Ziggo Q3 2011 Results October 14, 2011
Disclaimer 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 cable television and telecommunications 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 preferences and habits; consumer acceptance of existing service offerings, including our standard cable, digital pay television, broadband Internet and telephony services; consumer acceptance of new technology, programming alternatives and broadband 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 cable, digital pay television, broadband Internet and telephony services and our average monthly revenue per user; 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 countries in which we, and the entities in which we have interests, operate 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 lines and business strategies; capital spending for the acquisition and/or development of telecommunications networks and services; the availability of attractive programming for our digital video 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
Q3 2011 Highlights Successful campaigns Switching Weeks campaign in June and first week of July Loyalty campaign at the launch of the new TV proposition in September drive accelerated growth in Q3 (q-o-q) RGUs increased by 120,000 to more than 6.9 million All-in-1 Bundle increased by 58,000 subscribers to more than 1.24 million (41% of customer base) Broadband Internet +39,000, highest quarterly growth since inception of Ziggo Fixed Telephony +59,000 Digital TV customers +130,000 B2B business bundles +2,800 1) Adjusted EBITDA does not include integration opex 2
Q3 2011 Highlights Strong financial performance in Q3 2011 (y-o-y) Revenue up 9.7% to 375.6m; up 6.9% excluding the sale of decoders Adjusted EBITDA 1) up 5.5% to 210.1m Free Cash Flow up 3.6% to 140.9m B2B revenue up 11.1% to 21.7m Leverage down to 3.98x at the end of Q3 2011 versus 4.50x at year-end 2010 1) Adjusted EBITDA does not include integration opex 3
Q3 2011 Highlights Increased activity level for our customer services Successful switching weeks campaign in June and first week of July results in many new subscribers Implementation of TV proposition and successful overnight migration on September 1 of all Ziggo customers to this new proposition EuroDocsis 3.0 WiFi modem swap slowed down Pilot for mobile data service through light MVNO Branding/positioning Opening of third and largest Ziggo Studio in The Hague Launch of Entertainment Experience B2B developments Cooperation with Dutch sector association for SMEs October 2011: Acquisition of provider of innovative VoIP telephony services to SME market 4
Consumer Campaigns support growth of RGUs and triple-play customers RGUs Triple-play customers ( 000) ( 000) +5.1% +18.2% 6,586 1,117 6,919 1,311 Telephony 1,045 1,094 1,139 1,178 1,236 1,518 1,643 Internet 851 944 Digital Pay TV 1,732 2,101 Analog and Digital TV 1,368 920 Analog TV only Q3 2010 Q3 2011 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Notes: Penetration for Digital TV is 70%, up 14%-pt from 56% in Q3 2010 Digital Pay TV subs up 93K y-o-y, supported by Eredivisie Live campaign Internet subs up 125k y-o-y and 39k q-o-q, the highest quarterly increase since the company formed in 2007 Telephony (+194k y-o-y) is growing in line with the growth in All-in-1 Bundle Continued growth in Triple-play customers of 58K or 4.9% compared to the previous quarter and 191,000 or 18.2% compared to Q3 2010 One-third of growth in Triple-play are new customers Triple Play penetration is 40.9% of customer base Almost all triple-play customers are on the All-in-1 Bundle 5 RGUs are calculated as the sum of total TV customers, Paid Digital TV customers, Internet customers and telephony customers Digital TV customers are customers that activated one or more smartcards; Digital Pay TV customers have subscribed to one or more additional digital pay TV packages.
ARPU Growth through increase in RGUs per customer and Digital Pay TV RGUs per customer Blended and All-in-one ARPU ( 000) ( ) 2.12 2.17 +8.0% 2.21 2.23 2.29 33.42 34.39 9.7% 35.20 35.94 36.66 42.14 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q3 11 Blended All-in-1 (excludes usage) Increased uptake of All-in-1 Bundle, supported by marketing campaigns, drives growth in RGUs per customer Q3 2011 sequential growth positively affected by growth in Digital Pay TV RGUs due to start of football season and Eredivisie Live campaign Q-on-Q increase in blended ARPU as a result of: Growth in RGUs per customer from All-in-1 Bundle Revenue growth from Digital Pay TV Y-o-y growth partly related to price increase of ( 0.50, incl. VAT) Feb 2011: Standard TV March 2011: All-in-1 Bundle 6
Revenues Growth driven by bundles and Paid Digital TV Quarterly revenue by product line Quarterly revenue breakdown ( m) ( m) Revenue from: Other B2B Telephony 342 63 +9.7% 11 20 376 22 71 20 Other B2B Usage 342 20 39 +9.7% 11 376 22 42 20 Internet 96 105 Digital Pay TV 31 37 Subscriptions 273 292 Standard TV 122 120 Q3 2010 Q3 2011 Q3 2010 Q3 2011 Bundle revenue grew by 47.2% to 150.6m in Q3 2011, 42.6% of total consumer revenue Digital Pay TV revenue continued to grow rapidly by 20.8% to 37.5m in Q3 2011 Telephony revenue up by 12.4% to 70.8m compared to Q3 last year B2B revenue up by 11.1% y-o-y Recurring consumer revenue from subscriptions increased by 19m in Q3 2011 versus Q3 2010 Usage revenue (telephony usage and VoD) grew by 9.2% 7
COGS and Gross Margin Gross Margin stable around 80% of revenue Quarterly COGS As % of revenue ( m) 18.3% 62.5 21.0% 74.9 19.8% 71.6 19.6% 71.3 21.0% 79.0 Increase in COGS for Q3 2011 as a result of a larger volume and more expensive HD and interactive STBs sold (149,000 itv and HD boxes) Content costs for standard TV increased compared to Q3 2010 as a result of renewed contracts in September last year Digital Pay TV with lower margin grew as percentage of total revenue from 9.1% in Q3-2010 to 10.0% in Q3 2011 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Note: 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 8
Operational Expenses Opex as % of revenue continued to decline Change in Opex, Q3 2010- Q3 2011 ( m) 82.9 +0.6 +2.8 4.4% +0.8-0.5 86.6 Operating expenses 1) increased by 4.4% y-o-y to 86.6m in Q3 2011; adjusted for integration expenses in Q3 2010, Opex increased by 7.3% Opex as % of revenue decreased from 24.2% to 23.1% Personnel cost increased by 1.4%; an annual salary increase of ca. 4% is largely offset by a higher number of vacations days taken in Q3 2011 Q3 10 Personnel Contracted work Marketing & Sales Office expense & Other Q3 11 Contracted work increased by 25.9% to 13.4m in Q3 2011 due to increased customer services activity following the successful campaign this summer, the modem roll-out and the new TV proposition Decrease in other operating expenses as a result of an improved quality of the trade receivables Continued focus on further improvements in customer satisfaction and optimization of processes 1) Operational expenses include integration costs of 2.2m for Q3 2010 9
EBITDA Lower gross margin percentage partly offset by lower Opex as percentage of revenue ( m) Quarterly adjusted EBITDA As % of Revenue 58.1% 54.9% 56.9% 56.9% 55.9% 199.0 195.7 205.2 206.9 210.1 Continued EBITDA growth of 5.5% in Q3 2011 compared to Q3 last year due to revenue growth EBITDA increase in Q3 2011 vs. the same period last year despite higher COGS and Opex EBITDA margin decreased compared to Q3 2010 as a result of a lower gross margin percentage following marketing campaigns, only partly offset by reduced Opex as % of revenue. Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Note: Adjusted EBITDA does not include integration Opex 10
Net financial expense Decrease of interest expense due to further deleveraging ( m) Quarterly net financial expense 68 5 1 1 82 13 3 Fair value results on derivative financial instruments Amortization funding costs Bank & Financing fees Adjusted for borrowing costs on our Work-in-Progress, interest expenses have come down by 0.8m to 69.2m as a result of further deleveraging, partly offset by a higher average interest rate Fair value losses on IRS in Q3 2011 as a result of a lower interest rates 67 66 Interest Blended Interest rate in Q3 2011 was 8.1% vs. 7.5% in the same quarter last year. Post expiration of some IRS and basis swaps per September 30, 2011, the blended interest rate will reduce by approx. 1%-point -5 Q3 10 Q3 11 11
Capital Expenditures Further investments from increase in subs and network capacity Capital Expenditures Capital Expenditures Q3 2011 ( m) (%) +52.3% Integration Customer installations Network growth Maintenance & other 48.5 5.7 9.6 24.9 8.4 73.9 22.8 43.5 7.6 Customer installations 31% Maintenance & other 10% 59% Network growth Q3 10 Q3 11 During the third quarter Ziggo invested 73.9m, an increase of 52.3% compared to 48.5m in Q3 last year, primarily related to increase in subscribers and capacity (CMTSs and IP backbone), and the modem swap Capex investments in customer installations grew by 137% compared to Q3 2010 due to modem swap and an increase in subscribers Approximately 90% of our capital expenditure is scalable and directly related to network capacity increases or subscriber growth Note: 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. Decoders and set top boxes are sold to customers and therefore recognized as cost of goods sold and not capitalized 12
Free Cash Flow FCF growth despite substantial Capex increase Free Cash Flow Actual Actual Actual Free Cash LTM Flow in Actual Q3 2011 FY grew ( m) % change Q3 2011 Q3 2010 by Sep 3.6% 2010 y-o-y as improved 2009 EBITDA and decrease in working Adjusted EBITDA 210.1 199.0 5.5% capital 763.9 more then offset 695.8 the increase in Capex Integration Opex -2.2 23.7 47.1 Free Cash Flow margin decline due EBITDA 210.1 196.8 6.7% to substantial 740.2 higher Capex 648.7 in Q3 2011 compared to last year Movement in provisions -0.8-0.7 YtD Capex (2.1) as a % of revenue 4.6 is Change in net working capital 5.5-11.7 16% 52.4 34.4 Capex -73.9-48.5 52.3% (225.8) (251.7) Other cash used in investing activities 0.0 0.1 0.1 0.5 Free Cash Flow 140.9 136.0 3.6% 564.8 436.5 Free Cash Flow as a % of revenues 37.5% 39.7% 41.7% 34.0% Capex as a % of revenues 19.7% 14.2% 16.7% 19.6% 13
Capital Structure Progressive deleveraging with leverage ratio below 4.0 Commentary Net Debt / EBITDA Continued deleveraging; voluntary prepayments in Q3 2011 of 71.2m 10.0x 9.0x EBITDA / Interest cover of 2.94 (EBITDA Capex) / Interest cover of 2.24 7.4x 6.5x 5.7x 7.8x 5.4x 6.9x 6.3x 4.5x 3.98x PF 2006 PF 2007 2008 2009 2010 Q3 2011 Net Debt / EBITDA Net Leverage Covenant EBITDA / Interest (1) (EBITDA Capex) / Interest (2) 1.75x 1.33x 2.06x 1.47x 2.29x 1.69x 2.76x 1.85x 2.94x 1.95x 1.16x 1.54x 1.60x 2.14x 2.24x PF 2007 2008 2009 2010 Q3 2011 EBITDA / Interest Interest Cover Covenant PF 2007 2008 2009 2010 Q3 2011 (EBITDA Capex) / Interest (1) Interest for PF 2007 numbers is as reported in the Company s audited financials (unadjusted). PIK interest on Mezzanine is included for comparison purposes. (2) Capex excludes integration Capex. 14
Net Debt as at end of September 2011 As per September 30, 2011 in m x LTM EBITDA Margin/ Coupon Maturity Term loan B (extended) 923 1.13 E + 3.25% Mar-17 Term loan E (Senior Secured Notes) 750 0.92 6.125% Nov-17 Term loan F 460 0.56 E + 3.25% Sep-17 Total Senior Debt 2,133 2.61 Senior Unsecured Notes 1,209 1.48 8.000% May-18 Total Debt 3,342 4.09 Cash and cash equivalents 85 0.10 Total Net Debt 3,257 3.98 (1) As per end of Q3 2011, the average maturity is approx. 6.1 years Offset swaps and some regular swaps have expired on September 30, 2011 During Q3 approx. 100% of the total floating interest rate borrowings are hedged through interest rate swaps. Post expiration of swaps approx. 70% will be hedged in Q4 2011 The Revolving Credit Facility of 144m has been cancelled and replaced by an uncommitted RCF of 150m of which 50m is covered by a bilateral committed ancillary facility. None of these facilities have been drawn upon during the quarter (1) Adjusted LTM EBITDA as of September 2011 of 817.9m does not include integration Opex 15
Management Agenda and Outlook 2011 Continued additional marketing & sales efforts to leverage our momentum in the market Continuation of growth in All-in-1 Bundle and Digital Pay TV Further investment in network capacity growth for internet and roll-out of EuroDocsis 3.0 WiFi modems Maintain focus on customer satisfaction and continue to improve service levels following the busy summer Modest increase in other operating costs driven by growth of the business and focus on customer service levels 16
Questions? 17