Q4 2019 Earnings Call

February 14, 2020

[music].

Good morning, ladies and gentlemen, thank you for standing by welcome to Liberty Globals fourth quarter two shots in 19 Investor call. It's called me associated webcast, our property of Liberty global and any redistribution retransmission or rebroadcast of the call or webcast in any form without the express right.

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These forward looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed and Liberty Globals filings with the Securities and Exchange Commission, including his most recent filed forms 10-Q, and 10-K as amended Liberty global disclaims any obligation to update any of these.

Forward looking statements to reflect any change and its expectations arts conditions on which any such as Damon and space I would now like to turn the call over to Miss Mr., Mike Freeze.

Thanks, operator, and welcome everyone. Good to be back in line with you. We have a lot to talk about today, so I'm going to get your write off with supply like a that Charlie we hit the numbers and we'll get to your questions for the balance of the hour I'm on slide four which is a good snapshot of the year, that's going to say up front that there are a handful of important storylines here. So.

Bear with me I want to spend a few minutes on this page.

I'll start with effect that we met or exceeded all of our guidance targets for 2019, you would know that revenue was largely flat year over year, we had positive customer ARPU growth that was offset by a small customer loss of 74000, Rebased operating cash flow a 4.9 billion was down 3% year over year, that's essentially what we.

Forecasted by the way it was right on budget for us.

I'd widely reported the reasons for that right, namely the turnaround in Switzerland, and headwinds in the UK, which we'll talk a lot about today.

Finally, we had better than budgeted capital efficiency, which helped deliver 770 million of free cash flow exceeding our guidance and that's a number that's up nearly 100% year over year.

[noise] now as we've discussed sometimes to put these numbers in the context Europe isn't more mature market today than it was 510 or 20 years ago broadband growth is slowing that's inevitable in the video business well much healthier than the U.S. is flattening out in most countries. So having said that though the opportunity to drive sustainable growth and.

Healthy free cash flow is is real as it ever was.

And to achieve that our operating strategy is clear number one we're investing in gigabit broadband speeds across our footprint, usually well ahead of the fiber guys.

Two or digitizing the customer experience to improve costs in churn does take some upfront investment the works everywhere, we do it through we're prioritizing profitable video subscriber growth, which makes total sense as we roll out advance set top to integrate apps and supported by the end for we're committed to driving fixed mobile convergence. There is no debate here.

Fixed mobile convergence deliver significant synergies and the winning customer strategy that improves churn and MPS and grows market you overtime [noise].

Now by the way that some of you were wondering if we would ever be able to re size and re scale or operating model up the Vodafone deal and the sale of Austria. The answer is yes, a you'll notice that total central cost were reduced by 170 million or 16% in 2019 with continued reductions coming and 20, Tony and Charlie will.

Dig into those numbers.

We also announced a partnership with emphasis to deliver the services required to our T. Assai partners like Vodafone and to ensure that the revenue and cost completely aligned on those contracts over the next four to five years. So hopefully we put that issue did that.

Now continue on this slide last year was pretty transformational for us on the strategic front with the sale of four markets to Vodafone for $21 billion. This transaction, perhaps more than anything.

Highlighted the disconnect between public and private market values in Europe, the price to Vodafone, which by all accounts. They were and remain thrilled with I was around 11 times operating cash flow or EBITDA, all in which is twice where our current trading multiple seems to be.

The deal also validated the power of fixed mobile convergence mergers with reported synergies to them I think around seven have billion euros, and an MPV basis and it left us with significant liquidity right, which now sits at $11 billion, including 8 billion of cash now of course, we used a large proportion of those proceeds on capital returns to shareholders.

We bought back a record amount of stock last year, and repurchasing $3.2 billion of our equity or approximately 15% of the company.

2.7 billion of that was through the Dutch auction tender we completed in September at $27 per share and to show a continued commitment we're announcing today another $1 billion buyback authorization that number might seem small to some of you, but if you go back over the last 10 years.

This number is consistent with our buyback programs over the past usually the quantum of our buyback authorizations generally represents around 5% to 10% of our market cap in around 75%, 225% of our projected free cash flow in this case, we're right down the middle with 8% of our market cap at 100% of our free cash flow guidance, which is a billion dollar.

For 2020.

And then the final store line here.

We're in a great position to continue crystallizing value in our core markets I won't run through each country and I'm not going to talk about real or hypothetical discussions, but the strategies that we might be pursuing our completely consistent with what we've been doing the last couple of years fixed mobile convergence works and fixed mobile combinations are materially accretive upper.

Operationally and financially to our core cable platforms, you should assume we're always examining those options.

That's because a fixed networks are extremely valuable I will be one gig everywhere many years before the incumbents and with the with that expansion comes opportunities to finance capitalize and reseller infrastructure you should assume we're examining those sorts of options as well and then lastly, as we demonstrated in 2090, our operations are highly cash generative and already.

He delivering substantial free cash flow, which as our guidance for 2020 indicates we will continue to grow significantly both on an absolute basis under levered free cash flow per share basis, as we continue to shrink or equity now that was a mouthful I realized I don't have you take questions on any or all of it but since the UK is our largest market.

Let me spend a couple of minutes on Virgin media and I'm on slide five now.

Consistent with the European theme I, just outlined the last 18 months have been a bit tougher in the UK as result of three key challenges first the broadband business has become more competitive and promotional but the entire market slowing down and we're still adding broadband subs and holding share primarily because we are investing one gigabit speed and network expand.

And the price competition at the low end of the market has been aggressive.

Second the video market is also flattening sky has lost millions or satellite subs, a portion of which they have converted to now TV.

We've done much better than our peers, but we're still losing video word you used to be focus on higher end customers and third.

The impact of external headwinds has been significant.

The last three years, we've incurred over 200 million pounds and increased costs associated with broadband tax increases inflationary programming contracts mobile regulation changes in other factors and despite these challenges as our fourth quarter results demonstrate we are more than holding our own in this market. We delivered the highest revenue in the highest custom.

Our ARPU growth in Q4 at around 100% each we had a record year for mobile postpaid sub adds.

Capex discipline drove operating free cash flow up 26% for the full year and that's including the cost of bundling.

Out over a building out over half a million new premises to project lightning.

To reiterate because I know, it's on everyone's mind.

Technique continues to be a smart use of virgins free cash flow. We've now built over 2 million homes, and we're serving over 450000, new customers, who generated 240 million pounds or revenue 120 pounds of Lcs and just as importantly penetration rates in ARPU are still tracking and the cost per premise declined 20% last year I wish.

Helps solidify our capital returns.

No. The bigger question on your mind, if the strategy moving forward for Virgin Media I imagine and the short answer is we're confident that Virgin has a sound operating plan that will retain and grow customers try modest revenue and operating cash flow growth and deliver significant and sustainable free cash flow over the medium term and that's the base case. So it's.

Moving any strategic transactions, we might consider in the market and we say medium term because as we foreshadowed 2020 will be another year of unavoidable headwinds.

Referring of course to off comes out of contract notification requirements.

Another increase in our annual broadband taxes, and contractual programming cost increases all of which will total about 100 million pounds and negative operating cash flow this year.

Now Lewis has his work cut out for him, but in my opinion is doing all the right things first of all he's revitalizing the talent and leadership in Virginia. The addition of separate Pesca, who transferred from Switzerland to the UK as CFO and Deputy CEO is a great move for us or they're going to make an outstanding team in my view.

Secondly, he's focused on the right organic growth drivers.

Let the network to one gig everywhere and well ahead of the competition.

Who are all busy making promises while we're delivering this is a huge strategic and political advantage for Virgin by the way continue pushing our fixed mobile leadership.

And preparing for a switch over to the Vodafone NVNO, which provides access to fiveg in much better pricing.

And invest in the customer experience to digital initiatives that will create better customer journeys at lower cost all those things are working it will work.

And then obviously, we continue to explore strategic options in the market. For example, there is a clear opportunity to scale up our network and potentially look at other infrastructure related moves that create value.

By the way everything we're doing today with lightning is self funded out of Virgin free cash flow and if you were looking at expanding to an additional seven to 10 million homes, we would almost assuredly seem to do so off balance sheet and with third party partners or financing sources hope that's clear to folks.

Let me switch to a couple of other markets quickly here on slide seven.

Folks have asked us in the past why would Vodafone or go to telecom payoffs 11 to 12 times EBITDA for cable assets.

Or why would we acquire mobile assets in Belgium, Holland admittedly at lower multiples, but why would we do it and I think perhaps the best way to answer that question is to look at the JV and how that Vodafone.

Would you have to just couple of years has achieved everything we hoped it would and then in the process.

Becoming a has become the undisputed market leader in holiday 2019 was a breakthrough year for Vodafone Ziggo, they hit or exceeded all of their guidance targets, which included modest declines is fixed or do you use but considerable market share gain from KPN.

It was a similar story, a mobile with Vodafone ziggo, adding to it and 69000 postpaid subs in the incumbent going backwards that helped drive revenue and EBITDA up 1% and 4% respectively last year. So they are back to growth in this market and the Jade JV delivered 470 million euros of Levered free cash flow.

So put a market yield on that and you will arrive at a pretty meaningful equity value for both partners. How they done that will they filed the same playbook that is underscored all fixed mobile mergers in Europe, they've already hit 85% of the publicly disclose synergy target.

210 million euros, they prioritize product innovation, including nationwide gigabit speeds the launch of Nexgen set top boxes product simplification I mean, they took.

Bundles from 42000 to 300, and a great set of content arrangements like bigger sports and HBIO and through convergence. They become the number one fixed broadband provider in Holland with seven out of 10 homes, taking at least one product from Vodafone Ziggo. So simply put the strategy worked.

Finally, a short update on you can see Switzerland, where the business is clearly turning around and why do we say that well we hit all of our internal targets for 2019, including a 40% improvement in fixed customer loss, a 40% improvement argue you lost and revenue with cash flow results right on plan.

Even in this heavy investment period, you BC, Switzerland generated 300 million of operating free cash flow and significant free cash flow are levered free cash.

There have been for consistent drivers to our success in this is going to start to sound repetitive because it's the same strategy. We're deploying it all of our markets beginning with a nationwide one gig launch, which already reaches 75% us with homes well ahead of Swiss common Sunrise.

We've transformed the TV proposition with advanced TV boxes rolled up to 60% of our sub base now.

And like UK, and Holland, and Belgium, a fixed mobile convergence is taking hold with a 70% improvement in mobile subscriber adds last year in a doubling of the MPS.

And then finally, our investment in digital across the organization and including customer interacted is working we've had the highest MPS is who began measuring 11 years ago. So at this stage, we're happy to own this business, Switzerland is a strong and rational market with a stable economy and good political support for our initiatives I just met with the president of Switzerland, and she was thrilled.

We are still there to drive innovation on top of that would living 50% operating cash flow margins and significant in growing free cash flow from this point forward. So I guess it Swiss common surmise can trade at high single digit multiples of EBITDA and mid single digit Levered free cash flow yields with results similar or not even as good as ours. There is tremendous value to be created with.

With this business on our own.

So to wrap up my remarks for the balance of 2020, we're focused first and foremost on navigating the headwinds in the UK market and delivering steady and growing free cash flow a Virgin is a strong brand with the best network. The fastest broadband speeds all of the key content and a robust fixed mobile strategy and these are powerful drivers.

For operating success and I believe in this team, they're going to get it done and just as importantly, and as you would expect we're exploring strategic opportunities in the UK and all of our core market to create meaningful value today and over the long term.

So three drivers sustainable and growing levered free cash flow.

Real strategic opportunities to close the value gap in our core markets.

And $11 billion of liquidity to fuel this narrative.

Charlie over to you. Thanks, Mike I'm not on the page concludes group overview, my sort of give detailed results about key market. So the unusually good so I'm going to focus on the key financials for Q4 gross revenue declined in Q4, 0.5% unless you have declined 2.1% Burns figures are broadly similar to the Q3 figures the reader.

Option in Capex in Q4 to 28.2% to sales versus 42.9% last year continue into 2019 trend lower capital intensity.

Q4, FCF $433 million liquefaction remains very strong with $8.1 billion a cash among all the credit facilities a $3 billion.

Since year end, we've been very proactive on the refinancing front and we now sit with a fixed cost of foot per cent for interest in average maturity on death of approximately 7.4 years.

Total consolidated debt was $26.3 billion, which resulted in a consolidated debt. So with CF ratio 5.4 times gross and 3.7 times net.

You should note we've changed our targeted four to five times debt to a chip leverage definition from an El Cubo way last quarter annualized to an LTM last 12 months post yet faces as we believe LTM approach is more appropriate metric for our portfolio maturing assets.

So you can fool the accumulated numbers would it be slightly lower than the OTN.

5.2 times gross and 3.6 times net.

Over the next slide we continue our additional disclosure, which returns over the past few quarters.

Our central spend breaks them.

Now as you can see from which our total central cost will be reduced by roughly $170 million in 29 team and we have further reductions fund for Twentytwenty, not only totaled $890 million spend 2090 $660 million relates to centralized religion innovation activity.

Roughly half of the spend related so the companies that we have sold but continuing to supply mortise crude TSMC revenue will transition services agreement revenue.

This also includes our Dutch JV.

The balance of the spend related to our retained companies in particular badger meter in Switzerland.

2020, we estimate that this title to spend will be around $600 million with over $300 million or revenues being on from the various tier say agreements.

<unk> expenses to say related spend to decline over the next four to five years as the contracts were low on the net spend of approximately $310 to our retained operations, but also decline and should be flat to down over that timeframe.

Much of the spend is with third parties, which makes it relatively easy to scale down I mean recently announced additional efficiencies through a deal with emphasis to take some responsibility for the flexing down to the spend further de risking it to our shareholders.

The bottom. So my sense was spend is our corporate spread between typical corporate activities of finance legal HR management et cetera.

Corporate downsizing into some of this was reduced from $260 million in 20 $18 million to $230 million in 29 team and we expect this three low steel in Twentytwenty.

Turning to the next page, we set out the key financial metrics for our core divisions.

As promised we will now show the Osha and Oh FCF of all our companies after the allocation of those central Tonight costs.

Those further detail in our 10-K and press release for those that want more detail on these allocations, but this is designed to allow our investors to our key divisions on an apples to apples basis with for example, Belgium Ducs JV.

It was disclosed our CFO, who FCF after that show centralized t. and other costs I.

As you can see on a fully allocated Oh FCF basis, Belgian mate $838 million of Opex, yet for the full year 29 team without touch JV Mickey 1.1 billion.

We expect the Dutch JV over time to reach the same offset margin of around 30%, but bowden currently achieves as it completes the integration of its fixed and mobile operations.

Switzerland made $298 million ago FCF in 29 team on a margin of around 24%, but also targeting margin increases for Switzerland going forward as the Hudson investment related to the turnaround plan is completed.

Finally, the UK made just on the $1.1 billion in 29 team, which included new investment of $390 million enlightening construction capex.

Well, so I would expect the excellent margin of 22% to also increase as capital intensity declines the higher programming cost of the UK relative to the other markets as well as the fact that it rent for mobile network not owns one as we do in the Benelux maybe at the long term FCF margin is more likely to be in the mid to high 20 percents of.

Sales rather than around that 30% book.

The next slide we break out the key drivers of the group's free cash flow, which remains a key focus from a financial performance point of view Oh free cash flow was ahead of guidance at $770 million.

Net interest payments were $1.1 billion in 29 team, including interest income.

I would expect interest payments to modestly declined twentytwenty. This not least due to the recent refinancings of our debt.

First time, some $358 million and kind of 72 million dollar U.S. tax payment I mean would also expect this to decline in twentytwenty.

The Dutch joint venture contributed $214 million to our free cash flow through dividends and interest on our shareholder loan.

100 million euros show them loan repayments in 2009. She is not included in our free cash flow definition.

That means that total cash returned to us from the JV was $325 million.

But our guidance FX the Dutch JV has recently started to $450 million to $560 million of total cash available to shareholder distributions and twentytwenty.

We would expect to receive 50% of that pickup.

Finally, our cash flow from working capital items, including customer cycles tend to cycle operational plans restructuring and B T cycles amongst others was broadly flat with a net investments are cash of $37 million and we expect broadly the same patent and twentytwenty.

Turning to last page, we set our key guidance metrics. The key focus remains on free cash flow.

Got it to 30% year on year gross to around $1 billion and this includes the lightning construction capex, so without that the number behind.

This is underpinned by a mid single digit increase in Oh, yes.

As a mid single digit declined the most yes, these offset but further reductions in overall capital intensity.

And as Mike mentioned, we continue to see value in our stock on the board recently approved a buyback authorization of $1 billion.

And with that we're going to turn over to the operator to answer questions. One quick terminal questions because everybody hasn't had a chance in the past two last questions. We're going to loss that you limited to one question one follow up it's not as possible so with that operator over to you.

Thank you the question and answer session will be conducted electronically if you like to ask a question. Please do so by pressing the star Astra key followed by the number one on your phone in order to accommodate everyone. We request that you ask only one question with one clarifying follow up if needed if you are using speakerphone.

Please make sure your mute function is turned off to allow your signal to reach our equipment well pause for one moment to give everyone an opportunity to join the queue.

Okay.

And our first question comes from the line as I say diet.

Go ahead.

Good morning, it's not James rock or for VJ.

I Wonder if you can go into I'll give some more color on the expected impact the Oh, the front book back book or loyalty penalty work in the UK and both in terms of the magnitude or the timing when you expect that this impact and any thoughts about how you're going to balance.

Yeah potential.

ARPU impacts versus potential gross add them back some of the environment. Thanks.

Thanks, James I'll say, a couple of things all that newts chime in here with his thoughts first of all we're not providing any specific detail around that for obvious reasons.

Not really in our best interest to tell you specifically, what we think we will or won't do how will price things into what we think the impact will be because this is obviously a competitive market second thing I'll say as we've already implemented the.

Program about 10 days ago I believe in advance of the requirement to start notifications tomorrow, just to get a sense of how customers are reacting.

And what we think the outcome will be and I would say we're conservative.

Overall in our assumptions of the impact.

There's a wide range of impacts of course, the world overall Conservative I think we have a lot of tools.

At our disposal here to ensure that the impact is minimized, but I think as it relates to almost our entire guidance and budget this year.

I would say in all instances, we have been conservative, but you want to provide a little more color on that.

Yeah, I mean, there's some public data available of course that brought the hop off all our customer base is out of contract. So they had the opportunity to look from the yield I think what we're doing to true simply keep them onto our network with a couple of.

Thank you so first of all until end of March.

We have given all our customer or 1 million, all together, which have been though on that.

Good upgrade free of charge, so we could be playing to different beacon comfortable speed and we are leveraging that to keep our couple of quick up as Mike said earlier on we drive fixed mobile convergence or roughly wanting to pretend that point people, who have quad play with off sure on that.

And then we have also a thoughtful more stuff on the content.

That's what I'm, saying, it's yes. It is the change we are definitely informing our customers are above our product, but we have also love to all four and we play in the high value effect, Ben meaning that Oh, a cut them up value our products and therefore also.

I'm not met coal price tended to them.

Hello.

We have planned capital inflow for it we have 10 days and the market and 60000 letter and cold far or things that impact it's absolutely on the control.

By the way to 50% or that book bump book, It's about the same sky. So it's not that dissimilar from other players in the market.

Next question here.

It's actually it.

And our next question comes from the line up Polo Tang from U.S. <unk> are you. Yes. Please go ahead.

A meal Holly I've got so one question and one clarification question. So in terms of strategic options Press reports a stated that you wouldn't talks with scaly about both the fiber JV and the potential cable wholesale deals.

Such a deal did happen can you remind us what the merits of a deal would be from those Liberty Global perspective, but also the scaly perspective and the clarification question is really just about guidance.

Because can you clarify what's implied for your UK and Swiss guidance, because you have said mid single digit declines the group, telling that is going towards plus 1% and you've outlined to 100 million impact from the UK headwinds and does this imply therefore minus 5% decline in the UK.

At high single digit Mcf declines in Switzerland. Thanks.

Tony I'll, let you prepare for the guidance question on the strategic options Paula They said at the <unk> in my remarks, Im not going to get into great detail about what we might or might not be doing doesn't generally serve us well on the other had just speaking theoretically what would Oh partners.

With anybody that have to be sky, a partnership focused on driving greater reach for the Virgin network mean to US I think that's pretty straight forward today Virgin reaches half the country.

We think we have a brand a product you know a capability that underutilized and getting our network into our products to the rest of the UK market would be just by itself a very valuable outcome. Secondly, we've already shown with lightning that there is potential to penetrate and drive returns.

On capital.

And while we're not willing to sacrifice our free cash flow to do that on balance sheet.

Because we believe in Levered free cash flow Unlevered free cash flow per share. We would certainly entertain ideas are ways of achieving that off balance sheet that could accelerate to reach a one gigabit speed and the Virgin brand.

And you would expect us to do that.

So there's lots of almost logical reasons, why extending our reach driving scale and doing it in an efficient way from a capital point of view would be hugely valuable to Virgin and to US and to you you know when others are shareholders on the wholesale question.

Trickier, obviously, but if you look at Virgin today, we're only utilizing about 40% of our networks. So on footprint generally we've got 40 plus percent of the network being utilized which is the highest market share of anybody on our footprint, but nonetheless, there are other operators and those who don't utilize our services at all so the.

Question really is you know whether you build out another seven to 10 million homes or you look at your existing footprint. You know should you consider monetizing the value of this one gig network or there are obviously pros and cons. The pros are immediate cash flow to the bottom line that would both drive expansion of.

The network.

Self funded manner.

And value creation, because we know infrastructure assets trade at much higher multiples than even we're able to sell in the private market our assets and then secondly of course.

You know the benefits would be well basically that is the primary benefit the negatives of course as I mentioned would have to be examining the impact on your own business itself. So cannibalization and you know what what are the negative synergies. If you will have that so we examine it closely as you know we already provide wholesale access in Belgium something were quite.

Familiar with technologically commercially.

No, it's not something we want to be regulated and it wont be regulated in the UK, but it's something we ought to be looking at.

You know constructively to see if theres a value creation opportunities and so of course, where we'll be doing that.

Great Charlie.

Yes, just to say great as in the past, we're not gonna give specific guidance for our retained operations. We look as you rightly pointed out mathematically most companies you know, we'll see with declines the biggest issue I think in and all kinds of my reference that is under contract life.

We also anything any company in the UK can give you precision to what it means because it's so many variable faxes and I would echo mikes comment that we've tried to be prudent in email guidance just to make sure. We don't mislead you are like forget, but I'd say we've been conservative.

That's an or something else, but the other thing I'd highlight is there's a big shifts going on between Opex and Capex I'm sure. Many of you aware of this but as the world moves towards cloud services that is a very different accounting treatment. So for example of cloud product is an opex cost, whereas if it's a data center as it was five years ago, that's capex. So.

Some of the decline in and a US yes, the increase in all FCF, it's just that shift between.

From Capex into Opex and that's one of the reasons why we're continuing to really focus on operations, our bonuses and the weather Commons around all the CF long because for us that is a much better metric going forward.

The underlying cash flow generation.

Clear thanks.

And our next question comes from the line of David Wright from Bank of America. Please go ahead.

[noise] data guys and thanks very much for taking the calls like if I could just I'm asking one more question on the whole concept of building essentially creating some kind of off balance sheet.

Venture you've talked about having an infrastructure investor along side I guess, it but by definition off balance sheet, probably means. This is have to be some kind of 50, 50, JV or or less from your side. So that would imply fairly substantial infrastructure investor could you also consider it.

Bringing another policy in maybe a wholesale operator as a kind of a as a kind of drilling partner on a bunch like that could that be disabled.

I think it's safe to say David that were examining all options.

And you should expect this to be doing that and that this will take time.

The two points I'd make so yes. It would then could make sense, because obviously, if you're going to build seven to 10 million homes. While we believe we could penetrate effectively at the 30% level as we seem to be doing effectively on our own lightning expansion.

Wouldn't it will be materially better for a partner and financing if you could add additional operators onto that network or drive greater penetration of network. So.

There's a there's there's puts and takes there, but clearly we would be interested in discussions not just with financial partners, but also with network operators, who are interested in the same opportunity. So I think the answer that question is yes, we would and I'll just repeat that this is not happening in the first quarter. This is not stuff that's going to you know.

Occur overnight. This is a long game that needs to be played in the market remember that both BT any and that's our virtually nowhere.

In the marketplace, maybe they built as many homes as us in the aggregate, but our our lightning machine that four or 500000 homes a year is working like clockwork.

With declining cost the premise and consistent top line and and customer result, so even that just happened late homes a year, we're going to keep driving the growth of the of the Virgin network.

We ought to be looking at ways of Supercharging that but doing it in a manner, that's consistent with our belief unlevered free cash flow and never free cash flow per share and I think thats achievable its not going to happen overnight, but it's a kind of thing we should be looking at and we are uniquely position repeat that burden is probably uniquely position.

To be the one to evaluate those types of opportunities. Just another example, where we sit in the UK market and why our business. We believe this.

Worth the heck a lot more than zero.

My follow up question, if I, if I could give at least my guess is if given the you know bts talking about ramping up a potential built in a bias by a factor of two you know 20 530000 treating 50000 to weak.

You know and the kind of mid town is if the capacity for you guys to kind of double your build as well if I'm not sure you know capacity of of the workforce required to take roads to actually lay this cable if BT is doubling that build it is the capacity left for you guys to do the site.

We think there isn't I remember if we were two and I'll, let loose chime in a little bit if we work to expand beyond a lightning program, which is a fairly targeted program, where we're extending network and it's a fairly intensive construction process.

If we were to extend beyond that and for example, the Liberty networks entity, we set up or to build network similar to say how city by rebuilding networks that would be faster and more efficient using P.A. in existing BP infrastructure, but that's why don't you comment a little bit on the current supply situation in the UK our resources.

Yeah. So I think we definitely get our test prepare to ramp up the bill right I mean last year, we've done five smoke fivefive thousand.

Well, we read premises.

We are leveraging P.A., so you definitely understanding now or how to use the ducks.

Holds up Openreach, So hope that we have secured all Tulsa resources.

And also we have just tying allied or you are P to im sure vendors vendor partnerships for the future and I think right. We have the good relationship built up over years with all of vendor and if you if yarn vendor and do pay you want to stand on to like we said that one.

And so we have met a really big vendor, who only want to engage with with one.

So therefore, I think yes. It is a critical resources and we are prepared to deal with it like that and we have come from commitment.

To increase to make sure that are a bit for increased rollout for the next year.

Thank you guys.

[laughter].

And our next question comes from the line of Nicky All from Soc. Gen. Please go ahead.

Yeah, Mona just there just a simple one for me. Please just only the buyback might come at 1 billion dollar publishing why why picks up numbers just interested in numbers down obviously versus the tender last year. The shares are pretty low now does that mean, there's maybe more of the focus on M&A rather than by about could you just a walk.

I see that please thank you.

Sure sure as I mentioned in there, but my remarks Nick.

Historically, if you were to take a look at all of our buyback authorization in the past they have more or less been of an equal quantum.

So by that I mean, if you look at a generally what we've done outside of the Dutch auction tender, we normally announced at this point in time buybacks at equal roughly our free cash flow guidance and roughly you know, 5% to 10% of our market cap.

So here, we're at about 8% of our market cap and 100% of our free cash flow Guy that that's good discipline that means that we're able to you know drive free cash flow back to shareholders. It doesn't mean that we won't do other buybacks I'm not being specific about how quickly or how slowly we might put that capital to work.

You know and it wouldn't be a surprise to you that while we're certainly pleased and and.

I believe that $27 a share was a smart decision on our part and of course, we have information you you know that you would have as well, but on the other how we know where our strategic opportunities are and we believe we know revalue set so well for us $27. A share was certainly a price we were willing to pay that 20 Bucks.

I wish we'd weighted so I think to some extent, where you know we're looking to be smart here and as to the timing of buybacks not simply too.

You know rush into a decision knee jerk, it's not necessarily a.

Buyback or M&A decision on.

As we look at it we're sitting on 11 billion of liquidity 8 billion a cash.

I think there's a lot of things that go into capital allocation decisions on our part, but we think it's the right methods today, it's not doesn't mean, we won't do additional buybacks doesn't mean anything it just means that we believe at this point that's the right number to allocate will get at it so they go.

Great. Thank you.

And our next question comes from the line up and flavor from Morgan Stanley. Please go ahead.

Hey, good morning, guys I will limit myself to I guess, one one question around the UK or last quarter, you gave us some nice disclosure on lightnings financials within Virgin there's some additional detail this quarter on their Capex I'm just wondering if we're at the point now where the free cash flow.

Burn of that project has peaked or we have kind of line of sight to when you know that shifts from maybe a free cash flow headwind to a free cash flow tailwind in the business. As you guys continue to scale. It and then just broader on the UK or for any of you I don't know if if now that Brexit is I guess largely behind us if you're starting to see.

Would it be the economic headwinds that because they hit your business at the consumer business level, you know abate a bit or even reverse as we head into or so we're starting here in 2020.

Yeah on the Brexit question, you know, while we did see modest consumer reaction to the uncertainty in the volatility in that political process.

Yeah, you should expect that you know, we're seeing more optimism and I think the market generally you're seeing more optimism income in the clarity of the process today now it's still a moving target in terms of you know the final deal and all that although it's good things, but I would say on balance. This is a positive for us resolution.

Clarity general certainty and you know, we should expect and we intend to see hopefully a more.

More tailwinds in that regard than headwinds.

Charlie you can jump in here on the lighting financials, but it's my.

Ah recollection looking at the specific T analogs that we have already are starting to see improvement in the negative free cash flow of that business with 120 million of.

EBITDA in 2019 that I believe grew around 40% year over year.

From the prior years right ought to be growing yeah, it pretty pretty material improvements in operating free cash. So go ahead, sorry, yeah, but that's also be clear I think as Mike said, the it's a very Harvard well, we believe it's a high return projects I. Appreciate there are others, who are concerned but in our minds. The mass stuck up in the performances is supporting that Oh, sorry, and he can works out from this.

Closures, we invested one oh FCF basis about 320 million.

Pretty 19, you haven't number we disclose who is the capex we spend a construction, but remember we are also investing capex into CP in like a against 1.4 billion for the core business as usual. So yes, that's the kind of quantum it will get less and twentytwenty at least on my budget numbers. It will but it's still going to negative investment as we try and continue to support this this roll out.

And bill towards getting most got in the market.

Right, that's a bit less like.

Yeah, that's the point, yeah, yeah, but let's just start to much less negative I, rather not get the other forgotten, but it won't be it would be less than 320 I made that statement.

Mhm cool thank you guys.

Okay.

And our next question comes from the line I'm asking a hearing.

Again from benchmark. Please go ahead Sir.

Oh. Thank you that's one question, but they have a long question.

Good day to build bigger you build great template for but fixed mobile convergence is probably get more rational pricing behavior, there competitively well get to integrate that there could be away.

Well built all due to bargy that just keeps getting better and better but how would you can you give on the table.

On a pick up you know with Vodafone and 21 versus.

Yeah, I think everything drugs outright and putting the two businesses together and also when you look at Vodafone Dallying would open region and city Bard, we're not having much of a backlog being aggressive on broadband pricing. It was supposed to scenario where are.

Limited.

Narrowing or an outright sale you could actually look at pump in the UK or what's the one of them in terms of through new JV or or kit and someone else equity as opposed to an outright cancelled today after the lobby by multiples.

Looking at multiples that we saw in Germany et cetera.

Thanks, Matt that was actually very clear question, even though it was a long and as you say, but I say couple things number one on the Vodafone NVNO deal in the UK.

Both parties had an incentive to enter into that arrangement on their part clearly they saw an opportunity to drive revenue to their network.

And it's all incremental revenue to their network and that's a positive for them and so they were very aggressive and willing to be aggressive with us on great pricing access to fiveg.

We think it saves us not on a loose I think we said hundreds of millions.

In Oh CF overtime.

And so that was their motivation I believe and I'm sure they're trying to some extent to make us happy in the in the mobile space and maybe we don't do something somebody else will see I mean, they work clear and we weren't discussing it with them on that basis from our point of view. It was a purely an economic decision that if we're going to push fixed mobile convergence as an MD you know.

In the absence of any broader transaction as you've been implying why would we do it with someone who is willing to give us access to fiveg and great pricing. So there wasn't you know I've seen mutual mutual interest on both parties parts to do this deal and it's going to benefit us obviously.

Materially going forward beyond 2020, when we really roll it out in terms of what we're quote unquote, leaving on the table.

You would have read I'm sure multiple analysts have estimated.

What the synergies might be.

If we were to acquire Ob acquired by a mobile operator in the UK and I had the numbers I think ranged from five to 6 billion pounds NPV of synergy and that number does not surprised me in the least since we've already been part of either as a seller a buyer or a merger partner.

We're in something like seven fixed mobile deals. It's one of the reasons, we keep saying that there's fixed mobile convergence is not just a fad. It's is the direction for all the players we believe in these markets.

And certainly if you look at the numbers that Vodafone publicized for their numbers, we publicized in Belgium, a we publicized at Holland those are not unrealistic of merger synergies.

You know, what we'd be creative on structures and and outcomes in the event of somebody was interested in either Switzerland, or UK or Poland or really any market or Ireland willing to do something that's of course, why wouldn't we be creative and flexible the goal is to create value close the value gap.

Yep.

Recognize the out but we know the value recognize the value we know exist in our business. We we respect the factor for many shareholders and as one analyst said. This is a show me momentum you know we're cool with that those are the kind of situations, we thrive in and so yeah. When if we would be flexible or why would we be because.

Being nothing specific about any particular transaction or market.

You know the goal is to create value and I think as we have been in the past we have been buyers. We have been sellers. We had been 50 50 partners. Yet we have we have done all three models are executed on all three models in different European markets.

Clearly we are capable of being flexible that would be obvious what exactly code or might happen in any of these markets I can't predict and I'm not going to predict for you.

If we say as I said in my remarks.

It's here to stay fixed mobile convergence, whether through and NVNO or an eminent relationship.

And that's a good thing for cable networks.

That's like.

Yes and are now.

And our next caller is coming from the line of family Q.

From Exane. Please go ahead.

Yeah. Good morning, guys I was just a quick maam you can TV I guess, you called out skies losses than yours as well do you think we passed a bit of a tipping point I mean, you can't owns a traditional TV or do you can stabilize your subscriber base again, and maybe if you just remind us how much gross profit you may come TV in the UK I went to brought by market being sold combatant Marmaduke can you kind of SAP.

Those TV losses with broadband prices, thanks very much.

Well, let loose chime in here, a little bit I'll, just simply say that.

I don't they are very few pay TV markets in the in the you know in the first world. If you will that aren't experiencing obviously the impact of direct to consumer streaming.

Subscriptions as well as you know.

I would say general core cutting the cord shaving you won't be able to find one and they don't exist and that's okay. Certainly has an impact in charter a comcast and their ability to drive valuation and growth.

I would say as they have said broadband is the business. It's the one that generates a essentially meaningful gross margin and is the product that you need whether you're subscribing to our video product or any video product, having said that we generate gross margin and I would say good gross margin on our video business in the UK.

Arguably better gross margin than the U.S. guys and so it's worth protecting and we are doing all the things we think are necessary to protect it including rolling out our advanced a user interface very shortly here called horizon for to replace Tivo and be available on the Vsix box, that's going to we think.

The transformational to the consumer experience in the same way X. One was for Comcast and this is our basic our version of our UK based X one and so we are investing in the user experience. We are rapidly integrating apps into the box wherever we can Amazon you tube Netflix where you know.

We are open for business when it comes to add App integration and that is going to make our our platform, we think sustainable and viable and even necessary for consumers you want to lean back watch television and get access to whatever they're interested in by simply saying to their remote control play Netflix.

So that's that's the play we think it will be <unk> will allow customers to be sticky on the other hand as Lou just said many times in it we said, we're not going to chase low end customers.

And we're not going to spend the capital to retain low end customers are going to be smart about profitable growth and we know that a video product combined with the broadband product and a mobile at a voice product is a much more compelling service for it for customers and so the bundle matters videos, a big part of the bundle. So I don't see it going away I think its critics.

So to US there is gross margin, we think it can be stickier as we continue to innovate with horizon, which we'll do this year.

And as we integrate apps and become friends, even greater friends with the streamers.

Consumers, we think we'll see the benefit of leaning back speaking into their remote play Amazon play BBC play I TV.

And being sort of the aggregator of that content experience to us that's a powerful a powerful proposition, which really habit exploited yet in the UK market. So.

Long answer it looked at I missed anything or where do you want to add to that on the video side I mean, I, Karen I, Oh, you're too right I mean, only a couple of numbers to support what that set like that but we are focusing really much more on the customer then on me or be it or the or feel RG you.

Broadly, we kept our customer base flat.

And we have Pat you have had the highest opt to increase in the market right. In Q4, So that's what our high value customer strategy. We think Paypal, yes, we lost a a digital media argues sq sat and but it's it's a on the low end and simply we are paying.

No capex for the boxes.

And pick up my didn't used to pay for the free TV.

So money to us.

And so we're not focusing on that anymore and you see a certain operating free cash flow contribution out of that and at the same time being sure that we participate in the old U.T. growth, It's Mike said and Oh Gee growth onto our platform. It's it's it's even higher.

Then be video video how do you look you lost so therefore I think these numbers so ox supporting a cookie our strategy.

Well some nice thanks very much.

And our next question comes from the line of Andrew <unk> from <unk> Research. Please go ahead.

Hi, I'm I guess, you got to 8 billion in cash and it's a pretty high proportion to go market cap I'm probably sets it was pretty limited.

Equity value implied for.

Virgin media opt to sort of taken out the other assets assets and liabilities. So just wondering if you can weigh up your current thinking about the roads nurses.

Various possible approaches to realizing value, which could be spin offs to be the liberty metwox infrastructure transactions that you've been.

Mentioning earlier.

Sure.

Traditional approach with buybacks or M&A or anything else.

Yeah, well I'd say look it as a base case, but you're correct, but by the way. We believe that there's no you can get to our stock price, but pretty much ignoring Switzerland any UK.

Which is oh highly questionable in our minds of course.

But there are several ways to to get there and I would say, we begin first and foremost with the base case business. So.

As Charlie said many times is we've all repeated many times, we believe we can generate good free cash flow and free cash flow per share.

Out of these businesses, including Virgin and sustainable free cash flow is in our minds the metric that matters.

So as a first instance, we hope to be able to convince you and others that simply the free cash flow yield.

On a market like the UK.

Is worthy of a meaningful valuation.

Especially if you consider sunrise swisscom, even our own business, telenet, and where those yields and multiple sit so first and foremost you know this is a bit of a transformation and thinking.

So for us and for investors that we believe there is sustainable free cash flow in the business without any transactions.

Without any.

Inorganic moves to close the value gap that we know exist that that's step one and I think we can achieve that and that's what we're focused on obviously there are multiple things we could be doing beyond that around you know for example, as you describe you know monetizing our networks in a more creative way.

Looking at inorganic or combinations, whether with mobile or other operators that public listing.

Spinoff is clearly if there's any company out there.

Able and capable of and willing to look at creative ways to to shrink the value gap you're talking to him.

You should assume that is something we're working on every day and trying to be both you know sensible, but also creative and strategic about how we how weve, how we close that value gap.

That's how I'd answer that question.

Okay.

Just a quick follow up on the 70 million promises that you're talking about for the expanded UK.

Infrastructure opportunity I mean, it's quite a big volume of problems and probably means quite a bit of overbuild of others, but just kind of just clarify that it's not it's not something to 10 beyond seemingly enlightening as I was now or from the woman in end of lightning.

And it's not like I remind you come to having to attend yeah. Good. Good clarification, it's seven to 10 from this point.

Principally from this point and you know.

Yeah, and just to be just to add to your earlier question. Certainly we could consider you know maybe lightning itself is a you know an asset that should be lifted and shifted.

And you know BD and could and become the engine of that growth. So I believe I would say is incremental to where we are today.

Okay.

That is all your build or was that.

<unk> ambition, including you'll build and then third party hole so.

Oh, well look at it in general terms, we believe the opportunity exists to economically consider expanding our network to seven to 10 million homes.

The way in which you do it.

It is to be determined but that's what we think is an economic.

Ambition.

Okay. Thank you yeah.

And our next question comes from the line.

James roster from.

A new Street research. Please go ahead.

[noise] I guess good morning, everyone. Thank you add question regarding just kind of suppose a follow on ready from Andrea just around use of capital I mean, it seems like the message from today is that although the kind of final structure of any UK network build there hasn't been finalized it's clear that more capital.

So is intended to be allocated.

Towards UK network builds, but I would've thought a lot of that could also be covered.

From your organic free cash flow. So still leaves the question really all for how the $8 billion of liquidity that you have could be used so I mean, it's just wondering if you couldn't give us more thoughts on how emanate might feature in that I mean, it's now six month.

Since the Vodafone deal close so it'd be interesting to understand kind of walk situations, you've looked at I mean with it being stories about Univision around in the press can you comment on how M&A might play a part and use of capital if at all and then just as a clarification.

And just regarding the hundred million pounds of headwind in the UK, which would be around kind of 5% of Virgin. So CF is that a headwind. In addition to the 2019 trend which was already down 2%. So we should be thinking about Virgin all else being equal down 7%.

Yes, the twentytwenty. Thank you.

I don't believe that's accurate in your into 100 million, but Charlie.

You can decide how you want to address that particular point with respect to capital allocation.

I think your first point is accurate, we do not intend to allocate significant a balance sheet capital.

Who are billed in the UK and don't believe it's necessary. So a combination of free cash flow and potentially third party financing sources would be the primary.

A source of capital for that.

At this important clarification, while we think the opportunity is exciting and we think the need and the ability to drive version to the rest of the marketplaces exciting I don't believe we intend to allocate significant amounts of balance sheet cash to that and don't believe we need to.

It doesn't mean, we won't put some cash it simply to say that you shouldn't assume we're we're opening up you know the spigot important all that capital in the UK network build that is not the intention that wouldn't be consistent with our free cash flow objectives, and it's not consistent with how we would consider allocating capital.

Definitely but wouldn't put some to work, but it's not a principal source of that so that's good clarification.

I would say you know any a few calls ago or maybe a two calls ago. We went through the buckets of capital allocation and we identify those is being first and foremost capital structure. We meeting buybacks. While we took what 3.2 billion of our capital to work in that category last year, certainly can't be accused of not paying attention to that category or.

Or being serious about our investment in that category. We took another 1.6 billion and de Levered that was the second category. We did de lever in the in the Central Europe area about 1.6 billion as part of the closing of the Vodafone transaction. So we certainly trend leverage a bit and that we thought was smart in that particular moment the.

Third category was core markets, that's what we've been talking about today core markets, meaning UK.

Switzerland, Ireland, Belgium, Holland and that is where we think the first and best use of cash if it were necessary to be used.

You know it would be spent and I think that is smart for us because that's where the biggest value gap exists today, both in terms of apparently shareholders lives.

And so we want to be sure we're looking at creative and smart ways of allocating capital or perhaps even a generating capital in the core markets. Now. We did also say quite clearly in prior calls that we have an existing ventures portfolio. It's got to no billion a value plus we think people.

And on hedged we have put in a money to work in various strategic opportunities small amounts of capital generally and when 8 billion of cash is there any 2% we should certainly be looking at capital solutions and in ways of putting small amounts of money to work that could create interesting opportunities I would say that is that is.

Not the main goal, it's not something that you get people nervous.

You know the reports about us quote unquote buying Univision for 9 billion were not accurate.

You know, but we will look creatively at deploying capital in small venture like ways in order to drive potentially future strategic opportunity, but that is the last category on the list. It begins with capital structure, followed by leverage followed by our core markets followed by that.

Say, new markets and or ventures, and that is he order in which we're looking at it that is the order in which we've been spending our time and effort.

And that's where you should want us to be spending time and effort because clearly that's where the greatest opportunity is.

Do you want to it was there you want to covered 100 million Charlie.

Yeah, you're trying to give it to give you guidance.

It's not something that's hard to look if you take 100 million. It's broadly minus four I wouldn't you say look it's plus or minus is a hold in the things got excluding as one offs and at some point.

It is government takes a sort of his throat.

And get back to growth I think that's true the industry as a whole I think you know some you know Miss about Virgin version actually from a revenue growth, yes, I got lightning slightly down maybe slight down this year, but then a contract like thing, but actually it's performing globally along with many of the other markets I think of the revenue decline largely to do with a video business is not a casco generates I keep them.

At this point about free cash flow.

Well be lost and you know the capital intensity version of the video products. It's nothing like the a the cat one cents to the bolt on product.

Urgent and much better shape and people realize.

Yeah, well play if you think so it's true you got it.

You got to fill out I think we're done operator, we're past so we've got another question.

We do Sir we have our last question comes from the line of Robert Grindle from Deutsche Bank. Please go ahead.

Yeah, I think you're just slips in that.

May I ask about the distribution from Vodafones. They go and full year 20, do you still expect shareholder loan repayments or can the bulk of this paying dividends.

And then if I may just a a follow up on the project Lightning builds cost I think you flagged it went down 20%.

On a per home basis, but it still over 600 pounds not regardless of any new balance sheet off you know off balance sheet vehicle to roll out more fiber can you get the existing project Lightning bill cost much closer to 55 level using <unk> function.

Well I answered. The second question is yes, newts prepare a quick response to that Charlie you want talk about Vodafone Ziggo distributions.

No I mean, I think you're quite right to point out of the distributions are understated enough free cash for a number if you got it back to 100 million euro shareholder loan repayment to us and 100 and you're obviously went to Vodafone in fact, you know free cash flow and a 29 team, but that should be much harder than the 770 up number more like a 900. So that's fair point I think at this stage that.

Im not three by the shuttle and that might change it would be lost news about so.

That's helpful from a from a tax planning point of view, but we will see but I think certainly in our guidance, we factor that enough and I think we're taking a relatively conservative view on distributions from I'm from vitamins again.

I mean on the on the lightning build cost right only.

Make sure that we compare apples with apples.

The current or lightning costs of 618, and this is fiber to the home right Hello.

Ah crop, which are just close by our competitors actually fiber to the cabinet and not really the last mile to the home concluded that that's number one number two is.

If you said P.A. is <unk>.

Substantially cheaper no are being sure that if we I'm a position to roll out additional seven to 10 million homes, we would absolutely elaborate <unk> and why would we run it at a higher cost than our competitors. So therefore, you can expect.

To get the CPP further down leveraging <unk>.

Hi, Thanks, Okay. Thanks, Robert Yeah, I think that I'm guessing that did operator. So we appreciate everybody jumping on the call I just repeat what I said again my remarks, we're focused on three primary things are sustainable free cash flow, we think the free cash flow story here is.

Yeah. The most significant story and ones that we will demonstrate over time is is hopefully important to shareholders as well secondly closing the value gap I think you know what that means and you should expect that we're focused.

You know very seriously on opportunities to do that in.

In core markets, and then thirdly being disciplined about capital allocation and and I think the 1 billion would allocate it today due to shareholder buybacks beginning of that but we will and we do intend to stay very disciplined about how we allocate that capital I think that creates a lot of opportunity for today and down the road. So thanks for joining and we'll speak to you said pickup.

Ladies and gentlemen, this concludes Liberty Globals fourth quarter 2019 investor call.

A reminder, ever replay of the call will be available in the Investor Relations section of the Liberty Global's website. There you can also find a copy of today's presentation materials. Thank you.

[music].

Good morning, ladies and gentlemen, and thank you for standing by welcome to Liberty Global fourth quarter 2019, Investor call. This call me associated webcast, our property of Liberty global and any redistribution retransmission or rebroadcast of the cold or wet.

And any form without the expressed written consent of Liberty Global is strictly prohibited at this time all participants are listen only mode. Todays formal presentation materials can be found under the Investor Relations section of Liberty Global's website at Liberty Global Dot Com.

Todays formal presentation instructions will be given for a question and answer session page two of the slides. He tells the company's safe Harbor statement regarding forward looking statements. Today's presentation may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including the company's expectations with respect.

Without looking future growth prospects and other information on statements that are not historical fact these forward looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed and Liberty Globals filings with the Securities and Exchange Commission, including its most recent filed form.

Thank you and 10-K as amended Liberty global disclaims any obligation to update any of these forward looking statements to reflect any change and its expectations arts conditions on which any such statement is base I would now like to turn the call over to Miss Mr., Mike free.

Thanks, operator, and welcome everyone and good to be back on line review, we have a lot to talk about today, so I'm going to kick a write off with some highlights a that Charlie with the numbers and we'll get to your questions for the balance of the hour I'm on slide four which is a good snapshot of the year. That's gonna stay up front that there were a handful of important storylines here.

So bear with me on when it's been a few minutes on this page.

I'll start with the fact that we met or exceeded all of our guidance targets for 2019.

You would know that revenue was largely flat year over year, we had positive customer ARPU growth that was offset by a small customer loss of 74000, Rebased operating cash flow a 4.9 billion was down 3% year over year, that's essentially what we forecasted and by the way was right on budget for us.

He was widely reported the reasons for that right, namely the turnaround in Switzerland, and the headwinds in the UK went to talk a lot about today.

Finally, we had better than budgeted capital efficiency, which helped deliver 770 million of free cash flow exceeding our guidance and that's a number that's up nearly a 100% year over year.

Now as we've discussed sometimes split these numbers in the context Europe is a more mature market today than it was 510 or 20 years ago broadband growth is slowing that's inevitable in the video business well much healthier than the U.S.

Flattening out in most countries, having said that though the opportunity to drive sustainable growth and healthy free cash flow is there's real as it ever wash.

And to achieve that our operating strategy is clear number one we're investing a gigabit broadband speeds across our footprint, usually well ahead of the fiber guy.

Tumor digitizing the customer experience to improve cost in churn. This takes an upfront investment that works everywhere. We do it through we're prioritizing profitable video subscriber growth, which makes total sense as we rollout advanced set tops integrate apps in sport to blend for we're committed to driving fixed mobile convergence. There is no debate here.

Fixed mobile convergence delivers significant synergies and the winning customer strategy that improves churn and MPS and grows market your overtime.

That by the way that somebody were wondering if we would ever be able to re size and re scale or operating model up the Vodafone deal and the sale of Austria. The answer is yes.

You'll notice that total central costs were reduced by 170 million or 16% in 2019 with continued reductions coming in 20, Tony and Charlie will dig into those numbers.

We also announced a partnership with emphasis to deliver the services required to RTL say partners like Vodafone and to ensure that the revenue and cost completely aligned on those contracts over the next four to five year. So hopefully that put that issue did that.

Now continue on this slide last year was pretty transformational for us on the strategic front.

Sale of four markets to Vodafone for $21 billion this transaction, perhaps more than anything.

The deal also validated the power of fixed mobile convergence mergers with reported synergies to them I think around 700 billion euros on an MPV basis, and it left us with significant liquidity right, which now sits at $11 billion, including 8 billion of cash.

Of course, we used a large proportion of those proceeds on capital returns to shareholders.

We bought back a record amount of stock last year repurchasing $3.2 billion of our equity or approximately 16% of the company.

7 billion of that wish you the Dutch auction tender at we completed in September at $27 per share and to show. Our continued commitment we're announcing today another $1 billion buyback authorization.

Number might seem small the some of you, but if you go back over the last 10 years.

This number is consistent with our buyback programs are the past usually the quantum of our buyback authorizations generally represents around 5% to 10% of our market cap and around 75%, 225% of our projected free cash flow in this case, we're right down the middle with 8% of a market cap and 100% of our free cash flow guidance, which is a billion dollar.

For 2020.

No. The final storyline here is that we're in a great position to continue crystallizing value in our core markets I won't run through each country and I'm not going to talk about Wheeler hypothetical discussions, but the strategies that we might be pursuing our completely consistent with what we've been doing the last couple of years fixed mobile convergence works and fixed.

We'll combinations are materially accretive operationally and financially to our core cable platforms, you should assume we're always examine those options.

That's because a fixed networks are extremely valuable I will be one gig everywhere many years before the incumbent and with the and with that expansion comes opportunities to finance capitalize and reseller infrastructure you should assume we're examining those sorts of options as well and then lastly, as we demonstrated in 2090, our operations are highly cash generative and I read.

He delivering substantial free cash flow, which as our guidance for at 2020 indicates we'll continue to grow significantly both on an absolute basis under levered free cash flow per share basis, as we continue to shrink or equity now that was a mouthful I realize how do you take questions on any or all of it but since the UK is our largest market.

Oh, let me spend a couple of minutes on Virgin media and I'm on slide five now.

A consistent with the European steam I, just outlined the last 18 months have been a bit tougher in the UK as result of three key challenges first the broadband business has become more competitive and promotional but the entire market slowing down and we're still adding broadband subs and holding share primarily because we are investing me gigabit speed in them.

And the price competition at the low end of the market has been aggressive.

Second the video market is also flattening sky has lost millions or satellite subs, a portion of which they have converted to now TV.

We've done much better than our peers, but we're still losing video word you used to be focused on hiring customers and third.

The impact of external headwinds has been significant.

Our ARPU growth in Q4 at around 100% each we had a record year for mobile postpaid sub adds.

And Capex discipline drove operating free cash flow up 26% for the full year and that's including the cost of bundling.

Out over a building out over half a million new premises to project lightning.

To reiterate because I know, it's on everyone's mind.

Helps solidify our capital returns.

The bigger question on your mind is a strategy moving forward for Virgin Media I imagine and the short answer is we're confident that Virgin has a sound operating plan that will retain and grow customers drive modest revenue and operating cash flow growth and deliver significant and sustainable free cash flow over the medium term and that's the base case. So it's.

Moving any strategic transactions, we might consider in the market and we say medium term.

As we foreshadowed 2020 will be another year of unavoidable headwinds.

Referring of course to off comes out of contract notification requirements.

Another increase in our annual broadband taxes in contractual programming cost increases all of which will total about a 100 million pounds and negative operating cash flow this year.

Now lose had his work cut out for him, but in my opinion is doing all the right things first of all he's revitalizing the talent and leadership in Virginia. The addition of separate Pascoe, who transferred from Switzerland to the UK CFO and Deputy CEO is a great move for US are there going to make an outstanding team in my view.

Secondly is focused on the right organic growth drivers.

Let the network to one gig everywhere and well ahead of the competition.

Who are all busy making promises while we're delivering this is a huge strategic and political advantage for Virgin by the way continue pushing our fixed mobile leadership.

And preparing for a switch over to the Vodafone NVNO, which provides access to fiveg in much better pricing.

And invest in the customer experience through digital initiatives that will create better customer journeys at lower cost all those things are working it will work.

By the way everything we're doing today with lightning is self funded out of Virgin free cash so and if you were looking at expanding to an additional seven to 10 million homes, we would almost a surely see could do so off balance sheet and with third party partners or financing sources hope that's clear to folks.

Let me switch to a couple of other markets quickly here on slide seven.

Folks have asked us in the past why would Vodafone or go to telecom.

Payoffs 11 to 12 times EBITDA for cable assets.

Would you have to just couple of years has achieved everything we hope to wood and is in the process of becoming a has become the undisputed market leader in holiday 2019 was a breakthrough year for Vodafone Ziggo, they hit or exceeded all of their guidance targets, which included modest decline is fixed or do you use but considerable market share gain from.

Yes.

With a similar story, a mobile with Vodafone ziggo, adding to it and 69000 postpaid subs in the incumbent going backwards that helped drive revenue and EBITDA up 1% and 4% respectively last year, so they're back to growth in this market and the Jade JV delivered 470 million euros of Levered free cash flow.

To put a market yield on that and you will arrive at a pretty meaningful equity value for both partners. How they done that will they filed the same playbook that is underscored all fixed mobile mergers in Europe, they've already hit 85% of the publicly disclose synergy target.

210 million euros, they prioritize product innovation, including nationwide gigabit speed the launch of Nexgen set top boxes product simplification I mean, they took a bundles from 42000 to 300 and a great set of content arrangements like Google sports and HBIO and through convergence they become the number one fixed broadband provider.

In Holland with seven out of 10 homes, taking at least one product from Vodafone Ziggo. So simply put the strategy worked.

Finally, a short update on CPC, Switzerland, where the business is clearly turning around and why do we say that well we hit all of our internal targets for 2019, including a 40% improvement in fixed customer loss, a 40% improvement RG, you lost and revenue with cash flow results right on plan.

Even in this heavy investment period, you BC, Switzerland generated 300 million of operating free cash flow and significant free cash flow are levered free cash.

There have been for consistent drivers to our success in this is going to start to sound repetitive because it's the same strategy, we're deploying it all of our markets.

Beginning with a nationwide one good launch, which already reaches 75% of Swiss homes, well ahead of Swiss common Sunrise.

We've transformed the TV proposition with advanced TD boxes rolled out the 60% of our sub base now.

And like UK, and Holland, and Belgium, a fixed mobile convergence is taking hold with a 70% improvement in mobile subscriber adds last year in a doubling of the MPS and.

And then finally, our investment in digital across the organization and including customer interacted is working we've had the highest NPS because who began measuring 11 years ago. So at this stage, we're happy to own this business, Switzerland is a strong and rational market with a stable economy and good political support for our initiatives I just met with the president of Switzerland, and she was thrilled.

We're still there to drive innovation on top of that would living 50% operating cash flow margins and significant in growing free cash flow from this point forward. So I guess, a Swiss common surmise can trade at high single digit multiples of EBITDA and mid single digit Levered free cash flow yields a with results similar or not even as good as ours, there's tremendous value to be created with.

With this business on our own.

So to wrap up my remarks for the balance of 2020, we're focused first and foremost on navigating the headwinds in the UK market and delivering steady and growing free cash flow a Virgin is a strong brand with the best network. The fastest broadband speed all of the key content and a robust fixed mobile strategy and these are powerful drivers.

Our operating success and I believe in this team, they're going to get it done and just as importantly, and as you would expect we're exploring strategic opportunities in the UK and all of our core markets to create meaningful value today and over the long term.

So three drivers.

Sustainable and growing Levered free cash flow.

Real strategic opportunities to close the value gap in our core markets.

And $11 billion liquidity to fuel this narrative.

Charlie over to you. Thanks, Mike I know the page titles group overview my sodium detailed results about key market. So the annual figures so I'm going to focus on the key financials for Q4 gross revenue declined in Q4, 0.5% unless you have declined 2.1%, let's take it was a broadly similar to the Q3 figures but.

Option in Capex in Q4 to 28.2% of sales, let's just say, 2.9% last year continue into 2019 trend lower capital intensity and result in Q4, CF $433 million liquidity remains very strong with $8.1 billion, a cash I'm, a little bit credit facilities of $3 billion.

Since year end, we've been very proactive on the refinancing front and we now sit with a fixed cost of 4% for our interest in average maturity on death of approximately 7.4 years.

Total consolidated debt was $26.3 billion.

This resulted in a consolidated debt. So we'll see if ratio 5.4 times gross and 3.7 times net.

You should note we've changed our targeted four to five times debt to actually have leverage definition from an El Cubo way last quarter annualized to an LTM last 12 months post yet basis as we believe the LTM approach is more appropriate metric for our portfolio maturing assets.

Thank you for the accumulated numbers would have been slightly lower than the LTM.

A quick turn times gross and 3.6 times net.

On the next slide we continue on our additional disclosure, which would cut over the past few quarters, when how essential spend breaks them.

I wanted you can see from which our total central cost would be reduced by roughly $170 million in 29 team and we have further reductions plan for Twentytwenty now only totaled $890 million spend 2090 $660 million relates to centralized technology and innovation activity.

Roughly half of the spend relates to the companies that we have sold but continuing to supply motors cool Tia say revenue will transition services agreement revenue.

This also includes a Dutch JV.

The balance of the spend related to our retained companies in particular badger meter in Switzerland.

2020, we estimate this total CNO spend will be around $600 million with over $300 million or revenues be on from the various tier say agreements.

We expect the Ts I want to spend to decline over the next four to five years as the contracts were low on the net spend of approximately $310 to our retained operations, but also decline and should be flat to down over that timeframe.

Much of this spend is with third parties, which makes a relatively easy to scale down I mean recently announced additional efficiencies through a deal with emphasis we've taken responsibility for the flexing down of the spend further de risking it to our shareholders.

The balance of our central spend is our corporate spreads.

Corporate activities of finance legal HR management et cetera.

Corporate downsizing in the some of this was reduced from $260 million and 20 $18 million to $230 million in 29 team and we expect has to be low still in twentytwenty.

Turning to the next page, we set out the key financial metrics for our core divisions.

As promised we will now show the Oceania and Oh FCF of all our company is off to the allocation of those essential to unite costs.

Those further detail in our 10-K and press release for those what more do you still have these allocations, but this is designed to allow our investors to compare our key divisions on an apples to apples basis with for example, Belgium and I've touched JV was disclosed iOS, yet, but oh FCF after that show centralized t. and other costs I.

As you can see on a fully allocated CF basis, Belgian made $838 million of subsea for the full year 2019 without touch JV Mickey 1.1 billion.

We expect the Dutch JV over time to reach the same Oh FCF margin of around 30%. The Belgian currently achieves as it completes the integration of its fixed and mobile operations.

Switching to May $298 million Evault FCF in 29 team on a margin of around 24%. We're also targeting margin increases to Switzerland going toward.

Hudson investment related to the turnaround plan is completed.

Finally, the okay made just on the $1.1 billion in 29 team, which is good in the investment of $390 million enlightening construction capex.

Once we would expect the X lucky margin of 22% to also increase as capital intensity declines.

Programming cost of the UK relative to the other markets as well as the fact that it rent some mobile networks not owns one as we do in the Benelux, maybe it's a long term offset margin is more likely to be in the mid to high 20 percents of sales rather than around that 30% book.

The next slide we break out the key drivers of the group's free cash flow, which remains a key focus from a financial performance point of view Oh, No free cash flow was ahead of guidance at $770 million.

Net interest payments were $1.1 billion in 29 team, including interest income, we would expect interest payments to modestly declined twentytwenty. This not least due to the recent refinancing is about that.

Cash tax from $358 million intended to 72 million dollar U.S. times payment I mean would also expect this to decline and Twentytwenty.

The Dutch joint venture contributed $214 million to our free cash flow through dividends and interest on our shareholder loan.

The 100 million euros show the loan repayments in 2009. She is not included in our free cash flow definition.

That means that total cash returned to us from the JV was $325 million.

But our guidance FX the Dutch JV has recently got into $450 million to $560 million total cash available to shareholder distributions in twentytwenty.

We would expect received 50% of that pickup.

Finally, our cash flow from working capital items, including customer cycle vendor cycle operational plans restructuring and B T cycles amongst others was broadly flat with the next investments a cash of $37 million and we expect broadly the same patent in twentytwenty.

Turning to last page, we set our key guidance metrics. The key focus remains on free cash flow.

Regarding to study to say year on year gross to around $1 billion and this includes the lightning construction capex, so without that the number of behind.

This is underpinned by a mid single digit increase in Oh, yes.

As a mid single digit decline knows yet is offset by further reductions in overall capital intensity.

And as Mike mentioned, we continue to see value in our stock on the board recently approved a buyback authorization $1 billion.

With that we're going to turn over to the operator to answer questions. One quick comment on questions because everybody hasn't had a chance in the past two last questions. We're going to loss that you limited to one question one follow up it's not as possible so with that operation over to you.

Please make sure your mute function is turned off to allow your signal to reach our equipment well pause for one moment to give everyone an opportunity to join the queue.

Okay.

And our first question comes from the line as as a giant.

Go ahead.

Good morning, it's not James Rockefeller VJ.

I Wonder if you can go into I'll give some more color on the expected impacts the Oh, the front book back book or loyalty penalty work in the UK and both in terms of the magnitude or the timing when you expect that this impact and any thoughts about how you're going to balance.

Yeah potential.

ARPU impacts versus potential across that impacts in the environment. Thanks.

Thanks, James I'll say couple of things all that newts chime in here with his thoughts first of all we're not providing any specific detail around that for obvious reasons.

Not really in our best interest to tell you specifically, what we think we will or won't do how we'll pricings and what we think the impact will be because this is obviously a competitive market second thing I'll say as we've already implemented the.

Program about 10 days ago I believe in advance of the requirement to start notifications tomorrow, just to get a sense of how customers are reacting and what we think the outcome will be and I would say we're conservative.

Overall in our assumptions of the impact.

There's a wide range of impacts of course, but were overall conservative at I think we have a lot of tools.

At our disposal here to ensure that the impact is minimized, but I think as it relates to almost our entire guidance and budget this year.

I would say it all instances we have been conservative that you want to provide a little more color on that.

Yeah, I mean does some public data available caused that brought the hop off all our customer base is although contract. So they have the opportunity to look on the deal I think what we're doing to choose to keep them onto our network as a couple.

Thank you feel comfortable until the end of March.

We have given all our customer a 1 million together, which had been though on that.

Good upgrade free of charge, so we could be playing a bit can dig in terms of speed and we are leveraging that to keep our coupled with without.

As Mike said earlier on we drive fixed mobile convergence roughly wanting to pretend that point people, who have quad play with off sure on that and then we have also a little more stuff on the content.

That's what I'm, saying it yes. It is the change we are definitely informing our custom of about our product.

But we have also not to all four and we play into high value effect.

You bet, our pets as much value our products and therefore all told.

I'm not met coal price sensitive than a couple months into like.

We have planned capital inflows before we had 10 days and the market send all 60000 matter and so far a thing.

It's absolutely on the control.

By the way the 50% of that book bump book, It's about the same sky. So it's not that dissimilar from other players on the market.

Next question here.

If they hit.

And our next question comes from the line of Polo Tang from U.S. me or you've yes. Please go ahead.

A meal Holly I've got to one question and one clarification question.

So in terms of strategic options press reports the stated that you wouldn't tools with scalia by both the fiber JV and the potential cable wholesale deal. It's such a deal did happen can you remind us what the merits of a deal would be from both Liberty Global perspective, but also fiscale perspective.

And the clarification question is really just about guidance because can you clarify what's implied UK and Swiss guidance. Because you have said mid single digit declines the group, telling that is going towards plus 1% and you've outlined to 100 million impact from the UK headwinds and does this imply therefore.

Minus 5% Mcf decline in the UK and high single digit Mcf declines in Switzerland. Thanks.

Tony I'll, let you prepare for the guidance question on the strategic options Paula They said at the <unk> in my remarks, I'm not going to get into great detail about what we might or might not be doing doesn't generally serve us well on the other had just speaking theoretically what would oh.

Partnership with anybody that he's got a partnership focused on driving greater reach for the Virgin network means to US I think that's pretty straight forward today Virgin reaches half the country. We think we have a brand a product oh, a capability that underutilized and getting our net.

Work into our products to the rest of the UK market would be just by itself a very valuable outcome. Secondly, we've already shown with lightning that there is potential to penetrate and drive returns on capital.

And while we're not willing to sacrifice our free cash flow to do that on balance sheet.

And you would expect us to do that.

So there's lots of almost logical reasons, why extending our reach driving scale and doing it in an efficient way from a capital point of view would be hugely valuable to Virgin and to us and to you that others are shareholders on the wholesale question.

Question really is you know whether you build out another seven to 10 million homes or you look at your existing footprint. You know should you consider monetizing the value of this one gig network or they are obviously pros and cons. The pros are immediate cash flow to the bottom line that would both drive expansion of.

The network.

Self funded manner.

And value creation, because we know infrastructure assets trade at much higher multiples than even we are able to sell in the private market our assets and then secondly of course.

You know the benefits would be well basically that is the primary benefit the negatives of course as I mentioned would have to be examining the impact on your own business itself. So cannibalization and you know what what what are the negative synergies. If you will have that so we examine it closely as you know we already provide wholesale access in Belgium something were quite.

Familiar with technologically commercially.

No that's not something we want to be regulated and it wont be regulated in the UK, but it's something we ought to be looking at.

You know constructively to see if there's a value creation opportunities and so of course, what we would be doing that.

Great Charlie.

Yeah, just to say <unk> as in the past, we're not gonna give specific guidance for our retained operations because you rightly pointed out mathematically most companies will seem declines the biggest issue I think in and all kinds of my reference that is under contract life.

Are there any company in the UK can give you precision of what it means because it's so many variable faxes and I would echo mikes comment that we've tried to be prudent and no guidance just to make sure. We don't mislead you are electrode, yeah, but I'd say we've been conservative.

Hey, let's say something else, but the only thing I'd highlight is there's a big shifts going on between Opex and Capex I'm sure. Many of you aware of this but I will move towards cloud services that is a very different accounting treatment. So for example of cloud product is an opex cost was if it's a data center as it was five years ago, that's capex. So.

Some of the decline in a US yes. The increase in CF is just a shift between.

From Capex into Opex, that's one of the reasons why we're continuing to really focus on operations, our bonuses and the way. It all comes around all the CF line because for us that is a much better metrics going forward.

<unk> cash flow generation.

Clear thanks.

And our next question comes from the line of David Wright from Bank of America. Please go ahead.

[noise] yellow guys and thanks very much for taking the calls like if I could just I'm asking one more question on the whole concept of building essentially creating some kind of off balance sheet.

Venture you've talked about having an infrastructure investor along side I guess.

By definition off balance sheet, probably means has have to be some kind of 50, 50, JV or or less from your side. So that welding imply fairly substantial infrastructure investor could you also consider bringing another policy and maybe a wholesale operator as a kind of as a kind of joint partner on a bunch.

Why not could that be disabled.

I think it's safe to say David that were examining all options.

And you should expect us to be doing that and that this will take time.

The two points that makes so yes. It would include makes sense, because obviously, if you're going to build seven to 10 million homes. While we believe we could penetrate effectively at the 30% level as we seem to be doing effectively on our own lightning expansion.

Wouldn't it will be materially better for a partner and financing if you could add conditional operators onto that network or drive greater penetration of network. So.

There's a there's there's puts and takes there, but clearly we would be interested in discussions not just with financial partners, but also with network operators, who are interested in the same opportunities. So I think the answered that question is yes, we would and I'll just repeat that this is you said not happening in the first quarter. This is not stuff that's going to.

Occur overnight. This is a long game that needs to be played in the market remember that both BT any out and that's our virtually nowhere.

In the marketplace, maybe they built as many homes is us in the aggregate, but our our lightning machine that four or 500000 homes a year is working like clockwork with declining cost for premise and consistent.

Topline and Kopin customer results. So even that just happened late homes a year, we're going to keep driving the growth of the of the Virgin network.

We ought to be looking at ways of Supercharging that but doing it in a manner, that's consistent with our belief unlevered free cash flow and never free cash flow per share and I think that's achievable, it's not going to happen overnight, but it's it's a kind of thing we should be looking at and we are uniquely positioned repeat that burden is probably uniquely position.

To be the one to evaluate those types of opportunities. Just another example, where we sit in the UK market and why our business. We believe this.

Worth the heck a lot more than zero.

My follow up question, if I, if I can give at least my guess is its given that he's talking about ramping up.

Potential built in a biased by a factor of to 20 530000 treating 50000 to weak.

And that kind of Midtown is if the capacity for you guys to kind of double your build as well is their actual capacity of of the workforce required to take roads.

Who actually lay this table if BP is doubling that build it is the capacity left for you guys to do the site.

We think there isn't that remember if we were two and I'll, let loose chime in a little bit if we work to expand beyond a lightning program, which is a fairly targeted program, where we're extending network and it's a fairly intensive construction process. If we were to extend beyond that in.

Sample the Liberty networks entity, we set up where to build network similar to say how city by rebuilding networks that would be faster and more efficient using P.A. in existing BP infrastructure, but that's why don't you comment a little bit on the current supply situation in the UK resources.

Yes, so I think.

We definitely get our test prepare to ramp up the bill right I mean last year, we've done five if I felt five.

Tells me the prognosis.

We are leveraging P.A.. So you definitely understanding now or how to use the ducts and poles openreach, so well that we have secured all Tulsa resources.

And also we have just finalized a a new off peak to ensure vendors vendor partnerships for the future and I think right. We have a good relationship built up over the years with all of vendor.

And if you if you aren't Ben Great Hey, you want to spend on to make when we set up one.

So we have met a really big vendor, who only want to engage with with one company. So therefore, I think yes, it's a critical resources and we have prepared to deal with it like that and we have come from commitment.

To increase but make sure that we EBIT for increased rollout for the next year.

Thank you guys.

Yeah.

And our next question comes from the line of Nakheel from Soc Gen. Please go ahead.

Yes. Good morning, just that just a simple so we want to move please just only the buyback might come at 1 billion dollar permission why why picks that number I was just interested the numbers down obviously versus the tend to last year. The shares a pretty low now does that mean, there's maybe more of a focus on M&A rather than buy but could you just walk us.

To that please.

Sure sure as I mentioned in there, but my remarks Nick.

Historically, if you were to take a look at all of our buyback authorization in the past they have more or less spin of an equal quantum.

So by that I mean, if you look at a Jeremy what we've done outside of the Dutch auction tender, we normally a announced at this point in time buybacks that equals roughly our free cash flow guidance and roughly you know 5% to 10% of our market cap.

So here, we're at about 8% of our market cap and 100% of our free cash flow guidance. That's good discipline that means that we're able to you know drive free cash flow back to shareholders. It doesn't mean that we won't do other buybacks I am not being specific about how quickly or how slowly we might put that capital to work.

You know and it wouldn't be a surprise to you that while we're certainly pleased and and.

I believe that $27 share was a smart decision on our part and of course, we have information you you know that you would have as well, but any other and we know where our strategic opportunities are and we believe we know where value sit so well for us $27. A share was certainly a price we were willing to pay that 20 Bucks.

I wish we'd weighted so I think there's some extent where you know we're looking to be smart here and as to the timing of buybacks not simply too.

You know a rush into a decision knee jerk, it's not necessarily a.

Buyback or M&A decision on.

As we look at it we're sitting on $11 billion liquidity 8 billion a cash.

I think there's a lot of things that go into capital allocation decisions on our part, but we think it's the right message today. It it's not doesn't mean, we won't do additional buybacks doesn't mean anything it just means that we believe at this point, that's the right number to allocate will get at it.

So they go.

Great. Thank you.

And our next question comes from the line offense Lambert from Morgan Stanley. Please go ahead.

Hey, good morning, guys I will limit myself. So I guess, one one question around the UK last quarter, you gave us some nice disclosure on lightnings financials within Virgin there's some additional detail this quarter on their Capex I'm just wondering if we're at the point now where the free cash flow.

Burn of that project has peaked or we have kind of line of sight to win that ships for maybe a free cash flow headwind to a free cash flow tailwind in the business as you guys continue to scale it.

And then just broader on the UK for any of you I don't know if now that Brexit is I guess largely behind us if you're starting to see sort of via the economic headwinds because they hit your business at the consumer business level, you know abate a bit or even reverse as we head into.

We're starting here in 2020.

Yeah on the Brexit question, you know, while we did see modest consumer reaction to the uncertainty and the volatility in that political process.

You should expect that we're seeing more optimism and I think the market generally you're seeing more optimism income in the clarity of the process today now it's still a moving target in terms of final deal and all that although it's good things, but I would say on balance. This is a positive for us resolution.

Clarity general certainty and you know, we should expect and we intend to see hopefully a more.

More tailwinds in that regard that headwind.

Charlie you can jump in here on the lighting financials, but it's my.

Recollection looking at the specific piano tiles that we have who already are starting to see improvement in the negative free cash flow of that business with 120 million of.

EBITDA in 2019 that I believe grew around 40% year over year.

From the prior years right ought to be growing yeah, it's pretty pretty material improvements in operating free cash. So go ahead, sorry, yeah, but that's also be clear I think as Mike said, the it's a very high which we believe its hybrids and protect appreciate there are others, who are concerned but in all mines. The mass stuck up in the performances is supporting that Oh, sorry.

For the disclosures, we invested one O.S. yet faces about 320 million entry 19. The other number we disclose who is the capex we spend a construction, but remember we are also investing capex into CP and the like against 1.4 billion for the core business as usual. So that's the kind of quantum it will get less and twentytwenty at least on our budget in them.

As it will but it's going to be a negative investment as we try and continue to support this this rollout and build towards getting most got in the market.

Right that the but let's say that can be lumpy negative here. That's the point, yeah, yeah, but let right. If you start to much less negative, but I'd, rather not get the as it regards but it won't be it'll be less than 320, let my thoughts payment.

Mhm cool thank you guys.

Okay.

And our next.

No I know Matthew Herring.

All right again from benchmark. Please go ahead Sir.

Well. Thank you one question, but its bit of a long question, but I would say about their go to <unk> been a great template <unk> fixed mobile convergence and probably get more rational pricing behavior there.

Well again integration bad debt.

Well default built apology for Bargy that just keeps getting better and better.

You can you give on the table.

Yeah, I can do you know.

With Vodafone in 21 versus.

Yes, I think everything Doug outright and putting the two businesses together and also we look at Vodafone.

Oh, you would open and city Barbour and not having much of a backlog being aggressive on broadband pricing.

Area, where.

Limited.

Scenario or an outright sale you could actually look at pumping UK or towards the one of them in terms of new JV or or could be someone else equity as opposed to an outright Newcastle today.

Yeah, a lovely by multiples.

Looking at multiples that we saw and Germany et cetera.

Thanks, Matt that was actually very clear question, even though it was a long and as you say, but I take couple of things number one on the Vodafone NVNO deal in the UK.

Both parties had an incentive to enter into that arrangement on their part clearly they saw an opportunity to drive revenue to their network.

It's all incremental revenue to their network and that's a positive for them and so they were very aggressive and willing to be aggressive with us on great pricing access to Fiveg, we think it saves us I don't know loose I think we said hundreds of millions.

In Oh CF overtime.

And so that was their motivation I believe and I'm sure they're trying to some extent to make us happy in the in the mobile space and maybe we don't do something somebody else will see I mean, they were clear and we were discussing it with them on that basis from our point of view. It was purely economic decision that if we're going to push fixed mobile convergence as an MD you know.

In the absence of any broader or transaction as you've been implying why wouldn't we do it with someone who is willing to give us access to fiveg and great pricing. So there wasn't you know I see a mutual mutual interest on both parties part to do this deal and it's going to benefit us obviously materially going forward beyond 2021, we really roll it.

<unk> out in terms of what we are quote unquote, leaving on the table.

You would have read I'm sure multiple analysts have estimated what the synergies might be if we were to acquire Ob acquired by a mobile operator in the UK and I had the numbers I think ranged from five to 6 billion pounds NPV of synergy and that number does.

Not surprised me in the least since we've already been part of either as a seller a buyer or merger partner in something like seven fixed mobile deals.

One of the reasons, we keep saying that this fixed mobile convergence is not just a fad. It's is the direction for all the players we believe in these markets.

And certainly if you look at the numbers that Vodafone publicize the numbers, we publicized in Belgium, a we publicized at Holland those are not unrealistic merger synergies, what we'd be creative on structures and and outcomes in the event because somebody was interested in either Switzerland or do you.

Okay, or Poland, or really any market or Ireland willing to do something list of course, why wouldn't we be creative and flexible the goal is to create value close the value gap.

Recognize the out but we know the value recognize the value we know exist in our business.

We we respect the factor for many shareholders and as one analysts said. This is a show me momentum you know we're cool with that those are the kinda situations, we thrive in and so yeah, whether we would be flexible or why would we be because I'm not being nothing specific about any particular transaction or market.

You know the goal is to create value and I think as we have been in the past we had been buyers. We had been sellers. We had been 50 50 partners. Yet we have we have done all three models are executed on all three models in different European markets.

Clearly we are capable of being flexible that would be obvious what exactly code or might happen in any of these markets I can't predict on my point it predicts view.

Simply say as I said in my remarks.

It's here to stay fixed mobile convergence, whether it's true and NVNO or an eminent relationship and that's a good thing for cable networks.

That's like.

Yeah.

And our next caller is coming from the line of Sam the Q.

From Exane. Please go ahead.

Yeah. Good morning, guys I just couldn't from UK MTV I guess, you called out skies office and yours as well do you think we possibly could have a tipping point in the UK in terms of traditional TV or do you can stabilize your subscriber base again, and then maybe if you just remind us how much gross profit you may come TV in the UK I went to both by market being sort of come back for a moment GPU kind of fat.

Those TV losses with broadband prices, thanks very much.

Well, let loose chime in here, a little bit I'll, just simply say that.

I don't they are very few pay TV markets in the in the you know in the first world. If you will that art experiencing obviously the impact of direct to consumer streaming subscriptions as well as you know I would say general core cutting the cord shaving you.

I'll be able to find one and they don't exist and that's okay. Certainly had an impact in charter a comcast and their ability to drive valuation and growth I would say as they have said broadband is the business. It's the one that generates.

Essentially meaningful gross margin and is the product that you need whether you're subscribing to our video product or any video product, having said that we generate gross margin and I would say good gross margin on our video business in the UK arguably better gross margin than the U.S. guys and so it's worth protecting and we.

We are doing all the things, we think are necessary to protect it including rolling out our advanced a user interface very shortly here called horizon for to replace Tivo and be available on the Vsix box, that's going to rethink the transformational to the consumer experience in the same way X one was for Comcast.

And this is our basic our version of our UK based X one and so we are investing in the user experience. We are rapidly integrating apps into the box wherever we can Amazon you tube Netflix where you know we are open for business when it comes to add App integration and that.

It is going to make our our platform, we think sustainable and viable and and even necessary for consumers you want to lean back watch television and get access to whatever they're interested in by simply saying to their remote control you know play Netflix and so that's that's the play we think it will be <unk> will allow customers to be sticky on the other here.

And as Luke just said many times and we said, we're not going to chase low end customers.

And we're not going to spend capital to retain low end customers, we're gonna be smart about profitable growth and we know that a video product combined with the broadband product and a mobile and a voice product is a much more compelling service for it for customers and so the bundle matters and videos a big part of the bundle. So I don't see it going away I think it's Chris.

Nickel to US there is gross margin, we think it can be stickier as we continue to innovate with horizon, which we'll do this year.

As we integrate apps and become friends, even greater friends with the streamers.

Consumers, we think we'll see the benefit of leaning back speaking into their remote play Amazon play BBC play I TV.

And being sort of the aggregator of that content experience to us that's a powerful a powerful proposition, which really habit exploited yet in the UK market. So.

Long answer it looted I missed anything or do you want to add to that on the video side I mean, I can I owe you too right I mean, all the couple of numbers to support what they set mark Brett, but we are focusing really much more on the customer then on me.

The feel RG you.

Brought the we kept our customer base flat and we have Pat we'd have had the highest opt to increase in the back in Q4. So therefore, our high value customer strategy, we think Paypal.

Yes, we lost a a beat your media our views as you said, but at the err on the low end.

And simply we are paying a little capex for the boxes.

And because now you didn't used to pay for the fleet TV video money to up and called so we're not focusing on that anymore and you see a certain operating free cash flow contribution out of that and that's the same time, we ensure that we participate in the.

Oh, two key growth as Mike said, and Oh Gee grows onto our platform. It is it's even higher than the video. We do argued that you law. So therefore I think these numbers opposite pausing a cookie our strategy.

Well some guys. Thank you very much.

And our next question comes from the line of Andrew <unk> from <unk> Research. Please go ahead.

Hi.

I guess you go up to 8 billion in cash and it's a pretty high proportion go market cap I'm I'm, probably says it was pretty limited.

Equity value implied.

As you may do opt to sort of taking out the other assets assets market doses. So just wondering if you can weigh out your current thinking about the roasted merits of.

Various possible approaches to realizing value, which could be spin offs to be the liberty met what superstructure transactions that you've been.

Mentioning earlier.

Your.

Traditional approach with buybacks or M&A or anything else.

Yeah, well I'd say look it as a base case, you're correct, but by the way. We believe that there's you can get to our stock price, but pretty much ignoring Switzerland, any UK, which is oh, hi, the questionable in our minds of course.

But there are several ways to to get there and I would say, we begin first and foremost with the base case business, So and as Charlie said many times as we've all repeated many times. We believe we can generate good free cash flow and free cash flow per share.

Out of these businesses, including Virgin and sustainable free cash flow is in our minds the metric that matters.

So as a first instance, we hope to be able to convince you and others that simply the free cash flow yield.

On a market like the UK.

Is worthy of a meaningful valuation.

Especially if you consider sunrise swisscom, even our own business, telenet, and where those yields and multiple sit so first and foremost you know this is a bit of a transformation and thinking.

Well for us and for investors that we believe there is sustainable free cash flow in the business without any transactions.

Without any.

Inorganic moves to close the value gap that we know exist. That's that's step one and I think we can achieve that and that's what we're focused on obviously there are multiple things we could be doing beyond that all around you know for example, as you described.

Monetizing our networks in a more creative way looking at inorganic or combinations, whether with mobile or other operators that public listing.

Spinoffs is clearly if there's any company out there.

Able and capable of and willing to look at creative ways to to shrink the value gap you're talking to him.

You should assume that is something we are working on every day and trying to be both sensible, but also creative and strategic about how we how we how we close that value gap.

That's how I'd answer that question.

Okay.

Just a quick follow up on the 70 million premises that you're talking about for the expanded UK.

Infrastructure opportunity I mean, it's quite a big volume of problems and probably means quite a bit of overbuild about those but just kind of just constitute about it's not it's not something to 10 beyond seemingly enlightening has now or from the woman in end of lightning.

And it's not like I remind you come to having to attend yeah. Good. Good clarification, it's seven to 10 from this point.

Principally from this point and you know.

Yeah, and just to be just to add to your earlier question. Certainly we could consider you know maybe lightning itself is a you know an asset that should be lifted and shifted.

And you know BV and could and become the engine of that growth. So we would take incremental to where we are today.

Okay.

I'm not as all your build or was that.

Footprint ambition, including you will build and then third party hole so.

Oh, well look at it in general terms, we believe the opportunity exists to economically consider expanding our network to seven to 10 million homes.

The way in which you do it.

To be determined but that's what we think is an economic.

Ambition.

Okay, Okay Yep.

And our next question comes from the line.

James roster from.

And Mr. research. Please go ahead.

[noise] Ah yes. Good morning, everyone. Thank you add question regarding just kind of suppose a follow on ready from Andrea just around use of capital and it seems like the message from today is that although the kind of final structure of any UK network build out hasn't been finalized it's clear that more capital.

So is intended to be allocated.

Towards UK network builds but out of thought a lot of that could also be covered.

From your organic free cash flow.

So still leaves the question really all for how the $8 billion of liquidity that you have could be used so I mean, it's just wondering if you couldn't give us more thoughts on how emanate might feature written that I mean, it's now six months since the Vodafone deal close so be interest.

To understand you know kind of walk situations, you've looked at I mean with it being stories about Univision around in the press you know can you comment on how M&A might play a part and use of capital if a toll and then just as a clarification just regarding the 100 million pounds of headwind in the UK.

Hey, which would be around kind of 5% of Virgin. So CF is that a headwind. In addition to the 2019 trend which was already down 2%. So we should be thinking about Virgin all else being equal down 7%.

Yes, the twentytwenty. Thank you.

I don't believe that's accurate and you're in 100 million, but Charlie.

You can decide how you want to address that particular point with respect to capital allocation.

I think your first point is accurate, we do not intend to allocate significant a balance sheet capital.

Who have built in the UK and don't believe it's necessary. So a combination of free cash flow and potentially third party financing sources would be the primary.

A source of capital for that.

This important clarification.

While we think the opportunity is exciting and we think the need and the ability to drive Virgin to the rest of the marketplaces exciting I don't believe we intend to allocate significant amounts of balance sheet cash to that and don't believe we need to.

Doesn't mean wouldn't put some to work, but it's not in principal source of that so that's good clarification.

I would say you know any a few calls ago or maybe a two calls ago. We went through the buckets of capital allocation and we identify those as being first and foremost capital structure. We meeting buybacks. While we took what 3.2 billion of our capital to work in that category last year, certainly can't be accused of not paying attention to that category or.

Or being serious about our investment in that category. We took another 1.6 billion and de lever that was the second category. We did de lever in the in the Central Europe area about 1.6 billion as part of the closing of the Vodafone transactions. So we certainly trending leverage a bit and that we thought was smart in that particular moment the.

Third category was core markets, that's what we've been talking about today core markets, meaning UK.

Switzerland, Ireland, Belgium Holland.

That is where we think the first and best use of cash if it were necessary to be used.

You know it would be spent and I think that is smart for us because that's where the biggest value gap exists today, both in terms of apparently shareholders lives.

And on hedged we have put in a money to work in various strategic opportunities small amounts of capital generally and when 8 billion of cash is there any 2% we should certainly be looking at capital solutions and at ways of putting small amounts of money to work that could create interesting opportunities I would say that is that it.

Not the main goal, it's not something that you get people nervous you know the reports about us quote unquote buying Univision for 9 billion were not accurate.

You know, but we will look creatively at deploying capital in small venture like ways in order to drive potentially future strategic opportunity but.

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