Q3 2019 Earnings Call
[laughter].
Good morning, ladies and gentlemen, and thank you for standing by welcome to Liberty Global's third quarter 2019 results Investor calls this call and the associated webcast or the property of Liberty global and any redistribution retransmission or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty global issues.
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I'd now like to turn the call over to Mr., Mike freeze.
Great. Thanks, operator welcome everybody appreciate you joining the call today, we've got plenty of ground to cover as usual. So we're going to actually try to keep our prepared remarks, a bit shorter today. So we can spend more time on today and I guess I've got a number of exactly on the calls me well be sure to get engaged as needed in that conversation. So okay.
The office in Q3 highlights.
Now you have come through our financial and operating results no doubt and Charlie is going to dig into those in a moment. So my point of media were three key takeaways. Your first we're tracking the guidance in particular free cash flow.
Let me discuss Oh year, that's a function in part of resetting our capital intensity levels.
Any additions down considerably when reporting 40% Rebased OCF growth. If you include Switzerland, 80%. If you don't hear today again, that's a major step up from prior years, it's happening across all of our Kioscos and third we are absolutely be scaling central cost both corporate and in our centralized.
You know operations several living with asked for clarity on this point and surely has an entire slide on it coming up.
The first line there was that the costs, we incurred to fulfill the service agreements were signed with Vodafone got your telecom.
Jamie will more or less equaled a revenue were generating from those agreements as they rise and fall. So there will be no significant mismatch in those cost would change the additional cost to support our remaining operations, which is largely allocated to our opcos will not be impacted by these tha agreements and should in fact be flat going down as we move forward borne out in a moment.
It was our largest operation Virgin media naturally follow much of the same narrative. Despite continuing investment in network expansion project Lightning, a we've seen declining capex year over year and significant operating free cash flow growth year to date.
Operationally Burgess subscriber growth and financial results continue to be impacted by competition and the macro picture I think we foreshadowed that all year long kind of go to slide on version coming up So let me turn to Switzerland briefly.
Sure U.S. solid recent developments on our transaction to sell our business there.
Obviously, we were disappointed at Sunrise was able to secure a favorable for the rights offering that would have finance. The deal. We knew there was resistance from their largest shareholder, but we were not expecting ISS to publish such a misinformed and slog reported it's unbelievable really not just push it over the edge. So you may have noticed a bolt.
Regulatory approval and the stock purchase agreement are still valid until the end of phase, where you can infer from that wherever you want.
Switzerland is rapidly becoming converged market. There is no question that aren't gigabit networks in advance teeny platform for the most important linking that chain.
As you know we've already witnessed over 100 billion in fixed mobile mergers in Europe , nearly all of which involves cable assets and there are more to come pretty sure that.
[noise] textbook examples of that convergence our operations in Belgium, Holland, both of which are delivering on the promise of synergies reduce churn greater customer satisfaction and strong free cash flow to the model works.
With that model the backbone of these combinations in Europe , it's fixed broadband just like in the U.S. It is the killer product that drives our bundles everywhere.
It remains very competitive in Europe , you know that we are adding data or do you use and expanding our lead on speed. That's gigabit broadband launched in all of our markets in Switzerland. For example, we're working here one getting networks.
About 75% of that country in the UK, we're launching gigs cities asked me speaking well reach over half the country with gigabit broadband gateway for lunch and that's the same for Holland, Belgium essentially.
And finally environment like this we feel Boston privileged to have options when it comes to our financial position I try to go spend a minute on the balance sheet that we're sitting on about 10 billion of liquidity today, which include 7.4 billion of cash.
The net proceeds from the Vodafone deal of 11 billion plus.
Obviously reduced by the 2.7 billion, we spent on buying back 14% of the shares in September that was a Dutch auction tender and then there's some other factors that Charlie will run through.
I'm sure we'll get a few questions on this topic, so they're gonna say that our focus with this liquidity remains the same we're evaluating opportunities in core markets core sectors and of course.
Capital structure.
Next slide provides a bit more background on Virgin Medias results, we know that a major focus for analysts and investors.
I'm just kind of highlight a few points here in the interest of time.
As you know our financial results in particular operating cash flow happen next year to date and they reflect the headwinds we identified at the beginning of year like broadband network taxes increased content costs. In addition, we've seen increased competition discounting at the lower in the market in general macro factors and that's resulted in slower RG <unk> growth and stable rather.
I'm here today.
And the team are focused on a host of initiatives in the consumer business from fixed mobile convergence to working without Indigenisation, all of which are well underway and should underpin performance going forward, but they take time and I'm happy to get into that make during the Q and I know that would be as well a few positive takeaways your operating free cash flow.
Mentioned earlier it was up over 30% through nine months just capital intensity decline.
Only customer ARPU was up modestly in the third quarter driven impart by the recent price increase which just started accruing in September in fact can't seem rental ARPU was up 1.7% year over year, well total ARPU as we tell you each quarter was.
Impacted by declining voice usage and lower pay but the revenue was up about was your 0.5 person.
On the mobile front.
We had a great quarter in the UK was 107000 net postpaid adds as virgins foray into fixed mobile convergence bundles continues to pay off no to fund that diffuse added a couple of it that we just announced a new as you know deal with Vodafone that will result in significant savings on it'd be a no fees hundreds of.
Millions of pounds in fact over the life of the contract.
Provides us guaranteed access to Fiveg services. This is a good contract for us.
And then lastly lightning is rolling off we're closing in on 2 million homes built we had our best customer and our June that outperformance in four quarters revenue and operating cash flow a growing and the negative impact on free cash flow gets smaller and smaller every quarter just as you'd expect it to do.
Now there's plenty of speculation about our possible news in the UK market when it comes to network expansion.
I'll just repeat what I've said before first of all the only 5%.
Fiber penetration and you can't you're gonna see a lot of activity buyout matching even be team on this subject of nexgen networks, that's to be expected in in our opinion as much as anything validate the broadband opportunity mostly be just talk and as you know your shells.
His plans are slow inexpensive.
Everyone's busy raising capital or talking to regulators you know Virgin medias make it happen, we're bringing one gig broadband to help the country over the next 24 months by the way that's without digging up street, one disrupting premise isn't I promise you that matters to politicians of customers.
And it makes us the most important new store today in my view UK is ranked 41st in the world of broadband speeds.
Virgin Media was a country only be ranked fifth right behind Singapore, South Korea, Taiwan, and Hong Kong and well ahead of the U.S. So we really are the secret weapon in this market and they get smart for us to consider how best to explain deposition, but can do it efficiently and economically and I'm sure that plenty of questions on that so let me move on to the last slide here, which provide.
And some operating highlights for Belgium, Switzerland in or 50, 50 JV in Holland.
Let's start the pointing out right up front, you'll see a lot of similarities here all three countries experienced fixed RG losses in the quarter, but very positive and strong mobile postpaid net adds.
Well each operation is reporting flattened out revenue growth there other delivering are projecting significant operating free cash the margins and growth.
Tell had operating free cash so was up 45% in the quarter and they're now guiding to 380 to 400 million euros, a free cash flow for the full year. They also now staying tenant dividend a large part of that out to shareholders, obviously, including us.
Hey, guys returned to positive revenue whenever she f. gross and operating cash flow growth and announced that they will dividend out around 600 million euros to us. The Vodafone this year in Switzerland is hitting on all cylinders a turnaround plan is working on new advanced any set tops and user interface or willing out right on plan with the upgrade of platform expected to represent 50% involved.
Boxes by yearend.
She penetration is nearing 20% P.S. at an all time high.
And the one get network. We're building there that's helped improve fixed charge you losses for the for third straight quarter. This year. So I'll just wrap it a few thoughts first.
Well positioned in all these markets to take advantage of fixed mobile convergence financially operationally and strategically we've shown you how we can do that stay tuned for second.
Focused on profitable subscriber growth at least with our current premium brands and that's going to impact volumes are competitive times as it has this year third fourth and fifth we are committed to free cash flow margins yields in growth. This year step change is gonna be hard to replicate of course any person operating cash flow growth in extraordinary, but that's the long term metro.
That matters to us and then finally.
Just a reminder, we have considerable scale in our core markets in Europe , 45 million fixed and mobile subs 7 billion of operating cash flow. If you include the Dutch JV.
We have considerable financial flexibility, but 10 billion of liquidity to opportunistically create long term value so with that I'll turn it over you Charlie Thanks, Mike.
Moving on now onto slide title group overview.
Revenue in the quarter was broadly stable, excluding Switzerland, and one is no, 0.2% and whats, Switzerland at minus 6%.
So that continues to be impacted by the most of the media alone and being a contract.
We also started to recognize Tuesday revenues from the assets, we sold to the through the quarter, which contributed $26 million of incremental revenue. They were doing it doesn't know replacements right.
I see has declined 2.1%, including Switzerland, and 2.9% without it.
This is inline with expectations the schools in the UK was impacted by the year on year, increasing that weren't taxes, which will continue to increase but does not want rates over the coming years.
We also saw an increase in programming costs related to prior year renewals, which is Beachy school and usually TB.
It's a multi use calling agreements.
So I suppose yet was impacted by cost phasing and continued investments in key revenue growth initiatives, such as the you know smokes rollout and the one gig upgrade to the broadband network.
Oh CMS continues to grow strongly it was up 63%, excluding Switzerland, 35% with it remember the Swiss numbers are impacted by the investments and those initiatives such as you know set top boxes and the one gig upgrade we wouldn't expect normalize over time, resulting in another kinda. Thanks again.
The content remains very strong we've kind of sitting at some point $4 billion.
And when we completed the sounds of Vodafone in July we reported net cash proceeds of $11.3 billion, which together with our Q2 cash balance of $1.3 billion came to $12.6 billion.
The 5.2 billion difference is made up all the 1.6 billion you'd be cetone number payment.
<unk> point 7 billion Dutch auction tender completed in September .
One is a combination of items, including a negative free cash flow in Q3 FX movements on the proceeds of around $200 million, an escrow payments of 300 million euros in relation to the Tuesday with Vodafone.
Together with double the capacity available that means around $10 billion of liquidity.
Leverage remains around five times gross and three in Uptimes nuts.
Let's take a bond is a very strong financing markets completing another $6 billion it financing, which means the virtually all senior secured debt is no repriced and extended.
A weighted average cost of debt is now <unk>, 0.1% average life to what refinancing activity that happened after September 30.
Up from 6.8 years to 7.3 years and again when the dust is fixed and swapped back to the underlying currencies.
Well the next I will give further detail on a central costs in total we spent around $200 million Opex and Capex in Q3.
And that's not discussed on previous calls we divide this into two buckets.
And then at some of the page we set out on corporate costs, which includes costs such as such Muslins development H, a strategy and the like which was $44 million for the quarter.
We remain on track to reduce this to around $260 million for the down from $260 million last year, we continue to talking around $200 in 2020 .
Next is a centurylink technology innovation costs, which represent network component to bring them in spend all the spend is attributable to our retained operations and Austin is when they've been sold when should.
That's just how the last quarterly call, we estimate total CNO opex and Capex of $700 million for 29 to that number is now expected to be closer to $650 million in 29 team I'm, what I'm trying to $600 million in 2020 .
And just to put in context total opex and Capex. It's you know I was $800 billion in 2018 somebody some substantial progress these scanning north central cost structure more improvement coming.
I think what we're doing excellent revenue from Vodafone team about Austria, Liberty Latin America to off since I'm about to United spend and the slide breaks those numbers out quickly, but assuming if I would tell me collecting around $18 million per quarter against the time to spend roughly a 150 $260 million.
Balances on net 10 on a cost and it's funny attributable to our retained assets, including Switzerland. All the time, we anticipate that revenue from these agreements will largely match on cost to service. These contracts. So the net spend attributable to our retained assets should be at least flat is going down.
Our next slide we try to break out the Oh, let's see if margins of the purpose is going to each key components about group two lines compared to appears like any more clarity on the budgeting CF and particularly the free cash that distinction between lightning and non mining operations.
The slides and talk a divisional overview, we should the key financials for operations before Tonight attribution, which weve labeled as Alexia three central cost allocation Oh for the two acquisitions, which we blame it on the slide is pro forma let's see after the end state.
It was just a lightning from the cool budget operations.
No no Virgin is a hold as opposed to $811 million of unless you have to the first three quarters of the yeah. We estimate the cool budget operations generated over $1 billion within that $241 million invested in like a year to date.
And do that $649 million unless you have a 30% margin.
Despite its investment program. This year, Switzerland is generated $228 million she has a 24% margin.
There's a whole made $1.6 billion last year, including lighting $1.9 billion excluding.
That does JV is also generating strong Alex yes, the $800 billion generated year to date, it's let's see margin of 24% should increase going forward as it completes the acquisition integration investments, we've kinda lets 30% margin, saying what does it chubu convex assets.
Oh, the next slide titled Pro forma adjusted free cash flow, we show the unless you have converts into free cash flow.
Well no guidance basis constant for the quarter was inline with our expectations at minus $16 million I remember that Q3, Q1, or what do we make our semiannual interest payments, we expect no meaningful interest cost in Q4.
We remain on track spend around $2.7 billion of Capex for the full year, excluding Switzerland.
Cash tax in Q4 willing to the payment to around $17 million, we're not going to U.S. cash taxes paid but despite this we remain on track to meet our original free cash flow guidance, excluding Switzerland around $550 billion to $600 billion.
[laughter] generated around $19 million, a free cash for year to date, and we expect to fool you a number of around $150 million, many even often lightning, which should generate around $700 million to $750 million that free cash flow for the yet.
So.
In conclusion slide a key focus remains oh, yes, and free cash flow deliberate.
We're pleased to use a day progress on both metrics.
We're seeing strong cash flow generation, despite on that C. S investment around $350 million enlightening this year, which makes it it means our retained assets, including Switzerland should generate $1 billion to $1.1 billion a free cash for this year.
Well. This is focused on long term value creation and have a significant cash position to school opportunities including share repurchases.
We are reinforcing our speed leadership across our footprint with one gig doing deployments.
The Swiss turnaround is on track gathering momentum.
Providing guidance, but with and without switched into the bottom of the page spots. We confirmed that we're on track to meet our key targets, particularly free cash flows would that over to you operator for questions.
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Well go first to Michael Bishop with Goldman Sachs.
Thank you.
Thank you just two questions for me. Please firstly on the UK, Oh Gee growth on the water performance.
Like I think he said it was the best quarter in full quarter four quarters full lightening that thoughts. So you sort of backing that out given the relatively weak I roll Oh, Gee trends, particularly TJ I was just wondering if he could give us some comments on what was happening.
Existing footprint outside of lightning.
Then secondly on the free cash right.
Guidance it looks like if you broadly tight to 707 day, the move Switzerland, and then sort of remain at the higher dividend for Buddy friends. They get on the tell that free cash flow you'll basically.
Zero free cash flow. So as we look I had to 2020 or just wondering if you could walk through the moving parts to give us a bit more color on how effectively.
Including Virgin media could improve cash flow generation I by using the degree might be able to had two in 2020. Thanks.
Sure Michael.
Charlie you'll you'll I'm sure there answer to that free cash flow question I'm sure we understand that correctly.
On you know lastly to chime in of course on the UK, but in principle.
Let me say.
The argued growth is lighting is pretty steady if you look at a total net adds broadband net adds to lessen your video.
In creating consistent the last four or five quarters and this wasn't there quarter them out in the last few markedly better, but it but I think it demonstrates that the product matters. The lightning project is delivering the sort of penetration rates ARPU them returns that we expect and we do understand that people like the detail.
Lightning, we're just trying to make the slides that little shorter today, but we weren't avoiding any disclosure on lighting continues to be a terrific program for us for almost every perspective in terms of the interview you or do you.
Includes we'll dig into this and I need comments in my remarks, it's a competitive market. That's for sure I'm, particularly you know we are focused on more premium product in the higher end product, especially in video. So we're trying to retain customers that we view as profitable customers in our and kind of Virgin customer that.
That means a lot to us in <unk>, which means you're going to lose some customers at the lower it and that clearly happened in the via you market in particular in video.
It was not a great quarter for us in video.
No way I'm not sure we're supposed to eat up that you could probably do the math.
And in broadband as well so good news bribing customers.
We have lost customers on this footprint in the past I would say that you know this isn't an extraordinary occurrence. The g. you will be a market has always been.
Lumpy, depending on what's happening in the competitive environments and I think our reaction to what we see as a softer environment in total for broadband and video just based on consumer confidence and impacted Brexit.
Combined with competition at the lower end is going to happen intact product mix.
But I think he's can dig into it I think we're focused on the right thing here in terminated focused on profitable subscriber growth, which is the you know in our minds the right seem to be pursuing in this kind of environment, but after that loosen injury.
Yeah. So question.
I can't give someone numbers to it Mike if you want and Michael So the swing in either use you can clearly see that is on that 50000, how to use right. So we had a well enough I'm not that was not used vehicle and now we have almost 50000.
Half of that comps that'd be cost we have put the prize for us forward by month and sets of phasing half of it phasing.
25000 off that is we had a year ago. The launch of our voice over IP service was a one off in California, which doesn't come again.
And then 25000 is we.
Continuing our high value video strategy. So we are not winning low and play our customers anymore, which we have used to touch the same price then do a customer folks here.
That was another very good use of our capital that you see that in Ohio kept picks up that 25000, a deliberate decision which would come again.
And only 25000 is due to the market yeah. So therefore make up the on mind, but I would say two syrups.
I'm really just because of a phasing.
Want to it is how about that it's a conscious strategic decision or use of our capex in our video.
And 25% 25000 is Uh huh.
Just on the free cash like I appreciate.
Your numbers.
If I just break it out into the key groups I think your point is essentially if you take out Switzerland and use the 600 billion dollar number then you subtract.
Telenets, you probably end up with any around 200, many of them and you're saying that terminate effectively equates to the.
The dividend I didn't what I would point out what do I show the distributions from a swing from Holland. It was about 600 in euros remember that 200 million lateral hunger, but it all shares its run them in your was actually 100, many that that comes in the for the loan repayment that isn't hits into free cash flow.
Last year, we were pretty making a loan repayments so that kind of.
Cash available to fund the dividend. So that's one point I think the second part is the point. We've we've tried to emphasize a number of occasions. The UK on the net basis isn't generating a lot of free cash flow, but there are two very distinct businesses you have to the lightning business, which depending how you look at the allocation of debt is a negative 450 million.
Free cash flow business, whereas you have a cool business that is generating something like six seven $800 million of free cash flow.
It's why there's a distinction so peacetime I can think about her us it's gonna how degenerative assets in Belgium, degenerative asset with upside in a in the Netherlands.
Switched the Nazis depressed level at 24% traditionally has been little high behind the investment cycle and then you've got this Virgin business. The splits between a very generous it business as usual Heidi investing or lighting business and then the Delta is cut eastern Europe and corporate Eastern Europe is slightly positive on an aggregate basis on the corporate net none.
Is this 200 million, we've been talking about which we tried to explain the the slides.
That's helpful to give any other questions maybe could follow up offline wins with mass and the guys.
Thank you won't move next to a Jeff older check with the pivotal research groups.
Oh good morning.
Oh, good morning, it sounds like a the price hike accounted for most of the UK Archie resolved. Thanks for those details do you feel comfortable you'll be able to return to maybe modest or do you growth in the fourth quarter or is that to higher hurdle and then how interesting is it is a lot of competition at the low end how interesting is it to potentially launch.
Thank her brand.
Targeted at lower spending users to be star geography.
Do you want to process.
Yes, so right I I said that a 25% is due to our a conscious decision on video strategy. You can expect that somehow to continue and then I wouldn't say that the market will repair itself Oh from one quarter to the other right. So I hope it to.
Competitiveness is still high.
I mean, we're not making a guidance for next quarter, but I think when you look at the numbers to your commentary you come to conclusion.
Question on second brand well, let's put it that way right. So.
The more we invest in them on network. The more also we want obviously too to leverage that network efforts Virgin media high value brand. So I think everybody else in the market has also been new brands Plusnet.
No broadband so you can be should that.
We're working with it yeah.
We want to surprise and also.
The one thing you have you will see in the fourth quarter.
Busy ARPU itself should be better so ARPU and revenue should be better because we'll have a full quarter that price increase.
Thank you when we'll move next to me Ajay Jain with Evercore.
[noise] came tracker for VJ.
Can hear me.
Yeah, we got together okay.
Oh right seems argued for VJ I just want a couple of questions. One on the operation side and one on the Oh strategy side can you talk about what you're thinking is around the Dutch JV I know some of the put call options are starting to come up and you know whether it makes sense that to be standalone or potentially become.
Closer or more distant part of Liberty Global.
And secondly, just wanted to understand on the the corporate costs and make sure I'm getting this right that it looks like.
You're saying that.
The existing a t. assays fully roll off you're looking at a net cost of around $500 million year for corporate plus T. and I as Alex allocated the currently ongoing businesses. Thanks.
Charlie you work.
That's right, but with respect to the Dutch JV, James We're happy where we are in the current situation. Both parties do have rights with respect to.
Listings, and then down the road other sorts of liquidity provisions, but I would say and.
Pretty sure, but if I would say the same thing we're very pleased with the performance in the progress that the joint venture is making.
You know as she is I mentioned in my remarks, its returned to growth of the topline and Oh CF line, It's got great Lsts in free cash so margins.
In a business that's generating a you know dividends to us. So we're pleased with the progress of debenture via the whole board there just a month or so though.
And I think you wrote in the teams done a terrific job and they are proving out yet again in yet another market.
Benefits of fixed to mobile convergence synergies are on track.
There are some outstanding strategic matters around spectrum, and mobile and wholesale access.
Fundamentals of the business look terrific, but at this point I would assume we're going to own or could you sense stake there doesn't appear to be any huge momentum either direction to derive a change in that.
Charlie you want to dress corporate costs.
Yeah, just to just on page eight James you I mean, you habit rights. It just to summarize the T. Eni costs, we do call. Some off the companies, we bought or sold a bunch it and if the retained operations and as you correctly point out the retained operations with six $9 million.
Okay, and I cost 70 in Q2 and 75 in Q3, we're saying to you that we think that number should be flat to down over the next four or five years and the reason is because we're able to flex cost as the other t. assays roll off because a large amount of that spend is actually not into OLED rights that party contracts isn't it's a sort of a variable cost model.
And your Coolset correct that the net spend which is the classic corporate overhead, which as you know HR finance strategy development et cetera et cetera.
That was 55 in Q1 53 in Q2 and its 44 in Q3, what telling you that can be a round up 220 to 2021 to probably stay flattish.
They're often but certainly what we wouldn't expect that to increase and maybe there's opportunities for savings.
[noise] that helped to handle.
Right.
Well hear next from Nick Lyall.
Yeah morning, guys just like from so John I'm just two please on the on the UK. Please Mike. It's you mentioned in the UK plugs on fiber maybe for the next seven to 10 million. So it looks like Btds, probably gonna have to wait to about 12 to 18 months before launches its own full plans if its whole so.
We could you launch for these for the seven to 10 million is it something where you'd prefer to wait to see what BT does what the regularly to says or is it something that you think is maybe a bit more imminent and then secondly that means that you keep it's already quite complicated business with lightning a long long lightning anyway. It becomes more complicated. So do you think you'd have to think of.
Different structures different disclosures, so that the market could volume probably okay.
Good question.
In terms of what beat you will or won't do I think.
You know when fill speaks to the market. He is quite determine that it's that he needs to invest in fiber I think is challenges the amount of time in capital, it's going to take doesn't sync up, particularly well with his financial position today, whether it's <unk>.
EBITDA free cash flow or dividends or pension plan. So I think he's got a bit of Oh, the challenge in front of in to accelerate and rapidly rollout by which I think you're right to take time for them to get any kind of momentum, but we do assume what it's worth we do assume that to BT will build fiber over some period of time.
If you're looking at a five to 10 year timeframe, we do assume that they will reach you know some measure of critical mass certainly not the entire market well well well south of that.
But they'll they'll pick up speed and they will build fiber you'll need to regulatory really to do it and they'll need some financial release on some basis can do it but we assume just to be clear that there would that be too will build some fiber in some portions of the market.
As you point out there are seven to 10 million homes that are we could possibly go out and build more quickly and potentially more efficiently and while we're pleased with lightning at the four to 500000 hold your clip.
You know we are unlikely to do that through lightning on balance sheet and impacting our free cash flow and taking yeah.
Fair amount of capital to do so so I don't anticipate that you'll see lightning on steroids, where we take the at least not in its current structure. We take the current a team and asked them to double or triple the amount of activity. There undertaking we are exploring as I said, a few times now how to do that perhaps in it off balance.
Sheet manner potentially with partners that would have that threeq, two or three benefits number one outside capital number two.
Two teams working if you will it make sense.
And three the ability to potentially keep it off balance sheet.
The finance in value. It separately now those are a lot of request an astronaut apart and I'm not suggesting here that they're all going to happen or any of them happen, but when you read press reports that we might be looking at this or we might be looking at that it shouldn't surprise you.
Nobody is achieving what we're achieving in that marketplace. When it comes to gigabit speed networks and rollout of new network.
So for us to not be part of that conversation.
But fully 95% of the countries on copper 95% of the countries on copper he did thing.
There's no reason why we shouldn't be looking at it because we've proven we could build faster build more efficiently and penetrate markets [laughter] with new build better than anyone else in the footprint.
Well, we have to balance that ambition with our desire to ER to ensure that we're generating profitable growth in our core business that we're delivering as we promised greater greater operating free cash flow and free cash. So could you know we're trying to juggle those does objectives, but I think there achievable.
Stay tuned.
Mike you complex, but you know I think in the end, we should be able to make it clear if it's something we choose to do we don't do it remember we there's no reason why the Virgin brand.
Would it be marketed elsewhere in the country, where we don't have network. You know, we've obviously looked at that you know if we can assemble the rights certainly ever but we have a nationwide mobile platform certainly everybody in the casinos Virgin whether you can get it or not.
So expect us to try to drive scale in that market I'm, not saying were sub scale, but our objectives should be the dry scale, with our brand and with networks owned or or or or at least.
That's great. Thank you.
Yep.
Yes.
Well move now to yield <unk> with Jefferies.
Hi, Thanks for the question on shore.
Thank you I've one question and maybe just one show very short quick.
Clarification.
The question is.
Well what is a one what are the decisions, though that that needs to be made or what the evidence you're waiting for.
To move forward on the shareholder return decisions at this stage you sort of repeating for quite some time to that so a question of sort of generating value and I think that's path.
But in terms of sort of trying to understand what's the timeline isn't and what it depends on would be interesting.
You had anything in mind that you can point to what needs to happen or what you're waiting for what would you still have to decide engine. Good crushing for Charlie for clarification in central incorporate that there was a bit of a revenue pop you highlighted the cost from all this flat quarter on quarter. When it was a revenue popping up in the reported said they were high seas.
He says to the Netherlands is that what is this just a step up and it.
Looks like a one off could you just confirm thank you.
Yes.
Thank you Alex on the on the buyback I believe and Rick will check. This you know with the $3.2 billion in shares we repurchased this year. This is the largest amount of stock we've ever purchasing a 12 month period and not it not insignificant amount stuff. So I think if anybody in it.
Looking at their own shares and trying to manage a buyback program wants to be measured and thoughtful about that we did just complete a 2.7 billion our Dutch auction tender at $27.
You know, we we were fine brushing at that price and you know today were 20 $425. So what do you want to be thoughtful about the timing of these sorts of things that's 0.1.
Generally if you go this year well you have followed them for a while we provide some measure of guidance around buyback activity on our yearend call.
You know when that's coming up of course, it as we finished the year [noise].
And so I think there's no particular science behind it you know.
And then thirdly I suppose the last thing would be we're always evaluating opportunities.
Create value for our company on both sides of the spectrum buybacks and investment.
And you know we're looking at those in relation to one another it was fair amount of discipline, so that as we evaluate opportunities to put money to work it into it in an industrial they want to be sure that were able to demonstrate returns that would exceed what we could do just by buying our shares. So I don't I wouldn't take our lack of a buyback program at this point in time.
Or the fact that we haven't announced another Dutch auction as an indication of anything really just that we're pacing ourselves as we should and as we take measurably year was quite a bit back in stock you know 3.2 billion. So small number and and I think we're taking a longer view of this.
Perhaps maybe a bit more patient, but others shareholders.
Just on the corporate sorry, you're quite right.
Yes, so we do by set top boxes on behalf of Vodafone Ziggo or the reason why we very specific liana central uptick focus you on Opex and Capex is that is not in those numbers. So it's a cost of goods sold line is away and then the second thing to say that that is essentially zero margin slight positive zero margin.
In type activity.
On the it's a hard number to predict because it's quite volatile because when you do set top boxes. It's two things. One is you can refurbish existing set top boxes. I wanted you combine you the reason that buying a lots of new set top boxes is they're rolling out the new Eos platform, which by the way it's been a terrific success.
Generally we see a lot about books is being refurbished because a good average life and they went pretty well if that's one of the taxes in the slight decline in Oh CF in some of the markets because we've shifted less from a new bulk sales to a to refurbish books as refurbishment counts as opex into the magic of U.S. GAAP wherever as a new books as a capex isn't one of the business.
Oh, let's see if it's probably more accurate metric of what the underlying cash flow is doing the nail those yes.
In terms of predicting how well guy I can't really predict I mean, if they continue to sell I call cakes, you might see an acceleration in iOS or we might not but just to wrap it may slightly distort the revenue, but on a cash by basis, it's basically a breakeven number.
Right. Thanks.
<unk>.
Our next question comes from Carl Murdock Smith with men in Black.
Hi, Thanks, very much just one question for me.
I mean.
I I tracked very carefully the a that that should and.
I don't think you've reported UK churn this quarter. So I was just wondering if it was possible fee to provide an update I think a the 12 month training with 15.0 cents last quarter. Thanks very much.
Yeah, I mean, historically, you know we realize that none of our peers or report that churn figure either and so I don't believe that the.
Lack of reporting and Charlie you will have to jump in here and news I don't believe were not reporting it because it's not a good number I think we probably made a determination that amounted detail we're reporting in our markets wasn't consistent and not consistent across this the the industry, but Charlie I just want to address that.
Yeah, I said right when we Atlanta was referring to the odds you use that 75000 due to the flu forward if the price right right. So we are you selling triple.
So I think you cannot make up the number or so.
The other inside right I mean, I tried to get the intelligence from the competitive and they get less and less and why would we disclose more.
Okay I suppose.
Just gotten them out the BT.
Does provide fixture on every quarter.
And Oh studies, just as a follow up it's it's interesting but.
You've lost <unk> TV on to use but the same taunts going to school.
It's also tend to declining on to use this quarter as well. So wed do you think those TV customers and going on do you think its evidence <unk> cost cutting in the UK TV market.
I think so all we know that are these TV customers are the low end customer what I mean, what's that.
Predominately customer who has used to buy or.
Triple play entry product right, so paying roughly with time limit discounts 30 pounds and then after 12 months when they get off the time the discounts. It's a very high jump and then they simply values. The pure video product not not as much then to pay more for and then you see hydro and therefore.
And I can only speak for <unk> for us. So therefore, you see the <unk> These 25000 or on a quarterly basis I pretty much that.
Hi, <unk> I am I can just actually a very stable so and they provide also because the higher margin.
So therefore, I would not really see the world turning very much to an app world or pick and choose world. So I don't see that accelerating.
But obviously, we have to watch that carefully over longer time periods, we would see that trend, but these numbers I'm not really referring to that.
That's great. Thanks, very much goes.
Robert Grindle with Deutsche Bank has our next question.
[noise].
Yeah, Hi that my question is about the UK deal you have just done with Vodafone Congratulations on that you had another two years to run though on your existing NVNO with E. So it seems very pretty messages to strike a new deal. So soon so I wondered what drove the timeline on that and what was the swing factor was that a.
Access, having vodafone as a customer Virgin business or was it the financial times or something else. Thanks, so much.
Well, let loose dig into it it was from my point of view was all the above.
There was no other strategic purpose to it but a the you know to switch providers is not a simple thing even though we have a core network that allows us to do it relatively seamlessly from the consumers point of view you need to get prepared for these so I think it was smart for the team to determine well in advance which direction, we're going to put that.
The bid if you will and as a result derives a fantastic contracted as you pointed out guarantees fiveg access, which we were not getting any of the any other deal and as much better economics, but I wouldn't read anything strategic into it that would be my observation go ahead do just you want anymore.
Yeah, exactly we've done enough p. in the market and we wanted the best technology at the lowest price and this would be phone and we have the opportunity now to launched five G. As if.
As far as we're able to implement.
So we are not a stick.
To the end up the contract in the fuel.
Thank you.
Well move now to David Wright with Bank of America.
Hello.
Hello, guys. Thank you for taking the questions. A couple from me first the first one follows on from Robert and down So you've given my understanding is not.
Fogey services, you can migrate instantly away from the B T. M. P. No onto the Vodafone contract I think you have like a cool. So it allows you to to exit so is it possible, we could see customers coming before about Yemen 20.
20 warm expiring.
Then.
Beyond that I think you mentioned, unlike a little earlier on how that we could infer what we wanted a on perhaps this swift still it's obviously something that I think the sunrise Sheldon maybe sole strategic value Wendell didn't necessarily like the means to raise capital I'm older price paid is this possibly.
Something why you could even sort of migrate to some kind of earnings.
Cool, so you potentially take less capital up from.
Not lead desperate for cash right now of course.
Maybe sort of lever into you know the strategic synergies at the merger on some kind of Optionality further down the line is stopped potential thinking.
Well I'll take this with a question first boots and you can put her on the on this on the first one.
This is reasonable people can disagree.
On the value in financing structures in any transaction.
But I don't see many folks disagree on the industrial logic of putting those two businesses together, it's it's almost a no brainer dis synergies are substantial in real and as I mentioned in my remarks <unk>. That's report was not anticipated in independent they're supposed to then might you and just to you know shareholders are still voting.
For the deal to one in favor.
But we need it slightly larger margins in order to get the one shareholder who I will.
Address their concerns or not.
Across the line. So we felt was right into the play that out I'm not going to get into what we may or may not do now you know I think we're.
We are obviously.
Willing to engage in any discussion that appears to be accretive and smart for us.
With Sunrise War.
Other operators in that market. There's only one so you should assume that we're not sitting still you should assume that the industrial logic of fixed mobile convergence in Switzerland is compelling.
And that as I mentioned in my remarks, we are that we are the most important fulcrum asset in that equation.
Whether the you know the shareholder some nice thing so not a this is where it's going so I think it's gonna be an interesting period of time here and you know the good news for us it the turnaround plan is working.
You know, we're we're able to do the things we need to do in the fixed mobile space with our Swiss comment you know just terrific I think the team is executing on all of the things we asked them to execute on whether it's one gig rolling out new set top boxes, driving fixed mobile convergence and if we have to own this business, we're happy to only because.
We're on our way as they say Oh and the other had you know one of the most.
Credit aspects of fixed mobile combinations are the synergies.
They are real you know and you know, it's sunrise is opinion upwards of $3 billion of NPV.
Synergies, that's something worth talking about.
And they would be substantial synergies with the other mobile operator in the market you can do that math as well. So I wouldn't you know you should expect that we're obviously opportunistic here.
And you know evaluating opportunities to look at alternative outcomes that drive value for all of US you know in particular shareholder so I would stay tuned.
[noise] Luciano yet.
Yeah on the mobile ambient O deal. So obviously know contractually for new customers and for existing customers migrating to five few we could do that tomorrow. So therefore piece you know we have to put the technology in place and then I think.
The pick up or five T phone usage, but it takes.
Some time, but Ah you can expect that we get all interest at five key customer you and migrated.
From the day, we have launch it and this is a picnic a question and you can also right I mean for US it's very important we offer the highest speed and fixed now we end the position to bundle that with a high speed and mobile and therefore, we have accepted the customer base for that look at our net that number this quarter more that kind of coking postpaid record quarter in the quarter.
So we're going to take off in FMC.
And therefore, we do everything from five to yes, when as possible.
If you don't mind me just following up I wonder whether that's there's a reciprocal agreement Tom on some network usage by cool et cetera. It's it's something you guys could ever even extend to reciprocal wholesale access to vodafone customers or even any wind to wholesale access to that the female networks. Thank you.
Well there are no I mean, we happy.
Well go ahead to address the first point, but not the simple.
Yeah, exactly obviously, a right we have no really and engaged in the close a partnership with wonderful and ask gifts that right or would have on.
Very possibly deploys Lifesci base station.
And they need to that cold opportunity. So therefore, we have also closed or a huge deal on dark fiber and move up because kind or at the same time, when we have a close and I mean, no deal and we're very pleased with that and in general so dark fiber or.
Yeah, you move up echoed deals. This is an area that we which has huge growth opportunity in the future and therefore, we focus more more on this kind of system.
I think with respect to your the second part of your question, which is you know wholesale access or.
The yet the end to end network on or from a fixed retail point of view had it not something we've discussed with Vodafone. That's obviously, a very different [noise] conversation and I think one that we had we'd have to take.
A longer view and Ah at this point nothing to add I mean, we don't we don't think that's necessary this market certain that legally regulatory required and I don't see is jumping into discussions of that without a broader considerations.
Thank you very much gosh.
Well hear next from James Rats are with New Street research.
Hi, Thank you very much.
Thank you very much indeed.
Hi.
Question in a very quick clarification, just regarding oh, okay cost too much on you.
Yeah.
Claims.
Through the strike.
Do you try to retire or not.
Right.
On actually <unk> stretching for tonnage.
In much more focus I'm trying to extract.
You mean.
That's true price right.
And then just getting so much on point I think you're going to 75000.
I'm not trying to check my math, that's around a 1.4 centers point impact from China and of course.
Fine points.
Annualized implying annualized shrinkage.
About 20%.
That's fair assessment based just on the Q3 John levels. Thank you.
Okay.
That's what I've got sociology outside and also.
Yeah. So I think on the churn number right I told you. The audio number for you have to turn that into customer, but ER on an annualized Sean you get a bit like ER Doc five percentage.
But since on it then then you're right right and the quarterly trends, obviously the increase was higher.
But it was the course or the price increase what support if the pricing. Please go ahead.
Yeah, we are getting back to exactly I think yes.
As you calculated it would be would not be at an aberration.
And as.
What was the first question again, sorry for that.
Yes, it's like Turkey, [laughter], just about stretched Oh, yeah calendar.
Yeah.
Well when it gets moved out to be excited about price on an ongoing basis like yeah. Okay. So right. This is where our consumer strategy kicks in or we've started the year ago.
And we have a four gross lever.
One is fixed mobile convergence right. So we started that we know that fix more converts custom off have a substantially lower true yeah. Two three percentage points. So therefore, we drive that and when you see our move I know that number or the accelerated number of fixed mobile it comes.
Custom off you see that we would get an improvement from that over time, yeah. So we have started at 19.6% Yeah go and though we had 20 does happen or something that area and that is the second quarter. After we launch though you can be assured we would push for much more and then take the though.
Ambient idea with would've fallen into account, but that is a very strong weapon that's number one.
Number two is the Soho business right. So we have put no. This small office home office business into the consumer machine. So we can leverage all said Sen of all marketing online and it's a huge much less penetrated area. It's all a market share so all of us substantial.
The lower so therefore, we ramp up that number three or is it do more reach us sales. Yeah. So we're getting more I know more and they tend to take some place empty U.S. a six month, we want to a target more and we're doing more more on that.
To get to Ohio market share in several regions greater London, our market shift, 36%, Scotland, all marketshare, 60%.
So we are focusing on that.
So therefore, I'm not we're not giving a forward looking guidance, but you can be assured that we have put a strategy in place to get a substantially better in the GE or you business, but these things take time.
Anything that can be done without price discount.
I mean price discounting I mean that doesn't generate right I think.
Discounting or has increased in that market. Yeah. So I think that's a effect or off market situation right. So that and also more custom us a within the minimum contract lengths. So that means everybody's discounting more together she on gross assets.
Ah so therefore it.
Simply we need to offer value for money right and that means.
Right. We are we on the position that we need to offer discounts as well if he wants to get to a certain number of growth. It I mean, obviously, we will see a game changer and of course.
Isn't coming from February onward, and ER, let's see how the market is evolving there than in terms of discounting so if the market.
It is then right because what is happening is you give a high discount within the minimum contract lengths. After that the customer is that I have to pay more what the customer that's his calls in and out for retention difficult to stay on that discount right. So it was so end of contract as to free cash obviously, a we talk about that even more.
So I think it's more customer friendly animal market frenzy, when we are getting a bit more rationally.
Great. Thank you. Thank you.
And well.
A question. Okay go ahead.
We'll take our final question from worse, Patrick with Barclays.
<unk>.
Yeah, Thanks, guys, you're mris here so.
Quick question on Switzerland, Tom I can see how youre clearly very disappointed.
The deal failing, but you do sort of highlights in the release that you do see early signs of recovery, there and you point to improving MPS trends into some other trends.
Oh <expletive> remains pretty negative I wonder when we'll start seeing the impact from the financials from the improving operational trends that clearly you can you can see already coming thanks.
Sure and several reasons online here she she referred to chime in I mean that what we're tracking a whole series of of operational metrics there.
Our view movement of course, ARPU, which is growing every quarter.
You know that rollout of iOS boxes, so that we can get our base to about 50% advanced set tops by the end of this year.
You know one gig homes, one gig penetration in the impact of this faster speeds on the marketplace.
Now, we're investing quite a bit of money to achieve that so on one hand, you've got some really positive metrics on customer.
On the customer front in terms of NPS and net add performance inch and ARPU and the other hand, we're putting capital into products into technology and also into digitizing. The operations themselves. So this year I think we were clear that is your investment.
But we'd want but we would want to see metrics improve that I've just described than they had and they are and that you know through the course of next year, we'll start to see the pendulum swing the other direction, we're not providing guidance as we sit here, but I think we've always said that 2020 is an important year important inflection point for the business. If we keep hitting on all cylinders and so far we have.
I really would you like anything to that.
No I Yeah, Mike you you basically pointed out into the right direction that you said this year with theory and and all the investment and we actually worked on multiple areas and running out youre seeing the one gig in investing in or simply digital and as you walk.
Innovation also mature we expect to do all these activities faster and better.
As well as saying that the the efficiencies coming that paying off from the investments we don't simply digital sales next year, we should see and.
Yeah, the organization getting more mature.
[noise] benefit coming through to a great to extend that they see huh.
Yeah, sorry, I can't even graphic quickly I think there's three points. One you can tell from from the conversation today and from our remarks that we are focused.
First and foremost on pushing our operations forward with two primary goals one is profitable subscriber growth.
And secondly, free cash flow margins and yield and all of these operation EBIT, Switzerland still very profitable on the free cash aligned and our view is that each of the businesses. When you aggregate them together or free cash flow machines really and that's it that's changing the narrative a bit for you and something we have we will continue to do it you know a better.
Our job is getting you to rethink the narrative of our operations and I think you should expect more of that from US you know strategically we're always looking at ways of recognizing crystallizing value.
Both in our operations and then maybe new operation. So you should expect it that we are very busy and looking at ways to both crystallizer realize value for existing markets and possibly others, but always doing that with an eye towards returns and value creation nothing else and then lastly, we continue to look at all.
Capital structure and of course.
I think our credibility on buybacks in the commitment to buying stock you that question. So.
It's just I can appreciate the need or the request for a more disclosure on that but just the patient we're always looking at those things in parallel and so we'll have probably a much more to say about that's through the course of this year and every part of next year and we appreciate your support thanks everybody.
Ladies and gentlemen, this concludes Liberty Global's third quarter 2019 results Investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There you can also find a copy of today's presentation materials.