Q2 2022 Liberty Global PLC Earnings Call
Call is being recorded Friday July 29, 2022 again, we do thank you for your patience and ask that you. Please remain on the line.
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Thank you for standing by and welcome to Liberty Global's Q2, 2022 results call.
Your conference call will begin momentarily.
Please note today's call is being recorded Friday July 29, 2022, we thank you for your patience the investor call will begin momentarily.
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Good morning, ladies and gentlemen, and.
Thank you for standing by welcome to Liberty Global's second quarter 2020 to invest.
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Sorry about that good morning, ladies and gentlemen, thank you for standing by and welcome to Liberty Global's second quarter 2022, Investor call. This call and the associated webcast are the property of Liberty global and any redistribution.
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This formal presentation materials can be found under the Investor Relations section of Liberty Global's website at Liberty Global Dotcom. After today's formal presentation instructions will be given for a question and answer session page two of the slides detail.
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<unk> presentation may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical.
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These forward looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and 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 its expectations or in the conditions on which any such statement is based.
I would now like to turn the call over to Mr. Mike Fries. Please go ahead.
Alright, Hello, everyone. Thanks for joining us on our second quarter results call. We've got a lot of ground to cover today. So we're going to jump right into it that Charlie and I will handle the prepared remarks, using the presentation, we posted and hopefully you've got in front of you and then we'll get to your questions I'm starting on slide three as I, usually do with five key headlines from the quarter.
First of all it goes without saying that these are challenging times for all of US every market is grappling with inflation higher energy costs supply chain issues and concerns about recession, obviously, we're not immune to these macro conditions as such and to be clear we are experiencing some headwinds across our business principally in energy costs.
And some emerging signs that consumers are growing fatigue, and more price conscious but on the other hand, having operated through several of these moments before based upon the strong performance, we were able to sustain during the pandemic. We think we're really well positioned to manage through the current environment.
The demand for connectivity fixed and mobile has never been stronger and we don't see anything impacting that long term secular trend in fact, we see more positive catalyst for consumption going forward, whether that's smart <unk> solutions in the BBB space or the continuation of hybrid working on the proliferation of gaming adoption of streaming services or whatever ultimately.
Flourishes out of the new members.
Secondly on top of the secular drivers we have some built in tailwind that support our operating and financial momentum as we've reported in just about every market, we've been able to adjust our prices to reflect rising inflation and the quality of our connectivity services. We're also right on track with the realization of significant merger since.
<unk> in the U K, and Switzerland, which combined will ultimately generate annual cash flow benefits to us of nearly $1 billion and then we continue to support volume growth in ARPA with innovative products and services across our F. M. C platforms I'll talk about that in a second.
Third consistent with these plans innovate and compete we have prioritized. The continued development of both our fixed and mobile networks that you would've seen we've announced some we think really smart and accretive decisions recently that will solidify our position as FMC champions in these core markets.
This includes two recent announcements the formation of a new infrastructure net co in Belgium that will slowly migrate telenet HFC network to fiber with the support of 60% utilization rate day, one and some really smart financing and then just today the announcement of our new 50 50 net co in the U K with info via that will build $5 million of possibly.
As many as 7 million Greenfield fiber homes that will extend Virgin media owe choose reached over 80% of homes and drive new wholesale and strategic opportunities. These investments in network expansion and upgrade will have varying impacts on free cash flow in the medium term so assuming telenet retained the full 67% of the Flemish nacco.
And doesn't bring in a financial or strategic partner into that deal, which we think they will it will consolidate the capex and see a decline in free cash flow as I've explained several times this week, but in the U K the JV with <unk> reveal will actually deconsolidation all of our current Newbuild, Capex, which will actually enhance Virgin media, Oh two's reported free cash.
Cash flow.
Now as we highlighted on our last results call, we have been accelerating our stock buyback activity during the first half of the year and as of today, we already reached our goal of 10% of the shares outstanding.
In order to take advantage of what we think are really a widening value gap in our stock, we're increasing our buyback commitment today by $400 million. So forth a total for the year of 1.7 billion or roughly 14% of our shares outstanding a Jan one and then finally and importantly, we're confirming our fiscal year 'twenty, two guidance and Charlie will walk through that.
So turning to slide four this is our standard slide showing recent connectivity results in broadband in postpaid mobile for our for F. N C operations, beginning with Virgin Media O. Two was delivered 16000 broadband net adds and 13000 postpaid mobile ads.
All of which are up from the first quarter, but below prior year and Theres a lot of color to add here on broadband as Youll recall, we landed our six 5% price rise in the first quarter largely in line with our expectations.
But in the midst of a slowdown in the overall sector as it turns out the market remain subdued in the second quarter with nationwide broadband sales down an estimated 7% sequentially.
In that relatively quiet period, our estimated share of broadband net adds reached over 20% nationally that's a new high for us and that translates into roughly 40% share on our footprint where average speeds across our base are now 250, megabits per second or five times the national average.
And while broadband churn remains low we are seeing as I indicated some pressure on acquisition of RPC and retention discounts as the market responds to what is a worsening cost of living situation and competition intensifies, but were confident we had exactly the right products to keep our momentum and to give customers increased value for money when they need it most.
Our U K mobile growth strategy is driven by value creation through convergence, we are well positioned to take advantage of the market through our volt bundle, which is doing everything we hoped it would helping us acquire new B M. O. Two customers is adding oh, two mobile subs to Virgin broadband customers and importantly, it's bringing Virgin mobile customers over to our premium <unk>.
Brand the combination of these movements resulted in 13000 net postpaid adds but that understates to organic growth of the O two base.
Does it include significant migration and losses in the Virgin Mobile base now in Switzerland.
We've achieved a major milestone with the launch of a new single brand under Sunrise with a promise to dream Big and do Big I love that phrase.
Energy behind this move is really really exciting, but we did expect some near term pressure in broadband sales as we sunset. The UPC brand has stopped marketing around that and we did see that this past quarter with a stable broadband based on the flip side, the rebrand and the new portfolio of Sunrise up did drive increased mobile sales drove a better tier mix that led to another.
Strong quarter with a market leading 47000 postpaid adds it's also worth pointing out that our our digital first no frills brand yellow is doing terrific Lee it contributed meaningfully to growth in the second quarter, we'd been in Switzerland, All week with the board on still here now on the progress Andre and his team have made I think is just outstanding the Swiss market is stay.
<unk> Suisse consumers are in great shape relative to the rest of Europe , and Sunrise is simply getting it done.
Now Vodafone Zig a reported 49000 postpaid mobile ads and a loss of <unk> 2000 broadband subs that was despite an average 3.5% price increase in July and churn remaining relatively low. These results are actually strong in mobile Vodafone continues to have the highest N. P. S. In the market and the lead competitors in mobile net adds.
And while our broadband base was largely flat in the period that was our best result in eight quarters, which we attribute to the team's aggressive fiber response plan and a new creative campaign.
Churn remains low but in part due to improvements in broadband capacity and quality and the availability of one gig services to 90% of homes Telenet just reported their results yesterday. So I'll be brief here that the market continues to exhibit low flux, but also relatively low churn so for the quarter Telenet had 8000.
Postpaid mobile adds and broadly stable broadband base now on the positive front all operators have recently introduced price adjustments with Telenet is at four 7% and that's going to help mitigate competitive pressure on arcos I'll discuss in a minute Telenet recently announced deal to create a new infrastructure company with Luby's I referenced that already.
<unk> line for US is that this is gonna be a game changer for the market and ensures at Telenet.
To offer the best fastest and most innovative services now in a world where broadband speed and mobile platforms are harder and harder to differentiate the pace and quality of innovation is becoming the most important driver of success and.
And I can tell you having evolved our business over the last 20 years from 100% video revenue to a diverse mix of mobile broadband entertainment and B to B, we understand the important role that bundles brands and new services play in our business Slide five just summarize very briefly how we're doing this in each market.
Today, and rather than discuss this by country I'll just draw out some headlines for each category.
Theres no need to repeat the strategic or operating rationale underlying stick mobile convergence, right, but putting fixed and mobile platforms, together and generating significant opex and capex synergies is the easy part the real magic lies in developing the converged services that excite customers lower churn and drive <unk>, we've done that in each.
Each of these four countries. They continue to push F. M C penetration to around 50% and above in each case. The formula generally includes faster broadband more mobile data and other connectivity feature like Wi Fi pods or security services Your new Entertainment offers.
Despite what you might think entertainment is increasingly a critical part of the bundle.
Some have asked is it necessary to offer video service and the answer is yes, especially in Europe , where a significant percentage of customers say, that's one reason why they subscribe to a broadband service.
Fortunately, we've been integrating streaming apps into our platforms for some time and customers increasingly rely on us to access their favorite providers in the U K. We just took that one step further with the rollout of our new IP device called T. V stream is a pocket sized box it costs 35 pounds upfront to the customer it has no monthly charge.
And it offers seamless and really beautiful access to the best apps forty-three channels and of course, all the great BMO to TV services, if you want them and with this launch we're targeting really a new digital first segment of viewers and ensuring that our best in class broadband remains front and center and we're doing a number of things in the rest of our markets, whether that's entertainment upgrades the net.
Lakes or my sports had sunrise in Switzerland, or offering exclusive Flemish series of Telenet, where Vodafone zig offering free access to zero sport.
This will also sounds straightforward you, but rewarding customer loyalty is increasingly a key expectation and we are right. There for example, the O. Two rewards program has helped us to maintain the lowest customer churn in the market place.
Our best customers opportunities for extra airtime or money off of tickets to shows Swiss team has just launched sunrise moments, which really is very cylinder U K and Vodafone Zynga is doing something like that as well and then finally, whether it's sponsoring the national rugby team in the U K, we're becoming the brand new lead sponsor of the Swiss National ski.
<unk>.
Or putting your name on the Jersey of I X. The most iconic football club a Dutch history, we want customers to know we stand for more than just great connectivity. We are S. M. C champions, we associate our brands with National Champions and we treat them like champions now I mentioned upfront the progress we've made on our fixed network development plans.
And the first slide six here summarizes a recently announced deal with <unk> and for the year to initially build 5 million Greenfield fiber to the home our homes by 2026 with the possibility of taking that to $7 million. The top left of the chart. If you what looking at it summarizes the structure of the deal, which will see liberty and Telefonica invest.
Directly in the JV to a new holding company are.
We in tests really thought it was cleaner to use a separate vehicle and move the project off balance sheet. It also preserves BMO to capital structure and its capital allocation framework at Virgin Media owe tool will provide construction in managed services to the new Nacco and will of course be an anchor tenant on the wholesale front.
The 50 50, JV is fully financed with equity and debt committed our share of the equity for the 5 million homes would be around 350 million pounds invested over the next four to five years.
Reasonable amount of capital as a reminder, we've already built 3 million new homes in the U K, which gives us confidence in our ability to execute the buildup at cost penetrate these new markets and generate a good economic return and that's before we add additional I S. P. This potential wholesale cost only.
Only make the deal more attractive and there are so many good reasons to move forward here first will be essentially putting the lightning build engine and the lightning capex into this off balance sheet venture, which will improve the MLP was free cash flow day, one I mentioned that second we'll be expanding the reach of Virgin media outreach converged offering to 21 to 22 million homes are up.
80% of the market and of course, together with our announced upgrade of the existing HFC footprint to fiber, we are really cementing our position as the second national fiber network in the U K and the JV is well positioned. This is also important to point out well positioned to capitalize on further consolidation in the fixed market if or when that happens. So we're really excited to get this.
Done and look forward to a strong partnership with them for a while we're on the subject of upgrades just a quick update on Ireland, where we just upgraded our first 100000 homes to fiber and everything is now picking up steam as a reminder, this is a very cost effective build around 200 euros per home, which made the decision to go fiber over DOCSIS, four pretty easy and to top it off we.
We're making really good progress unlocking in our first wholesale deal in the market now slide seven you've already heard from John on the Telenet team. This week on the new NAPCO with movies I'll, just add a few things from our perspective.
First of all we think it's important to call out that this is a long term upgrade plan, which gives management pretty good flexibility to utilize different technologies or even whole buy fiber.
From third parties, so while it's a 2 billion euro commitment on paper to get to the 78% coverage that's dependent on generating good returns along the way.
The strategic advantages this creates for telling it whereas interesting and important to US is the operating benefits. This necco starts out life with 60% utilization and really reasonable build costs for at least the first half of the network is highly likely that our financial or strategic investor will take a look at this and we all know that the current trading.
<unk> for these type of opportunities is really good and similarly, this gives telenet the option to work with strategic partners in the market to ensure the optimal use of capital for all of us and that consumers are the focal point for innovation and investment and of course. It also puts telling it in the pole position to both retain and grow its whole existing <unk>.
So revenue base, which is substantial now one last point here.
There is no read across from Belgium to Holland. Some have asked that question either on strategy or costs are Dutch management team is currently really leaning into DOCSIS, four where costs look very reasonable 150 to 200 euros per home and in the meantime of course, we're offering one gig services to 6 million homes or around 86% of the market and that'll be.
100% by year end.
Finally, I'll wrap it up on slide eight.
Brent, we're increasing our buyback commitment.
2022 from $1 3 billion to 1.7 billion and this is first and foremost a strong statement that the current market price does not come close to reflecting the inherent value of our company and the strategies. We're pursuing by December we will have retired around 14% of the shares just this year and over 50%.
Since 2017.
That level of commitment is supported by our strong financial position, including $1 7 billion of distributable cash flow generation. This year and a strong balance sheet. As you know our debt is siloed long term fixed rates. So were largely unaffected by current conditions in the capital markets and we're sitting on a large cash balance of $3 $3 billion of CT.
Cash today, which should be $3 6 billion by year end. After the increased buyback commitment that cash balance. We think is a huge asset for us at times like these.
So while we continue to prioritize stock repurchases yesterday's announcement clearly demonstrates we also will stay opportunistic and offensive in our core FMT operations, where we remain the fulcrum platform in every market driving change, forcing innovation and creating long term value for shareholders Charlie over to.
You.
Thanks, Mike.
The next slide sets out our revenue performance in Q2 broadly we've managed to deliver stable revenues. Despite a tough macroeconomic climate as price rises across our portfolio begin to feed through into increased revenue growth.
Because of its price rises Virgin media. It too has returned back to overall revenue growth this quarter showing in particular strong revenue growth in mobile.
Although fixed subscription revenues were broadly stable or decline in install revenues from circuit installations, and I'll be to be division compared to last year, but overall fixed revenue showed a small decline.
And Switzerland stable revenue growth in the quarter. It was a mix of continued strong mobile growth driven by strong volumes across our brands combined with a decline in fixed revenues fixed revenues declined due to op, who pressure with some softer volumes in part because of the brand migration from D. C to summarize in the quarter.
In the Netherlands, we saw a modest revenue decline year on year, driven by ongoing declines in the beaches see fixed base.
Partly offset by our strong mobile and b to be revenue growth the business introduced a blend of 3.5% price adjustment and fix this month, which we expect to improve fixed revenue growth in the second half of the year and.
And in Belgium, Telenet topline growth continued driven by the 2021 price adjustment on subscription revenue strong handset sales I'm rubbing visitor revenues.
Given the price adjustment of 4.7%, which landed in June we expect further support to the topline in half two as Atlanta across the majority of the base.
Moving onto our adjusted EBITDA performance in the quarter.
Virgin Media row, two delivered around 4% EBITDA growth in Q2.
This included a $19 million opex cost to capture within the quarter.
EBITDA performance was driven by the price adjustment and early synergy realization, we continue to expect EBITDA growth to trend upwards in half two as the impact of the price rises continues to land as well as the realization of further merger synergies.
Sunrise saw EBITDA growth moderate after a strong Q1 with Q2 broadly stable.
This was due to higher cost to capture operating costs compared to Q1.
And a big part of the $19 million of cost to capture in the quarter was due to the sunrise rebranding excluding the cost to capture the EBITDA growth was supported by the ongoing benefits from the MBNA migration executed last year.
Vodafone Zika witnessed an EBITDA to kind of a 2% driven by the topline decline and cost inflation, including energy.
The business also stepped up promotional activities for the Zika sprinters campaign in the quarter.
And finally Telenet reported a modest decline in EBITDA driven by the continued impact of energy and labor costs overall in line with guidance, we expect EBITDA growth to be largely half two weighted supported by the mid June pressurized.
The next slide has an update on the key inflation of macroeconomic challenges that we discussed last quarter.
Firstly on our energy costs, which typically can constitute a low single digit percentage of operating costs for 'twenty 'twenty. Two we're now around 90% hedged in terms of our exposure across our operating companies and we also continue to hedge opportunistically for 2020 three.
Looking to be fully hedged for 'twenty 'twenty three by the end of this year.
Secondly, wage increases have largely been agreed across our businesses in line with our budget. However, we continue to monitor the impact on our workforces given the tight labor markets.
Thirdly, although we continue to see some macro driven pressures on our supply chain, we have managed to leverage our scale and longstanding supplier relationships to manage them well.
In response to high inflation generally we've implemented a number of price adjustments across our markets, which are generally higher than in prior years. Despite these higher increases our internal trends currently show that our price rises in the U K and Holland, Atlanta successfully with limited churn impact.
Finally, we continue to see our integration efforts in the U K, and Switzerland support profitability, which differentiates us from our competitors given the multi year synergy run way ahead in two of our biggest markets.
Moving to free cash flow and the key drivers we did have at $564 million of full company free cash flow on an adjusted and distributable basis in half one.
The second quarter was a strong quarter for the distributable free cash flow. It was over $400 million and was supported by dividends from Virgin media to Vodafone Zika.
Turning to our capital allocation slide and starting with capital intensity on the left hand side.
We're on track relative to our Capex guidance across the four major all cars in the first half of 'twenty two as.
As you can see capital intensity varies across the businesses Mike's already covered a number of our updated fixed line network investments, which is a major driver depending on the vertical strategy.
On mobile we continue to progress well with five G. With the Opco is at different stages, often driven by the release of spectrum Swiss coverage is the highest at around 95% the doctor at 80% with the U K and Belgium enough caution the robots.
On a consolidated basis, our Capex split continues to be around half on protocol neighborhoods in CPE and the other half on baseline capacity and new build upgrade.
On the right hand side of the slide we give an overview of our debt complex as well.
We believe that these are well hedged and provides significant value to our shareholders. The interest expense on all our debt is 100% fixed for any variable debt that we raised such as term loans, we've swapped to fixed rates to maturity.
For any debt not raised in the currency of the local company the debt is swapped back into local currency.
And all of that is solid across various debt complex is that means that even if one gets company gets into distress. It will look like the other companies.
And virtually all of our loans don't have any covenants.
We've also locked into our long term debt structure with an average life of seven years our.
Our Swiss franc and euro borrowers of all locked in fixed rate debt below 4% and in the U K, where there are hot underlying interest rates, we've locked in seven year debt at four 6%.
Lost retained debentures, the fair value of the portfolio fell slightly to $3 $2 billion driven primarily by the continued decline in the ITV stock share price during the quarter.
You can find additional detail around our portfolio and the key quarterly movements in the appendix.
Turning to our guidance, we're now confirming the guidance of each of our key company set out on the left hand side of the page.
We're also reconfirming, our group guidance, but $1.7 billion of distributable free cash flow.
This is based on guidance FX and since we got it that's been a pressure, particularly on the pound euro relative to the dollar. Despite this we continue to track well on free cash flow as highlighted by the strong Q2 free cash flow performance.
Now as a reminder, distributable free cash flow was a new metric we introduced the <unk> 2022 that includes both our free cash flow has historically defined an additional cash that we received from our joint ventures from any recapitalizations or.
Our distributable 2022 free cash flow forecast include cash that we expect from a debt raising at Virgin media to as part of the $1 6 billion pound overall shareholder distribution guidance now despite the market volatility, which successfully arrange attractively priced financings to fund the distribution not least as we have pre hedged interest rate exposures last year.
But for all the rates started rising.
We've continued to execute on our buyback commitment having already almost closed on the 10%, but Florida, we've been publicly targeting having bought back 50 million shares year to date.
As Mike mentioned, we're looking to execute another $400 million for the remainder of 2022 and take advantage of what we see is a large value gap in our stock.
Our balance sheet position remained strong with total liquidity of $5 $6 billion, including $4 $2 billion of consolidated cash, which does include a large cash balance at telenet coming from the power proceeds that they made.
Given the increase in the buyback by $400 million, we now expect to NDA with around $3 $6 billion of corporate cash. So it doesn't include the tonic cash corporate cash, which we can obviously use to support returns for our shareholders and with that operator, let's go to Q&A.
Thank you very much.
Ladies and.
Gentlemen, the question and answer session will be conducted electronically. If you would like to ask a question. Please do so by pressing the one followed by the four on your phone.
To withdraw yourself from the queue. Please press one followed by three <unk>.
In order to accommodate everyone. We request that you ask only one question.
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We'll pause for just a moment to give everyone an opportunity to join the queue.
And our first question comes from the line of Steve Malcolm.
Of Redburn. Please proceed with your question.
Yeah. Good afternoon, guys. Thanks for taking the question. It was just a question on the UK joint venture in the.
To re lever it whether you've given any thought to.
No.
Doesn't seem to have benefited the shares, particularly as we go into tougher economic times is an argument that the.
This would be better off being <unk>.
<unk>, a little bit less lightly.
That's been the case it gives options right for you in the future. So just just any thoughts on that and how you're thinking about the leverage going forward and whether you're going to try and run it up towards that five times ceiling of whether a lower level might be more appropriate in these are somewhat more challenging economic times.
Well I'll take a crack at that and Charlie you can fill in the gaps are Andrea but.
First of all thanks for the question. Steve. This is the the margins on these net co structures as you are probably familiar very very high.
And this net co in particular is a light net cal meaning that many of the activities are being off loaded to Virgin media owe to themselves.
So it's our you know our belief that the funding structure, we put in place is fairly typical and not overly aggressive at all for these types of of our platforms and that you know the equity and the debt together provide all the capital we need to get it done and that is certainly consistent with the leverage.
Structure, we've implemented elsewhere in the organization on businesses with lower cash flow margins. So it seems deploy it.
Yeah.
Mike.
I was more of I V.
The next day or leverage.
Oh, sorry, sorry.
Yeah, Yeah no problem.
We've ever been.
No worries John do you want to just leverage overall go ahead, Yeah, Hey look I think.
First of all as you know, we've always had great comfort with four to five times leverage secondly, we are and this is a great Testament to that much in the rest of the treasury team, we've been able to secure some very attractively priced financing at least for this recap and if you can borrow.
5% type numbers I think it's pretty attractive for shareholders. We can distribute the cash back to you and we can drive a higher return, but long term shelter with benefitted.
Thirdly, I think there's a pretty strong free cash flow cushion and an even bigger one if you wanted it because you could obviously scaled back the newbuild capex. So I don't think these commies rub 11, I do hear you.
If one were to IPO in Europe , there was a traditional policy of having a lower leverage.
We're looking at an IPO devotion that too.
At least in the near term not least because of the stories coming together very very nicely and I must say this this off balance sheet JV that address I mean, it's really very impressive so and I'll buy that there's no reason to to not leverage up if the monies that at an attractive price you bought his team with Telenet, we at least felt that it was very important to be given the dislocation in the market.
Wasn't that we they had in the range very attractive financings they've got a terrific that's that.
3% fixed rate six plus years.
That market I didn't think it was sensible to commit to a dividend policy with you all recapping that business.
Because you know what you know what the price of that that will be it will be that so I think there's a distinction being that at least in the U K if that helps.
Can I just ask one quick follow up on the net.
Had the anchor tenancy works do you commit to certain volumes or is it just best effort.
Okay.
There's no minimum volume commitment, we shouldnt get into too many details here, but Virgin media O. Two will be an exclusive exclusive anchor tenant and we'll use that network.
But there will be at minimum.
You will have to deliver on the network is that really a world will not be.
There won't be no minimum volume okay.
Correct.
Okay perfect. Thanks.
Mhm.
And our next question.
Comes from the line.
Of the week look heroes.
Please proceed with your question.
Uh huh.
How quickly do you think you can start rolling out and getting customers onboard even the complexity of planning and supply chains in the U K.
Luke you want to address that.
Yeah.
We used the time.
Yeah, So I mean.
Maybe three answer number one right we.
We have built already 3 million homes. So that means we have a strong relationship with a couple of vendors here, helping us on that book.
Second right now with Liberty, Gogo, Telefonica and the joint venture.
And I'll give a long term commitment to these popped out suppliers in the market and we have used exactly that to ensure already additional tier one supplier and now were able to sign these contracts and so you would see from us a jumpstart going directly into a hybrid after.
After closing of the Germany.
Thank you.
And our next question coming from the line of James Ratcliffe of Evercore ISI. Please proceed with your question.
Thank you I'll continue on the topic of Nicos, you've done one now in Belgium and for the expanded footprint in the U K can certainly understand the benefits of giving investors the opportunity to target an infrastructure play who might not find an opco, particularly attractive how do you balance that against the fact that this is creating.
Wholesale net code that would certainly ease competitive entry for Oh.
For alternative providers rather than.
Owning the network essentially entirely with yourself and.
With the Opco and having quasi monopoly status, particularly in those additional areas that build out.
Well James I think in the U K, it's a pretty easy answer.
This is all Greenfield territory. So it just with as with Lightning when we build it.
The network in the new markets that Virgin media has been expanding into four for years, we get between 25 and 30% penetration right away.
Even though there's other operators are everybody's already marketed that territory. So we feel very confident in our ability to penetrate this new greenfield.
Network up to 7 million homes of it and ended penetrated well.
And we're not necessarily the most anybody who will who joined US on this net co infrastructure will already have marketed those territories and have other options for entering dose territory. So we're not we're not we're not giving anything away here. These you know with any other operators already got access to multiple.
People networks, probably or at least one for sure in the territories that we're targeting and if they join us on ours. It just reduces our overall cost and increases our overall return on infrastructure, we would be building anyway. So it's a no brainer.
And I think in Telenet case remember, they're already opened their network. The telenet already a wholesale provider on HFC, all they'll be doing is becoming a wholesale provider on fiber overtime and retaining and growing that wholesale revenue, which already supports their business. So I think and in Belgium. It also makes it makes.
Logical sense.
Just to follow up if I could when you think about the other parts of the footprint, both JV and wholly owned.
Does it make sense structurally for.
The net co in the Opco to be separated if you're not talking about footprint expansion or are those two pieces.
Philosophically better together.
Well, there's pros and cons, the pros or what where we're leaning on here in both instances the pros are you.
If you're a lot you're bringing in typically higher leverage outside capital and in and an infrastructure focus to an asset class. If you will that's generally highly valued and.
In recent times materially higher multiples than our own business. So theres financial reasons strategic reasons and you know ideally in the in the end operating regions for those separations. It doesn't mean it works in every case certainly doesn't work in every case and in for example, Switzerland, where we're not doing this in Ireland we're building.
Fiber, but retaining control of the asset because it's a relatively small investment in a relatively inexpensive built and it's unclear we would be able to attract interest in something that small. So I think yes. It's it's horses for courses and I think that's the smart and agile way to run a business you don't come at it with you know a.
A block view it it's only going to look like this you look at the market and the and the variables in the market and you make the decision that creates the most value I think that's exactly what we're doing.
Thank you. Our next question comes from the line of Sam Mchugh of BNP Paribas. Please proceed with your question.
Good morning, guys just sticking on the UK, sorry, you mentioned.
From a dilution of discounting so when we think about all three trends through the year should we should we think about them as being pretty similar.
Or maybe getting a tiny bit what.
How do you think in that context, we've all seen the headlines around talk talk.
And I'm pretty sure you can't comment on it but strategically do you think it makes them they've got a bit more exposure to a discount market harvest junction and make any kind of macro.
Macrocycle, thanks very much.
Well answering your second question would be doing just that commenting on it so no comment, but you want to handle the first question Luke.
Yeah sure.
I mean, we have done the price rise in Q1, our cost per month had been a 30 day cancellation period, and we have supply picture across the fence right. I mean other market participants have to use a different mechanic.
Meaning a higher price.
No immediate cancellation right and that's applied surprise fried ultra poor customer who are within their existing promotional period.
So therefore, you can from our side say prices have landed in Q1 as planned and they are more customers coming off the promotion period over time and will therefore get the prize for us during the year.
The other thing and Mike had mentioned that we.
We see both in the acquisition market and also on the retention market a bit more pressure, yeah, and we think that is partly coming from the cost of living process.
So meaning that when you look at sales so acquisition, it's more focused around 50, Meg product Supreme being around 2025 pounds and then obviously when there's a lot of advertising of these product in the market the appetite of existing customers to reduce them.
The bill and the cost of living crisis.
We see it a little bit.
And it's hard to predict how this will develop during the course of the year.
But we are not seeing a decentralization of if that helps.
Thank you Matt.
Thank you. Our next question comes from the line of Robert Grindle of Deutsche Bank. Please proceed with your question.
Yeah, Hi, Bob Hope you can hear me I'm sticking with the U K and how would it work if it was M&A in the fiber JV footprint is it that you had swap capex for an acquisition and not build in those areas where could the footprint grow by more than 7 million by M&A and and if say V. M O two bought more customers onto.
The JV are you more successful in getting the penetration up do you just got the value of that through the equity stake or do you get a sort of an.
And earn outs as penetration minutes up thank you.
Yeah. That's a good question, Rob I'd say and your first question all the above.
You know in in terms of.
Of how that would work in the M&A structure, we would and I think we say that I said in my remarks that this JV could certainly make acquisitions of existing Alt nets and.
If they were interested or if it made sense in and there was no regulatory and financial support for the decision.
And I think we're uniquely positioned to do that with three partners, who have capital and understand the business very well, let's see how things unfold, but that's one of the interesting upsides here for sure.
And then on the second question.
Aren't that many customer bases to buy so it wouldn't even comment on it I mean, most of the outlets don't have.
Retail operations or if they do they're quite small so I'm not sure that would in the case of outlets that would be material.
Yeah.
Yeah, I was referring to a regular retail IFA actually.
I know you were.
Uh huh.
Yeah.
Thank you and our next question comes from the line of David Wright of Bank of America. Please proceed with your question.
Yeah. Thank you very much perhaps just a little more top down like we've talked about strategy over the last few years, it's very clear that you guys executed deals to build the FMC champions.
And then there was always this potential to consider local listings two O.
Open up the asset.
Asset investment opportunity to you guys should maybe comp sort of acquired the U S.
The U S holdco.
It does feel like that's maybe.
That opportunity is as perhaps being moved on a little and I note. The net costs of co question earlier.
Is that perhaps a better route now to sort of unlocking value is to stop.
Bringing some of them the infrastructure assets together and I know you didn't go into this JV with BMO to U N T and tests.
As equity shareholders, and then I guess just to part two on the sort of net co concept.
Yeah. The one thing we all know King is that a lot of telcos are doing that as you mentioned, it's similar to other deals, but what it is tending to do is bring complexity into the equity case, which is bringing increasing conglomerate discount.
And of course, you are essentially shifting away from net coach service code because you are selling part of your infrastructure and that means ultimately D rating.
Fuel multiple and I know that you very often talk about the market disconnecting, you'll share price with the value of your company, but.
Is this not compromising not to some extent I'd.
I'd be interested in your thoughts thank you.
Yeah. Those are really good questions, David I think on the second one.
I don't think it is compromising our goal.
Let's just take the U K for example, it's it's an incremental investment on top of a core F. N C business that we believe has immense tailwind whether their synergy driven brand driven or operating driven.
And we make that argument all day long.
You'll you'll put whatever multiple you think it's it's worth will think gets higher and we know it is having said that this particular expansion of the network is incremental and on top of that and we believe as you've already indicated you could generate potentially higher multiples if we ever brought in additional financial partners or <unk>.
Some sort of roll up or things of that nature. So I think we're at the best of both worlds, where where we're actually strengthening the core F. N C business validating what we think value is in that core F. N C business by giving it room to expand and grow its footprint in a really cost efficient and we think accretive.
The structure now.
It might be slightly different I understand your point, perhaps differently than in Belgium, where you're taking a business and breaking it into if you will and you know what does that look like and how would that be ultimately valued and I think even in that instance, it mean telenet is trading as an integrated company at a pretty low multiple today you would know.
And you know over time, let's see how these strategies unfold, we're pretty bullish on what John's pursuing.
And we think the serco will be.
Valued at a particular number based on its ability to retain and grow customers and if I know the telenet management team theyre going to kick some butt and ensure that telenet remained the primary brand for consumers in that market and matter what network, they're using or who owns the network and.
And if I if I know this you know this team like I do they're going to make sure. This necco together with their financial and strategic partners is you know the fulcrum and most important nacco at network in that in that marketplace and the only way to pull it together with Luby's was to do it like this we didn't have an interest in public stock.
<unk> or anything else. So part of it was circumstance in that market, but part of it and it gives us the right strategic.
Outcome now it's not the same in every in every case and as I said, just a moment ago, it's not as if we're going to pursue this in every instance, but it's our job to look at every market differently to see what is the right way to create value too.
Crystallize value and to demonstrate value, but also most importantly to sit back and make an argument that this is going to increase the core business over.
Overtime, and then how you perceive it or the market perceives it what we know we will take our chances with that but we know that both these transactions fundamentally grow the core business that we're invested in and the structures. We are using to do that or we think are accretive both at today's values are multiples and and that should play out over time.
As we think in terms of listings listen there is a it's.
It's not a great market to be talking about Ipos and you know I don't know that we're saying we won't be doing it ever or in any instance, I just think it's obvious that with the current environment, we're not prioritizing it in both.
Our core businesses need time, especially in the U K and Switzerland to mature and demonstrate the core benefits both synergies and growth that we know they can demonstrate so we'll come back to that question you know if and when it makes sense. It's obviously doesn't make sense now, but we never say never we're not shutting the door on those ideas, we're just understandably focusing on other strategies.
And we have a very interesting infrastructure portfolio not to go on too long here, but you mentioned infra as really an asset class and you know we've we've developed some very interesting investments in infrastructure.
Telefonica has their own infra platform is it possible that we would look at some point to to build or combined.
The ownership of these infrastructure businesses, possibly you know us I mean, we look at everything that's what we get paid to do is to be sure. We're always looking out for shareholders and tried to figure out what will create the most value for us together and so that certainly could be an idea down the road we would investigate.
Yeah.
Okay.
Thank you. Our next question comes from the line of Polo Tang of UBS. Please proceed with your question.
Hi, Thanks for taking the question, maybe just a fixing on Switzerland now can you maybe talk through the competitive dynamics in the market and what's been the reception to the new tariff portfolios from all the operators and you flagged.
Softening trends in terms of fixed line, how optimistic are you that this can improve going forward. Thanks.
Sure and Andres on the line so Andre why don't you take that.
Yeah. Thanks for the question portal, so firstly I would say the competitive dynamics in the first half year.
It didn't change in the bids, but restoring to recent levels based on the I would say portfolio refresh that we have seen why is that.
We have seen that in the.
The first quarter throughout the second quarter up until beginning of me promotional intensity was reducing and we will follow that trend.
But then with the new portfolio of Swisscom, we have seen that while the promotional intensity has come down.
Goldman has introduced struck.
Discounts like for example, the online benefit which customers good sign up for which has increased their competitive position.
On the front book.
As such we look forward to also bring up our promotional intensity again.
In order to keep the pace in the market.
So I would say.
So we had said at the beginning of the year, which is model we are hopeful, but it's a reality and we are not giving up on that.
The pixel.
If you are referring to is very much driven by the.
Consolidation of the brands and it starts with sunsetting of the you could see brand, which we have started to reduce.
Activities.
That grant with earlier and are now ramping up again the food.
On the new portfolio and I can say I'm pretty happy with the performance of your Q on the new portfolio.
Exactly what that should.
Drugs more bundled sales.
Of course, he will continue to fine tune it in order to get that back to make sure. The momentum that we had at the beginning of the year on fixed and on mobile we are continuing to doing that.
Okay.
Yeah.
Thank you very well.
We're quickly what I said at the.
The outset in the remarks, which is this market, Switzerland is.
Really unique it almost living in a bubble here inflation is.
No low single digit interest rates are maintained I think they're just now at zero consumer.
Confidence is in our remains higher than other markets. So essentially it always seems to perform really really well in difficult times and.
It's a I think its safe haven as such but we're certainly glad to have a lot of capital invested here and I think that's just giving Andre and his team a lot of tailwind to to keep managing the business well.
Thank you. Our next question comes from the line of James Ratz, or <unk> of New Street Research. Please proceed with your question.
Hi, Yes, good afternoon, guys sequester hot with just with regards to buy.
Bye bye.
Florida decision.
Youre allocating more capital towards the buyback, but when you sat down at the board level and thought about the extra $400 million he was gonna commit.
Interested to understand.
What are the choices you looked at and in particular did you not feel it was interesting. This time to look at buying equity and Telenet, which has come down by more than Liberty global share price.
And if I could just for point of clarity on an earlier question from Steve around you said no.
Volume commitments from the Mou to textiles.
Commitments, if anything you are making to the new joint venture because you say anchor tenant that's why I talked about on that front.
Actually means in a sense in securities.
And is that for getting in the new joint venture. Thank you.
Yeah on the second question Andres stepped in here, if I'm missing anything but on the second question, we're basically agreeing to use this network and nobody else's.
So remember as we rolled out the 3 million homes that we now have historically called Lightning you know we have an exclusive obviously users of our own network in that context, and getting 20% to 30% penetration. So in a sense you know the the lenders or our partners can.
To some extent bank on the fact that we are going to be aggressive marketers on this footprint as we have been on the prior 3 million homes and they can take comfort that we will get to a certain level of penetration and we won't use anyone else's network I think that's what anchor means in.
In that context.
On the buyback should we always look at different options and choices it's never.
As you know a singular decision we're always allocating capital just you know in this announcement around the U K, we will be putting capital into that joint.
Joint venture you know we've got the ventures portfolio, we were always looking at the most.
No a efficient way to put our capital to work and buybacks is one of many of those ideas, but it's always in our fundamental approach that we take to both are creating value in our capital allocation.
Haven't looked at Telenet as such but I don't disagree with you I think you know telenet is poised to improve from here no question about it they've answered all of the outstanding issues for the most part around the JV and then the Netcode they've created by think they're they're not stressed about a potential fourth entrant and you know I think the in their capital markets day they'll.
<unk> many of these things but.
I think telenet certainly is undervalued.
And for the first time, probably trading at a lower multiple than we are but that's unusual and probably unlikely to remain well, let's hope for all of our stake. So we look at all different types of thing I'm not going to comment specifically on what we might be looking at these would be telling them.
Okay. Thanks, Mike.
Okay got it.
Thanks.
One of them arent no question.
Comes from the line of old Rick Rap of Jefferies. <unk> Company. Please proceed with your question.
Yeah. Thank you very much.
Question on the U K, the operational side of things.
It sounds like the fixed price rise was about a two percentage point tailwind, whereas the upward trend improved by quarter Assad roughly painted with very broad brush stroke. So question.
Can that drop through improved later in the year what are the mechanics of that relatively minor drop through a fee of the incremental price increase versus last year. Thank you.
Yeah go ahead Louis.
Yeah.
Not sure if I can add so much color to it and if I understood. The question right I mean.
And as I said before right. We have landed the price rise in Q1, we had a customer have had a cancellation right.
And that has gone so therefore it is.
Implemented and now customers, who used to be on a promotion.
Yet when they come off that will also get the price right. So during the year you will grow out of that effect right and then there is another effect that is that if we keep acquiring customers with lower acquisition after which we have done. So you can see that cause he also would that be accurate.
Each market as such was under pressure and if we are forced to give higher discounts and retention to content. We have also done that then that eats obviously into this after you increase now therefore.
It's a bit dependent on the cost of living crisis, I would say predominantly not only by fidelity and so therefore, we are very careful giving a guidance on that going forward.
I think the.
Good thing is that right, we have a lot of growth lever beside that right. So we are fully materializing dis synergies hundreds.
30% end of this year from 540, and we're probably on track to do so we have digitalized and our business.
So we have an increased benefit out of that and now with the fiber joint venture obviously that we have.
Foster.
The network expansion, meaning for Virgin media, we can broadband we can sell more of it and then also because now right a possible wholesale partner has immediately a speed advantage getting to one gig speeds in 16 million homes enhanced Malaga security.
Two a half future proof network with 21 million homes. Later 2028. This itself is also another growth wave, which will come for sure. So therefore I think on one hand side, we are a bit affected by the cost and the big crisis, and it's hard to predict I mean, but we can show a growing top line in that and second we are sitting on.
On three growth rates, which are very tangible and solid too. So and this is what we are doing.
That's helpful can I just clarify one aspect of your answer what you didn't mention was more aggressive retention discounts. So kind of just confirm you havent apathy retention discounts.
And this price rise here.
No. So the retention discounts during the prior price were exactly the same like a year ago also the retention volume off the same. So this is you don't get the same what what we are seeing more starting in Q2 is irrespective of price.
<unk>.
Hi, I put tied to renegotiate the contract down to a higher discount from simply customers coming out of their minimum contract period.
Irrespective of price rise because they have had the 30 days and et cetera, and exceptional cancellation right, but they haven't used that thought that has landed.
In Q1, as I said before in the same way less than a year ago, but what we are seeing now is a bit higher demand for retention difficult and this is now the question how is that going to happen to progress going forward right. That's the question and therefore, we have been carefully.
What's that about.
Yeah. Thanks.
Yeah, I think it does.
I think operator, we are now we have time or are we taking one more guys.
We're at time.
Okay awesome, so listen thanks for sticking with us.
Went a little bit over I apologize for that and you know I like loses.
Reis growth waves, because we've got those really in all of our businesses I think number one we're now we're able to power through this macro environment really well in the businesses that we're in I think you know that you've seen us do that in the past.
We've got tailwind in many markets around synergies or new brands or new products that I think are going to benefit us in the second half and I think just as importantly, we're demonstrating to you again that we're good at optimizing capital and allocating capital in our fixed network strategies that we've announced in last couple of weeks are right in line with that.
Approach and I think will be highly accretive to us operationally and financially.
Today and down the road and then lastly, you know, we're all about buying our stock and the increase shouldn't have surprised you because we've been sort of signaling it in and.
And where are you know we're committed of course to the 10% next year as well. So it gives you some comfort that we're going to keep this program moving so thanks for joining us and we'll speak to you soon take care have a good summer bye bye.
Thank you ladies and gentlemen, this concludes Liberty Global's second quarter 2022 investor call.
As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There you can also find a copy of today's presentation materials. We thank you for your participation and ask that you. Please disconnect. Your lines have a great rest of the day everyone.
Yeah.
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Sure.
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