Liberty Global Ltd. Q1 FY2022 Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2022 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 in any form without the expressed written consent of Liberty Global is strictly prohibited. At this time all participants are in a listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website. After today's formal presentation, instructions will be given for a question-and-answer session. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical facts. 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 changes in its expectations or in conditions on which any such statements is based. I would now like to turn the call over to Mike Fries.

Okay. Thanks operator. Hello everyone! We appreciate you joining us today for our first quarter results call. As usual, I’ve got several folks from my leadership team on the call with me here, and I'll be sure to get them involved in the Q&A as needed. But first, Charlie and I are going to run through the slides that we’ve posted on the website; hope you’ve found those slides. We’ve added a few more to the finance section, so Charlie's working a little harder today. And I'm starting on slide three with some key highlights from the quarter. First slide, each of you, we remain extremely troubled and concerned about the war in Ukraine and our thoughts and prayers go out to everyone impacted by this crisis. I have to say I'm particularly proud of how our operating companies and employees have stepped up to support those in need. In addition to things like free or reduced connectivity costs, humanitarian aid and programs to help Ukrainian refugees, we signed a joint statement by EU and Ukrainian Telco Operators to reduce wholesale roaming and termination rates between the EU and Ukraine to ensure communication remains cheaper and easier for Ukrainians inside and outside the country. Now looking at this more broadly, every European company has addressed how the current macroeconomic environment has affected their operating results, and Charlie’s going to do that in a few slides. The punch line for us, however, is that we've been able to manage well through the current environment of higher inflation and declining consumer confidence. Anyone who has followed our industry knows that we are highly resistant to economic volatility since connectivity is one of the most important services consumers buy. While our market as a whole experienced a slowdown in sales in Q1, which is not atypical for the first months of the year, our disconnect or churn rates remain very low. Charlie will walk through how we’re responding to cost and supply-side factors, but it's worth pointing out right up front that we were able to minimize the financial impact with reasonable price adjustments pretty much across our footprint. That's just one reason why we're able to deliver stable to growing revenues across our FMC operations in the first quarter and importantly, strong EBITDA growth in our core markets. There's been a lot of talk lately about the role of M&A in the European Telco Sector. I think it's fair to say this is an area where we’ve consistently overachieved. So far this year we closed the sale of our Polish business to Iliad for $1.7 billion or 9x EBITDA. And as we reported, Telenet very effectively monetized its tower portfolio for 745 million euros or 25x EBITDA. I have to say, given current prices, this may be the largest gap between public and private values that I've ever seen, with no discernible decline in private market demand for Telco assets, and not surprisingly, we’ve accelerated our buyback program, which as you recall was targeting a minimum of 10% of the shares this year. We're already 50% of the way there through today and will continue to take advantage of current prices as long as we can. And finally, as Charlie will explain more fully, we are reiterating our 2022 guidance today, including our $1.7 billion of distributable cash flow, and more details on that in a minute. So we certainly have a lot to be confident about as we look to the balance of the year with things like integration synergies in the U.K. and Switzerland, strong cost controls and the expected benefits from price rises supporting our growth targets. Now, turning to slide four, we tried to simplify the presentation bit, which is one operating slide that shows our connectivity trends for broadband and postpaid mobile over the last nine fiscal quarters. The main takeaway here is that despite a softer sales environment in many of our markets and announced or implemented price increases; we had a good first quarter. The only standout is Virgin Media O2 where broadband and postpaid mobile ads were flat for the quarter, and there are some very good explanations for those results. Starting with broadband, three things impacted Virgin Media O2’s net ads in the first three months of the year. To begin with, as you know, VMO2 implemented its largest price rise since 2014 with a $6.5 discretionary increase across the board. Of course, we took no price increases on broadband in 2020 and a 4% rise in Q1 of 2021. Now typically, gross flows in the quarter where we take price rises, the good news is that customer reaction to the increase in Q1 measured in churn and MPS is exactly where we expected it to be. The unexpected news is that broadband sales in the U.K. market as a whole were down in the first quarter, reflecting the end of lockdowns perhaps and consumer attention being redirected to other costs like utility bills. For VMO2, gross adds were compounded by reduced marketing and promotional activity in January and February while the price rise was landing with customers. I think it's also important to point out that we do not see any noticeable impact from Fiber overbuild, which shouldn't be surprising since we're already marketing 1 gig services to 100% of our homes, and continue to see meaningful increases in average customer speeds in our network, which now exceed 230 megabits per second, up 24%. Speaking of network, just a quick update on our fiber expansion plans in the U.K. The fiber rebuild is on track and we should achieve the goals we set for ourselves by year-end, and we’re seeing strong interest from the financial community on our plans to build an additional 5 million to 7 million Greenfield fiber homes with concrete discussions underway as we speak. Now sticking with the U.K., postpaid mobile growth for VMO2 was a tale of two brands really. Our VOLT launch drove great O2 mobile gains, even with the announced average price rise of 8.8%. This has certainly proven the magic of convergence, if you will, but we did see a drop-off in lower ARPU Virgin Mobile subs as we implemented new terms of conditions for them, as well as we lost some Virgin Sims as folks subscribed to the VOLT bundle. Now several things give Lutz and this team’s confidence that we'll see an acceleration in broadband and mobile for the balance of 2022, including product innovations like TV Stream, continued footprint expansion through our lightning program, and of course the benefits of digital. Now, I’ll just hit the other markets briefly since results were strong in each case. Sunrise UPC had good broadband and postpaid mobile growth in the first quarter, totaling 56,000 and broadband was supported by the new full-service offering from Yallo, our discount brand in Switzerland, and postpaid mobile momentum was driven by premium and challenger brand segmentation despite a relatively competitive market. A few other points in Switzerland: we remain confident in the hybrid network strategy, which gives us access to the best networks wherever we are, including Swisscom's Fiber where we just signed a new wholesale deal. We also launched Sunrise Moments, a loyalty program that provides reward packages and exclusive access to cool concerts and live experiences, with a great response so far. Lastly, but maybe not surprisingly, Sunrise outperformed Swisscom in Q1 on pretty much every key financial and operating metric. The VodafoneZiggo lost broadband subs in the quarter, which they attribute to the continued competitive pressure from KPN and the launch of the new F1 season on the Viaplay platform, which KPN basically gave away for free to their customers. Postpaid mobile ads of 37,000 were attributable to a softer B2C market, but VodafoneZiggo outperformed KPN again and regained a leading NPS position across both fixed and mobile. Convergence continues to pay dividends in Holland with a total of 1.5 million FMC households now, where NPS is 19 points higher and customers are 50% less likely to churn. Not much to report on Telenet that John didn’t already cover in his earnings call. Generally low churn and low gross ads, mean there was simply less flux in the market, and Telenet delivered positive broadband and postpaid mobile ads regardless, and that was helped of course by the one product that they are marketing today. Now, two more slides from me before we get to Charlie’s finance presentation. As I mentioned in my opening, transformation through M&A seems to be a hot topic these days in Europe. So I thought it might be useful to refresh folks on our journey from a cable company operating in a dozen European markets just five or six years ago to a fixed mobile champion operating in a handful of Europe’s most attractive markets today. This is a great example of getting smaller to get bigger. If you look at the left-hand side of the chart, you can see that we reduced our footprint from 12 countries to essentially five today, existing in markets with private market values that range from 9x to 12x EBITDA; you'll all remember those deals. The same, though, through fixed mobile mergers or acquisitions, we increased our subscriber base from 58 million fixed mobile connections to 85 million, with fixed becoming a much smaller part of the equation. At the same time, while consolidated revenue declined from 17 billion to 8 billion, we gained exposure to a much bigger revenue base of $19 billion through our 50/50 JV in the U.K. and Holland. So aggregate revenue, if you will, expanded 60% to $27 billion, and there were four great reasons to do this, and they are laid out pretty clearly on the right-hand side. First, it’s all about national scale in the connectivity business, and now we're Number 1 or Number 2 in just about every market, right behind the incumbent who is generally slower, less agile, and less entrepreneurial. Secondly, the synergies in fixed mobile mergers are substantial with low execution risks. You know our success in Belgium and Holland, but we generally exceeded targets or achieved the goal earlier than forecast, and our recent combinations in the U.K. and Switzerland are tracking right on course with the expectation that total synergies will reach $11 billion on an NPV basis, of which about $8 billion will accrue to Liberty Global proportionally. You can do the math yourself on a per-share basis. Then third, the strength of these businesses lies in the power of convergence. We are already at or approaching 50% FMC penetration, with fixed mobile bundles that provide faster speeds, more data, smarter video solutions and entertainment perks. As we’ve already demonstrated, the benefits to ARPU, churn and NPS allow for sustainable growth in what we believe are Europe’s most rational markets. Finally, as we've discussed many times, scale and competitive strength give us the strategic optionality and confidence to shape our markets and make decisive moves on networks, content and capital structure that simply wouldn’t be possible as a smaller operator. So you're familiar with all those projects at the bottom of the slide and the opportunities we are focused on, including Fiber expansion, wholesale revenue and infrastructure modernization. Now to end on a slide entitled Allocating Capital Efficiently. This might be the most important slide today. We've demonstrated a willingness and an ability to transact when it matters, showing you that. The transformation we underwent with divestitures, acquisitions and JVs involved 11 different European markets over basically five years. I’d also reiterate the strategic and operating rationale for those decisions where we’ve prioritized national scale, executable synergies, competitive strength, and control over strategic market development. That's half of the value creation story. The other half is what we do with the capital we realize or upstream from divestitures, JVs and operating subsidiaries. This slide shows on the left, in the last six years we generated $22 billion of cash to the parent company, $12 billion in net proceeds from those asset sales, $2 billion in net proceeds upon the formation of our JVs in Holland and the U.K., and an additional $8 billion in free cash flow during that period. Over that same time frame, we've allocated $18 billion of that capital into three value drivers; by far the largest investment. $13 billion or 72% of that has gone right back into our own company in the form of stock buybacks. $4 billion or about 22% has been used for mobile acquisition in Belgium and Switzerland, deals that position us as a fixed mobile champion in those markets, and about $1 billion or 5% has been used to expand our ventures platform, which we value today at over $3.4 billion or $7 a share. All that leaves us with roughly $4 billion on the balance sheet today. Now, I’ll address right now what is likely to be the first question. How will you allocate the $4 billion? And I’ll also give you the answer that I normally give, which is that our future investment of cash is unlikely to look meaningfully different than what you see on this slide. We will continue to prioritize stock repurchases while keeping an eye out for direct investment opportunities either into or around our core FMC operations. Nobody is pleased with the stock price today, and you can put John and me at the top of that list. When we look at the European Telco space, we see headwinds and tailwinds for the sector at large, but our tailwinds are enhanced by having national scale in the best and most rational markets, by having unrealized synergies, by having the willingness and ability to be strategically agile and opportunistic when it matters, and by running a levered equity capital structure that prioritizes buybacks and value creation, especially on a free cash flow per share basis. Obviously, we're ready and excited to invest in those tailwinds, especially at these prices. Charlie, over to you.

Thanks Mike. I will begin by discussing our revenue performance in Q1. Overall it’s been a strong start to the year with our core assets delivering stable to slight growth, with more support in pricing to come from Q2. Virgin Media O2 delivered stable top line growth, including stable mobile revenues, excluding handsets. That’s being driven by a tough B2B comparison, which we expect to ease throughout the year. We expect revenue trends to recover throughout 2022 as the impact of price rises land from Q2. Moving to Switzerland, we delivered continued revenue growth of 1%, driven by mobile subscription revenues in B2B, in particular wholesale voice. We continue to execute on brand segmentation with reduced discounting to drive an improved ARPU mix. In the Netherlands, we saw stable revenue growth supported by mobile subscriptions which reached a five-year high in Q1. We continued to see fixed ARPU growth of 2% and effective from July 1, we will implement a price rise of 3.5%. In Belgium, top line growth of 0.7% was driven by growth in mobile and B2B subscriptions, in addition to wholesale and roaming revenues. Telenet’s portfolio’s price increased by 4.7% to June given the existing inflationary pressures, which should benefit revenue performance in the second half of 2022. And now, moving to EBITDA. I will start with Virgin Media O2 where we delivered over 2% EBITDA growth, which was slightly better if you exclude costs to capture costs. This was driven by strong cost control during the benefits of migrating the Virgin Mobile MVNO from EE to Vodafone, lower sales commissions and deal-related cost synergies. We continue to expect EBITDA growth to accelerate through the year at Virgin Mobile O2 given pricing moves and further synergies. Sunrise UPC delivered close to 10% EBITDA growth for the quarter. This was flattered by the phasing of cost of capture costs, which were lower in Q1, 2022 compared to Q1, 2021. The strong underlying EBITDA performance was driven by the increasing MVNO synergies as we migrate UPC mobile subscribers to Sunrise. It was also impacted by the phasing of our marketing spend from Q1 to later in the year and because of this rephasing, our full year guidance for Switzerland remains the same despite the strong Q1 result. VodafoneZiggo reported a healthy 2% EBITDA growth, in part driven by a 4% decline in operating costs. It was also impacted by the end of the Formula 1 contract at Ziggo Sports, which, although it contributed to lower topline growth, was more than offset by the associated content cost savings. Telenet reported a modest decline in EBITDA of minus 1.7%, driven by the impact of wage inflation and higher network costs, plus a tough comparison to a VAT refund in the prior year. So overall, the consolidated group reported over 2% EBITDA growth. Moving to free cash flow and the key drivers, we delivered $137 million of full company free cash flow on an adjusted and distributable basis, despite the phasing of interest payments which fall predominantly in the first and third quarters of the year. Our capital intensity has remained broadly stable in Q1 year-on-year. We made the 2022 Telenet tax payment of $92 million a quarter earlier than last year. We received dividends and loan interest in the quarter of $109 million from our Dutch JV. As we highlighted at year-end, we now include direct acquisition costs in our definition of adjusted free cash flow, which is how it's presented on this slide. We incurred $17 million of direct acquisition cost outflows in the quarter, leading to adjusted free cash flow of $137 million. Because the U.K. JV recapitalization is expected towards the latter end of this year, this means our distributable free cash flow is the same as our adjusted free cash flow for this quarter. Moving to the next slide, I wanted to address key inflation and macroeconomic challenges that we are facing across our core operations. As everyone knows, we've seen inflation pick up materially in the U.K. and Europe, albeit not much in Switzerland. This impacts our business in several ways, including our pricing actions, where we have in some cases brought forward increased price rises, and also where we benefit from direct inflation links, such as the one we have with O2 in the U.K. Secondly, we see a number of impacts within operating costs and CapEx which I will discuss. Starting with energy, across our four largest fixed mobile convergent assets, we typically see energy accounting for low single-digit percentages of operating costs. From a hedging perspective, we typically target hedging 12 months out. However, for 2022, we do have a degree of unhedged exposure for Virgin Media O2. It’s about just under half of the total cost, with VodafoneZiggo and Telenet to manage through the remainder of the year. Secondly, on wages, we see different impacts, but overall we only have direct links to inflation in Belgium, and our wage increases have largely been agreed for 2022 in line with budgets. Thirdly, we see continued bottlenecks and supply chain, which to date have had limited direct impact on CT and network projects, but it is something we continue to try and manage as best we can leveraging our scale. Despite these macro inflationary headwinds, based on today's energy prices, we are still reiterating all of our full-year guidance targets. Turning to synergies and the costs associated with capturing them, we’ve included the next slide to add visibility on the key projects underway through 2022, and also to recap on overall costs to capture which are peaking in 2022, particularly in Switzerland. Starting with Sunrise UPC in Switzerland, we continue to expect to deliver a 3.7 billion Swiss Franc NPV of synergies, and incur a 400 million Swiss Franc one-time cost to capture them. Over 150 million Swiss Francs of cost to capture are expected in 2022, which is approximately one-third OpEx and the balance CapEx. We continue to benefit from the early execution on the MVNO synergies, particularly in the first half, and also headcount synergies. We also expect DSL migration synergies to start to build during the year. Moving on to Virgin Media O2, where we expect to deliver 6.2 million pounds of NPV synergies; we expect roughly a third of synergies to come through in the first 18 months. We expect 2022 to be a peak year for costs to capture, with over 300 million pounds of a total 700 million pounds of expected cost to capture to be spent this year. Key synergy projects underway for 2022 include the MVNO migration initially to Vodafone and then ultimately to the O2 network, network synergies, headcount, and executing on revenue synergies, including VOLT. The next slide is our standard overview of our capital allocation framework, starting with a buyback. We've accelerated the execution of our annual 10% target during the first quarter and year-to-date we’ve completed around 50% of the buyback or 27 million shares through May 7. This, we’ve been taking advantage of some dips in the share price, which we continue to view as undervalued. Our balance sheet position remains strong, with total liquidity of $4.7 billion, including $3.2 billion of cash. Pro forma for the Polish proceeds received in April, we continue to expect to end the year with around a $4 billion cash balance; whether this will be impacted if we increase the buyback. Our debt position remains very strong, with average debt maturity to six years or longer in every operation. All our debt continues to be hedged to the currency of the underlying cash flows, and virtually all of it is fixed at a blended cost of around 3.4% across our consolidated debt silos, and around 4% if you include VodafoneZiggo and Virgin O2. As interest rates rise, this should be a source of value to our shareholders. Lastly, turning to Ventures, where the fair values fell slightly to $3.4 billion, driven primarily by the fall in the ITV share price during the quarter. There is more detail in the appendix, but net investments in the quarter were around $65 million. Turning to the next page, we are confirming our 2022 distributable free cash flow guidance of $1.7 billion at the guidance FX rates. This is despite the higher energy and inflation costs that we are now experiencing. We're also reconfirming all our OpCo guidance targets shown here on the left-hand side. From a foreign exchange perspective, the stronger dollar year-to-date particularly against the pound does drive a headwind to our reported free cash flow, with around a mid-single-digit percentage headwind from the currency, assuming current spot rates. We anticipate being able to limit this impact relative to the $1.7 billion, but clearly currency remains volatile. As a reminder, distributable free cash flow is a new metric we use that includes both our free cash flow as historically defined and additional cash that we receive from our joint ventures for recapitalizations. Our distributable 2022 free cash flow forecast does include cash that we expect from a debt raising of Virgin Media O2 later in the year as part of the 1.6 billion pound overall shareholder distribution guidance. Despite the credit market volatility, we remain confident that the credit markets are open to support this financing of what will still be very attractive by historic standards. One final housekeeping item: from the second quarter, we begin reporting EBITDAaL, which is EBITDA after leasing expenses. Many of our European comparisons report EBITDAaL due to the significant difference in lease accounting between U.S. GAAP and IFRS. We believe this metric will provide a clear and comparable approach to our European competitors, particularly reflecting the impact of tower transactions. Of course, we will still continue to report adjusted EBITDA. And with that operator, can we hand over to questions.

Thank you very much. Your first question is from Maurice Patrick with Barclays. Please go ahead.

Hi guys! Thanks for the chance to ask the question. If I could ask a big picture one please Mike, some of the European Telcos have made a significant lobbying point around net churn fees, hoping to recoup some of the network costs from some of the streamers, given that sort of 70% or so traffic comes from data streaming these days. There was a study funded by some of the larger Telcos. I just wondered if you also take in terms of that debate, you know the ability to, I guess, recoup some of your capacity costs from being taken; whether you’ll be joining that sort of lobby effort. Thank you.

Thanks Maurice. Listen, as many of you would know, this is a long-standing debate in the European Telco sector among operators, regulators, and the big tech companies. I'm not convinced that it will be successful; however, if it were to be successful, we would gladly benefit and participate in any regulatory initiatives that supported it. It’s a difficult issue. You know we are all benefiting from this ecosystem. We're delivering high capacity, high-quality networks that provide the connectivity consumers want and demand, and big tech companies and streamers are providing the content and the experiences that drive consumers to our network. Thus far, I think the ecosystem has worked well; however, as we saw through the pandemic, there were material increases in data usage and broadband, you know capacity utilization anywhere from 30% to 40% a year, either both on mobile and on fixed, and so we will bear the burden of increasing investment in our networks. You know it certainly has had some impact on our decisions in certain markets to invest in fiber. So I'm not really going to weigh in specifically on this call, except to say we watch it closely. We haven't yet made a public announcement on our position, but we are watching it closely and you know we’ll keep you posted on what happens there.

Thank you. Your next question is from David Wright with Bank of America. Your line is open.

Yeah, thank you guys. I guess Charlie, you know picked upon that word you mentioned on the buyback unless you increase it. I guess you guys are running ahead of the curve at the moment on the 10%. What would be the basis for increasing? You’ve obviously been able to run ahead of the curve without impacting liquidity. So can we kind of take that first five months as a run rate and just aim to kind of come in a little bit ahead of the 10%. Just on the basis of having cash to spend, if I might just add, one of the conversations I think or one of the communications that you guys have given and Vodafone has given on VodafoneZiggo and the potential ownership of that, is that you know the asset is doing great and obviously the EBITDA was powering ahead. But you know the last couple of quarters have definitely come under a bit more pressure and maybe some of the low-hanging fruit on the mergers has been taken now. So I'm just wondering, you know has the time come to maybe approach Vodafone again and start discussing if you could be the full owner of that asset. Thank you, guys.

Well listen, on the buyback – yeah, thanks David. On the buyback, we remain opportunistic. That has been our posture on buybacks from the beginning. So clearly with our stock, you know where it is, we are going to be looking aggressively at buying back stock; you would expect us to do it and we are doing it. I can't predict what the stock will be in the second half of the year, so it's difficult as we sit here today to tell you what that absolute figure will be in terms of cumulative buyback for the full year. But I would suggest that in the second quarter call, which will be just, you know in August, early August, we’ll clearly be able to give you a better read on both what we've done through that period of time and how we see the rest of the market. So I’d leave that, not to be more specific than that, except to reiterate that we are opportunistic and when the stock is cheap we buy more as you might expect us to do. On the VodafoneZiggo question, there’s really not much to say. I mean we believe the business remains a very, very successful FMC champion. It’s delivered everything that we and Vodafone have asked them to deliver. Lutz is on the phone call, he can speak to that himself, but you know it's been almost a poster child for the success of convergence, both in terms of sustainable revenue and EBITDA growth, as well as more importantly delivering free cash flow and distributions to shareholders, which we see continuing. You know there are all the issues that we referenced through the quarters, whether that’s sports and Formula 1 or you know impacts of broadband competition, you know we report on it regularly, but it hasn’t changed our overall perspective on the business, which is it's an extremely rational market with a strong management team, a great position vis-à-vis the incumbent and all sorts of opportunity. In terms of what we and Vodafone will do, that’s just not something we can comment on on this call.

Your next question is from the line of Ulrich Rathe with Jeffries. Your line is open.

Yeah, thank you. My question is to Lutz please. So the minus 1000 broadband net ads, could you comment a little bit on how this looks in the BAU footprint compared to the new footprint, whether you’re seeing disconnections also in the new footprint potentially on price rises, whether that’s sort of normalizing and approaching the BAU footprint, and also whether you do see at all a difference in disconnections where you are actually facing Openreach fiber, that’s being actively marketed in those areas where you do not face that. Thank you very much.

Yeah. So right, I mean only to put it in context, we've done the price rise of 6% or 5%, and the number of disconnections in 2022 has been higher than a year ago, right, so I think this is important. Now, we are obviously in terms of net adds right, we managed all the quarters before to also have positive net ads in the existing coverage, so in the Business As Usual coverage, now we are negative. We don't see any severe deviation of insurance across lightning homes, BAU homes, and also homes that are covered by Openreach. So that obviously might change one day, but right. I mean we are serving 1.1 gig across our entire footprint, so there is no speed advantage from Openreach. The customers would only churn because we have this visibility from them. I hope that helps.

That’s helpful, very helpful. Thank you very much.

Your next question is from the line of Robert Grindle with Deutsche Bank. Your line is open.

Yeah, hi there! It's a follow-up question on your broadband subs. Presumably your competitors should suffer some churn because their price rises happened since the end of the quarter, whereas yours were earlier in Q1. Are you seeing an increase in customer inquiries since then, and is that the opportunity behind the thinking on the recent Solis broadband standalone tariff initiative? And if I may, what's the customer reaction so far on the 9% price increase for our O2 customers? Thank you.

Okay, so the 9% price increase has landed as planned, so we kept the churn rate stable at .9%, which is market leading, so therefore – and this was very, very important for us, probably the most important thing in Q1. We landed both price rises as we planned in fixed and mobile, and this has been massive, and therefore you can expect us to see the translation into revenue growth in the coming quarter. Your question on the acquisition market, so according to our data, the acquisition market and broadband in Q1 has been much smaller, and especially very small in the month of March. Now, the way we dealt with it was one, we did less promotion activity, and also we did generate less profit. So the delta in net ads compared to the quarter a year ago comes out of the acquisition market. Do we see a recovery? In April, we see a recovery. Does this come from now churn from the price rise for us? Maybe, yeah, but we don't know exactly, so – and I mean the Solis approach, let's put it – we’re always selling Solis, right. I mean we have not invented a new product. What we are doing is, we are doing different market tests at the moment, right, and I think the idea is to grow net adds without jeopardizing price rises in the customer base, right, and there's different approaches to it, and you can expect us to test, learn, and optimize this approach.

Your next question is from the line of Nick Lyall with Soc Gen. Your line is open.

Hello guys! Just actually the VodafoneZiggo, it sounds okay. Just Mike, your subs in broadband were pretty weak again this quarter as David sort of alluded to on his question. So you mentioned F1. So as that comes off, do you expect a bounce back in subs numbers in the second quarter and the second half? Or is the price rise kind of taking its toll here? Can you give us an update on how you think that business is going to trade and what you’re seeing from the price rise comments to customers? The second thing, when do you expect a network decision on VodafoneZiggo as well, and is there anything holding that up? Are you waiting for the ACM decision? Are you waiting for Vodafone in terms of networking CapEx or is there a disagreement about future dividends? How does that sort of work itself out? Thanks.

Well, yeah great. Listen, on the first question around broadband in particular, we're seeing in the market, but as it relates to the network. Listen, we have what we believe today is a very strong network strategy focused principally on capacity expansion, you know CPE swap outs and where it makes sense, investments in fiber, both in B2B and in new builds, you know because our research says that that’s the principal issue, it’s not so much headline speed. It's all about quality of service and that customer experience. So we're at 1 gig. I think that 80% of the footprint today and continue – will get to 1 gig I believe by the end of 2022 everywhere, if not sooner, and really investing in DOCSIS 3.1, with a migration plan at DOCSIS 4, which you might have noticed Telenet just tested successfully recently as you know exactly – delivered exactly what we hoped it would deliver. So a lot of things happening on the network side that management would view as base case strategy and which they certainly believe will have the desired effect of improving the broadband experience for customers, as well as broadband sales and net ads. Do you want to expand on that?

Yes, I’d be happy to Mike, thank you. To your specific questions about broadband, for this quarter we can see three things coming together and the big difference with the last quarter is the main reason is Formula 1. So we lost our rights to Formula 1, so KPN has taken the opportunity to quite address the marketplace to new customers with an offer for a full year free. We’ve taken a very different approach. We have decided to go for our existing customers primarily and offered something to both our existing and our new customers. So if you look at the step-up in customer losses in broadband in the first quarter, it's almost entirely explained by the loss of Formula 1. If I can put it all in perspective, if KPN has accelerated the final build quite significantly, and despite that the development performance, the fixed performance has been fairly consistent with the previous periods. And that's not really surprising if you look at the investment in the fixed network. As Mike was already talking about, we currently have 80% of our footprint, which is the whole country. 80% of the country's covered with DOCSIS 3.1 with enough capacity and a modernized network, which means we offer up to 1 gig speeds, which indeed, as Mike said before the end of the year, we expect that to be 100% of our footprint. So we have enough capacity, we have modernized the network; we have switched off and more completely to give us that capacity. The speed is there, and the stability is there, and on top of that, we have rolled out up to now 40% of all households with smart WiFi because the reality is customers don't really go for pure headline speed. They want a combination of speed, stability, capacity, great Wifi and in our case also the content and the FMC proposition. So we are very confident that we are in a good position despite the fact that the market is competitive.

That’s great. Thank you.

Your next question is from the line of Andrew Lee with Goldman Sachs. Your line is open.

Yeah, hi everyone! I just had a question on your updated thoughts on your ability to mitigate cost inflation or more precisely to pass through high costs to the customer in the context of what you've seen so far in the U.K., but also across your other core markets. Just an update there would be really helpful. And then if possible, second question just Mike, when you speak about a lot on the gap between public and private valuations. Is there any updates in your thoughts on how best to try and bridge that? Obviously you got the buyback; you’ve discussed in the past the potential to spin out. Is there any shift in your view versus spinning out the public markets versus private markets? That would be really helpful to get your views there. Thank you.

Thanks, yes. On the first question, I think Charlie had a good slide up where he showed the price increases we are taking in pretty much all of our markets with the exception of Switzerland where, in fact, inflation is quite low, remains quite low. But anywhere from 3.5% in Holland to 4.7% in Belgium, the almost 9% on mobile in the U.K. and 6% to 9% on broadband in the U.K. Putting those price increases through clearly is the best way and most direct way to mitigate the impact of inflation on your core business. I think as Charlie also mentioned, wage increases generally have been in the low single digits, so not new. Add inflation levels and then we manage the energy and the other costs and supply chain issues as best we can. But your best course is to stay efficient obviously in your costs, to be vigilant in terms of how you manage energy and supply chain-related cost factors, but also to be judicious, but appropriately fair and aggressive in how you push price increases through to customers as your costs go up as well. So that's what we've done and I think most of those price increases will hit the second half of the year or early Q2, so you'll see the benefits of those in the broader financials through the course of the year, but that's the primary. And onto Charlie, I’ll let you think through if there’s another answer to that or go ahead and offer it up right now quickly if you can.

Yeah, I don't think there's anything else, you covered everything. I think the real question of course is the success of these price rises, and Lutz maybe and others will have more of a view on that. But we are a consumer-facing business, we have a very sticky product, you know we are very optimistic.

Yeah, and then on the gap, public and private values, it's quite large and not the first time we've seen this sort of gap. Does it change what we do on a day-in and day-out basis? Not necessarily. It doesn't change how we run our business, but it does make us more aware and more focused on opportunity, whether that’s in the case of Poland where we had cited 9x for that business was something we needed to look seriously at, and that should just be to you an indication of how you look at value and strategy, and also the fact that we're willing to be aggressive where it makes sense and to respond where it makes sense. You know I think our track record on this issue is exceptional. We generally don't talk about M&A ahead of M&A, but if you look back at our track record, we have been extremely successful at taking advantage of opportunities, both in terms of dispositions and acquisitions and joint ventures. So you should expect that we are on our front foot there, that we are always focused on opportunities to close the gap and especially opportunities that create long-term value for us, and that our track record we think is exceptional and we're not going to get ahead of ourselves by promoting one or another strategy or market opportunity that generally doesn’t work. But we’ll certainly, I will say, surprise you or delight you to the upside, if and when opportunities arise. So we’ll just keep it at that.

Your next question is from Matthew Harrigan. Your line is open.

I assume you said Matthew Harrigan. I was curious what your view is on the Venture portfolio, very slight novel decline from where you are making it, but – and I know the private valuations haven’t come in that much, but what do you think the opportunities are for adjacencies, you know moving forward if these financial conditions persist. And then secondly, your gender and patriot Charlie spent a lot of time talking about 5G enterprise and private networks and the opportunities there. I know Europe is a little bit behind the U.S., but if you could just touch on that briefly. I know a lot of it is very open-ended and longer term, but it sounds like it could be a decent pool of dollars there or euros there. Thanks.

Sure, I’ll let Enrique prepare an answer on the 5G enterprise question. On ventures, Matt listen, we’ll continue to report on a quarterly basis what we're doing, what we're seeing. Fortunately for us, most of our tech deals are in cloud data services, application software. We are not heavily exposed to the sort of tech investments that I would say are experiencing issues in the market as we speak, but two, you know Flashinapan or Moonshot type of opportunity. Most of our tech investments are strategic in that they involve businesses where we can be a customer, which is a good thing, and two, I would say more down the middle in terms of services, applications or solutions that they are addressing. And I think that makes it a little less volatile than most. Infrastructure which we’ve been pretty successful with is obviously an area that's going to be creating a long-term investment opportunity for us. So you're not going to see volatility in that. Our content investment haven’t been meaningfully volatile, because if anything they are on the upside, I mean giving good results today. Other investments I think are more stable. So probably you’re going to see great volatility in that portfolio, but you’ll see as long as we continue to make investments. Enrique, you want to address 5G?

Yes, private mobile networks are clearly a good opportunity to grow the services and probably the revenue that we can get from our 5G upgrade. The good news for us is that the way these 5G networks are built, as you mentioned Charlie’s program as an example, the way these networks are built, more and more the modularity on the software lets us build functionality like mobile private networks as we go if you will as opposed to one big investment. So we clearly are going to be testing that. We are going to see the reaction to the market and I do expect it will become an important element of our 5G deployments.

Thanks, Mike. Thanks, Enrique.

Your next question is from Sam McHugh with BNP Paribas. Your line is open.

Thank you. I just wanted to go back to the U.K. please, and just if you could expand on your comments about the U.K. Global acquisition market. Do you think the broadband market as a whole grew in the first quarter? And then how confident are you that you're not missing data on things like mobile-only households and all that where the exposure is quite poor or maybe put another way, do you see a change in your disconnect to customer? Are you losing people to BT and Sky in the same proportion as the past or are there any signs that this is maybe changing? Thanks.

So, I mean the mobile broadband exhibition market was smaller than a year ago, according to all the data in Q1. But obviously, right, there is acquisition volume there, but it has been smaller. I mean it's the end of the pandemic, people have been looking at other stuff, being more outside. You see that out in the channel mix according to our information, the online channel has been used less and the physical channels get more traffic again. Now, how does this evolve through the entire year? Let's see. The thing is that obviously British households kept other things at the moment, first and foremost, and this is energy bills and other stuff and not broadband. And there has been caring a lot for it during the pandemic to make sure they sit on the best connectivity. Now you see that in the price elasticity, right, was the flexible way of living now and the flexible working that they still value their connectivity. So therefore we see still, right, a very interesting exhibition market, and we will take all off our fair share out of it, but it has been smaller according to our data in Q1. I think on your churn question, if it's linked more to mobile, right, I mean the most important customer base for us is O2, O2 Postscript. Maybe a good proxy is how are we doing on churn? Are we a net winner or net loser out of – and we get the data out of private, out of the number of profitability. Here the development is encouraging for O2. So we are net winners, and right, I mean we have only started to leverage VOLT. So I think there is more to come.

Thank you. Your next question is from Carl Murdock-Smith with Berenberg. Your line is open.

Good morning! Thank you. Looking in the proxy statement ahead of the AGM, I noticed that net promoter score last year missed its targets, leading to only a 61% payout on that metric. Can you talk a bit about NPS by geography? In which operation is NPS not quite where you want it, and what are you doing to fix that? Thank you.

Yeah, a fair question. I think it was a difficult year in 2021 for all operators, with the pandemic and the expectations and challenges that consumers were experiencing. And it varies by market. You know in Holland for example we’ve just become I think Number 1 again in NPS or certainly had been improving NPS substantially in fixed and mobile. But I’ll let – maybe André, why don’t you address NPS in the Swiss market as an example.

Yeah, the Swiss market is operating on a relatively high level in terms of NPS. But last year, while we were doing quite many migrations, we had also some operational challenges that customers were feeling. As a result, we have been just shy of our target for last year. Nevertheless, I would say those operating in positive territory in terms of NPS results, which I think in a close comparison is on a high level, and we are seeing the numbers improving again since then. So therefore, overall, I think last year was not exactly what we were hoping for, but to a certain extent understandably driven by the things that we were changing towards our customers. We're operating in a much better environment, and also improving the numbers while we are speaking.

Yeah. And just to maybe round it out, we do have that same sort of customer focus in our 2022 bonus programs. Each OpCo has their specific approach to customer results if you will, involving NPS and other factors, and as we roll those up at the parent company. So everybody, even at the corporate level is impacted by how well we do. So we're all focused on it, but it's a fair question and something we continue to stay vigilant on for sure.

Your next question is from Polo Tang with UBS. Your line is open.

Thanks for taking the question. This is actually a question for André on Switzerland. Can you maybe just comment on the competitive environment? As we heard from Swisscom the other week, your view on that competitive dynamics. We’re calm during Q1 where you were quite cautious that Sunrise would get more promotional. So how would you describe competitive dynamics in the Swiss market and if you look at historically growth at Sunrise is really come from driving volumes and taking share rather than increasing prices. But how do you see the growth drivers for Sunrise UPC going forward?

Yep, so firstly I will comply with what Swisscom has been saying. We were coming off a very heated promotion environment in Q4, where we have seen promotions going to a level which was not sustainable. And we have seen a more rational environment in Q1. Nevertheless, you can see from our results that despite a bit of a cooling down on those promotional activities, we were still taking a fair share from the market, in fact outperforming our competitors. So the rationalization has not driven any performance downside at the moment. Looking forward, clearly there is a big change for us in Switzerland, given the fact that it was a combination of the two businesses. Now our bank book has a very different structure and different challenges than previously, and as a result, there’s more of a balance between volume and value that is becoming important for us. So we will only do promotional activities and volume intake in a very balanced way, and looking also at the impact that it could cause on our customer base. So I would expect the market to become probably a bit more rational. At least it will be true for us and maybe for Swisscom. Can’t really speak about Salt, but I think also that they are not running the market as you can see from the numbers. So it is really about how Swisscom and us are behaving and what we are doing in there. Clearly the indication is a bit of a rationalization in Q1.

Thanks. And some of the drivers you've got this year, André obviously the Swiss Key partnership, you've got the Sunrise re-product, rebranding most likely coming, a number of things. Sunrise Moments that are going to really push the brand, push the product, push the convergence strategy in a very clear and consistent way that I think will be a big momentum builder for the second half of the year.

Agreed, yes absolutely. I mean yes, there’s a lot of things coming.

Well good. I don’t know if there is one more question operator or please we are going to wrap it. Do you know - can you jump in here quickly?

Yes, we have the line of James Ratzer open from New Street Research.

Great! Yeah, thank you Mike, and I’m happy to get into the last question here. So a question I think maybe more for Lutz at this stage. But just love to hear a bit more about the ARPU versus gross margin mix going forward in the U.K. and I mean specifically, I’m thinking you got a price rise coming on the main product, which is clearly ARPU accretive and gross margin accretive. But then at the same time, you seem to be losing TV RGUs and telephony RGUs on the base which is going to be ARPU negative, but may be gross margin accretive. Interested to get your thoughts on that. And then maybe you are starting to push some of the lower-end broadband products a bit more. So just love to hear about how you're thinking about future ARPU versus gross margin. And if it is the last question, just a couple of housekeeping issues please. On slide five, strategic options in the U.K., you didn't include tower monetization, but it is there obviously in Telenet and in VodafoneZiggo. You are still thinking about CTIL and on the fiber joint venture, I think you initially said up to 7 million homes, and then Mike I think in your prepared remarks you mentioned 5 million to 7 million. Is that just semantics or are you now thinking about potentially lowering the size of the new fiber joint venture slightly? Thank you.

Yeah, I’ll address those quickly while Lutz prepares an answer on the ARPU and gross margin. But on CTIL, it is absolutely an opportunity. Quite frankly just maybe ran out of space, but it’s certainly on the list of things that we would and should consider with our partners, but maybe a little early to signal that. We don’t have any active discussions. But as you do know, CTIL was essentially put into a position structurally and with all the proper agreements to be easily monetized as if we chose to. So a fair call-out; didn’t mean to exclude it as such, but it's certainly not the center as we said at this moment. And down to 5 to 7 million, I guess more semantics could push it up to 7 million. We prefer 7 million, but we are being, you know, providing typically a range. But I think that’s, yeah I wouldn't read too much into that. Lutz?

Yeah, also on the ARPU, there are a lot of puts and takes. But overall, we are confident that first of all we are able to generate growth in ARPU, right, so that’s number one. What are the puts and takes? We are able to sell higher speed into our customer base. So the average consumer speed has been growing 24% during the last 12 months. We are also obviously having a big price rise, which is an increase in ARPU. Now telephony is – I mean if it’s in our view or not it doesn’t make a difference because the price between broadband only and broadband and telephony isn't different. However, we see less telephone usage now after the pandemic again. Now, in fact there’s not so much less anymore, but this is a drag. And on the video side, we are very stable on the video side with our high-value video customers consuming high-value content. You see us losing some video customers more on the low-end video side. I don’t know if you realized, but we have launched a really strong innovation a week ago, Virgin Media Stream. So the customer, without a monthly fee, pays 35 pounds upfront and gets that for free TV and the opportunity with the new user interface on a monthly basis to put in all other key products the customer wants and gets 10%, so – and the margin of this product is very similar to the margin of other video customers. So therefore we are looking at ARPU, and we have – we are looking less at Telephony RGUs because right, mobile usage is picking up again, and I think you can reverse that trend. However, that is effective into our number and we have just launched an innovation to put us into better profitability with the fully fledged IP Video products. I hope that helps.

Yep, great and thank you very much. Lutz, I appreciate it.

Okay, so listen everyone. Thanks for joining the call. I’ll end it quickly here and our punch line is, we think we are managing very well through these macro challenges, particularly with price adjustments that certainly provide tailwinds. And as we step back and look at it, we're in the right market, we have the right network strategies, right product strategies, right brands, right team and feel like we've got all the ingredients if you will to be successful longer term. We remain agile and opportunistic on the strategic issues that matter to you, and you'll know our track record there, so you know stay tuned. And we're committed to our levered equity strategy from the capital structure, which really is as much as anything depended on not just leverage and free cash, but also the buybacks which as you know we’ve been pretty aggressive with. So, I appreciate you joining us. We look forward to updating you on our Q2 results shortly and speak to you soon. Thanks everybody.

Ladies and gentlemen, this concludes Liberty Global’s first 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. Thank you. You may now disconnect.