 13
Q1 2014
Q2 2014
• EBITDA of €224.1m includes €1.7m of nonrecurring costs related to advisory costs in
connection with intended acquisition of Liberty
Global
Adjusted EBITDA does not include expenses related to the intended offer
8
Financial Income & Expenses
Increase in financing costs due to fair value losses on hedges
Net financial expense
(€m)
174
Q2 2014
• Interest expense down €4.1m or 8.3% to €45.0m
– Excluding borrowing costs, interest expenses decreased by
8.9%
– Average debt €200m higher compared to Q2 2013
– Blended interest rate is 6.0% versus 7.0% in Q2 2013
126
• Fair value loss of €125.5m compared to a €10.3m
gain in Q2 2013 due to
– Substantial decrease in interest rates
42
2
1
2
2
49
45
– Due to refinancing in February
• Banking and financing fees up €1.2m to €2.0m
-10
Q2 2013
• Amortization of funding costs down €0.4m to €1.9m
Q2 2014
– Mainly due to commitment fees related to our revolving
credit facility
Fair value results on
derivative financial instruments
Amortization funding costs
Bank & financing fees
Interest on bank debt and notes
9
CAPEX
Increased Capex across all segments
Capex1
(€m)
Capex mix, Q2 2014
(%)
+23.3%
100% = €98.0m
98.0
79.5
21.3
Customer
installations
36.9
Network
growth
39.8
Maintenance
& other
13.5
34.9
31.2
Q2 2013
Customer
installations
Q2 2014
22%
41%
Maintenance
& other
38%
Network
growth
Q2 2014
• Capital expenditure of €98.0m, increase of 23.3% y-o-y
• Increase by €7.8m y-o-y in Capex for customer equipment resulting from capitalization of STBs (€7.3m)
• Increase of €2.1m y-o-y in Capex for network growth
– New build
• Maintenance and ‘Other Capex’ increased to €39.8m vs. €31.2m in Q2 2013
– Capitalized hours and contracted work increased by over €6.4m for replacement business support systems and new video platform
– Upgrade of office automation and equipment and data centres
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
10
Free Cash Flow
Higher FCF due to increase in cash flow from operating activities
Free Cash Flow
(€m)
%
change
• Free Cash Flow up 18.1% y-o-y to €112.3m mainly
due to
Q2 2013
Q2 2014
221.0
224.1
1.4%
–
Improvement of EBITDA of €3.1m
-3.4
-1.0
-70.0%
–
0.0
-2.4
100.0%
Increase in cash flow from operating activities of
€20.4m y-o-y mainly due to lower cash outflow
from change in working capital of €17.3m
Change in net working
capital
–
-25.3
-7.9
-68.5%
Offset by an increase of Capital expenditures of
€18.5m
Capex
-79.5
-98.0
23.3%
–
In Q2 2013 Esprit Telecom acquired for €15.2m
Acquisition
-15.2
0.0
-100%
-2.6
-2.5
-3.5%
0.0
0.0
0.0%
95.0
112.3
18.1%
Free Cash Flow as a % of
revenues
24.2%
27.7%
Capex as a % of revenues
20.3%
24.2%
EBITDA
Movement in provisions
Corporate income tax
Funding Joint Ventures
Other cash used in
investing activities
Free Cash Flow
11
Net Debt
Leverage ratio in line with year-end 2013
Total Net Debt / Adj. EBITDA1
3.87
3.42
3.50
Adj. EBITDA / Interest
3.62
4.04
4.56
4.41
2013
Q2 2014
3.14
2011
2012
2013
Q2 2014
Net Senior Secured Debt / Adj. EBITDA1
2.42
2011
2.05
2.14
2.25
2012
2013
Q2 14
2011
2012
(Adj. EBITDA – Capex) / Interest2
2.76
2.80
2012
2013
2.20
2011
2.47
Q2 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
12
Management Agenda & Outlook 2014
Management Agenda
Outlook 2014
• Further investments in marketing, retention
campaigns and Ziggo Mobile
• Continued focus on the top-line
• Continued build-out of “Ziggo WifiSpots”
• Extend and build upon of mobile offering
• EBITDA: Flat compared to FY 2013
• Capex: around €370 million
– Capitalization of set-top boxes following a 12/24
months contract
• Execution of development roadmap
– Investment Program for the development of new
products and systems
• Cost control & discipline
– Increase in network capacity (mainly additional
network segmentation), to accommodate
increased internet video traffic
• In connection with the public offer from Liberty
Global, Ziggo will host an Extraordinary General
Meeting of shareholders (EGM) on August 26, 2014.
Documentation regarding the EGM is available on the
company website
13