Q2 2020 Liberty Global PLC Earnings Call
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Good morning, ladies and gentlemen, thank you first.
Welcome to Liberty Global's second quarter 2020 Investor call.
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Now I'd like to turn the call ever to Mr. Freeze.
Thanks, operator, and welcome everyone to our Q2 results call.
I hope rich safe and well it as always we appreciate you joining us today. Our plan is to run through the slides you prepared remarks were about 20 minutes or so 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 a handful of the can't exacts to join me on the open line and I'll be sure to get done involved mcewen recession.
Needed.
I'll kick it off on slide four for those who were following along with a summary of the key highlights from the quarter to pretty comprehensive slide So bear with me I want to be sure. It hit each point I beginning with a few remarks on how we'd been navigating to covert 19 pandemic.
I see this is on top of everybody's mind, so I'll spend a couple of minutes upfront and then we'll get into some more color detail through the course of the accreditation in Q in a.
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 and we're no exception of course in our case you at the balance that but they need to be the field building and maintaining planting installing in servicing customers.
Okay and government different local regulations and protocols in each country most of which are required that we opened up all this is slowly and carefully and that's exactly what we're doing [laughter] 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 and more agile wage of working it I'm really excited about the purpose.
We're making here, which I think is gonna be definitely positive for us down the road.
No other macro environment in Europe has been severely challenged spinco. The 19 the region on the whole as one of the crisis pretty well and better than many expected as anticipated eurozone GDP fell 40% in the quarter that 12% sequentially, but there's some bright spots here not the least of which is you know by all accounts a pretty affecting the handling.
The pandemic.
All of our core operating markets in Europe have successfully flattened occur with daily confirmed cases anywhere from 75% to 95% below peaks in March and April and fingers crossed staying pretty constant.
This impressive well every death this tragic mortality rates have fallen to levels at or near zero in most of these countries. If you contrast that with the U.S. each pretty striking.
Craig. This is also brought the region together.
You know in addition to stimulus measures rolled out of the national level, you're making the adopted a 750 billion Euro recovery fund designed to help businesses rebound form those economies hardest hit to protect against future crises. It appears less confidence both among consumers in investors seems to be on the rise you can see that many years.
Recent strengthening against the dollar by about 10% since mid May.
Against this backdrop, our business continues to perform well very well in fact.
So by record MPS levels, lower churn, Boston reliable networks and significant steps to get customers more more speed more data more content. That's a theme I know you've heard from a unified heard about for 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 over two years.
And what could happen a modest impact on reported revenue would probably is going to dig into that in a bit.
All of that shortfall occurred in 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 we reviewed on our last call. This will be a transformational deal for the UK our respective customers.
For shareholders, that's a win win win as we'd like to say.
A couple of months of pre merger planning my excitement level for this combination is even higher locking review 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 and liberty coming out of the view about 1.4 billion pounds.
I'll talk about a fixed mobile convergence in a moment on the next slide but when you combine the case fastest broadband network with the country's largest and most admired mobile company. The long term value creation opportunity is extraordinary.
Also good to hear the teams are working extremely well together the financing is falling into place and the regulatory process is underway. So every everything's on track to the completion of this deal.
Just a couple additional points your capital allocation as we indicated on our last call, we definitely frontloaded our buyback activity into the first half of the year, which you would expect us to do given the price what.
That means you already purchased around 750 million of stock in the last five months.
The grant the question I know you're going to ask we don't have any announcements today about adding to the buyback program.
I was you're viewing those boxes of course, but we have 250 million remaining on the plan will be putting back to work for the time be.
And then finally, our treasury teams, we're really out given the capital markets. This year refinancing over 10 billion of debt extending our tenant over seven years, and reducing our fully swapped borrowing costs to 4%. So to recap we delivered strong subscriber results.
At Dawn operating free cash flow are ahead of consensus and we're confirming our original guidance for 2020, and then of course, we're making great progress on the JV with Telefonica in the UK.
Speaking of the UK.
That would make sense to revisit the fundamental logic underpinning this deal and the other fixed mobile combinations Weve 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 over 80 billion and then each.
Case, the fulcrum asset with our broadband network built over the last two decades through organic growth and national consolidation.
In certain of those transactions, we enabled the creation of a fixed mobile champion through the sale of our cable operations to a mobile only player that was the case of course for the feel of our Australian 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. The by all accounts. These were also homeland deals for Vodafone goods telecom, because whether you're a seller or buyer.
Fixed mobile convergence works in fact, I think it's one of the most important strategic development I've seen in Europe in my 30 years.
Drive scale it drives mask the synergies it drive sustainable cash flow and ultimately it drives better valuations, which is why in Belgium, Holland any okay. We chose to create our own fixed mobile champions by either by acquiring a combining with a mobile player in those markets and the strategy is working brilliantly for our slide five provide some numbers this summer.
Note that the top left highlight the scale of our combined operations today in these markets in Belgium in Holland, we surpassed the incumbent in fixed BDC services.
And if we're number one in broadband and TV in both cases, we're gaining share in mobile with convergence ratios exceeding 40% and growing.
You can't will start to JV with the number one share in mobile and on footprint will be number two in TV a number one in broadband.
No that roughly 80% of Virgin customers are using someone else's mobile product today in a highly interested in a converged bundled from us, but as we continue to expand the reach of our gigabit broadband network, we're much more and more to customers.
Oh, Yeah also drive strategic leveraged an opportunity in these markets what does it do it enhances our ability to shake the political and regulatory agenda, which you. All know is critical and it puts us in that position to take advantage of ancillary opportunities in areas like content and new services and infrastructure.
Not surprisingly it shouldn't be that medical Ziggo was the first to launch Fiveg.
Also not surprising that brought up on student success with fixed broadband is anchored by a one gig rollout and the strongest sports franchise in Holland.
Telenet Similarly acquired a free to air Channel is now launching the new Belgian Netflix or several minutes Oh PT content offering. We also recently announced a project the largest utility company planners to own a control the network of the future.
And the merger, though too in the UK makes our previous expansion and network expansion strategies and infrastructure monetization idea it even more compelling in my view.
Second as you've seen synergies and fixed mobile transactions are a significant source of value creation just in the three deals where we remain directly involved Belgium Holland in the UK announced synergies totaling 12 billion euros, and 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 and then 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.
Fixed mobile mergers also generate real growth anchored by stable recap, where you can see that on the top right of the slide and it gets a Belgium and Holland, we're able to turn around the the Doctor directory and even more important deliver significant distributable free cash flow of over 4 billion euros.
Also derived from what are increasingly predictable outcomes the realization of synergies better customer experience is reductions in churn increases in NPS and the inevitable repair that occurs over the longer term when markets rationalize and consolidate.
Then lastly, investors, particularly in Europe are signing higher valuations to fixed mobile platforms.
Right and show you half dozen examples including companies like Swisscom KPN and Telekom Julie you can add your own or take these obviously, it's up to you but on average in stocks are trading at eight times EBITDA with operating through capital multiples in the mid teens and mid single digit Levered free cash flow you, so clearly skill synergies and stable free cash flow our desirable and.
Definitely characteristics, especially when you're a national champion or National Challenger.
Yes, underpins our perspective interest in public listens to be Frank where it makes sense for us in certain instances to try to take advantage of these market valuations.
Probably because higher valuations and greater transparency and sustainable free cash flow should support our own valuation at the parent company, regardless of whether you look at us kind of some of the parts basis, where you're fortunate EBITDA property for castle warranty focus unlevered free cash and the annual dividend stream, we collect Tony's high margin operating assets.
Speaking of operations, we have our usual updates.
Each operating company in the presentation for your information, but interest of time I'm, just gonna hit a few high points here from each market and then we can address any questions. Your thoughts you might have during acumen and 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 by reduction in churn and 33000 broadband adds which we estimate to be 75% of all broadband adds in the UK.
This customer ARPU was impacted by Cogan.
Particularly pausing of the premium sports, but on a normalized basis ARPU was flat.
We had a 90000 homes lightning footprint in the quarter, bringing our cumulative built a 2.3 million in total gigabit ready homes in the market to 15 million nobody has a faster or more robust network with Virgin media, it's not even close.
Just 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 listen the team I think a really start to hit an all cylinders and that sets us up really well being at 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 a nationwide won't 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, NPS and get an all time high in sales in June actually exceeded both last year end pre koby levels. We also announced an agreement with Swisscom that rationalize a sports in the market and ensures that each of our customers who have access to both telecom and my sports going forward that.
As you've heard of said many times were particularly focused on free cash flow in this market and you'll see that operating free cash it 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 you'd expect me to say that this market still required rationalization by the way, we don't think the announcement by Sunrise and salt to jointly build some 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 had 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 all comes rose 2.4% year over year that was supported by a higher proportion of fast broadband and quad play subs.
The 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 impact 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, Vodafone 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 6% opera broken a fixed business and proactive cost controls, which drove normalized Q2 EBITDA up 6%.
There's only one of the ones that will also reiterated their oh your guidance, including positive EBITDA growth and four to 500 million of free cash flow available available for distributions to shareholders.
Well before I hand, it back to Charlie.
To talk to the financial just want to take a moment.
Switch gears here and recognize the passing of one of our board members.
Dear friend and mentor to me JC Spark then you might have seen is a bit you are in the Wall Street Journal I'd, just say JC was a legend in the cable industry down the loans words, a T. I was built on jaycees back over the 25 years that he was chief operating officer and he brought that same energy and operating listen to our board.
Over the last 15 years like this part of the Liberty Global family.
It 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 ensure I have a moment to recognize him in his great contributions to our company over the last 15 years with that Charlie over to you.
Thank you Mike I'm on slide in Q2 minutes I could come at 19.
Overall about 4.3% Kim to consolidated year on year revenue decline, we estimate the combined impact is roughly 4% for around $110 million.
Within that we estimate that the reduced revenues from premium sports accounted for $34 million, an increase like challenges around $8 million, you have to be fixed and mobile impacts for around $19 million.
My by running December just handset sales contributed $17 million and $10 million respectively.
We also saw reduced revenues at our recent Belgium, do cost businesses, which we estimated $21 million.
So when you consider these estimates will be covered impacts to revenue trend is actually in line with recent courses.
Let's turn to the overall impact of covered on adjusted EBITDA and of course, it was minimal maybe impacts such as premium schools. So mobile handset revenues I'm very much in and we also benefited from reduced churn and lower sales and marketing expenses, which helped to offset material impacts as a result, we believe that all Q2 adjusted EBITDA growth right.
Yes, <unk> largely unaffected by covered.
The next slide and talk to group out of you show the key financials for the group.
Despite the revenue declined 4.3% adjusted EBITDA declined 2.4% for the quarter versus the declined 3.6% in Q1.
Property and equipment additions with 21.6% of sales in Q2.
Impacted let me were 18.8% of cells.
As a result, we saw strong operating free cash flow growth pretty locked in construction see after the quarter at $678 million, a 12% year on year improvement and also I mean, capex $601 million of 18.3% year on year.
[laughter] 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.
We completed a number of refinancings in Q2, our average debt kinda remains beyond seven years with an average cost of 4%.
Page I talked to pay any additions, we provide more detail around our capex, which we continue to analyze in five major buckets.
So the did have an impact on arc, CP spend which was down 34% year on year.
But we feel great about set top box and commit books. The state we expect to see a reduction in spend in this category, even without the impact of covered.
Just like Tom said, we continue to invest in the other capex categories and laser platform for future growth.
Lightning builds volumes were down modestly year on year, but we still constructed 93000 homes in the quarter.
Cost of premise trended down with a customer premise of 626 pounds in the quarter first is 665 times cost per home across the project to date.
The peskin vessel was down 18% because we benefited from the completion of a large spectrum up grid in Belgium, and much of the one gig upgrades in the UK.
Increased suspended the product roadmap, 18% supporting our mobile platforms and that you can't Belgium, I just wanted to see I T investments required to drug Digitization efficiencies.
They sign which is a major platform maintenance category was brought him on the previous years.
In the aggregate, we spent 1.2 billion in the first half of the or run 22.2% of sales.
The other lightning construction Capex this figure would it be 19.1% to sales and with the completion of significant projects from the connect and video space as well as a major capacity and I T upgrades behind us.
We expect to our capital intensity, excluding Rodney to remain below 20% and trend lower in the coming years.
Turning to individual overview, which breaks down the figures by our key major subsidiaries and provides a roadmap to analyze the free cash spread on major assets.
You cannot show so were revenue to kind of the first half of 2.1% adjusted EBITDA declined 2.5% Oh, that's yes was strong at $749 million before like being construction capex.
$573 million pasta underlying that remains a strong cash flow generating asset despite our newbuilding investment.
It also benefits from significant tax loss carry forwards.
Free cash conversion almost Akcea Ben for example, Belgium.
It wasn't a group as a whole Belgium revenue in the first off declined 2.8% Bugs recorded positive adjusted EBITDA gross 2.2% operating free cash flow $428 million. They recently confirmed the free cash flow guidance at the low end to the 415 to 435 million euros.
As Mike discussed we price. He wants this market continues to put pressure on the topline and despite operating efficiencies adjusted EBITDA declined 12.9% in the first half.
Oh, it's yet for the period was $140 million, we remain confident.
Yeah, the relaunch of $170 million of attributable free cash flow at today's exchange rate.
As Mike highlighted the standard before about major assets was Vodafone Zika.
Mike covered in the first off there was a 2.6% revenue grows 8.1% adjusted EBITDA growth and increased Oh, yes, yes to $562 million.
Turning to the adjusted free cash flow for the group as a whole after the first six months operating free cash flow before lightning Capex was just under $1.3 billion.
We had helped your interest of $600 million and cash tax or $57 million.
The joint venture paid interest on the shareholder lot of $22 million. The first six months I mean, we expect the remainder about 50% of that 400 to farm increment in Europe protecting shareholder distributions in the second half of the year.
Working capital for the first half was negative $323 million consistent with previous years.
But the working capital impacts, we broadly flat for the full year.
As a result, adjusted free cash flow before lightning Capex was $350 million and after Capex $139 million, we remain confident subject to no major further disruptions from covered a realizing a full year free cash flow target of $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 just like we were able to achieve record high NPS in Q2 and positive customer additions.
We're encouraged by first off financials I'm not sure how optimistic for the remainder of the yeah.
We are confirming what about Twentytwenty gardens metrics based on net returns for the full locked down slightly so between mouse may I'm, assuming a gradual I can wait recovery.
Given the uncertainty this backdrop, we're not raising I've gotten so this time and we'll take questions now.
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Oh for just a moment ticket.
To join the queue.
And we'll go first to Steve Malcolm Redburn.
Oh I'm sorry.
But can you hear me guys.
That yet.
Thank you, yes, yes, yes, so thanks.
Just coming back to slide five and your multiples I guess the told at multiple kind of jump started but trading it.
Tempur centric actually yield I mean, just a question for you in the board.
Are you it seems like you're not getting tremendous equity volume that's taken so but it sounds like I say why do you think that it does the board happy with the Stakes is correct. So you quoted in the reason.
So tech conference and you'd love to add more defensive but it's just sort of interest.
Well you think spot market is not giving you you don't you clearly think is fairly fair value for your sakes knows there's been lots assets and what you could do to sort out.
Sure.
That was really the point of that slide wants to talk about the agency strategy, but with the punch line being that we believe if we continue along this path, which we are of course.
Continuing on.
At the valuation at least the underlying businesses in those local markets will be there and I think they sell on that that's a good example triggered a premium.
Well from 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 path. We're on to drive these FMC champions to greater freak actually yield.
Greater stability and in operating performance is the starting point and it's clear also that local investors. Many of these markets preferred old these businesses and understand the benefits of stable and sustainable free cash flow and as a result, as you can see on the page <unk> or <unk> or giving these businesses higher multiples and.
No better valuation so.
If we're able to achieve those same resulting in the results we've already been its eating or we can get for example protocols. They go public or perhaps even though to be paid some day Burger immediately.
Yes that could be a real positive events, where 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 to underlying value and the taco, but it certainly will help bridge that gap and you know we're we're all about enough talked many times bridging that value gap.
And I think that strategy, we're pursuing here is the right one.
Investors need to see if you think we wouldn't be surprised when they want to see these transactions get done so we need to get the transaction with Telefonica and you get completed an improvement of course that will be a positive. When it is we need to continue to show demonstrate the sort of strong performance in cash flow that we're demonstrating out to be businesses today.
No question, we have to.
Quick feel about money to work I think the money on our balance sheet is helping today on for some investors would like to see that money because we appreciate that we're in the same boat money to put.
To work, that's a combination of things, but the hopefully this slide shows at the top world is the right that will create a walk evaluation and ER.
That's that's where we're.
Sorry, I suppose what.
I just started just <unk> I think that I think we do feel strong it's pretty undervalued.
I think that he's done it is not clear to us why it would trade so distance to KPN Brooks, most which have less attractive cards kinda talk less stability in the cash flow centric and that's something we're certainly working without a can johnno because I think there's a number supposed to be technical reasons around liquidity this call kind or could it be around cloud your on shareholder distributions here, the southeastern buybacks and dividends.
No I wouldn't say that we feel comfortable with the body of upturn that we think its self control.
<unk>.
Yeah, but I'm pretty my question that it doesn't seem like the current structure, where you and 60% and selling it and 50% urban decay.
<unk> is doing a great you either for you mentioned local listings, but it's already working with tell them at the moment I guess about for settlement.
But what did that despite really good numbers this quarter.
That was pretty my question is whether you think the card garden set up we're watching it but nothing but a lot it's David.
Yes.
Steve I think I think we can make your the case it does take a superior to gross she any telco in Europe. So they would trade substantially so they just beat and kick in on every single metric. So I think it's fair to say that valuation of that you would expect to be inside KPN nobility around particularly the centers that I think the telling a study which is a is a head scratcher and we're certainly aware that the.
Disconnecting, 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 devaluation, but its record mikes point, even at that valuation tridien discount to that is up there.
But I guess unusual emigrating here just trying to figure out you know what was it better structure out there that would close that you know it's undervalued within you and then at the local listing itself is going to get a big discounts and companies like probably too that I I think it's probably performing better than.
Yeah, they depend on it yet.
My money more leverage.
Yeah, well a bit more levered than some of the stops on this page of course, it telenav in British Columbia.
The answer is saying.
Which is.
Fundamentally fill it might be undervalued, what clearly undervalued, but the strategy, creating transparent value has to do that they all the time.
It's downward.
Right up there and that's what you got it.
Well go next to David Wright with Bank of America.
Yeah, Hi, guys. Thank you very much for taking questions.
Just on the UK trends, obviously strong internet ads cable on.
You guys are committed to maintaining quite a lot of the provisioning through the lock down period, which will surely have supported.
The trend, but it's still does stand out.
As a much better commercial performance.
Could you maybe just a.
A little color on what we think is driving not was that perhaps that's a in the UK consumers reacted a little bit less than you thought to the end of contract regulation. What does it you 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.
Actively in the field certainly advantage to us we didnt stop installations of Gulf that that was critical in central and and continued to make.
Products and services available to consumers, which is important and then secondly at times like this there is usually a flight to quality and a whopping father bag across the country and the competition as a 30 or 50 or maybe others in some cases or more that certainly matters and those two things in my mind.
Resulted in certainly better better performance than we'd expected together with reduce churn.
The numbers, so what you want to after that.
Yeah.
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 with the generosity program for a customer so awful lot them or more to be offered them more by that I could just remove any tax on on board.
Hey, Matt with ER free of charge walk up in general how kids and stuff like that and ER, So and gas has increased rapidly.
So that's number one number two it I mean, you said affecting all told us increasing since quite some time and to our people people.
Eight committed.
The company and so they decided to keep installing and keep it keep expanding that for so.
Which was also great contribution to success.
Lastly, we quickly moved two digits I mean, we started the journey to get to to life. So to me yeah.
And no Iowa sets channel or visit <unk>. That's trending has increased by 60% from Q1, two Q2, so that it fits channel that center, which fit up so has increased to 68%.
And on the chunk side, then high and pass it to lower true then also obviously optical openreach. They have stopped installing so therefore, you could not really trying to another network.
And Ah, but also you see that our quarterly churn, it's gone going over three consecutive quarters in a real so therefore, we have sets momentum.
We haven't went from a lower churn on and we have high NPS and old So as Mike said, I have speed and higher quality met or when the productivity.
Connection to the outflows.
And could I could not possibly US then we know that Openreach was back in the market in June.
A lot more installations, almost back and kind of full run rate.
And can you kind of gave it was any indication that the that's sort of into interest sort of quarter trends and whether you know you kind of exiting the quarter, you know, maybe a little bit more normally rather than not that kind of initial spike what was the real outperform and sort of through April may and June maybe a little bit more.
He said.
So from the six perspective, we actually accelerate momentum.
So we have not felt that there are welcome pepsico affecting the market.
From that sure on you see I mean, we have seen in I think may in April on a trailing numbers.
Right I mean, Deborah dramatic, though the churn level has come up a bit more but it's still a lot that it's used.
Okay very interesting thank you.
Well the next to James Ratcliffe Evercore ISI.
Hi, Thanks, taking my question.
If I could one it's a picture of discussion bomb fixed mobile convergence and has the rationale for the UK transaction can you talk about what the.
Pitch to the customer what the compelling proposition for the customer is on fixed mobile convergence beyond just if you get a bundled discount.
And secondly, our.
Hey commentary that customer stopping sports packages and <unk>.
Okay, and the lack of fourth formed on it but there wasn't margin.
Our sports a big part of the leasing people take pay TV.
So can you talk about the longer term impact and so a lot of sports and secondly, how profitable is the TV business for you at this point you are suggesting that pretty much throwing the towel on it but oh, how beyond just trying to do so how liquidity is that the t. potratz itself.
[laughter] quite a few questions there yeah.
Let's see.
Luke and I woke up what would you ever do in the UK and at least one example of a fixed mobile proposition to consumers today and how that might evolve.
In the though Q environment I'll say on the TV business of course, we evaluate this very closely across every market place, 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 you don't have massive.
<unk> expense in the basic package for sports.
And so our gross margins you know vary by market, but there could be ittai 60, 75%.
In our TV business that that's you know from our point of view.
Nice a piece of the nice contribution to EBITDA and something quite important to us and we don't intend to sort of let it go if you will be applied.
We do realize though that the overall economics of TV happy involved in our evolving.
And so what we're spending quite a bit of time on reducing the cost of our device you put in home.
Ensuring that things like sports are available on a premium basis and integrating oki T.S. So that your experience. It seems like so that's kind of the TV on you just say play Netflix play Amazon I, Didnt see and you're ready to rock and roll. 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 cheaper and easy to utilize and we intend to continue to drive the cost of that down. So there's margin in the TV business. So there is profitability of the TV business.
On the sports point of view, yes, well then sports pause, we did lose a handful of customers that 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. After a lot provider so with a lot, but largely a wash for us.
Zero margin wash last one all night is that we know because of resources.
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 their their purchase decisions. So you can't just eliminate the entertainment product that we wouldn't do that anyway 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 apps, but but thankfully embracing them on our platform. So what youre talking about bundles and with that and how you see that evolved and too.
Yeah.
I think it's not only a discount which brings the customer.
Bye bye.
Fixed will that come to us product I think it's a combination of benefit.
But what we've done with.
Good.
We are offering I'm too much higher fees.
Certainly now they are going to get 600 ended when that gets the high ticket.
Speed they don't get was out there.
Hi, our mobile data package, so who gets instead of one or 10 gig instead of five contracts that.
And then also a special customer service.
Line, where they had great support and this combination I think crates, then a strong momentum and for some cut them sixtyv with more important for them at some of that pickup for them, it's a combination but the great.
And then and so it's it's it's much more than in this call and I mean, the this call and have been in place.
And here.
At the fixed mobile convergence customer base, that's not to increase the last.
From 2016 to oppose show the 19 and that really came up.
It has a big contract with North Korea, three percentage points now when you take that's too old to.
I mean that simply provide a huge opportunity.
Because 80% or two cups tomorrow.
I do have different fixed broadband provider than budge media.
Truth, though that we have made some market research are actually interested in such a converge funds will be just talked about and the brands are very close and they would pick a product like badger meter. So that for now it's all about under 70 different segments.
And then coming out right product combination and then I'll frame that and business.
I think the tailwind for the revenue synergies in the case.
You can see it even though you and studied the a vertical and do the results in second quarter, but almost every metric.
Yeah, 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 and it its feed 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 less sitting on the.
The nation more matters and that's exactly what fixed mobile convergence delivers so.
Great. Thank you.
Yeah.
Well the next to Robert Grindle with Deutsche Bank.
Yeah, Hi, there some direct 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 reckons, but more than 60% of your broadband customers I've just contract so that number up in moving up quite a lot. We can make I'm do you intend to address this perhaps an h. too.
Then the construct of your guidance. Thank you.
Did you want to tackle that.
Yeah Yeah.
So we have talked about and golf conflict, Acacia and I think in the previous quarterly calls.
And I can confirm the message I've gotten there so actually the impact and Gulf contract modification is let them get planful.
What does that mean that means that customer.
Simply less challenging to get traditionally are difficult to stay.
As we have ample.
So I think that's number one thing number two it.
That said I mean, we think that speed matters more than ever right. I mean, when you have four five coal Coke member.
Ah moment that are doing video called the kids up playing or.
Yes.
You need speed and given its really rely that speed and therefore, our efforts speed 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 pick value for money.
And that we are actually not till concerns about that 60% of all customer or not and contract and we don't think that we should all of them them with big discounts with state and if you look at our NPS number then proving that our churn number we on the right huh.
Yeah, I, just say when we even at the end of contract modification Peered began before code that 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 expected that the discount required.
Keep customers was also significantly less and so that the leap in the short period of time, we had pretty cool, but the end of contract impact. These 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 when we get to our third quarter results, but so far so good.
Yeah, we happen to be 10 days or offline.
Obviously also to support wasn't like that right and also a bit.
Well a guidance.
It's now ever expect her notification coming and we would talk with that in fall and obviously, we're calculating our planning at 15 with Andrew.
Notification.
But he was here.
Mhm.
Thank you.
Yes.
Operator.
One moment.
Yes.
I don't take our next question from Nick Lyall.
Hello.
It was a cool that question certainly on the.
Switching to censor came I can you mentioned the release.
Horizons low quite wide spread stores gigabit convergence is coming up although she's got the Swisscom sports the all the way, but EBITDA was still down about 11% ex the one off so could you just trying to go way up people between will give us a little some operational changes to the business, but how long before you can start to think about stabilize or whether we'll move it does.
If it's always it still seems quite a long way away.
Thanks.
Sure isn't the turnaround plan.
Remains as they are described in terms of our tactics in our strategy. So it's all about one gig getting the TV box iOS penetration maximize trying to retain some of the you know record NPS that we've we've been delivering and driving the fixed mobile convergence, which has been a steady.
Steady or success story for us every quarter anyway, and then lastly, keeping ensuring that our customer operations continued to be smooth in the digital transformation process also there's working quite well says a lot of positive things happening, having said that led to the market is competitive you know we have to stay competitive between.
Yet be thoughtful on 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 number would be back to growth.
Continue to evaluate that timeframe reports and I don't know that 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.
You bet the plan, but to take a bit longer you know we're in this for the long term or the plan itself is solid and sound and it looks to us like it's working.
I'll bet pieces aren't going to add anything to that that piece around use of momentum.
Kurt I mean, staying on the ground go ahead.
Yeah, there's about please.
I think it's just like Medmarc Mark says it continues to be a very competitive market that we're building commercial momentum and loose was saying that he so growth in the quarter I'm, just saying, we can say, Switzerland. So June was better than me and make it was better than that goes in terms of sales.
We'd like to find the 40000 switched with his boss the boys the movie investment if you look at the operations. He gets so much impact was 28% in the second quarter.
It's not an incident, so we have Boston investments of the one gig network news video platform.
Now I'll take the opportunities to really simplify the business. So this continues to be a vegetable there's generated less than that its sales momentum coming up.
Okay. Thank you.
Yep.
Well the next two Matthew Harrigan with benchmark capital.
Well thank you.
So Jason.
And remember consultant.
Wow.
Okay. That's in your network is really it's kinda translated it from me writer effect, almost like Facebook and Google now you've got even more so.
Pardon me.
Okay, and broadband businesses, you've got bar Gee, maybe offer and you've got even more.
With that some of the latency issues between DOCSIS unipart yields to eat being addressed.
If there any possibility that you could kathy.
Sure Okay.
Sorry.
Overtime.
Right now covert members.
You're kind of looking at your lawyers and you're ready to be heard your cost me hurt everything Paul.
Cost or if you follow.
Thank you before sugrue through revenues, probably grow a little bit perhaps your longer term, but can you kind of later that I'll talk at all.
Yes.
Characters that business is changed Oh Moscow Good man.
No urgency and hopefully getting more benefit to that that working as opposed to people were using the network other companies.
I'm going to be apologize.
Hey, Matt I want to be sure I follow the question sounds like you're asking couple of things there I mean, our network strategy, which I may take a jump in here and talk about that shows us continuing to drive speeds from one did 10 give over time. So there's no the strategy. It's clear you know whether.
The adoptions for about a weather fiber to the home by the way Oh, we built in enlightening to fiber to the home Bill.
We're going to continue to lead.
Wherever we can the speed rapes and that matters considerably to consumers.
With mobile and fixed mobile convergence sustained can be said on the wireless side supplied by GE and one gig or powerful combination.
By GE, and 10 gig, even more well, but fiveg one good it's sort of the killer App and.
You look across the markets, we operate in where the only ones really providing those options today and in the UK once we get.
We'll go to close will provide another option there as well so 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 quite 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 that 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 free cash flow that is where we're ahead, 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 looking at market values, you know, we know that there's an opportunity to capitalize on on this infrastructure and the retail relationships in a way to be have 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 would've been given the increasing the only your network you think you're going to be able routes you on pricing more.
Historically, because youre having to value we're now working for you.
Outside companies really benefiting in your network and we do think cookie cutter absolutes, it better pricing power recur in farm.
Can I do I told you know my eyes.
Yeah sure glad back one idea.
Just one idea right I think Oh, let's try to do it shows.
That we are combining full product smell writes a weird combining six more by the boys mobile broadband and video and the video product.
Getting more mall to keep product.
What we're doing it with the help of data, we understand our customer and a in a perfect way.
But did it too we really offer a combination for all these customer all these.
The right level.
And that far then we are creating a high stickiness of all customer.
Going forward that for when we have successfully with that you can also got all though.
And this will give a.
They bring out into position, where we have successfully with that also include each of them Adriano a pricing right and they operate tests would have done that's good for me when you're thinking about core playing and do you think about that that's an opportunity set there, but I think the first step is that we are able to offer Corp. Tonight.
That's perfect way to all customer Centricity FMC stuff.
I don't know if that help.
Thanks, Bart becht, sorry, but for me underneath it okay.
Well worth it.
Upper anywhere type or more.
Sure.
Next on a couple boss and the Q.
Sanguine with HSBC.
Hey, guys are for the question and you know coming back to this to Switzerland. I mean, if you know I would say that the weak spot and oral pretty good results.
You mentioned that Mike earlier from Switzerland unfolds, and you know joining forces with some work on the fiber to the hedge fund.
Well what are your strategic options in Switzerland, Dahlman Rose I mean, the deal last year fails, so we'd be interested in your thoughts there.
Then a bit of a follow up two basis points.
What I was seeing in terms of market aggressiveness, Oh, and I've seen that need to be zosano going backwards. So what are the trends that youre seeing roughly speaking for the second half is it better than each one working to be better because of lower investments.
Okay. So that piece you could work about 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 them upsize. The clearly as I mentioned in my remarks.
We think the market would benefit from rationalization, we are trying to do our parts in that's of course, they very small part we achieved in the second quarter with the announcement of the sports deal with Swisscom wouldn't underestimate that I think that's gonna have a major impact long haul both on our own investments in house sports.
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 and you know agreement, which was comma very rational and beyond agreement with them that gives us great pricing active reduced pricing further and this latest agreement.
And so many of the operators in the marketplace as interest on the particular are starting to make decisions and work in a in a manner that that we think field the marketplace.
Mentioned on the Swiss fiber the announcement.
If you parse through that you 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 at about 4 million homes in five to seven years.
If they can get the financing to do that and you know that makes sense to us if I were in there. She that would certainly look at something like that they see the infrastructure capital sloshing around day, they figure one not Austin.
Got something to work at realize 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 in five to seven years in the meantime, you know, we just keep our heads down and push the benefits of our networking.
Our products, which are pretty strong you know and I think it's you know I'm not going to give you guidance here.
Structure continue to look.
You know better on the financial fraud, but you can see that a customer adds certainly better than the last.
Two quarters or same as last quarter better this quarter prior to that and you know market market improvement here, it's gonna take a little bit more time will 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.
I'll put whatever yield you want on the 170 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. In this particular instead of just want to provide some color on the ought to be but no I think I think the three cats. So this quarter confirms the oneseventy going forward.
Good principally in this business.
Secondly, the decline in Switzerland, as these low margin goal when in fact that Charlie explain if you look into that we.
The B to B business continues to go to school B to B business still grow 2%. If you take out the low margin impact of closing.
In consumer business, we deliberately because broadband lines that plan starts to improve.
We found a way unless the by rising we found a way with better distribution, we found a way into the motion binds by sports and I was just would like to be it today to be exit run rate of quarters groups and yes. The net promoter score has never been as high because we can go back for UGI in Switzerland, So the moment.
Is there some edelstein, though the pool may stay with free cash flows that school.
Right. Thanks, guys.
Yep.
Well take our last question from James roster with News Street research.
Ah yes. Thank you very much in data two questions. Please just coming back to the U.K. the first one.
Take a picture one around your your strategy.
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 you're being sending letters out saying no price rises this year and you've extended you'll end introductory ops appeared from 12 to 18 months, both of which would seem.
He making you more price competitive versus the competition. So I was wondering if this is.
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 end of contract in education and the best Harris.
Notification as well I mean, youre, saying, excluding sports all too in the quarter seem to fall from about 1.2% growth to being flat I'm not sure if I didn't actually driven by end of contract and that terrorists.
What percentage of your customer base now actually have had.
Notifications. This say I mean, you're telling us its land inline with expectations, maybe you could steer us towards what you think that impact will be when it's worked its way fully 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 that said in our original guidance. There was about 100 million pounds of headwinds, which included end of contracting.
That's tariffs as well as rates 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.
Offensive procure 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 that it's only been very short period of time that we activated and 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.
Our track record to be a.
Sense of how things are moving and you know Luke you can dig in on the price increase which Ah, yes, you're correct. We say has been a.
Pushed down here and I think that makes total sense in the environment that we're in.
Taking into consideration this uncertain time for customers.
Seems to nail from our point of view very.
Appropriate thing to do but at least has a great plan just approved to go ahead 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 opt to your question.
And the development of the ops you from Q2 18 enter Q2 19, right like 50 years ago wasn't up your gross all duck five full time.
Now if you now look at the opposite development and if you exclude the could that impact we haven't after gross or 1%.
Well the delta between the two years, it's got focusing and we have quote the price right. One month for work, which explains the majority of it because of the different.
Phasing off the price.
So therefore and the rest is a bit end of contract modifications. So therefore, I think what I'm, saying is that's not a deterioration on the up here in general other than a bit from end of contract for the vacation and this is lower than we estimated.
Second.
On the price right, we have decided not to get in 20, trendy and we have.
One entity, absolutely patron effect to liquidation.
We also looked at sensitivities that when there's certain higher reaction would have kicked into.
Have been also margin dilutive fraud.
The terrific momentum, we see on net ads.
Yes compensating for that.
In 2020 and the momentum.
Can get between certain part can also compensate that plus certain time in 2021.
And to finish with your question, how we more price aggressive to.
Make some cosmetics and customer net ads.
I would say the office no. So our ambition is to create long term OTI Oh actually act.
Growing.
Provider.
So therefore, it's not about kept them on it that having said that the markets.
It's been so when do you watch acquisition price levels across different speed.
It has come down that over the years.
And also in the last 12 month by 6% and obviously, we are reacting to that to get a fair share, but the idea that absolutely not.
Change the private position the value proposition where from a market.
Compared to competition that is not the Austin.
Alright, thank you.
Yeah, well, let's think everybody in or with the property out here a little bit pass. So appreciate you joining us as always appreciate your support hope you stay well and safety the rest of this summer.
We've got a lot of positive things happening talked about those today do you take transaction on track.
Great performance, all things considered to all of our markets and whats called the pandemic period, and a number coming out of it for a lot of positive momentum. So look forward to talking to you 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 rubber website. There you can also find a copy of today's presentation material.
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