Q2 2020 Liberty Global PLC Earnings Call
[music].
Good morning, ladies and gentlemen, thank you first.
Welcome to Liberty Global's second quarter 2020 Investor call.
This call any sense either what.
Oh the property.
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This call.
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I would now like to turn the call over to Mr. Freeze.
Thanks, Operator, and welcome everyone to our Q2 results call first of all Openreach safe and well and as always we appreciate you joining us today are playing it to run through the slides in prepared remarks were about 20 minutes yourself to be sure. Your level set on the key messages. This quarter and then we'll spend the majority of our time answering your questions as usual I've asked the here.
For the can't exactly to join me on the open line and I'll be sure to get them involved the Q and a recession as needed.
I'll take it off on slide four for those who are following along with a summary.
Key highlights from the quarter, it's a pretty comprehensive slide so bear with me I want to be sure. It hit each point beginning with a few remarks on how we've been navigating the coded 19 pandemic.
I see this is on top of everybody's minds. So I'll spend a couple of minutes upfront and then we'll get into some more color in detail to the course of the presentation at your name.
Clearly our primary focus has been in remains.
Safety and well being of our people.
By the 90% of who continue to work from home like most companies you've heard from working from home can and does work in were no exception of course in our case you at the balance that with the need to be in the field building and maintaining plant in installing and servicing customers.
We're also governed by different local regulations and protocols in each country most of which have required that we opened up all of us is slowly and carefully and that's exactly what we're doing.
As we get back to normal everyone in our sector is working on bottling. The magic so to speak whether its record customer satisfaction levels are faster more agile ways of working it I'm really excited about the part which were making here, which I think there's going to be definitely positive for us down the road.
Well the macro environment in Europe has been severely challenged but could be 19 the region on the whole that's what are the crisis pretty well and better than many expected as anticipated eurozone GDP fell 40% of the quarter.
12% sequentially, but there's some bright spots are not the least of which is no by all accounts a pretty affecting the handling of the pandemic.
All of our cooperating markets in Europe have successfully flattened occur with daily confirmed cases anywhere from 75% to 95% blow peaks in March and April and fingers crossed staying pretty constant justice impressive. While every death is tragic mortality rates have fallen to levels at or near zero in most of these countries. If you contrast.
That would be U.S., it's pretty striking the crisis is also brought the Wenjun together you know in addition to stimulus measures rolled out the national level. You mentioned, we adopted a 750 50 billion Euro recovery fund designed to help businesses rebound is form those economies hardest hit that protect against future crises.
Coming to us confidence both among consumers in investors seems to be on the rise you can see that in euros recent strengthening against the dollar by about 10% since mid may.
Against this backdrop, our business continues to perform well very well in fact fueled by record MPS levels, lower churn Boston reliable networks and significant steps to get customers more more speed more data more content. That's it's a theme I know you've heard from a unified heard about from many of our peers.
In our case broadband net adds were the highest we've seen since Q3 17 in customer additions driven mainly by the you gave the best we delivered another two years.
And what could happen a modest impact on reported revenue and Charlie is going to dig into that in a bit.
All of that shortfall occurred and low or zero margin line items, which allowed us to deliver better than anticipated EBITDA and operating free cash flow. The latter was up 14% year over year.
Not surprisingly, we're reconfirming, our original 2020 guidance and quite frankly, we hope to exceed those levels.
Switching gears I'm pleased to report that our UK JV with Telefonica is off to a great start.
As you heard you know last call this will be transformational deal for the UK our respective customers.
For shareholders, it's a win win win as we like to say.
After a couple of months of Premerger planning my excitement level for this combination is even higher lochinvar do all the details again I'll just remind you that we're talking about 6.2 billion pounds synergies a great valuation for Virgin media going into the deal and expected proceeds to liberty coming out of the view about 1.4 billion pounds.
Talking about fixed mobile convergence in a moment on the next slide when you combine these kids fastest broadband network with the country's largest and most admired mobile company. The long term value creation opportunity is extraordinary.
Also didn't hear the teams are working extremely well together the financing was falling into place and the regulatory process is underway <unk> everything's on track for the completion of this deal.
Just a couple additional points you on capital allocation as we indicated on our last call, we definitely front loaded or buyback activity into the first half the year now what you would expect us to do given the price volatility that means you're already purchased around 750 million of stock in the last five months.
Grant the question I know you're going to ask we don't have any announcements today about adding to the buyback program. We're always you're dealing though dawkins of course, but we have 250 million remaining on the plan will be putting back to work with a tiny.
And finally, our treasury teams that were really active in the capital markets. This year refinancing over 10 billion of debt extending our tendered over seven years and reducing our fully swapped borrowing cost to four person. So to recap we delivered strong subscriber results, but EBITDA on operating free cash flow or ahead of consensus and we're confirming our original.
Guidance for 2020, and then of course, we're making good progress on the JV with Telefonica in the UK.
King of the UK.
I thought it would make sense to revisit the fundamental logic underpinning this deal and the other fixed mobile combinations of orchestrated recently this is a very clear and powerful strategy at work here since 2015, we've completed or announced five fixed mobile merger. The total deal value of over 80 billion and any.
Case, the fulcrum asset with our broadband network built over the last two decades through organic growth in Nashville consolidation.
In certain of those transactions, we enabled the creation of a fixed mobile champion do the sale of our cable operations to a mobile only player that was the case of course with the feel of our Austrian business T. Mobile for 2.2 billion or 11 times EBITDA in 2017, and the more recent sale of our German business, along with some smaller operations to Vodafone for 22 billion or 11.5.
Five times EBITDA.
These were highly accretive deals for us right, where we were exiting at premium multiples and banking significant returns on our long term tax efficient investments in these markets you've all seen the numbers by all accounts. He is also homeland deals for Vodafone Deutsche Telekom, because whether you're a seller or buyer fixed mobile convergence works if that I think it's one.
The most important strategic development I've seen in Europe in my 30 years.
Drive scale it drives messes synergies it drive sustainable cash flow and ultimately it drives better valuations, which is why in Belgium, Holland any Jay we chose to create our own fixed mobile champions by either by acquiring are combining with a mobile player in those markets and the strategy is working brilliantly for a slide five provide some numbers it support.
With that the top left highlight the scale of our combined operations today in these markets in Belgium in Holland, which surpassed the incumbent in fixed BDC services.
And we're number one in broadband and TV in both cases, we're gaining share in mobile the convergence ratios exceeding 40% in growing.
In the UK will start to JV with the number one share in mobile and on what Fred will be number two in TV and number one in broadband.
No that roughly 80% of Virgin customers are using someone else's mother product today and are highly interested in a converged bundle from us as we continue to expand the reach of our gigabit broadband network was much more and more to customers.
Also drive strategic leveraged an opportunity in these markets what does it do it enhances our ability to shift the political and regulatory agenda, which you. All know is critical and it puts us in a position to take advantage of ancillary opportunities in areas like content and new services and infrastructure.
It's not surprising that shouldn't be analytical ziggo was the first the lunch Fiveg. It's also not surprising that brought up a good success with fixed broadband anchored by one good rollout and the strongest sports franchise in Holland.
Telling it simply acquired a free to air Channel is now launching the new Belgian Netflix to supplement its ODP content offering. They also recently announced a project to the largest utility company planners to own a control the network on the future.
And the merger, though too in the UK makes our previous expansion and network expansion strategies and infrastructure monetization ideas, even more compelling in my view.
Second as you've seen synergies of fixed mobile transactions or a significant source of value creation just in the three deals where we remain directly involved Belgium, Holland and the UK announced synergies coupled with the 12 billion euros at an NPV basis National demonstrated again and again these synergies are real achievable and sustainable.
That was never missed a synergy target in Belgium, we've exceeded expectations in Holland, we expect to do the same this bodes really well for the UK and accrues to the benefit of shareholders of course, but also the customers as we get smarter faster and more responsive to their needs.
It's Michael mergers also generate we'll grow anchored by stable recap what you can see that on the top right of the slot indicates a Belgium Holland.
Well to turn around me, the Doctor Directory, and even more important deliver significant distributable free cash flow of over 4 billion euros <unk>.
These results are derived from what are increasingly predictable outcomes the realization of synergies that a customer experiences reductions in churn increases in M. P. S and the inevitable repair that occurs over the longer term when markets rationalizing consolidate.
Then lastly, investors, particularly in Europe are signing higher valuations to fixed mobile platforms on the bottom right and show you half dozen examples include any companies like Swisscom KPN until it too when you can add your own or take these obviously, it's up to you but on average the stocks are trading at eight times EBITDA with operating free cash in multiples in the mid teens and mid single.
Digit levered free cash flow years, so clearly skill synergies and stable free cash flow, our desirable investment characteristics, especially when you're a national champion or national Challenger.
This underpins our perspective interest in public lift seems to be Frank where it makes sense for us in certain instances to try to take advantage of these market valuations.
Partly because high valuations greater transparency and sustainable free cash flow should support our own valuation at the parent company, regardless of whether you look at us on some of the parts basis, well use proportionate EBITDA, we're operating free cash so won't be focused unlevered free cash and the annual dividend stream, we collect on these high margin operating assets.
Speaking of operations, we have our usual updates.
Each operating company in the presentation for your information, but interesting time I was going to hit a few high points year from each market and then we can address any questions. Your thoughts you might have during the Q1 night I'll start with Virgin media, which by all accounts had a strong quarter 24000 fixed customer additions, including growth on both the lightning and be a you footprint.
These results are supported in part like reduction in churn and 33000 broadband damage, which we estimate to be 75% of all broadband adds in the UK.
Just customer ARPU was impacted by cobot.
Particularly pausing of opinion sports, but on a normalized basis ARPU was flat.
We had a 90000 home to the lightning footprint in the quarter, bringing our cumulative built a 2.3 million in total gigabit ready homes in the market. The 15 million nobody has a faster or more robust network. The Virgin media, it's not even close.
But you had another strong quarter on mobile 85000 postpaid adds on the back of the Quad play bundles, adding three points to the fixed mobile ratio.
And the team I think a really started hitting on all cylinders and that sets us up really well moving into the merger with though too.
This was market remains highly competitive by the way you know that which is why was invested last year in the nation buy one get rollout and our new video platform and digital initiatives across the customer operation. Good news is these investments are beginning to pay off.
With commercial momentum building in Q2 and operational trends improving for example, and yes I got an all time high in sales in June actually exceeded both last year end pre called the levels. We also announced an agreement was supposed to call that rationalize a sports in the market and ensures that each of our customers want access to both telecom and my sports going forward.
As you've heard us in many times were particularly focused on free cash flow in this market and you'll see that operating from castle was up 10% in the quarter, which supports our full year forecast of 170 million of Levered free cash flow.
Typically what can I say, we remain opportunistic expect me to say that this market still required rationalization.
We don't think the announcement by Sunrise and salt to jointly builds from fiber over the next five to seven years, if they can get the financing to do that changes much of anything really we already reached 75% of the country gigabit speeds are the competition have to articulate some sort of plan, which is what we think that adds up to.
Moving to telling that they had a strong quarter on a number of levels with their best broadband and digital TV net adds since 2015, a customer outcomes rose 2.4% year over year that was supported by a higher proportion of fast broadband and quad play subs.
[laughter] Quad play the fixed mobile base now stands at 600000, and the total convergence ratio or mobile attach rate exceeds 40% in Belgium.
There was a revenue went back from cobot, particularly handset sales in advertising underneath it all you'll see that subscription revenues are growing and above target. That's good thing not surprisingly telling that confirmed the 2020 guidance you gave in April and that stuck to its original free cash flow and dividend forecast for the full year. Then finally vodafones <unk> also performed well through the pandemic.
The investment in networks and infrastructure continues with nationwide Fiveg coverage now available and new 20 or spectrum license just acquired a few weeks ago [laughter]. The rollout of one gig is also back on track.
With nationwide coverage slotted for the end of 2021.
Vodafone as it goes results in the second quarter were solid the team managed to mitigate the revenue impact of co bid in the mobile space, mostly roaming related with 50% opera grew up in the fixed business and proactive cost controls, which drove normalized Q2 EBITDA up 6%.
There's no but are fungible also reiterated their oh your guidance, including positive EBITDA growth in four to 500 million of free cash flow available available for distributions to shareholders.
Now before I hand, it back to Charlie to talk through the financials I just want to take a moment.
The switch gears here and recognize the passing of one of our board members.
Dear friend and mentor to me JC Sparkman you might have seen is a bit you were in Wall Street Journal I, just say JC was a legend in the cable industry.
On the loans words, a P.C. I was built on jaycees back over the 25 years that he was chief operating officer.
He brought that same energy and operating listen to our board or last 15 years like this part of the Liberty Global family.
He will be sadly missed by all of us.
I don't want to end on a sad note, but I just want to be able to make sure I have a moment to recognize him in his great contributions to our company over the last 15 years.
That Charlie over to you.
Thank you Mike.
Slide in functions Q2 in fact, it come at 19.
Oh about 4.3% can't to consolidated you're on your revenue decline, we estimate the combined impact is roughly 4% for around $110 million.
We did not we estimate that the reduced revenues from premium sports accounted for $34 million, an increase like challenges around $8 million.
Fixed and mobile impacts for around $19 million, just my by running reduced handset sales contributed $17 million and $10 million respectively.
We also reduced revenues at Irish in Belgium, glucose businesses, which we estimated $21 million.
So when you consider the estimates of the cover it impacts Caribbean trend is actually in line with a recent courses.
When for example in parts of color doing just another during the course it was minimal many of the impacts such as premium sports and mobile handset revenues and margin I mean also benefited from reduced churn and both sales and marketing expenses, which helped to offset material impacts as a result, we believe it or Q2 adjusted EBITDA growth right.
The aggregate largely unaffected by corporate.
The next slide into two groups I would view, we show the key financials for the group.
Despite the revenue declined 2.3% adjusted EBITDA declined 2.4% for the quarter doses the declined 3.6% in Q1.
And equipment additions were 21.6% of sales in Q2.
Probably impacted let me were 18.8 cents ourselves.
As a result, we saw strong operating free cash flow growth, but pretty lucky in construction, let's see after the quarter at $678 million, a 12% year on year improvement and also I mean, capex $601 million up 18.3% year on year.
Great liquidity remained strong at $9.8 billion and of course around our gross that was 5.3 times adjusted EBITDA and 3.8 times net.
Having completed a number of refinancings in Q2 or average that kinda remains beyond seven years with an average cost of 4%.
On the page I'm talking P. any additions, we provide more detail around our capex, which we continue to analyze in five major buckets.
For the did have an impact on OCC, C.P. spend which was down 34% year on year.
How do we feel great about set top box I mentioned that books. The state we expect to see a reduction in spend in this category, even without the impact of covered.
So I covered we can't do you need to invest in many other topics categories and let the problem for future growth project Lightning builds volumes were down modestly year on year, but we still constructed 93000 homes in the quarter.
Cost of promise trended down with a customer premise of 626 pounds in the quarter. That's the 665 pounds costs behind them of course the project today.
The past 10 vessels was down 18% as we benefited from the completion of a large spectrum upgrade in Belgium much of the one gig upgrade in the UK.
Increased go spend in the product roadmap, 18% supporting our mobile platforms and then you can Belgium I just wanted to see a key investments required to drug digitization efficiencies.
They fund, which is a major problem for maintenance category was broad based on the previous years.
In the aggregate, we spent 1.2 billion in the first half of the or run 22.2% to sales.
New construction Capex this figure would it be 19.1% the cells and with the completion of significant projects and the connecting video space as well as a major capacity 90 upgrades behind us.
We expect to our capital intensity, excluding running to remain below 20% and trend lower in the coming years.
Turning to the divisional my view, which breaks down because by all key major subsidiaries.
It's a roadmap to analyze the free cash level major assets.
You cannot and show so we're ready to kind of the first half of 2.1% adjusted EBITDA declined 2.5 cents an oh. This year was strong at $749 million default lightning construction capex on $573 million off the underlying that remains a strong cash flow generating asset spikes.
Do you build investment.
It also benefits from significant tax loss carryforwards, meaning a higher free cash conversion almost akcea done for example, Belgium.
It wasn't a group as a whole Belgium revenue in the first on declined 2.8% Bugs recorded positive adjusted EBITDA gross 2.2% operating free cash flow of $428 million. They recently confirmed that free cash flow guidance at the low end to the 415 to 435 million euros.
As Mike discussed the repricing the Swiss market continues to put pressure on the topline and despite operating efficiencies adjusted EBITDA declined 12.9% in the first off.
Shifting to period was $140 million, we remain confident.
Yeah, the we'd love to $170 million of attributable free cash flow at today's exchange rate.
As Mike highlighted to stand up before about major my sense was better trends again.
Despite covered in the first off then we'll just 2.6% revenue grew 8.1% adjusted EBITDA growth and increased Oh, yes, yes to $562 million sequentially adjusted free cash flow for the group as a whole after the first six months operating free cash flow before login Capex was just under 1.3, but.
In dollars.
We had hawk your interest of $600 million and cash tax a $57 million.
The joint venture paid interest on the shareholder loan at $22 million for the first six months.
But the remainder about 50% 400 to farm increment in Europe projected shareholder distributions and the second half of the yen.
Working capital for the first half was negative $323 million consistent with previous years, and we expect the working capital impacts to be broadly flat for the full year.
As a result, adjusted free cash said before lightning Capex was $315 million and after Capex $139 million, we remain confident subject to my major thought of disruptions from call. It a realizing a full year free cash flow target a $1 billion, even after lending construction capex so in conclusion.
The UK JV with Telefonica remains on track.
We're continuing to navigate through covered 19, so far the impacts would be manageable.
And despite cubic we were able to achieve record high NPS in Q2 and positive customer additions.
We're encouraged by first call financials, I'm not sure how optimistic for the remainder of the yeah.
We are confirming what about Twentytwenty gardens metrics based from no return to the full locked down slightly so between much I may I'm, assuming a gradual economic recovery.
Given the uncertainty the spectrum were not raising our guidance at this time I'm, we'll take questions now.
A question and answer session will be conducted electronically.
Good question. Please do so by pressing the star as Turkey.
<unk>.
In order to accommodate everyone really we request that you ask only one question.
You are using speakerphone, please make sure function it's turned off.
No.
Oh for just a moment ticket.
To join the queue.
And we'll go first to Steve Malcolm.
Redburn.
Oh I'm sorry.
Doug can you hear me gods.
Got Ya.
Thank you, yes, sorry, it was a good yeah. That's a that's the presentation just coming back to slide five <unk>. Your multiples I guess, it's held at multiple kind of jump started but trading it.
Tempur centric actually you'll get to get a question for you in the board and Charlie.
It seems like you're not getting tremendous equity volumes, that's taken so but it sounds like I say why do you think that.
The board happy with the Stakes in <unk>. So you quoted in the recent.
Sell Tech conference and you'd love to add more go to things like that it's just sort of interested to hear your thoughts on why you think spot market is not giving you don't you couldn't do you think is fairly fair value for your stakes news, they spend lots assets and where you could get to sort out.
Sure and that was really the point of that slide wants to talk about the at them. She tried to do but the punch line being that we believe.
Continue along this path, which we are of course.
Continuing on.
But the valuation.
Underlying businesses in those local markets will be there and I think they sell on that that's a good example, trade at a premium to us on a number of levels are we getting that valuation in our stock question, Mark, but I think that she begins with the underlying businesses and I think the pack were on two could drive either.
Then see champions to greater free cash flow yield.
Greater stability in operating performance is the starting point and it's clear also that local investors and many of these markets refer to all these businesses and understand the benefits of a stable and sustainable free cash flow and as a result, as you can see on the fager or are giving these businesses higher multiples and.
You know better valuation so.
If we're able to achieve those savings open ended results we've already been its eating or we can get for example, vodafones. They go public or perhaps even though to be taken down a burger media.
That that could be a real positive events with the stock I'm not saying that's the only reason.
<unk> said look at it it's not explaining the entire gap that we had bidding for the underlying value with the topco, but it certainly will help bridge that gap and you know we're we're all about as I've talked many times bridging that value.
And I think that strategy, we're pursuing here is the right one.
Investors need to see if he thinks it wouldn't be surprising I want to see these transactions get done so we need to get the transactions a telephonic and you get completed and approved of course that would be a positive. When it is you need to continue to show demonstrate sort of strong performance in cash flow that we're demonstrating out to be businesses today.
No question, we have to.
Put feel about money to work I think the money on our balance sheet is helping today of course on investors would like to see out money before we appreciate that we're in the same boat more liquid.
Well, that's a combination of things, but the whole hopefully this slide shows at the top.
Is the right for creating walk evaluation and.
That's what we're.
Sorry, I suppose that Mike talked about as Charlie just <unk> I think I think I think we do feel ton, it's pretty undervalued I think that I didn't say, it's not clear to us why it would trade so distance to KPN Brooks, most which have less attractive growth protocols less stability in the cash flow centric and that's something we're certainly working without can join them because I think there's a number of possible.
Technical reasons around liquidity, just all kind or could it be around cloud to run shoulder distributions here, the Palestinian buybacks and dividends. So no I wouldn't say that we feel comfortable with about half of it spend that we think its throughout the trial.
Yes.
Yeah, that's pretty much question, but it doesn't seem like the current structure, where you end six except in selling it and 50% that Guy <unk>.
He is doing a great you either for you mentioned local this thing, but it's already working with tell him at the moment I guess it up for its own it.
But what about the slight really good numbers the sports or sorry that was pretty my question, whether you think the card garden setup, we're watching it but I think what about its favorite yeah.
Steve I think I think we can make your the case, it's going to stick a superior growth to actually any telco in Europe. So they would trade substantially so they just speaking kick in on every single metric. So I think it's fair to say that the valuation of that you would expect to be inside KPN, particularly the Sims that I think it would telenet valuation is a is it scratch and we're certainly aware of that.
Disconnect and we're talking about with them about it but it's a fundamentally a very strong company very predictable cash flows.
I think at this stage for whatever reason isn't getting the valuation, but its record mikes point, even at that valuation tridien discount to that is out there.
I guess unusual I agree with you just trying to figure out you know whether that better structure out there that would close that you know it's undervalued, but are you in minutes. The local listing itself is probably had a big those kinds of companies like probably too, but I I think it's probably performing better than.
Yeah, that's a part of it yet and there were a bit.
More leverage.
Yeah, we're a bit more levered than some of that stops on this page of course, it telenet and political and video rather the you know we answered say which is.
The mentally tell it might be undervalued, but clearly undervalued, but the strategy of creating transparent value has to do that them over time.
It's download.
Operator next question.
Well go next to David Wright with Bank of America.
Yes, hi, guys. Thank you very much for taking questions I'm just on UK trends, obviously strong internet ads cable attacks you guys are committed to maintaining quite a lot of the provisioning through the lock down period, which will surely have supported.
The trading book it still does stand out.
<unk> better commercial performance could you maybe just.
A little color on what we think is driving not was it perhaps that's.
The UK consumers reacted a little bit less than sort to the end of contract regulations. What does he think history. It really driven not a market outperformance. Thank you.
I'll just say a couple of things and then move all that you chime in here from my perspective.
The fact that we were still installing customers.
Ah actively in the field certainly advantage to us.
Stop installations itself that that was critical in central and and continued to make.
Products and services available to consumers, which was important and then secondly at times like this there is usually a flight to quality and what we're offering father bag across the country.
And the competition as a 30 or 50 or maybe other in some cases are slightly more that's certainly matters a those two things in my mind.
Resulted in certainly better better performance than we'd expected together with reduce churn and each of the numbers. So what you want to after that.
Yeah I.
I I think exactly what you said Mark and I mean, what we did was a we came out right at the beginning of the crisis was the generosity program pro customer.
I thought them more the offer them mobile data packages or remove any tax on on board. It came up with ER free of charge walk up in China kits and stuff like that and ER. So MPS has increased rapidly.
That's number one number two it I mean actually eat satisfaction ultimately is increasing in quite some time and our people people.
Eight committed to the company I'm, so they decided to keep installing and keep it keep expanding there are so which was also great contribution to the success Thirdly, we quickly moved to digital right. I mean, we started the true I need to get utilized Virgin media.
And no, Iowa fits channel or digital chipsets, Jim has increased by 50% from Q1, two Q2, so that it fits channel. So 10 pitch digital has increased to six cases.
And on the Trump card than high and passive cool Elektron. Then also obviously optical openreach. They have stopped installing so therefore, you could not really trying to another netbook and Ah bulk so you'd see that our quarterly churn, it's gone going over three consecutive.
Nothing material. So therefore, we have sets momentum we happen when come in lower churn.
We have high end cap and also as Mike said I have to speed and higher quality met or when the connectivity the connection to the outset wolves.
I could I could not possibly US then we know that Oh can reach was back in the market in June.
With a lot more installations, almost bucket kind of full run rate.
Can you kind of gave it was any indication that the that's sort of into interest sort of quarter trends unless our united be kind of exiting the quarter, you know, maybe a little bit more normally rather than not but kind of initial spike what was the real outperform and sort of through April may and June maybe a little bit more mute.
Good.
So from the fifth perspective, we actually accelerate momentum.
So we have not felt that ER, our compared to go back in the markets.
From the chair on you see I mean, we have seen in I think may in April on on churn number.
Right I mean, Deborah dramatic, though the churn level has come up a bit more but it's still lower than it used to be.
Okay very interesting thank you.
Well the next to James Ratcliffe Evercore ISI.
Hi, Thanks, taking my question two if I could one it's a picture of discussion mom fixed mobile convergence.
And the rationale for the UK transaction can you talk about what would be.
Pitched to the customer what the compelling proposition for the customer is on fixed mobile convergence beyond just if you got a bundle discount.
And secondly, a.
Hey commentary that preferred stock in sports package is more like a coverage and a lack of sport.
But there are a little margin.
Our sports a big part of the reason people take pay TV.
So can you talk about the longer term in Pakistan. So a lot of sports and secondly, how profitable is the TV business for you at this point can you you are suggesting that pretty much throwing the towel on it but oh, how beyond as I tried to do so how liquidity is that if he product itself.
[laughter] quite a few questions that day.
Let's see.
Luke and I woke up what would you ever though for the UK and at least give one example of a fixed mobile proposition to consumers today, and how that might evolve in the though to environment I'll say on the TV business of course, we evaluate this very closely across every marketplace, we still deliver and generate.
Pretty good gross margins on our TV business in comparison to say the U.S. industry.
That's principally because we don't have massive <unk> expense in the basic package for sports Oh, and so our gross margins you know vary by market, but there could be as high 60, 75%.
In our TV business.
That's you know from our point of view and a nice a piece of the nice contribution to EBITDA on and something quite important to us or we don't intend to sort of let it go if you will hear Clyde the do realize though that the overall economics of TV happy involving our evolving.
So what we're spending quite a bit of time on is reducing the cost of our device we put on hold.
Ensuring that things like sports are available on a premium basis and integrating OTI t. apps. So that your experiences sequence of that curved TV on you just say Clayton ethics play Amazon play BBC, and you're ready to rock and roll and so we do think the entertainment platform. We've developed has longevity and has relevance to consumers.
Because we're integrating asked because it's it's cheap can span and easy to utilize and we intend to continue to drive it costs a back down so there's margin in the TV business. So there is profitability of the TV business.
From the sports point of view, yes look when sports pause, we didn't lose a handful of customers, but most customers just pause.
And Fortunately for us whatever <unk> money, we lost from sports customer pausing, we ended up getting reimbursed essentially and not having to pay those costs that you have provider so with a lot, but largely a wash for us.
Zero Barging wash last one on like is that we know because the research that.
That the entertainment.
Component of the bundle matters to broadband customers.
You know vast majority of broadband customers want to see a TV product in the bundle that is hugely impactful for their best there their purchase decisions. So you can't just eliminate the entertainment product and we wouldn't do that anyway. It part of our revenue and contribute to EBITDA.
But I'm going back just to point out that it is still highly relevant part of the bundle for consumers across Europe, who watch a lot of free to air television still and who are.
Breaking oki, t. apps, but but thankfully embracing them on our platform. So let's talk about deal for those of you bet and how you see that evolving.
Yes.
I think it's not only a discount which brings the customer.
Bye.
Well that comes up correct I think it's a combination of benefit.
So what we've done with.
We are offering I'm too much higher feet actually now they are going to get 600 and it when they get the eyes.
But speed they don't get without that.
Hi are more by Baker package, so who gets instead of walking or 10 gig instead of five something like that.
And then also a special customer service <unk>.
<unk> line, where the heck likes to call and this combination I think it creates then a strong momentum and for some custom sixtyv. It's more important for them. It's similar package for them, it's a combination with great.
And then so it's it's it's much more than in difficult I mean, the this calling tax being in place.
Since here, but the fixed mobile convergence customer base has not to increase the lab.
I think from 2016 to oppose showed them 19 and that really came up it's no big.
Big time with North Korea, three percentage point now when you take that too old to.
And I mean that typically provide the huge opportunity because 80% or oh, two customer do have different fixed broadband provider than Virgin media.
Truth, though that we have made some market research I actually interested in such a convertible bonds that we just talked about and the brands are very close and they would prefer a product like Virgin media. So therefore now it's all about I missed any different segments.
And then coming up right product combination and then I'll frame that and this is that I think the tailwind because the revenue synergies in the case.
You can see it even though you you and studied the Vodafone do those results.
Quarterback almost every metric.
You know, we've outperformed KPN and that's because you know we're finding the rhythm that matters to consumers and that's a fixed mobile space you know in it. It's the the base. It is not just reducing cost. It's it's giving people more sometimes it's more for the same more for more maybe even more for let's say.
The combination more matters and that's exactly what fixed mobile convergence to leverage.
Great. Thank you.
Got it.
Well the next to Robert Grindle with Deutsche Bank.
Yeah, Hi, though I'm going back for UK, you seem to have played locked down very well indeed, perhaps benefited by some of your peers not playing so well.
But last week Ofcom recommends that more than 60% of your broadband customers are out of contract, but that number up in moving up quite a lot. We can make I'm do you intend to address this perhaps an h. too and then the construct of your guidance. Thank you.
Did you want to tackle that.
Yeah Yeah.
So we haven't talked about and off contract.
Asia and I think in previous calls.
And I can come from the method truck isn't there.
So actually the impact of and consequently vacation is.
Then be example.
So what does that mean that means that customer.
Simply less challenging to get the addition of are difficult to stay.
As we have ample.
I think that's number one I think number two is.
That.
We think that.
We met or more than ever right I mean, when you have four five coalfield member.
Mom and dad are doing video called the kids up playing or are they get Sweden.
You need speed and when it's really did either.
And therefore, our efforts speed and UK.
Two and a half times higher than the average.
And we are working on a increasing that that.
And therefore, we think that our customers if they perceived value for money.
But we are actually not till concerns about that 60% of all customer up in contract and we don't think that we should overwhelmed with this comes with state and if you look at our NPS number then.
Our churn number we on the right path.
No I would say when we used to be under contract modification Peered began it said before coded really hit and then it was largely pause on most of the industry.
But during the period of time that it was you know act.
That said, we saw the churn was maybe more or less what we expect that the discount required.
Keep customers was also significantly less and so that lately in the short period of time, we had pretty good at the end of contract impact leads for our business was less than we expected.
We only more recently gotten back to engage with customers I listen, we'll let you know people to get to our third quarter results, but so far so good.
Yeah, we had some being 10 days or offline and obviously also to support what Mike said right and also a bit in big jobs tool a guidance.
That is now average for notification coming and we would talk the fed and fall and obviously, we're calculating our planning at we're dealing with and.
Notification.
But he was here.
Yeah.
Thank you.
Yep.
Operator.
One moment.
Right.
Yeah.
I don't take our next question from Nick Lyall.
Hello, <unk> it was a cool that question certainly on the.
Switzerland, if that's okay. Mike can you mentioned, we're really step horizons low quite white blood cells gigabit Convergences kilowatt, although she's got the Swisscom sports the all the way that EBITDA was still down about 11% tax the what else. So could you just trying to go way up your between me you also making some operational changes to the business but.
Long before you can start to think about stabilizing whether were little bit die for chose it still seems quite a long way away.
Thanks.
Sure.
The turnaround plan.
Remains as it's been described in terms of our tactics and our strategy. So it's all about one gig get into TV block heels penetration.
Maximize trying to retain some of the you know record MPS I mean, but we've been delivering another driving the fixed mobile convergence, which has been a steady.
Steady or you know success story for us every quarter.
Anyway, and then lastly, keeping ensuring that our customer operations continue to be smoothen. The digital transformation process also varies working quite well says a lot of positive things happening having said that that's in the market is competitive you know we have to stay competitive between get be thoughtful pricing and offers and packages.
And I think you know as we didn't really provide anybody I don't believe a specific details as to when we would be breakeven EBITDA, but we'll be back to growth.
We continue to evaluate that timeframe of course and.
I don't know, we've made that public and I'm not sure. If you look at this point, except to say that we still feel very positive about the plan.
Even if the plan, but to take a bit longer you know we're in this for the long term or the plant itself is solid and sound and it looks to us like it's working.
I hope that teachers aren't going to add anything to that that piece around use of momentum.
Kurt I mean anything on the ground go ahead.
Yeah. This is lumpy.
I think it's because like Medmarc like says it could be used to be a very competitive market.
We're building commercial momentum and mutual saying that he saw growth in the quarter I'm, just saying, we can say, Switzerland to June was better than they enables better than they pulled in terms of says.
And I would like to find that built out that switching with his boss the boys with heavy investment. If you look at the year operations. He gets real marching back to 28% into second quarter.
That's not an incident, so we have boss investments or the one gig network in the new video platform.
Now taking the opportunity to really simplify the business.
This continues to be very strong cash generated less than that if sales momentum coming though.
Okay. Thank you.
Yep.
The next two Matthew Harrigan with benchmark capital.
Oh, thank you.
Okay.
Remember consultancy pointed out.
Okay. That's it.
It's really it's kinda translated that writer affects almost.
Yeah.
We will.
You bet, even more so.
Lord <unk>.
At the broadband businesses, you've got bar.
India.
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With that permanently.
DOCSIS three parts yields he being addressed.
Is there any possibility that you could kathy.
Okay.
Great.
Over time and I go right now.
But members.
Looking at your lawyers and you're ready to be heard your cost to be hurt at western part.
<unk>.
Thank you can foresee Q3 revenues probably go little bit droughts your longer term, but can you kind of where that I'll talk at all.
<unk> character that business is changed Oh MOPCO good man.
Convergence and hopefully getting more benefit you get that working as opposed to people.
In the network of your companies will want all stars.
Hey, Matt I want to be sure I follow up question sounds like you're asking a couple of things there I mean, our network strategy with 70 taken jump in here and talk about that shows us continuing to drive speed from one to 10 gig over time. So there's no the strategy, it's clear you know or whether its.
The adoptions for that Oh, whether through fiber to the home by the way Oh, we built and enlightening applied to the home built we're going to continue to lead.
Wherever we can this be grapes and that matters considerably to consumers.
With mobile and fixed mobile convergence the same can be said on the wireless side supplied by GE and one gig <unk> powerful combination.
Hi, GE intended even more fiveg at one good it's sort of the killer App and.
If you look across the markets, we operate in where the only ones really providing those options today and in the UK once we get.
The over though to close will provide another option there as well there's lots I think this city the rate.
You know the growth over the long term is not an accident I'm not so it's certainly something that's like deliberate and purposeful and driven by all the things you've described on the cost side, you've got lower cost you've got synergies on the revenue side, you've got less churn you've got higher NPS and you in it you continue to innovate on the networking.
In the bundles and the products and consumers have shown everywhere. We operate that you could not just drive sustainable EBITDA growth, which matters, but also and just as importantly significant free cash flow margins and pre gas. So that is where you know group, which is ensuring that all these operations are able to deliver sustainable.
Hi margin free cash flow and whether the dividend back to us to ourselves.
Taking those assets public and looking at market values. You know, we know that there's an opportunity to capitalize on on this infrastructure in the retail relationships in a way to the habit done historically so that is that is basic strategy I'm not sure of dressed your specific question, yes exactly right.
What do you think would apply to go where did you.
Given the increase you build your network you you're going to be able routes you on pricing more than you have.
Historically, because youre having to value we're now working for you.
Outside companies really benefiting from your network and that you're going to just travelers with better frightened Bell rigor in Florida.
Can I do I told you know.
Hi.
Yes, you're right on idea.
Just one idea right I think Oh I tried to do show thought that we are combining full products no right. We're combining fixed mobile voice mobile broadband and video and the video product.
It's getting more mall to keep product what we're doing it.
Updater, we understand our customer and a in a perfect way.
Hi, Bob did it till we really offer a combination for all the touched about all these.
Right level.
And that far then you're creating a high stickiness of all customer.
Going forward. Therefore, when we have successfully with that you can also set all though.
And this will give a brief.
Yes into position, where we have successfully with that also increase I will not you know a pricing right and that operate those who have done that.
When you're thinking about core playing I do think about that that's an opportunity that though but I think the first step is that we are able to offer Corp. Tonight.
Perfect way to all customer Centricity FMC stuff.
I don't know if that help.
Our adjusted some facts like France was sorry falls out for me under your belt Okay.
No there isn't it.
Operating their cycle or more.
So.
Yes, well go next on the couple of more and the Q.
Or something then with HSBC.
Hey, guys. Thanks for question and you know coming back to this to Switzerland. I mean, if you know I would say that the weak spot in oral pretty good results.
You mentioned that my earlier.
Switzerland unfolds and you know joining forces with Sunrise on the fiber to the home [laughter] what are your strategic options in Switzerland down the road I mean, the deal last year fails, so would be interested in your thoughts there.
And then a bit of a follow up to that point.
What are we seeing in terms of market aggressiveness, Oh, and I've seen that you could be zosano going backwards. So what are the trends that youre seeing roughly speaking for the second half is it better than each one what kind of you better because of lower investments.
Okay. So that piece you could work, but answer on the second one on the first one the strategic options remain the same ones that we've always articulated and I'm not going to get into speculate which of these make the most sense, but clearly as I mentioned in my remarks.
We think the market would benefit from rationalization, we are trying to do our part in that's of course, it very small part we achieved in the second quarter with the announcement of the sports deal with sitcom wouldn't underestimate that I think that's going to have a major impact long haul both on our old investments in the high sports.
<unk> product as well as our consumers that event that you are consumers of having access reciprocal access to both sports products. You know we have a strong of you know agreement, which was common very rational and beyond agreement with them that gives us great pricing active reduced pricing further this latest agreement.
And so many of the operators in the marketplace. So first on the particular are starting to make decisions and working in a manner that that we think fields the marketplace.
I mentioned on the Swiss fiber announcement.
If you parse through that break it down you know, we're reaching already 70, 75% of the homes with a one gig product a they hope to build 1.5 million out about 4 million homes in five to seven years or if they can get the financing to do that and you know that makes sense to us if I were in their shoes I would certainly look at something like.
That they see the infrastructure capital sloshing around they they figure one not Boston, let's try to put something to work at the lives that makes our reliance on swisscom less and I appreciate that strategic decision those things will take time, and we'll be extensive and let's see what the ultimate you know market situation looks like.
Five to seven years in the meantime, you know, we just keep our heads down and push the benefits of our network and our products, which are pretty strong you know and I think it's you know I'm not going to give the guidance here I'm glad that numbers start to continue to look you know better on the financial crisis, but you can see that a customer ads.
Certainly better than the last.
Two quarters are saying, let's go to better this quarter prior to that and you know market market improvement here, it's gonna take a little bit more time to be probably thought about that trajectory looks good and we're still confident and the number one thing here is to drive free cash flow.
You know put whatever yield you want on 270 million of free cash flow that meaningful equity valuations business. We continue to drive free cash flow. That's the that's the metric that matters and this particular and stuff.
If you Wanna provide some color on the ought to be there's no no I think I think that free cash flow of this quarter since the one set of illegal pool and at that principally in this business.
Secondly, the decline in Switzerland has these low margin Cobrand in fact that Charlie explain if you look under the Hood.
The need to be business continues to grow so the goal will be could be business still below 2%. If you take out the low margin impact of closing.
Into consumer business, we deliberately we could broadband lines that then starts to improve.
Well, we found a way in U.S. surprising we found a way with better distribution, we found a way in the promotions brine strikes boards and I was just would love to hear today to be exit run rate of recorded is good.
And yes, the net promoter score has never been as high because we can give backs we usually in Switzerland. So the momentum is there it's a matter of a fine, but we'll make stay with free cash flow but school.
Right. Thanks, guys.
Yep.
Well take our last question from James.
Street Research.
Ah yes. Thank you very much in three to two questions. Please just coming back to the UK. The first one.
Get picked should want around your you're stretching I mean I was wondering if you are kind of pivoting. The strategy now, it's becoming a little bit more price competitive I mean, I've seen that gives being sending letters out saying no price rises this year and you have extended ULE and introductory also appeared from 12 to.
18 months, both of which would seem to be making you more price competitive versus the competition. So I was wondering if this is a little bit of a pivoting strategy to to help support K P eyes.
And then the second question I had where he was just trying to quantify the impact of and contract notification and the best Harish a notification as well I mean, you were saying excluding sports all too in the quarter seem to fall from about 1.2% grows to being flat.
Such a bad is actually driven by end of contract and that terrorists what percentage of your customer base now actually have had.
Notification space, So I mean, you're telling us six landing inline with expectations they'd he could steer us towards what do you think that impact will be when it's worked its way for the tree the base that would be great. Thank you.
Gains I don't think we provided any guidance specific monetary guidance on a set of contract at the beginning of year. We said in our original guidance that there was about 100 million pounds of headwinds, which included end of contracting.
The best care as well as Blake network taxes, and things of that nature. So I don't think we've broken that down in two components expand what we said is that the other contract experience prior to closing, but better than expected not as expected in a sense that the churn numbers were largely what we expected them to be but the amount of.
Discount we had to offer to achieve those levels was less and I think we've only got Oh, it's only been a very short period of time that we activated in the contracts are not much color to give you there, but third quarter, we get back on the phone Nov will certainly have a longer track record to be a.
Sense of how things are moving and you know loot you can dig in on the price increase which Ah Yes, you're correct me. If there has been oh postponed here and I think that makes total sense in the environment that we're in a year taking into consideration this uncertain time for customers.
It seems to firm up only viewed very.
Appropriate thing to do but at least that's a great plan looks who just approved to go ahead and actually neutralize the impact of that price increase not occurring in the fourth quarter through greater volume growth. So you can talk about that quickly.
Yeah. So trust you off your question.
The development of the up you are from Q2 18, I could acute to 19 right like 50 years ago wasn't ARPU growth all duck five full time.
Now if you know look at the opposite development and to you.
The corporate impact we haven't after your gross or one.
So the delta between the two years is Dr., Paul Peirce thing and we have pulled the price rise to one month for work, which explains the majority of it because of the different phasing will surprise.
So therefore, and the rest is a bit under contract.
Therefore, I think what I'm, saying is that's not in deterioration on the op you in general other than a bit from end of contract for litigation and this is lower than we estimated.
Second.
On the price right, we have decided not to do it in 20 trendy and we have one on one end type absolutely Pedro effect to the today show.
Also looked at sensitivities that when there's certain higher reaction would have kids and that would have been also margin dilutive fraud.
The current momentum we see on net ads.
Yes compensating for that.
In 2020, and the momentum if we can get it to a certain porn can also compensate that plus took some time in 2021.
And to finish. This your question are we more price aggressive to.
Make some cosmetics and customer net ads.
I would say the arpus no. So our ambition is to create long term OTI Oh actually act.
Lowering.
Provider.
So therefore, it's not about tuck them on it that having said that the market.
That's been when do you watch acquisition price across different speed.
It has come down over the years.
Also in the last 12 month by 6% and obviously, we are reacting to that together fish, yet, but the idea that absolutely not.
Change that price position the value proposition here from the market.
Compared to competition that is not all that stuff.
Right. Thank you.
Yeah, well, let's think everybody in over at the property out here a little bit pass. So appreciate you joining us as always appreciate your support hope you stay well and safety rest of this summer.
We've got a lot of positive things happening talked about those today the UK transaction on track.
Great performance, all things considered to all of our markets in this Kobe pandemic period, and a number coming out of it. It's a lot of positive momentum. So look forward to talk is due in November take care.
Ladies and gentlemen, this concludes Liberty Global's second quarter 2020, Investor call. As a reminder, a replay of the call will be available and the Investor Relations section.
Pretty good rather website. There you can also find a copy of today's presentation materials.
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