QVC Group Update April 2015 - Liberty Interactive
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QVC Group Update April 2015
Forward-Looking Statement
This presentation includes certain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, including statements about business strategies, market potential, future financial prospects,
international expansion, including the launch of QVC France and expenses in connection therewith, new service and
product offerings, and other matters that are not historical facts. These forward-looking statements involve many risks
and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements,
including, without limitation, possible changes in market acceptance of new products or services, competitive issues,
regulatory matters affecting our business, and continued access to capital on terms acceptable to QVC. These forward-
looking statements speak only as of the date of this presentation, and QVC expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any
change in QVC’s expectations with regard thereto or any change in events, conditions or circumstances on which any
such statement is based. Please refer to publicly filed documents, including Liberty Interactive and QVC’s most recent
Forms 10-K for additional information about QVC and about the risks and uncertainties related to QVC’s business
which may affect the statements made in this presentation.
Non-GAAP Measures
This presentation includes certain non-GAAP financial measures including Adj. OIBDA, Adj. OIBDA margin and Adj.
Net Income. The required definitions and reconciliations for Adj. OIBDA and Adj. OIBDA margin (Preliminary Note
and Schedules) can be found at the end of this presentation. The definition and reconciliation for Adj. Net Income can
be found on slide 20, entitled “Adjusted EPS Clarifies P/E Valuation”.
2
QVC Group: A Pure Play Investment Vehicle
3
QVC Group Rationale
• Pure-play investment security to focus on multi-channel retail
• Trading under new tickers, QVCA and QVCB, began on 10/7
• Further focus on QVC’s strong operating metrics
• Provides investor choice between the cash generative QVC/HSN businesses and the high growth Digital
Commerce Companies
• Enables more efficient, directed share repurchase
• Cleaner comparable analysis
• Allows more tailored equity incentives
4
QVC Highlights
• Strong financial performance
• QVC US revenue grew by 5% in Q4 and 4% for full year 2014
• QVC US adj. OIBDA up 8% in Q4 and 6% for full year 2014; consolidated adj. OIBDA up 4% for 2014
• Consolidated eCommerce revenues exceeding $3.5 billion, representing 40% of total revenue in 2014
• Mobile now represents over 41% of eCommerce revenue vs. 31% in 2013
• Utilizing digital to enhance customer experience
• Live chat
• New second screen experience
• Efficient use of content
• Video storytelling
• Additional touch points before and after purchase
• International progress
• China growth
• UK Strength
• Italy OIBDA positive
• France launch
5
QVC is Content
• Rich and deep video content
• QVC produces 2.5m minutes of high-quality video
every year
• Equivalent of 4.75 years
• Easily adapted to online/mobile
• Currently, more than 130,000 videos online worldwide
• Explosive growth of online video consumption
and mobile device usage plays to QVC’s strengths
• Engagement with product demonstrations and
live stream content
• Recent video stories: 20 minutes+ customer
engagement
• Online videos complimentary to linear TV
• Video-engaged viewers convert at higher rate
• Multiple content delivery channels allow QVC to
explain products and build unique shopping
community
6
QVC is Mobile
• Offering extendable across platforms Growth of Mobile Ubiquitous Across Regions(1)
• Providing right idea to right device at right time
• Fulfilling consumer expectation for seamless, high-
quality mobile user experience
• Refined iOS and Android Apps – provides one
entry point via QVC app
• Ensures consistent shopping experience
• Ability to introduce new features into the market faster
• Moved In the Kitchen with David and Beauty apps into
QVC iPhone app
• 2015 focus:
• Personalization
• Enhanced customer service capabilities QVC on Trend
• Unique mobile features LTM Mobile Mobile Share of
Market Growth Rate(2) eCommerce 4Q14
• Provide fast and engaging way to shop QVC USD
• Early adopter of Touch IDTM US 48% 42%
• Allows customers to log into their accounts using fingerprint on Japan 38% 64%
iOS mobile device Germany 92% 27%
• Numerous accolades UK 56% 64%
• #3 Mobile Commerce Multi-Category Retail (Internet Italy 211% 41%
Retailer) Global 49% 44%
• #6 Online Retailer (Internet Retailer)
• #5 Social Commerce Sales (Internet Retailer; Social
Media 500)
(1) Source: Kleiner Perkins Caufield Byers, StatCounter.
(2) Last twelve month growth rate in constant currency as of 12/31/14.
7Strong Global TV Reach
PLUS
STYLE
France
BEAUTY Italy 15-20
25
EXTRA
UK & US
Ireland 108
27
PLUS
Germany
& Austria Post France Launch
41
BEAUTY & STYLE 9 countries
330 million homes
Japan
China* 13 channels
27
89
Homes receiving QVC programming, in millions
* Joint Venture
8Large and Growing Customer Base
13.5 Million Total Customers 4 Million New Customers
2014 2014
UK & Italy UK & Italy
Ireland 250 Ireland 100
1,000 260
US
China* Germany & US
8,000
1,200 Austria 2,200
320
Japan
Japan
340
1,400
Germany
& Austria
1,700 China*
870
Customers in thousands
* Joint Venture
9New and Digital Customers are Younger
US Example
Age Distribution by Platform
2014
Existing Customers New Customers
35% 35%
30% 30%
25% 25%
20% 20%
15% 15%
10% 10%
5% 5%
0% 0%
18-34 35-44 45-54 55-64 65-74 75+ 18-34 35-44 45-54 55-64 65-74 75+
Phone PC Mobile Phone PC Mobile
10Customers with Above-Average Financial Means
US Example, 2014
High Net Worth Homeowner Propensity to Shop Selected Retailers
X US avg. QVC Customer vs. US avg.
2.0x 2.0x
$281K Net Worth 3.5x 1.9x 1.9x
1.7x 1.7x
1.5x
1.4x
86% Female 1.7x
1.2x
68% Married 1.4x
88% Homeowner 1.3x
Sources: Federal Reserve Survey, Census Fact Finder and Simmons.
11Consistent Customer Loyalty Since Inception
US Example, 2014
2014 Shipped Sales by Year of Customer Acquisition
12Customers Purchase Behavior Consistent Across Markets
Consolidated Existing Customer Sales Metrics 2014 (USD)
Retention Rate Items per Customer Spend per Customer
$1,400
89% 89% 87% 89% 26 $1,290
84% 25 $1,250
24 24
$1,140
21 $1,040
US JPN DE UK IT US JPN DE UK IT US JPN DE UK IT
ASP ($) 57 59 47 51 44
13Extending Platform Globally
UK & Germany China* France
US Japan Italy
Ireland & Austria
1986 1993 1996 2001 2010 2012 2015
LTM
12/31/14 $6,055 $730 $970 $908 $138 $140
Rev
LTM
12/31/14 Adj. 23.6% 19.3% 17.9% 19.4% (2.9%) (7.1%)
OIBDA % (1)
Market
#1 #1 #1 #2 #1 #8 Est.
Position
* Joint Venture
$ in millions
Source: Public-company reports and company estimates.
(1) QVC, Inc.. adjusted OIBDA, exclusive of QVC Group level overhead
14China: Expanding Off-Balance Sheet Value of Value
• QVC’s China growth story still very much in its Tremendous “White-Space” Opportunity…
infancy
• QVC model extendable globally 460M(1) Total Homes
• Highly differentiated from Chinese video commerce
market 400M(1) TV Homes
• Industry legacy of “hard sell” tactics
• Introducing customer focused, storytelling approach 225M(1) Cable TV Homes
• Aim of building long-term customer relationships and
166M(1) Digital Homes
driving repeat purchase behavior
• QVC approaching Chinese market with very long 89M Homes
Current CNR Mall Reach
duration horizon
• Willingness to sacrifice near-term profitability to build
brand, gain carriage and develop competitive moat Added 18M homes in past year;
• QVC has unique ability to leverage global best equivalent to 67% of UK or Japan distributions
practices and vendor relationships – creates
merchandising advantages …Driving Attractive Growth Rates
• Great JV partner in China National Radio LTM 12/31/14 LTM 12/31/14
• QVC JV is one of only 11 TV shopping channels ($ in millions) (Y/Y % Change)(2)
Revenues $140 24%
with nationwide license
(1) Estimated.
(2) Calculated in local currency.
15France
Entry Strategy Market Dynamics
5th largest economy ($2.7T)
100% owned and controlled
GDP per capita $35k, 18% > Italy
Experienced leadership team
Disposable income per household similar to
Multi-platform from launch
Germany and 17% > Italy
Opportunity to grow TV carriage Sources: Euromonitor and International Monetary Fund
Potential to serve French-speaking Belgium
Accessible Homes
30
Leverage European organization and France Belgium
25
infrastructure
20
Expected launch in summer of 2015 15
10
5
0
2012 2013 2014 2015 2016 2017
Source: Kalane Consulting and QVC estimates
in millions
16Advantaged Model Leads to Industry-Leading Adj. OIBDA Margin
Gross Margin Operating Expense % Sales* Adj. OIBDA Margin**
QVC¹
Macy's² JCPenney²
Macy's²
Dillards² HSN¹
QVC¹ Sears² Nordstrom²
Kohls² Macy's² Kohls²
Nordstrom² Dillards² Dillards²
HSN¹ Amazon¹ HSN¹
JCPenney² Kohls² Amazon¹
Amazon¹ Nordstrom² Costco³
Sears² QVC¹ JCPenney²
Costco³ Costco³ Sears²
-5% 5% 15% 25% 35% 45% 0% 9% 18% 27% 36% -5% 0% 5% 10% 15% 20% 25%
¹LTM ended December 2014
²LTM ended January 2015
³LTM ended February 2015
*Gross margin less Adj. OIBDA margin
** QVC, Inc. adjusted OIBDA margin, exclusive of QVC Group level overhead.
Source: Capital IQ. Adj. OIBDA is OIBDA as per Capital IQ with add-back for stock based compensation
17Diligent Capital Deployment
Capital Expenditures
IT Broadcasting Facilities Other France
Capital Outlook
$259
$246
$200- • Anticipate $200-$225 million per
$220 $200- $235 year for existing markets
$211 $210
$181 $182
• IT and broadcast investments
represent 60%+ of spend
• Depending on entry approach,
new markets likely $30-60 million
additional per market
• TV channel placement
fees incremental
2009 2010 2011 2012 2013 2014 2015E 2016-2018E
$ in millions
18QVC, Inc.. Converts ~40% of Adj. OIBDA to Levered FCF
Trailing 3 Year Trailing 5 Year
As % of Adjusted OIBDA Average Average
Adjusted OIBDA 100% 100%
Working Capital (1%) (5%)
Capital Expenditures (11%) (13%)
(1)
Taxes (27%) (26%)
TV Distribution Rights (2%) (1%)
Dividend to Mitsui (2%) (3%)
Other (3%) 0%
= Unlevered Free Cash Flow 54% 52%
Interest(1) (11%) (13%)
= Levered Free Cash Flow 43% 39%
Note: Represents the average trailing twelve months for the three and five year periods ending on 12/31/14, respectively and does not include one-time events (e.g., GE credit card refund of cash
deposit in 2010). All data for QVC, Inc.. Excludes the impact of, among other things, QVC Group corporate overhead and inte rest expense.
(1) Unlevered free cash flow not adjusted for missing tax shield associated with tax-deductible interest expense.
19Adjusted EPS Clarifies P/E Valuation
(amounts in millions) 4Q13 1Q14 2Q14 3Q14 4Q14 LTM
QVC Group
Net income $ 157 $ 110 $ 105 $ 83 $ 222 $ 520
Purchase accounting amort., net of deferred tax benefit 51 51 51 51 51 204
Digital Commerce net income (loss) (11) 2 (1) (16) - (15)
QVC Group Adjusted net income $ 219 $ 159 $ 157 $ 150 $ 273 $ 739
QVCA/B shares outstanding as of January 31, 2015 474
Adjusted LTM earnings per share 1.56
Current QVCA share price (as of 4/1/2015) $ 28.82
Price / adjusted net income 18.5x
(1) Add-back relates to non-cash, non-tax deductible purchase accounting amortization from Liberty Interactive’s acquisition of QVC, net of book deferred tax benefit (gross non-cash, non-tax
deductible purchase accounting amortization was $323 million for the twelve months ended 12/31/2014 and is applied ratably ac ross the four quarters in the year).
20QVC Group Debt as of 12/31/14
Outstanding Debt 7,000
$ in millions
HSNi 1% exchangeable debentures(1) $400
Senior notes and debentures(2) $791 6,000
$5.8b
8.5% senior debentures $287 400 HSN Exchangeable
8.25% senior debentures $504
5,000 $791 Senior Notes
QVC Credit Facility $508
508 QVC Credit Facility
QVC senior notes and subsidiary debt (2) $4,125
4,000
QVC 3.125% senior secured notes due 2019 $400
QVC 7.375% senior secured notes due 2020 (3) $500
QVC 5.125% senior secured notes due 2022 $500 3,000
Current
QVC 4.375% senior secured notes due 2023 $750
leverage ratio QVC & Subsidiary
QVC 4.850% senior secured notes due 2024 $600 QVC Inc. Debt
2,000 2.4x
4,125
QVC 4.45% senior secured notes due 2025 $600
QVC 5.45% senior secured notes due 2034 $400
1,000
QVC 5.95% senior secured notes due 2043 $300
Other subsidiary debt $75
-
Debt
(1) Face amount of HSNi exchangeable as of 12/31/14 with no fair value adjustment.
(2) Face amount as of 12/31/14 with no reduction for the unamortized discount.
(3) Notice has been issued to call these notes on 4/15/15; will be funded by a draw on QVC’s Credit Facility and with QVC cash on hand.
21APPENDIX
Reconciling Schedules
Preliminary Note
This presentation includes references to adjusted OIBDA, which is a non-GAAP financial measure, for QVC (and certain of its subsidiaries.
Liberty Interactive defines adjusted OIBDA as revenue less cost of sales, operating expenses and selling, general and administrative expenses
(excluding stock and other equity-based compensation) and excludes from that definition depreciation and amortization, restructuring and
impairment charges and legal settlements that are included in the measurement of operating income pursuant to GAAP. Further, this presentation
includes adjusted OIBDA margin, which is also a non-GAAP financial measure. Liberty Interactive defines adjusted OIBDA margin as adjusted
OIBDA divided by revenue.
Liberty Interactive believes adjusted OIBDA is an important indicator of the operational strength and performance of its businesses, including the
ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical
comparisons and benchmarking between businesses and identify strategies to improve performance. Because adjusted OIBDA is used as a
measure of operating performance, Liberty Interactive views operating income as the most directly comparable GAAP measure. Adjusted OIBDA
is not meant to replace or supersede operating income or any other GAAP measure, but rather to supplement such GAAP measures in order to
present investors with the same information that Liberty Interactive’s management considers in assessing the results of operations and
performance of its assets. Please see the attached schedules for a reconciliation of adjusted OIBDA to operating income (loss) calculated in
accordance with GAAP for QVC (and certain of its subsidiaries) (Schedules 1 and 2).
In addition, this presentation includes references to adjusted net income, which is a non-GAAP financial measure, for QVC Group. Liberty
Interactive defines adjusted net income as net income, excluding the impact of purchase accounting amortization (net of deferred tax benefit) and
net income (loss) generated by the Digital Commerce companies.
Liberty Interactive believes adjusted net income is an important indicator of financial performance, in particular for QVC Group, due to the non-
economic impact of purchase accounting amortization and the reattribution of the Digital Commerce companies. Because adjusted net income is
used as a measure of overall financial performance, Liberty Interactive views net income as the most directly comparable GAAP measure.
Adjusted net income is not meant to replace or supersede net income income or any other GAAP measure, but rather to supplement such GAAP
measures in order to present investors with a valuable supplemental metric of financial performance. Please see the preceding slide 20 for a
reconciliation of adjusted net income to net income (loss) calculated in accordance with GAAP for QVC Group.
23Reconciling Schedule 1
Adjusted OIBDA
2014
Net Adj. OIBDA
(in millions) 2014 Revenues Margin
QVC Adjusted OIBDA
QVC US $ 1,429 QVC US $ 6,055 23.6%
QVC Japan 176 QVC Japan 908 19.4%
QVC Germany 174 QVC Germany 970 17.9%
QVC UK 141 QVC UK 730 19.3%
QVC Italy (4) QVC Italy 138 -2.9%
QVC France (6) QVC France -
QVC International Adjusted OIBDA $ 481 QVC International $ 2,746 17.5%
Consolidated QVC Adjusted OIBDA $ 1,910 Consolidated QVC net revenues $ 8,801 21.7%
Depreciation and Amortization (587)
Stock Compensation (44)
Operating Income $ 1,279
QVC Operating Income
QVC US $ 941
QVC International 338
Total QVC Operating Income $ 1,279
Note: QVC, Inc. adjusted OIBDA and margin, exclusive of QVC Group level overhead.
24Reconciling Schedule 2
China JV Adjusted OIBDA Reconciliation
(in millions) 2014
China JV Operating Income $ (11)
Depreciation and Amortization 1
Stock Compensation -
China JV Adjusted OIBDA $ (10)
China JV Revenues $ 140
Adjusted OIBDA Margin -7.1%
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