Q2 2021 Liberty Global PLC Earnings Call
[music].
Good morning, ladies and gentlemen, and thank you for standing by.
Welcome to Liberty Glove.
Second quarter 2021, Investor call. This call and the associated webcast are the property of Liberty global and any redistribution retransmission or rebroadcast of this call or webcast and the any for them without the express written consent of Liberty Global is strictly prohibited at this time all participants are in a listen only mode today's formal presentation.
And materials can be found under the Investor Relations section of Liberty Global's website at Liberty Global Dot Com.
After today's formal presentation instructions will be given for a question and answer session.
2 of the slides details of the Companys Safe Harbor statement regarding forward looking statements.
Today's presentation may include forward looking.
The statements within the meaning of the private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and the other information and statements that are not historical fact.
These forward looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied.
By these statements. These risks include those detailed and Liberty Global and Liberty Globals filings with the security and the Exchange Commission, including its most recently filed forms 10-Q, and 10-K as amended Liberty Global disclaims any obligation to update any of these forward looking statements to reflect any change in FX.
Patients or and the conditions.
On which of any statement is based I would like now to turn the call over to Mr. Mike Fries.
Thank you operator, and Hello, everyone as always we.
We appreciate you joining us today for the Q2 results call. We've got a lot of ground to cover so I'll begin with some operating results and a deep dive into a couple of topics that I'm sure will be of interest you all and have to Charlie covers the financials and we'll get right to your questions.
I'll kick it off on slide for now with 5 key headlines that you capture the broader narrative of the quarter.
And our value creation opportunity first of all of our goal of creating FMC champions in our core markets is working.
We made of very conscious and deliberate shift and our strategy for 2.5 years ago, which sauce exit and subscale markets and premium multiples and concentrate our resources into really for key countries.
We'd become fixed mobile champions.
To illustrate this more fully on the next slide, but despite reducing our geographic reach by 40% we increased aggregate revenue by 40% and now sort of a larger base 85 million fixed and mobile subs and those FMC champions are driving scale and growth supported by <unk>.
Unrealized synergies of $12.6 billion from our last 2 deals and the UK and Switzerland, and Thats on an NPV basis and by the way given our ownership over $8 billion of that will accrue to our shareholders of.
The second the demand for fast and reliable connectivity and Europe continues to anchor strong commercial momentum across our footprint.
I'll speak of the numbers and the second but we reported good revenue and subscriber growth and a standout quarter from Virgin video too.
Third we've talked quite a bit over the last year or so about our network strategy options yesterday, we made a big move and the U K announcing our plans to upgrade to fiber across our footprint and I'll speak of that in a moment.
But the main takeaways that we have.
Great options and every market and 1 size will not fit all here to answer the question preemptively cable and DOCSIS will continue to play a big role even in markets, where we intend to upgrade of fiber and given our speed leadership today and heavy investment in fiber rich HFC. We can approach this moment and and offensive posture with the clear.
Clear focus on free cash flow and recruited returns on capital for.
And it's becoming increasingly hard to ignore our ventures portfolio, which has been value by third parties of $3 billion of about $5 per share.
And that's around 20% of our current stock price and I'm guessing very little is being recognized today, we're going to continue to provide greater.
Peter transparency of our tech content and infrastructure investments and strategically aligned with the core operations and they also benefit from our unique track record and telecom and Treasury and M&A. We also announced that we were engaged in non binding negotiations with Iliad Polish subsidiary to sell UPC, Poland for $1.9 billion that's about.
The 9.3 times EBITDA, we don't normally announce these things, but Iliad was required to do so for other reasons and but I can tell you. These sorts of asset sales at the sorts of multiple should also help bridge the value gap and our stock and the.
And speaking of our stock, we're making a big commitment today to put our money, where our mouth is rather than decide.
And <unk> periodically how much and at what price, we're going to purchase shares we're announcing today, our commitment to buyback 10% of our market cap annually for 3 years, which means were adding $400 million to our current $1 billion program for the remainder of 2021 and.
And I just referenced the transformation of our platform over the last 4 to.
The 5 years and we've been trying to find a way to better illustrate the transition to and FMT champion and slide 5 does that I believe it does.
The asked me 10 years ago.
You could build a better stronger business by exiting half of your markets and concentrating all of your resources into a handful of fully converged fixed mobile operations of probably would have said.
And I don't know Im not sure of.
When broadband competition intensified and cable consolidations slowed and the demand for broadband capacity and mobility skyrocket, we rapidly pivoted and there were a much stronger and more valuable company today for it that involve for key steps first of course, we exited 5 subscale markets.
<unk>, Germany, and Austria and premium multiples.
For mobile only players like of your telecom and Vodafone aggregate proceeds were $25 billion and of these guys needed of fixed network solution in their markets and 1 hand. This validated the underlying private market value of our cable operations something we continue to demonstrate even today with the potential sale.
Rail of Poland, but on the other hand that allowed us to focus resources on those markets, where we had a pathway to fixed mobile convergence by acquiring of emerging with mobile operators, specifically in Holland, and Belgium, Switzerland and of course, the U K, so even though we shrunk our geographic footprint by 40% with the concentration in 4 countries. We have 20.
5 million more fixed and mobile subs and before $85 million and total and 40% more revenue 24 billion and total on an aggregate basis with a very balanced blend of fixed and mobile revenues and the <unk>.
Benefits of that fixed mobile transformation of showing up and our results. It was a solid quarter for our business is really across the board.
As you can see on slide 6.
We delivered positive revenue growth across all for key markets. Charlie is going to work for the details of Vodafone and <unk> grew 3% Telenet and Virgin Media grew 4% the latter representing just the 2 months prior to the merger.
And by the way for a good look at pro forma financials of Virgin media owe to for the.
Second quarter and restated for prior periods take a look at their fixed income release, we can't provide that data and our GAAP presentation. This quarter, but we will do that going forward youll see that Virgin media owe to combined revenue was up slightly and the quarter and EBITDA was up 6% on the back of cost control and commission savings and the mobile business.
And also a good quarter for broadband and postpaid mobile net adds which totaled around 250000 and the quarter across the group on an aggregate basis and here on the top left we do show full quarter results for Virgin media owe to which added 22000 and fixed customer additions, our fifth straight quarter of customer growth by the way and that was supported by 36000 broadband.
And net adds up 8% from Q2 last year and 65000 postpaid mobile apps.
You can see on the bottom left we continued to benefit from convergence with total fixed mobile convergence ratios up to over 40% in all operations.
<unk> now sits above 40% for the addition of the <unk>.
It was up to subscribe the Virgin and Switzerland at 56%, which is clearly our medium term target for every market.
And the right hand side of the chart provides some operating highlights for each of the big for up goes I'm not going to go through all of this in detail, but Virgin media and <unk> is off to a great start as of June 1st with record <unk> sales and the month and strong.
<unk> mobile and the.
<unk> is working and some exciting commercial offers and his focus and driving the benefits of and expanding <unk> presence and the availability of 1 gig broadband across 100% of the footprint by year end.
Sunrise and UPC continues to benefit from strong sales momentum and the early rollout of FMC offers we sit.
6000, broadband adds and 41000 postpaid mobile ads and the quarter and.
The integration of Switzerland is right on track in fact, the team just raise the synergy target by 50 million Swiss francs, which after cost of capture brings the NPV of synergies to $3.7 billion up from $3.1 billion.
Political and digital delivered its ninth consecutive quarter of revenue.
The growth with fixed ARPA of increases and mobile postpaid adds and offsetting the loss of broadband subs and was the <unk> rolling out and 1 gig services rolling out there of the company is well positioned to deliver its 2021, EBITDA and free cash flow guidance and finally telenet continues to be our most innovative operator launching yet another converged fixed mobile offer called 1.
Which helped the company deliver positive subscriber growth and video broadband and mobile for the quarter for each of our <unk> are performing well now let me switch gears for a subject on slide 7 and I know, you're all interested in and I'm sure by now you've seen the announcement and read the press and analysts remarks about our decision to upgrade Virgin media owe choose fixed network to fiber over the.
And years or so and we're already have fiber to the premise to about 7% of our homes through the lightning build so we're talking about $14.3 million homes to be upgraded and the costs of about 100 pounds per premise.
And lots of discussion around why are we doing this what does this mean for cable and DOCSIS is this cost really of that.
Low and.
Let me start by reminding everyone that Virgin is today, the undisputed speed leader and $15.5 million homes across the UK average customer speed of nearly 200 megabits per second with the balance of the market around 40, megabits or so so speed matters and the U K of course, that's why Bt's building fiber.
But today, the only pass about 10% to 15% of our footprint, we believe and we will be offering 1 gig services to our entire footprint and 5 short months from now so using the Olympic analogy, we all have our eye and advancing to the 10 meter diving platform. If you will over the next 7 years with pegging the speed, but today, we're already standing on.
And the 3 meter platform and the rest of the market and our view.
Has their toes and the water at the edge of the pool. It doesn't matter how fast BT gets to 1 gig we will always have an advantage, it's almost not a fair fight the all.
All of that is attributable to cable and DOCSIS of which will be part of our network solution and the U K for a long time to come we're not decommissioning.
And our cable network quite the contrary, we are simply expanding its capacity by pushing the fiber that's already there and the ground even closer to the customer and fact, that's why we can upgrade for a fraction of bt's costs already have fiber deep into the network and mostly urban markets and we have access to our own underground ducting that will require.
And our farthest digging and that's the most expensive part.
And for the same reasons upgrading the fiber is only marginally more expense of the DOCSIS for which is not the case and every market, but we made this decision pretty easy and the U K like everyone else, we will incur cost of connected dropped to the home, but that will be of variable cost based upon demand over time. It's also.
The important point out the these are gross capex cost. So they don't take into account the expected revenue uplift that could occur here you can see some of those economic benefits outlines of the right side of this chart, both DOCSIS 4 <unk> and fiber to the premise will make our BDC and <unk> services more competitive that's clear, but given the marketing halo around fiber and that seems to be building.
The app in the U K and the benefits of symmetrical services to the enterprise market.
And fiber probably has a slight advantage and will derive more value.
Similarly, while cable can do wholesale just look at telenet and the likelihood of deriving value from the 1 billion pound wholesale market and the U K, if we chose to do it.
Which is quite mature and busy.
<unk> enhanced by an all fiber solutions and since we only cover half the country, it's safe to assume that wholesalers want to keep their technology platform simple and seamless across providers and of fiber solution does and of course and beyond those economic benefits fiber to the premise and the U. K also provides greater confidence as we think through network expansion options.
And beyond the steady lightning build today, and we continue to evaluate that opportunity to add an additional 7 million homes sort of of supercharge lightening. If you will and we're in good discussions with financial and strategic partners about what that might look like so stay tuned and now in light of the U K announcements I think it's important to stress that there is no direct read across.
E to cable or other markets from this decision because the truth is we have multiple paths to 10 gig and every market and we're evaluating the right path on a case by case basis of slide 8 lays out how we're thinking about it across the re approaches. The first of course is simply access and someone else's fiber network, allowing us to.
<unk> and the Capex associated with the upgrade and providing some measure of market rationality of others and are pursuing the same approach of Sunrise has successfully done this and Switzerland with the Swisscom wholesale arrangements. The negatives are costs are also clear, though you're foregoing owner economics and your most important product broadband and youre somewhat exposed the fluctuation.
<unk> and wholesale rates among other issues.
Obviously DOCSIS for will be of transformational technology development when it arrives.
And it is a robust ecosystem of cable operators around the world, particularly in the U S. Supporting the innovation of the platform as we've seen and the transition from DOCSIS 2 to DOCSIS 3 and then of the DOCSIS 3.1.
And the costs are generally lower than of fiber solution as they build upon the existing platform before it and the rollout can be faster, but on the flip side.
DOCSIS does require a relatively substantial 1 time investment and the active and passive components of the network to enhance the spectrum capacity and speed each time you upgrade.
And so not clear when the technology will be available for commercial exploitation, but we are part of a select group of operators working together to accelerate that timetable and then finally, while DOCSIS for will get us to 10 gig. There is no current roadmap beyond that for our forecast for what it will cost to get to say 50 gig fiber solves both of those future issues of course.
So our announcement today makes clear building fiber to the premise is a real and accretive option for us in certain markets I've already mentioned the clear path to 50 gig speeds of benefits of symmetrical services, especially the the BBB market and.
And the significant opportunity that some markets offer around wholesale revenue the price for that is higher from costs, which vary significantly by market.
And the thinking about which path, we'll take always comes down to a few key questions and it's clear to us that we are likely to avail ourselves of all 3 options across our footprint and to varying degrees by market first of course is the competitive environment.
What other operators are doing and are they building fiber how quickly second as I've just mentioned is the relative.
The capex cost associated with each option thats obvious.
To get interesting is around the economic benefits that accrue from 1 approach to the other specifically the positive impact on the BDC and BTB competitiveness, the size and attractiveness of the wholesale market as a provider or user and of course, the strategic and financial partnerships you confirmed.
And for them to support the plant and can share that work is underway well underway and every market and <unk>.
Probably familiar with Telenet has announced discussions of <unk> upgrade Flanders for fiber overtime, Ireland looks a lot like the U K to us of Switzerland is likely to be a hybrid approach and Holland is still in the early stages of analyzing the best plan, but of fiber deep DOCSIS.
And as you might make the most sense there and.
And the and as we've done and the U K, we're going to be extremely focused on optimizing the medium term and longer term ability to compete grow and generate free cash flow as you can make those decisions in every market now and my remarks on slide 9 the.
Quick recap of how we intend to create value for.
For shareholders from this point forward and it comes down to 3 core pillars, if you will first and foremost.
We're going to focus on maximizing the value of our fixed mobile operations.
These of the Crown jewels of our business, we worked hard to build scale and the number 1 and number 2 player in each country. So we could shape markets rather.
Radically innovate and make the important strategic decisions that are going to underpin growth for years to come how will we do that.
<unk> already seen and Holland, and Belgium, and helps when you have of near term catalysts of synergies to kickstart growth and support cash flow of longer term.
We also know that and increasingly competitive market convergence is working and driving cross.
Sell and upsell of reduces churn and make customers happier nobody debates and anymore. The key is to stay rational and pricing and put the real effort and the seamless digital experiences that keep customers coming back for more of.
The end game and every market is the generate distributable cash to the parent from free cash flow dividends recaps whatever source that's the metric.
Patrick that matters to us and Thats the metric that will fuel our model now.
And now as we provide more visibility to our infrastructure and network strategies Youre going to see that these are largely offensive as of just gone through in many cases like the UK they come with significant strategic opportunities around new revenue streams network financing and strategic partnerships hopefully also.
B rating of our business and then lastly, the always look for ways to create demonstrable and transparent value either through asset sales like the potential sale of Poland.
And the impossible public listening to and markets, where there is serious pent up demand for local telecom champions.
The second major pillar is becoming too big and too important to ignore.
Also of and that's of course, our growing ventures portfolio.
For the focused investment strategy around tech content and infrastructure and markets and services that are adjacent to our core operations. We continue to create value whether that's benefiting from some smart early venture capital deals such as plume of skills are watching some larger positions like the ITV.
For division of Formula E. Appreciate.
We're also excited about our move into infrastructure, where we have of real right to play.
Given our track record of telecoms financing and M&A, all and all of the portfolio is valued at 3 billion, which I mentioned about $5 per share and is starting to realize cash returned has already returned $400 million for the parent by the way we've begun.
The uses of monetizing hidden assets and our op goes like towers, and Holland, and Belgium, and the U K that could add about $2 per share net.
Of adjustments in the op goes and that's not accounted for either of the ventures group, it's not and that portfolio or and our stock. So watch this space and then of the third pillar is our Levered equity model.
Model, and which is unique and the European landscape and distinguishes us from mainstream telcos in Europe at the core of this strategy of the prudent use of leverage and our case for a 5 times on the fixed rate currency hedged and siloed basis, and that creates the opportunity for recaps and greater equity appreciation you all know and understand that strategy, but we combine that with the.
The problem stock buyback plan that just got stronger today with our commitment to repurchase 10% of our market cap annually for 3 years and again that means were adding $400 million for this year is $1 billion program only 3 quarters of which we've spent so far and we will seek to purchase 10% of the shares and 22 and 23. So that was a mouthful for me I know.
The strong and let me turn it over to Charlie and then we will get straight to your questions and look forward to addressing all of those shortly Charlie over to you.
Thanks, Mike I'm.
And I am starting by highlighting our strong performance in Q2, where we achieved revenue growth across all markets and consolidated revenue growth of 3.4%.
And now also the and elements.
And the Covid recovery and areas like sports and broadcasting the has been very limited recovery and areas like roaming and we're seeing positive underlying growth across all our businesses.
The U K grew 4.4%, which includes the roughly 2% benefit from premium sports with continued strong conversion volumes and beat the B performance driving growth.
Some of that also realized strong underlying growth in Q2, the the near 4% growth rate does benefit from the 30 million euro year over year improvements and broadcast revenues.
And as we guided earlier, Switzerland has returned to revenue growth fueled by continued strong global volumes B to B performance and our consumer business that continues to stabilize through positive.
Broadband supplemental.
Well spud of funds. They got continues on the trend of strong financial growth posting of 3% year on year increase versus the prior year.
This marks a milestone of 9 consecutive quarters of positive growth.
Q2 saw growth across all segments, including mobile on both the consumer and beat the besides of the business as Covid.
It abated.
On the next slide we provide details of our adjusted EBITDA.
Of course to capture synergies continued to weigh on results from the UK and Switzerland.
Virgin Media performed in line with the prior year, despite $8 million of pre merger cost of the capture and it's worth noting that the recovery and premium sports revenues.
Covid was offset by increased programming spend year on year, given the credits that we received in Q2.2020.
The Swift performance continues to improve and a 3.1% decline is explained by $9 million of course, the capture and high growth and related investments and marketing and <unk>.
Synergy benefits of limited and the quarter despite the.
And the MBNA migration back to our own network, but those savings will become apparent and half 2.
Tonnage growth rate was suppressed due to the acceleration of programming rights and the prior year period as large sporting events reported and the second quarter of 2020, the benefit of which we've seen in the Q1 results the.
So taken together <unk> achieved nearly 2%.
<unk> first half year EBITDA growth.
And in the Netherlands of 2% EBITDA decline was expected given the estimates of 21 million euro impacts of Covid related temporary broadcast suspension and nonrecurring settlement in Q2 of 2020.
But if and Zynga remains on track for full year guidance.
Focusing now on the OFC app.
We presented a year to date view of our performance illustrating the significant OFC of generation of our core businesses the <unk>.
The headwind of $58 million of cost of capture the consolidated group delivered 2.1% growth and the first half.
U K OFC after 2.3% and the first 5 months of the year.
And we reached the milestone of 2 and a half million lightning homes.
We continue to build efficiently and op cost per premise continues to trend lower and delivering our cost per home of 576 pounds and the quarter.
The Swiss team remained focused on the integration and incurred significant costs and the first half to achieve longer term synergy realization.
<unk> of $41 million of half 1 cost the capture helped lay the groundwork for future net migrations it integration and the alignment of the product roadmaps, including be debate, although OFC of growth in Switzerland, but otherwise of being positive.
And Belgian OFC have declined around 1% whilst in the Netherlands of FCS grew 1.6.
And for the first half as we continue to invest in the network and remain on track to have upgraded 80% of our footprint to 1 gig speeds by the end of the year.
Focusing on our core Liberty global performance metric of free cash flow, we delivered $717 million of free cash flow and half 1.
Our strong first half performance indicate.
The case, we are on track for our full year guidance of $1.3 5 billion.
Which represents 26% year on year growth with growth accelerating on a per share basis, as we continue to aggressively retire our stock.
As of July we retired nearly 18 million shares since the year end 2019.
And the next slide illustrates our.
The 6% buyback performance.
As you can see as of July we repurchased $765 million of Liberty Global scope as we approach our initial $1 billion authorization.
As Mike announce we're committed to repurchasing 10% of our market cap of the year over the next 3 years, which served to increase.
Kris the 'twenty to 'twenty, 1 and buybacks of around $1.4 billion.
Courted by our significant free cash flow and our corporate liquidity, which includes the cash balance of $4.1 billion as of quarter and.
I'll bunch of portfolio is currently valued at $3 billion, which reflects the full Colorado and and ICP, which we completed in early Q2.
Yes for the continued monetization of our skills stake and we've realized over $80 million today.
During the quarter, we also announced the creation of our Atlas and joint venture with digital colony utilizing our owned real estate to provide cloud providers streaming services and enterprises with high performance edge of network facilities through.
And distribute low latency applications and services, such as <unk> gaming Iot and edge compute.
And we expect that transaction to close in Q3 of 2021.
To conclude we are executing our FMC strategy across all markets with positive revenue growth across our markets synergies validated and the U K.
And upgraded and Switzerland.
And the U K, we're excited to announce a cost effective upgrade of full fiber by 2028, and we are increasing our buyback program for 2021, whilst committing to repurchasing 10% of our market cap annually over the next 3 years.
Finally, we are confirming all guidance targets, noting Virgin major.
Which they can manage the were not part of the merger of clean team and as such are and the process of validating the combined business plan and with that operator, we'll take questions.
The question and answer session will be conducted electronically. If you would like to ask a question. Please do so by pressing star or <unk>.
And by the digital.
1 on your phone and order to accommodate everyone. We request that you ask only 1 question. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
I'll pause for a moment to give an opportunity to join the queue.
Okay.
<unk> right. We'll go ahead and take our first question from David Wright with Bank of America.
Thank you very much for taking the questions.
Hey, Mike.
Im going to begin with something.
A little bit more careful if you don't mind.
And the equity of your stock has.
Bina.
I'd say of disappointment and over the last few years you guys. Obviously reflected in some recent buybacks for now.
And you and John and I'm very frustrated with the common equity the valuations given the <unk>.
Managed to do all of these deals recently without equity.
And.
Right now and you're having to justify the.
Beg and Capex spend and the U K 2 of market. That's very focused on short term cash flow is etcetera. When you are confident and the long term value creation and I think certainly the I think the frustration that led alien zone of Zambia, and Neil This morning to basically say well I didn't need.
To deliver those short term cash flows when I know the rates along the value to be created and he's obviously made the move to buy the stock back in.
Do you ever find yourself sat around the table and you Charlie and and maybe John saying just why are we bothering with these equity capital markets why don't we just dive a lot and we can lever up and we.
And we know best to create value. So just throwing that out of my mic and look to know your thoughts.
Yeah.
And quite a curve ball.
But not where we expected to start the conversation with the thanks, David I appreciate the question.
And I understand the question and and surely every.
Can inbound to printer of CEO or chairman of the company that feels like it's achieving more than the market is recognizing wonders about those sorts of things why wouldn't we on the other hand, I think it's important to point out that we are in a way.
Buying out the public right when you buy $1 billion for stock this year and you agreed.
The purchase another 10% of the market cap by the way not the market cap the share. So if the stock rises we're still spending.
It cost of <unk> 10 per cent of the shares of so 1 analyst say well that's only $1 billion for every year that assumes the stock doesn't move it is the number of shares of stock doubles, we're still buying stock.
That 10.
Agreed upon and so we are in a sense doing what you are saying, but perhaps in a more measured way and perhaps in a less expensive way.
If you look back we have repurchased well over half of the company at varying prices, but generally prices that are less and today's price and for those shareholders, who believe and what youre doing it as a way of ensuring.
Percent they ride along with you.
And that slow go private if you will and if theres only 1 share remaining and when you own it and you've done well. So far we are in a sense doing the same thing, which is giving shareholders an opportunity to exit if they're frustrated and.
And understanding what we do.
And about our business, we're confident and putting our capital and our free cash flow to work to buy those shares so and that's all I'll say at this point.
2 businesses you know the good old piece and if you look at Elia they have their own challenges and issues I don't think our shareholders would be thrilled if we put an offer.
At 7 times EBITDA to take the company private I don't think they'd accepted so those of unique circumstances, where perhaps those businesses have their own challenges that warrant those kinds of multiples I think our business is worth more I think most shareholders to understand that and those who don't wear and the market every day buying stock.
No we will take our next question from Robert Grindle with Deutsche Bank.
Okay.
Yes, hi, thanks, so much I was half expecting some guidance around the dividend from Virgin O..2 of the <unk> group free cash flow might be going but you've taken the the different approach by commissioning.
Buybacks, which you've just been talking about and can you.
And give us some back.
Backgrounds and the thinking behind this is it because youre not sure you asked about the funding for fiber.
Supercharged project Lightning, whether to go alone or with someone else or is the some of the rationale behind the this approach. Thanks.
And here, but I think it's pretty straightforward Robert.
We have spent quite a bit of time, putting together, we believe of fixed mobile.
The group a bit of a group of fixed mobile businesses that are strong.
And have great cash flow prospects and great strategic and competitive positions.
Also now have a very good handle on what the next 5 to 10 years of network and technology evolution means to those businesses and.
And we are increasingly confident about the value of those businesses and so.
It seems to us a good time to.
Put a stake and the ground and reinforce our commitment to the to the stock and the business as.
As we know more and have better a better understanding of what our future looks like so I'd say, it's not a defensive move quite the opposite it's an offensive decision to take advantage of.
And what we believe is and undervalued stock and to do and to show that confidence to investors of course by committing to a clear buyback strategy as opposed to and annual 1 where we let you know every 12 months of what we might or might not be doing secondly, I think it's helpful for investors.
When we can demonstrate our willingness to not just use free cash flow.
But also our cash balance and if our stock appreciates, which we fully expect it should.
We'll still buy back 10% of the of the of the shares and if that requires us to utilize cash.
As opposed.
Free cash flow to do that then we will do that and that's also I think of great statement of confidence plus it takes a bit of and overhang off.
And as it relates to those investors, who feel like we should be deploying cash more quickly. So I can't see anything but good news and the statement, it's not defensive it's hopefully something.
The just investors appreciate.
Our next question comes from the kill the Tony with J P. Morgan.
Yeah, Hi, good morning, Thanks for taking the question maybe I can focus on the use of it. Please.
You mentioned, Mike the.
And most of that at this stage the Virgin Media management team and not part of the merger process, obviously, they've not been in the position to work day to some of the plans I just wonder if you could comment on when we might expect that do we expanded for the next quarter and they're gonna be a standalone event, where they'll give us an update so how do we think about that and I guess more specifically.
When we think about the U K.
There's a lot of moving parts as you outlined in your introduction.
And what do you think of the biggest decisions and be the strict strategic things that need to be thought through by the management team and I guess, the 1 that we think about the law is the wholesale strategy. So maybe you can give us any sort of color on how you think.
Quickly self of Liberty the B, so for Virgin sorry, that'd be really interesting too.
Sure I'll take the first 1 and then loses on all.
And I ask him to address how the management teams coming together you know his the progress you've made and the organization and his commitment to the board of the joint venture.
For your 2 and he'll feel we've got a really good handle on next year and the in the years to come because lots of good work is happening there I think the biggest decisions in the U K should be pretty self evident.
And I've kind of directly or indirectly mentioned some of those and of course, if we're as we commit to invest in 5.
Fiber and Ah.
And the that and the the balance of our footprint that isn't already fiber we want to be sure. We're focused on those things of that listed on the right hand side of the slide <unk>.
Namely the ensuring that we're getting the benefit of that investment and our b to C and b to B business is first and foremost.
Also though that we are examining.
The opportunities to work with financial and strategic partners and potentially.
The wholesale partners to further monetize and utilize that investment.
We're specifically and by design not being.
Concrete about those plans today, because there's lots of work to do and lots of options to consider but.
And you should assume that we are.
Looking at this purely from an economic and and offensive point of view and we believe there are opportunities to explore the economic benefits that should derive from this network investment beyond simply being more competitive in the b to B and B to C space.
And also have to look closely at our decisions going forward around network expansion and we've.
<unk> talked about on many calls and I think where we're taking 1 step at a time. This is obviously a first step.
But I think going forward, we will look very quickly at the.
And the potential too.
To expand the network beyond the current footprint and potentially do that with partners as well and an accretive way so lots of big decisions and I think.
The revolve around the network, but all of them and our mines.
<unk> taken with the lens and you can.
You can bet that our partners of Telefonica and use the same lens of what the value.
We have to create and what is the impact it will have on our cash flows and and dividends. So we're being very I would say thoughtful about this and we're going to make decisions and the best interest of all parties, including and mostly concluding shareholders. Luke do you want to talk about the management team and how youre coming together on the broader strategic and operational.
Valued at all Yeah sure sure.
So we have for priorities and BMO true.
The 1 is integrated to both companies' second is cheap and accelerate the business momentum for us.
Transformed the company into digital and force find the right.
Parents are 2 of the fixed network of extension.
And on number of warm.
We had really a jumpstart and so we have the top 100 and of the organization of nonsense of months.
We have been just sharing our plan for this year with our board yesterday. So obviously the board has to decide.
<unk> now and the minute the bulk besides I think you would get the guidance, but I think what I can say is that this was very much in line with expectation for both shareholders.
We are working now on the new 3 years plan until.
And until October and after that we'll get all the board approval and the.
The outlined with you guys and also we have already re confirmed.
And that the team is able to get for the $540 million run rate synergies why can we do this already because we spent quite a lot of time on.
And the pre merger activities.
Sure. So so we build on a pretty strong foundation here.
Business momentum I think you've seen our momentum and Q2 numbers look look at our competitors look at what we are doing so we are approaching these integration with strong business momentum both across mobile and fixed digital.
And if we shouldn't touch it now.
And I'm sure, we'll find some time and we will transform our business entirely into digital and that's sort of an expansion I mean, its the right like Mike said it it's the big step, it's an offensive move when that business for us and and now we talk about finding the right.
Solution for these additional 7 million homes plant the right balance how to invest our capital into 5 G and for capacity.
And and find the right partnering model.
And so a lot to do good stopped with momentum.
Back to you Mike.
Okay. Thanks for this.
Well go ahead and take our next question from Macquarie All of the Society Generale.
Yeah morning, everybody could I got a bunch of the wholesale strategy. Please Mike and I mean, there's risks with this as well so and.
And you're confident you can protect the high off of retail subs. If you were to do that and have you sort through that yet obviously.
But have you could you share with us some thoughts from the U K business online and any any conversations of told what else coma and could I can I just clarify when you're talking about the wholesale you are including the cable.
HFC network to wholesale as well or is it just the incremental fiber parts of the network. Thanks very much.
Look it doesn't really good questions Nick and.
I'd love to dig to walk you through the.
The exhaust the his the amount of analysis that we've done.
And both of the Liberty and the Virgin Media O 2 and telefonica levels around all of this but I prefer not to I think it's safe to say that if we were to.
Enter into any sort of wholesale provider.
Provider arrangements or consider that as a long term strategy than we would have thought through the impact on our pool of the regulatory impact and the best technology solutions to achieve that.
To not get into.
Such detailed today you know the.
The announcement, there's plenty to 2.2 and digest for investors and we want to focus on explaining how we got there and and how we will achieve that.
But I think it's safe to say, we have lots of time to think through how we.
Exploit and monetize that commitment beyond.
To my benefits to our own business and I would just give us a little time to you know the 2 to finish those.
The considerations and the and you will certainly have plenty of you talk about over the course of the next few quarters.
Sorry to be evasive, but I just can't get the slippery slope, we could get into a lot of detail that's probably not helpful. Here no understood. Thanks, Mike.
And you got it.
We'll take our next question from Steve Malcolm with Redburn.
Yeah. Good afternoon, guys just just on the the UK fiber plans can you maybe just help us understand what is so unique about the UK network I should know the software of million years doing this job, but honestly.
The build at such a low cost relative to other networks, so and I guess sort of the second part is in euros.
And it's probably you're talking about I presume you don't think there's any construction required and so what was the you completed the fibers.
Directly and school with docs for all of it.
Customers and I guess, the 1 besides that the project lightning experience hasn't been seamless and the last 6 years, so maybe what lessons of you.
And what confidence can you give us the the targets you set out yesterday aren't going to be the numbers you actually do.
That'd be great. Thanks.
Well, let you can you can prepare <unk> henriquez, a little bit more color on why the we believe the numbers.
To be of course accurate and as you point out.
Less expensive than our peers, let me just make a comment on project lightning.
We have been rebuilt 2 and a half million homes at this point I think the you referenced to you know.
Slippage goes back 5 years, maybe for you for quite a while ago.
Since that early moment and.
And I would describe that as a very early moment. It has been and machine and we have been extremely effective consistent and predictable and our.
Execution of net.
Network expansion in the U K, our returns and our penetration rates have been exactly what we said they would be and.
Our our capital costs have come down consistently as we access P. A a and we get smarter and better at at.
And executing on this large construction project together with suppliers. So I don't think we have any I think we are as active and successful and predictable as.
And the U K market and you can just talk to the suppliers that we work with to confirm that our ability of our credibility or our ability to achieve this in my and my opinion is sound and really not that questionable, but Lucerne henriques and you're welcome to dive a little bit more into the detail around 100 pounds, if you'd like to.
Yeah.
And you only get stopped right yeah sure I'll just make a couple of comments.
First of all of the Big the number is the obviously on average over quite a few different scenarios, but in the case of this.
Great.
A J.
Majority of the.
And maybe.
Got it.
And the use of sort of existing docs and all of our existing fiber.
Fiber deep DOCSIS network allows us to really focus the upgrade capital.
Basically on the significant portion of the passive part of the network there are construction and Youre asking for your question.
The the is it is it because there's no construction cost of our construction cost, but it's significantly lower than when you're building a brand new territory like we are doing and the.
And lighting and and the final point I would make is that the.
And the significant commonality between both of the technology as well as the.
The construction mechanisms between lightning and what we'll be doing in and the substrate. So we're pretty confident.
And that we that we understand the the process and that we will hit those targets.
The follow up Mike and I think you said that.
Net cost of about 10.
And to 50 per cent of your network with fiber can you maybe just update us on what Youre seeing where they have passed with fiber you're seeing the 6 of our change and the sort of customer on boarding and off for the gay dynamics and those areas.
Look and address that.
Yeah. So I mean, you've also seen a steep that the new.
So the prices right announced and will kick in and for 1 gig that the stand and 22 pounds..2 day right. The fiber prices are very very high and we watch it very carefully but look at our net debt. So we don't see and impact at all at the moment will debt.
New host the say no because we think that a right price is for higher speeds will go down a bit we would see a bit more competition here, but the on the other hand tied like we have for no more than 40 per cent of our fixed customers, having lots of mobile with us and that will help us the auto approach it and protect our customers from Trung.
The other point I'd make is.
And we're already 1 gig.
Pretty much and we'll be at the end of this year, 1 gig of capable across 100 per cent of our subscriber base.
And it isn't as if the T or any.
Openreach customer will be providing a superior product to us.
It's really a me too product and we're going to have the advantage of being their first across the entirety of our footprint and we will be marketing aggressively both fixed and mobile products as well as 1 gig products well ahead of the vast majority of these operators because we're already there.
What I meant.
Said you know, it's not a fair fight because of BT is building to get to 1 gig we're already 1 gig.
And we're just basically further supercharging our networks for the next 10 years by ensuring that we will have symmetrical 10 gig when and if that market requires it so hard.
Hard to see us not being able to compete.
Pete with any activity from BT Openreach, given the fact that were and so.
And so far ahead of them as we sit here today.
The 1 gig product.
And thank you.
We'll take our next question from Matthew Harrigan with benchmark.
Oh, thank you.
And when I say, another angle and on fiber 1 of your large U S peers.
Most of more of a parallel network topology approach and it sounds like what Youre doing all the more complicated so you've seen the other Olympic analogy I hope and doesn't get the Simone Biles Twisty zone on the execution because it sounds a little involved but the other thing.
And it was real interesting on your U S peer, what's even though they haven't known and homes passed I mean, they didn't even call out the cost of operating of simultaneously with over 1 million homes passed because the cost of fiber were so low, albeit less and less than 5% capacity can you talk about the cost.
And fiber sort of it.
Some people as Youre going to put you at about 30% reductions and consumer touch cost and related Capex.
And then secondly on the ventures portfolio, you've got a couple of things of that.
I think the valuation of your Carryon and its probably pretty safe and saying you've got a couple.
Things that would probably have a lot of sort of Kathy would type of appeal. If there was a flotation and suffering with formula E. G as well as the computer and could you talk specifically about some of the possibilities around the formula E and whether it's the complement or displacements of formula 1. Thank you.
Sure Matt.
The savings.
I think and ink Enrique Wood wood.
Because of the comment that if the fiber network could easily and should reduce operating costs over the long haul I think it's important to point out, though and the U K, we're not decommissioning of the cable network, we're going to continue to utilize the DOCSIS 3.1 plant and it took us all the way the 2.2 gigabyte.
And so we'll be at 2 gig pretty shortly here on the DOCSIS plant and we will continue to utilize that plant wherever and whenever necessary with the fiber really being and overlay as opposed to of replacement.
<unk>.
And of the coax network the ore of the HFC component of.
Goodbye and anyway, and they'll share of tons of fiber to the for the cabinet. If you will but beyond that will keep the HFC network viable. So the cost will be there shouldn't it'll be cost savings long term and capex savings long term, but I think you have to remember that those annual customers you may not be credit seem to be and on the venture side, there's lots of assets within ventures.
Of the network.
That could easily find their way into the hands of other strategic owners Ipos et cetera, we have at least 8 to 10 unicorns and the tech portfolio, which is about $800 million of the $3 billion and we have some relatively large businesses and the content portfolio of you mentioned, 1 formula E. But we have the stake in ITV which.
<unk> relatively low basis and.
Both the media and some other assets and so each of those have their own sort of storyline and opportunity and the formula E is doing terrific and its seventh season.
Coming back strong from Covid with some really exciting things happening with the car and the technology next.
We have the who's got Mercedes Porsche 1 of right of manufacturers getting behind it and the product just gets better and better.
With the with that I think we've got another 18 years of exclusivity with FIA on electric car racing. So it's going to be terrific to see how that platform evolves over of over the long.
Hall, and we're always looking at ways to help our portfolio of companies achieve their goals, whether that's true for locations or mergers or whatever of fundraising. So stay tuned we'll give you more information on those assets as they evolve.
And over time or are you more likely to have the mobile traffic on the on the HFC network and some of the emergence of.
The new technologies from Cisco and others or is that going to be on the on the fiber.
And I work, because you don't mind my asking.
Well, we do backhaul today and the Lutz can speak about that we provide quite a bit of backhaul services to almost all of the mobile operators in the UK, including will do so for O 2 typically utilizing fiber.
But I don't know if there's some other element to that and regain at least you want if you want you can do it over both but generally speaking the circuits are fiber.
Yes, the the mobile traffic, it's mostly on the fiber network and we will continue to.
For growing that direction.
There may be opportunistic of cases.
And which we use the portion of the HFC and that would work, but it's really the F of HFC that it's being the other issue.
Great. Thanks, Mike Thanks for the Richard.
Yeah.
Our next question comes from Andrew Beale with Arete research.
Oh, Hi, I'm, just wondering if we can develop.
Cases, the discussion about the longest time fiber cost savings and and Virgin.
And as you blow of or a pool of Fiverr alongside the existing HFC network will come out.
I guess, you can choose what ease of each existing and new customer bought DOCSIS of fiber and.
And then longer term you've got this opex saving when you switch.
Switch the docs itself.
So what is your thinking at the moment, what do you put all of the new customers or.
Upgrade was on fiber or do you just do it for the customer seeking of certain high speed tier.
Or symmetrical or all the side of the services and then you know how of how many years off of your thinking it is that you actually switch of DOCSIS and and area.
The previously passed with fiber.
I guess I'm, just really asking about the the pacing of variable capex replacement of the current strokes with fiber versus the long term opex savings opportunity and where you think he is not.
Yeah. It's it's the right question and I think it's little early for us to provide any guidance around.
And what percent of customers will require or want.
Fiber connection and the cost implications of of <unk>.
That yeah.
And you should assume we're working that through we have worked that through but for in terms of disclosing that and if it gets a little premature.
And I don't.
And we can't lose can chime in here I think the cable network.
Work will exist for quite some time.
And it will provide us with a seamless ability to serve customers, who don't require either of the benefits of the fiber network of the speed and capacity of the fiber network. That's a nice luxury to have but we can get people up the 2 gigabytes.
On the existing.
Plant.
So that's the basic strategy you know as we get as we go and move forward here and the the idea of sort of further disclosure and Virgin media outreach plan. When it's developed maybe we will do that will take some time on 1 of our future quarterly calls and really dive deep and get a little a little early to do that for the public today, but.
And I think you're on the right point in terms of what percentage of customers will require a drop and the new CPE how quickly will that happen and you can make your own assumptions about that we certainly have but I think it's too early for us to put that in and the publix and the top of yeah.
I mean go ahead.
So first of all we are we are on the luxury.
The position right that we can plan the migration predominantly cost from a demand driven and that means of course, the mother and wants to have ISP then to go up 2 gigabytes per second right.
And Mike said at the beginning today and Virgin media customer that's using 2 of net.
And it puts I can't.
And then as to the 2 gigabit per second right. So that will take some time that's number 1 number 2 we have the luxury to have.
In 1 area you kind of have 1 home then on fiber and the next time, we can have on DOCSIS 3.1 and so we are not forced to really migrate entire regions onto fiber.
And.
I think number 3 obviously over time.
We want to all of our balanced approach to really use the capacity of the fiber net book and balance with the 3 type of wrong.
And this isn't that right. So these are the factors and and it's.
And like I said earlier right the biggest driver for office and not the cost saving with switching off the.
The network right when you sit on the coupon network and and of stories 80. Mac. Then you have to think about spiritual when you sit and sit on the DOCSIS network and.
And today, we see easily we get to the 2 the 2 gigabit per second and then you absolutely want to leverage both networks, what's driving it is the business of.
Opportunities across consumer and.
The to be huge growth opportunity and to you and your.
Think about our market share is below 10%, we have more of a priority network and the fiber network.
Lots of things of possible and then the wholesale function. So I think stay tuned on that.
Okay. Thank you.
Yeah.
We'll take our next question from James Ratcliffe with Evercore ISI.
Hi, and 2 if I could first of all I noticed you the boosted the synergy expectations and Switzerland, and because of some additional cost to achieve how does that affect the time frame for <unk> for seeing the cost of achievers of synergies.
And are just flipped positive in that market and secondly, just going back to the buyback and.
Can you talk about the thought process around doing is as a percentage of market cap rather than say, a fixed dollar amount or free cash flow plus of giving dollar amount because and this has the effect of the more stock goes up the more you'd be buying back.
Thanks.
Yeah, I'll take the buyback question and obviously and.
Andre if you want to prepare some thoughts around the Swiss question.
I want to make sure I'm following what you are saying James.
Let me clarify what we're what we're committing to which has repurchased 10% of the shares outstanding.
The beginning of the year regardless of price.
Over the next 24 months, so the amount of the buyback.
For the dollar amount of that spend will vary depending upon the price and that's that.
It doesn't mean, we couldn't accelerate that if the price were.
For lower to perhaps take and anticipate 1 of your follow up questions.
But we would continue to commit to that if the price were higher and therefore seems to us that were.
Nesters now will be able to incorporate into their thinking around.
The stock price.
Growth and minimum of of 10% improvement and the share price. We hope based upon the buyback commitment. We've made so it seems to us to be and easier and more predictable.
And more beneficial approach to buyback and meaning that we're committing to that 10% number and.
And Glenn if it were a dollar figure hard to know what that impact would be right.
Got it.
Yes Andre.
Yeah, well on your question does the higher synergy expectation has an impact on the timescale and I'll see the realization.
No it doesn't and so we actually have seen that some of.
And the assumptions that we have taken on the realization of moving customers over to own infrastructure from a whole bunch of infrastructure, where more conservatives and what we see is no realistic to achieve and the.
It does not really change the timeframe and in fact.
<unk> seen some synergies coming in even though the earlier you've seen in the presentation that low.
Moving to.
The N V and all migration being executed ahead of schedule and overall I would say we are rather ahead of schedule them behind and so no real change to the timescale.
Thank you.
Yes.
We'll go ahead and take Alberto's question from Gulfport.
Go for it yet.
And I'll go ahead of schedule wasn't sure what's happening.
Well go ahead and take our next question from Ulrich Rathe with Jefferies.
Thanks.
So I have a question and then probably the 2 lots hum.
Does the the 5 of our upgrade plan.
<unk>.
And our require in footprint share gains and the consumer market and I understand the opportunities.
Beyond that but in terms of the surveys of the consumer market.
Is.
Is there an element here that you think you cannot share the market share. Thank you.
Yeah.
Well I mean, we are currently winning market share right with the <unk>.
<unk> advantage.
And we have not made any plan and get.
Thanks for my what kind of market share we are planning to win over the next 10 years and we haven't justified the plan by a win of a market share and consumer and.
And like I said earlier on we have just started now after the committing the budget for 'twenty 1 and.
To come up with the 3 year plan.
And beyond and and then we're working on that but it's a definitely an opportunity to.
Keep our customers and also to increase the share of wallet, so option care of home with our customers because if we keep winning market share for as we do today.
Give us some time to.
Figure that out.
Okay.
I would like to now pass the call back to Mike Fries.
Okay. Thank listen I appreciate you staying on with US I know, there's other calls happened and today and so you probably already on your way.
But looking at for key takeaways from my point of view growth continues and our FMC champions and synergies are just now starting to show up so that's going to be a positive tailwind here and and in the medium term, we're excited to start providing greater transparency around our network strategies with the UK being the first of those announcements.
And I can assure you we're looking at these things through and offensive and accretive lens.
And we have the luxury of doing that because we have such of fiber rich network to begin with and a strong of broadband base as we sit here today pay attention to the ventures portfolio, it's growing in value and significance.
And we'll keep you posted.
And on the Polish deal, which is just another reaffirmation of the private market value of our businesses and lastly, you know we're excited about the buyback commitments of strong statement from us.
I think that's something you can take to the bank if you will like.
This year and for the next 2 years and Thats got to be useful for investors, who want to see us deploy capital in and.
And 1 of the most obvious places and that's our own share. So I. Appreciate you joining we'll speak to you soon have a great August bye bye.
Ladies and gentlemen, this concludes the Liberty Liberty Global second quarter 2021, Investor call. As a reminder, a replay of the call will be available and the Investor Relations section of Liberty Global's website.
And also find a copy of today's presentation materials.
Yeah.
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