Liberty Global Ltd. Q1 FY2024 Earnings Call

Good morning, everyone, and thank you for being here. Welcome to Liberty Global's First Quarter 2024 Investor Call. This call and the accompanying webcast are owned by Liberty Global, and any redistribution or rebroadcast in any form without written permission from Liberty Global is not allowed. Today's formal presentation materials can be found in the Investor Relations section of our website at libertyglobal.com. Following the presentation, we will provide instructions for a question-and-answer session. The second slide contains the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, which encompass the company's expectations about its outlook and future growth prospects, along with other information and statements that are not historical fact. These forward-looking statements entail certain risks that could lead to actual results differing significantly from what is stated or implied. These risks are detailed in Liberty Global's filings with the Securities and Exchange Commission, including the most recently filed Forms 10-Q and 10-K. Liberty Global does not have any obligation to update these forward-looking statements to reflect changes in expectations or in the conditions that form the basis of any such statement. I will now hand the call over to Mr. Mike Fries.

Hello, everyone, and thank you for joining our first quarter investor call. Charlie and I will deliver the prepared remarks as usual, and during the Q&A, we'll involve other members of our management team as needed. To begin, I’d like to highlight three key takeaways from Q1. First, during our last call, we communicated a strategic plan aimed at creating and delivering value to shareholders. The reasoning behind this plan is clear: despite repositioning our operations over the past several years, purchasing nearly 60% of our shares, and successfully moving our headquarters to Bermuda, we still trade at a significant discount to our net asset value. As we mentioned in February, we are now focused on maximizing the intrinsic value of our core assets and delivering that value to shareholders over time. Last quarter, we made five announcements and, in the past ten weeks, we’ve made substantial progress on each, particularly regarding our plans to list our Swiss operating business and spin those shares off to our stockholders. I will share more details on these points shortly. Second, given the ongoing uncertainty in the macroeconomic environment, especially concerning interest rates, we believe it's important to highlight the strength of our balance sheet, both now and in the future. Charlie will discuss the specifics, including recent refinancings, but we currently hold $3.2 billion in consolidated cash, which increases to $3.9 billion when liquid securities are included. Additionally, we benefit from a long-term fixed-rate credit structure and maintain a disciplined approach to capital allocation, be it through our buyback program, selective debt reduction, or strategic investments, all of which are aimed at generating returns for our business and our shareholders over time. Lastly, we are investing for growth in our FMC telco footprint. For instance, our fiber upgrade and expansion efforts in the U.K., Ireland, and Belgium are gaining momentum, and we are on track to reach nearly 20 million fiber-to-the-home premises by the end of 2026, representing about 50% of an expanded 40 million home footprint. The same trend applies to 5G, where we are witnessing real opportunities in B2B for mobile private networks, network slicing, and IoT applications. We also believe that our investments in digital NII will be transformative for us. Now, I’ll delve into these points in detail over the next few slides, starting with Slide 5, which outlines the three core components of the strategic plan we presented last quarter, along with the steps we've initiated since then. On the left side of the slide, our primary focus remains on maximizing the value of our FMC telco operations across all markets. These operations collectively serve 85 million fixed to mobile connections, generate over $25 billion in annual revenue, and $9.3 billion in annual EBITDA. They are typically ranked either first or second in their respective categories, boasting outstanding brands and management teams, yet we believe they hold zero value in our current stock price. As we note each quarter, these are challenging businesses to oversee. Competition is fierce, consumers face financial pressures, and the capital demands are high. However, they also provide substantial subscription-based revenue with attractive margins, and we are positioned at the heart of a rapidly evolving technological ecosystem. Innovations like AI, digital services, the edge, the metaverse, cloud computing, and streaming continuously drive increasing demand for bandwidth and connectivity. Whether it’s improving retail market share through digital and AI advancements, expanding our B2B services with new 5G and ICT offerings, or optimizing the value of our infrastructure, we believe we have multiple strategic avenues for creating value in these FMC markets. The second building block involves our targeted and strategic investments in technology, content, and infrastructure that reinforce our core telco operations and allow for significant value creation. It’s difficult to gauge how much of our $3 billion investment portfolio is reflected in our $6 billion market capitalization today, but we are actively managing these positions and crystallizing value where feasible. The third building block centers on our renewed commitment to deliver value to shareholders, which entails continuing to reduce our equity, advancing growth and strategic plans to enhance our trading multiples, and where applicable, distributing value to shareholders through spin-offs and dividends. On the right side of the slide, we provide updates on five key initiatives we've publicly shared. While there are additional initiatives not being discussed today, rest assured we are working on many more. Starting with our FMC operations, our plan is to separate the fixed network in the U.K. and establish a distinct entity. We are making good progress, having engaged Deloitte and BCG for their expertise in planning and financial processes. We've also noticed considerable inbound interest from infrastructure investors, which is encouraging given this will be a major asset. This will also contribute to our next fiber joint venture, expanding our reach to 21 million fiber homes across the U.K. Secondly, we've made strides in the Benelux region. The synergies we identified between the Dutch and Belgian markets have proven favorable, and we are discreetly exploring substantial interest from potential investors looking to acquire a stake in Liberty Global Benelux at a premium to our current trading multiple. Regarding our ventures, we have received the necessary approvals to finalize the sale of all three media at a valuation of 12 times EBITDA, expected to close on May 15, resulting in $400 million in cash proceeds. We plan to utilize these funds for the Sunrise spin transaction, showcasing how our ventures create valuable assets that finance our broader strategic objectives. Last year, we aimed to achieve between $500 million and $1 billion in asset sales by the second half of 2024. With the partial sale of towers in the U.K. and the three media deal, we've surpassed the $500 million mark, approaching $600 million, with an additional $300 million to $400 million in asset sales anticipated by year-end. Lastly, our central objective remains creating and delivering value to shareholders. Our stock buyback program is crucial to this strategy, with about 3% of our shares bought back this year. We’ve authorized up to 10% of shares for 2024, and currently, we have 372 million shares outstanding, down nearly 60% from over 900 million at the end of 2017. The most significant value creation is expected to come from the separation and listing of Sunrise in Switzerland, with plans to spin off those shares in Q4 of this year. Slide 6 updates the status of this transaction. The rationale behind listing Sunrise on the Swiss Exchange is to establish a locally recognized value for the company, likely at a premium to our current stock price. The equity narrative for Sunrise is strong, as it is the only pure-play national champion in a stable three-player market. Andre and the team have several growth strategies in place and are positioned to deliver impressive free cash flow margins that will support an attractive dividend. We're targeting Q4 for transaction completion, which involves spinning off 100% of the shares to Liberty Global shareholders. A confidential Form F-4 with the SEC will be filed next month. We plan to inject CHF 1.5 billion or about $1.7 billion into Sunrise to reduce its debt prior to the spin-off, enhancing the equity value of the listed company, which would directly benefit you through a higher Sunrise stock price. Charlie will explain the financial implications further. Funding for the $1.7 billion will come from a mix of proceeds from the three media sale, Sunrise's free cash flow in 2024, and approximately $1 billion of corporate cash. Notably, both JPMorgan and UBS have been approached by multiple interested parties regarding the transaction, although we remain focused on the process as planned. This transaction will proceed. Many investors are drawn to Sunrise's dividend profile, which we anticipate will start at a minimum of CHF 240 million per year, increasing over time. To illustrate, the anticipated dividend from Sunrise alone would represent a 4% yield on Liberty Global's total market capitalization. Currently, 11 analysts have published reports estimating a range of equity value for Sunrise that indicates significant potential compared to our $16 stock price. We will provide more opportunities for you to learn about this, including a Capital Markets Day and a full roadshow. Now, regarding the future of Liberty Global after the spin-off. It’s crucial to note that Sunrise accounts for only about 12% of our overall EBITDA and around 20% of our proportionate EBITDA. Therefore, the majority of our fixed mobile converged business will remain unchanged. Although our cash balance will decrease by around $1 billion, we will continue to generate free cash flow. We actively explore asset sales to replenish our cash reserves. Lastly, Sunrise, like all our operational businesses and even those we have sold, will still depend on Liberty Global for certain technical and administrative services, which will help offset various central costs. Before turning it over to Charlie, I want to highlight a few operational updates starting with Slide 7 that show broadband and postpaid mobile adds for each market over the past five quarters. In the top left, Virgin Media O2 added 5,000 broadband subscribers this quarter, despite a challenging overall market with an estimated industry sales decline of 7%. Our share of gross additions continues to improve, thanks to our fiber expansion, which has reached 1 million homes. In addition, you will see an added blue box for each OpCo reflecting the trend in fixed ARPU. VMO2’s ARPU has improved every quarter, maintaining stability in Q1 even before a 9% price increase kicks in this April. However, postpaid mobile subscriber growth in the U.K. faced challenges due to a weakened handset market primarily affecting O2. Our flanker brand continues to gain customers, but O2 also experienced churn from legacy IT issues. Despite these challenges, mobile service revenues increased by 4.2% in the quarter. Lutz is on the call to answer questions, and we remain confident in the investments he's making in the commercial sector, which we expect will yield benefits in 2025 and beyond. Sunrise performed well this quarter, with 6,000 net broadband adds, driven by improved churn and strong inflow on the Sunrise brand, along with continued growth for Yallo, our flanker brand. Customer loyalty programs and reduced impacts from the UPC migration contributed to this positive performance. As we anticipated, fixed ARPU has consistently improved since the end of 2022. In mobile, the combination of Sunrise, Yallo, and B2B resulted in another solid quarter of postpaid additions, totaling 26,000. Looking forward, Andre and his team are implementing initiatives to sustain this commercial momentum, which bodes well for the second half of 2024 and for our upcoming transaction. In the Netherlands, VodafoneZiggo experienced a slight reduction in broadband net losses compared to previous quarters but is still challenged by high fiber competition and promotional strategies. The value-over-volume tactics employed by Jeroen and the team are paying off, as evidenced by a 4% increase in fixed ARPU over the last three quarters. The mobile sector remains robust, showcasing another quarter of growth in postpaid users and a 6.5% rise in mobile service revenue. The competitive landscape in Belgium remains fierce, with Telenet losing 6,000 broadband subscribers despite stronger gross sales and marketing strategies. However, churn has improved since the second half of last year as John and the team have successfully addressed previous IT migration issues, leading to a return to normal customer service response times. Looking ahead, they believe personalized customer experiences, expansion into the southern regions, and fiber upgrades will enhance commercial performance. To conclude, I present a simple slide summarizing our active investment programs supporting the long-term growth and competitiveness of our FMC operations. The top left corner reflects our progress on fixed networks, with 32 million fixed homes reached by the end of 2022, 12% of which were on-net fiber, and all capable of 1 gig speed—a crucial advantage. We expect our footprint to expand by 25% to 40 million homes by 2026, primarily through new network deployments, alongside some wholesale arrangements. Nearly half of the 40 million homes anticipated in 2026 will be on-net fiber. In Belgium and the U.K., we are creating NetCos to manage and generate revenues from these networks, capitalizing on associated value-creation opportunities. The bottom of the slide details our 5G coverage ratios for 2024, projected to be 100% in Switzerland and the Netherlands, over 50% in the U.K. and Belgium. By 2026, three of our four markets will achieve 100% coverage, with the U.K. gradually improving. Both fixed and mobile capital expenditures are nearing peak periods, with mobile capex expected to peak this year. As such, we anticipate increased free cash flow margins as these projects conclude or transition off our balance sheet. On the right side of the slide, we are seeing the advantages of our significant digital investments and recent AI initiatives. Our IT migrations for O2's postpaid mobile base in the U.K. and Telenet's residential subscribers in Belgium have resulted in nearly fully digital customer experience platforms. On the mobile side, we are developing fully virtualized 5G SA cores across Belgium, the U.K., and Switzerland, which will provide enhanced scalability, flexibility, and cost efficiencies. While Network as a Service is still in its early stages, we have demonstrated technical readiness and the potential benefits at Mobile World Congress in Barcelona. In terms of AI, we are focusing on utilizing predictive and generative AI to increase productivity across our network, customer, and employee platforms, enhancing customer service capabilities, predicting outages, reducing power consumption, and streamlining internal operations. We have numerous applications underway, and while we are cautious about overpromising, our team is confident that these innovations will generate new revenue and operational efficiencies for us and the broader sector. With that, Charlie, please guide us through the financials.

Thanks, Mike. The next slide provides a summary of the revenue and EBITDA profile in our four key markets. We observed generally stable reported revenues across all our companies in Q1, although reported revenue was stable. Excluding the impact of the next fiber construction, there was a revenue decline of 4%. This was attributed to declines in low-margin handset and B2B fixed revenue, which we mentioned in Q4 as part of our softer revenue forecast. Despite this, the underlying service revenue performance improved even before the Q2 price increases, with stable fixed revenues and accelerated growth in mobile service revenue compared to the fourth quarter. At VodafoneZiggo, revenue increased by nearly 2% this quarter, aided by the 2023 price increases, achieving another record for mobile service revenue growth of over 7%. Fixed pricing was supported by healthy ARPU growth as we benefited from the mid-2023 price adjustments. Telenet achieved stable revenue in Q1, bolstered by consumer mobile revenue helped by last summer's price adjustments. Sunrise maintained stable revenue in Q1, primarily supported by the positive effect of the July price increase and ongoing momentum in B2B, even though lower handset revenues impacted the overall results. Turning to our Q1 adjusted EBITDA performance, adjusted EBITDA fell by just under 2%, including next fiber construction, as VMO2 invested in future growth drivers highlighted in the 2024 guidance. In Q1, there was an increase in IT transformation costs, and VMO2 began scaling up our marketing efforts in the next fiber areas. VodafoneZiggo reported nearly 9% EBITDA growth, mainly due to the reversal of energy cost headwinds along with revenue growth. Telenet achieved stable EBITDA for the quarter, benefiting from price increases, reduced programming and interconnect costs, along with lower energy costs, although this was countered by higher staff-related expenses following the mandatory 1.5% wage indexation increase. Sunrise posted stable adjusted EBITDA growth, enhanced by lower operating and direct costs, and we anticipate that cost optimization benefits will become more apparent starting in Q2.

Turning to the next slide, we provide an update on the key metrics supporting our capital allocation model. This includes recurring upstream free cash flow from our wholly owned FMC OpCos, cash distributions from our 50% owned joint ventures, our holding company cash and liquidity, the fair market value of the Ventures portfolio including listed stakes, and the underlying equity values of all our FMC champions. Starting with the top left, we show the breakdown of our free cash flow profile for Q1 2024 by operating company along with full-year guidance. Traditionally, Q1 has been a quarter with modest cash outflows due to the timing of cash interest payments on our debt and limited cash distributions from the joint ventures, which are typically realized in the second half of the year. Regarding our cash position, our consolidated cash balance was $3.2 billion at the end of Q1 2024. The chart shows the changes compared to the closing Q4 balance, which included a modest cash outflow from operations of about $0.2 billion in Q1, ventures investments of approximately $0.1 billion primarily in AtlasEdge and EdgeConneX, and share buybacks amounting to around $180 million during Q1, consistent with our guidance for up to 10% buyback in 2024. Moving to ventures, the fair market value of our ventures portfolio increased during the quarter, driven by a rise in the value of our stake in EdgeConneX, alongside our listed stakes including ITB. This was partially offset by a decline in tech valuations, particularly Lacework. We made net investments in debentures amounting to approximately $100 million in Q1, mostly in AtlasEdge and EdgeConneX, both of which fall under our infra pillar focused on the data center space, where we anticipate strong growth potential. Finally, regarding the value drivers of our stock, analysts largely agree that our stock is significantly undervalued, currently trading around $16 to $17 per share, compared to an average valuation of $26 per share. As Mike mentioned in our Q4 strategy update, we are eager to close that gap.

Starting with our $3.2 billion cash balance and accounting for a deleveraging injection of $1.7 billion, which is about $5 per share, we arrive at a value of $4 per share. Our venture portfolio, valued by an independent third party, is estimated at $2.4 billion or $7 per share. Additionally, our listed equity stakes and the cash from the All3Media sale are worth a total of $1 billion or $3 per share. Regarding the Sunrise spin, assuming the current average analyst valuation of the company is CHF 8 billion, we reach $11 per share, factoring in the CHF 1.5 billion cash injection committed by Liberty Global. Adding these figures without assigning any value to the other FMC champions, the implied value of a Liberty Global share is approximately $25 per share, given 350 million shares around the time of the Swiss spinoff. Finally, we noted in Q4 regarding the per comparable basis enterprise value to operational free cash flow. We believe there is substantial equity value in our remaining proportionate interests in VMO2, VodafoneZiggo, Telenet, and Ireland, with cash being generated despite the ongoing elevated investment cycles related to 5G and fiber to the home.

Turning to our balance sheet. We continue to have a strong position and continue to do opportunistic refinancings. During March and April, we refinanced nearly all of the remaining 2027 maturities at VMO2. Now as opposed to the usual slide showing our silo debt by OpCo, this chart highlights our aggregate debt position, including the joint ventures where we own 50% by the debt instrument. Overall, we have around half our aggregate debt in the form of bank debt and the other half in bonds. And as the chart shows, the bank debt typically has a shorter remaining duration versus our bonds as the latter are typically issued with around a 10-year maturity. Crucially, all of our variable bank debt is fixed using swaps typically until maturity, with the swaps independent, and that's really important, of the underlying bank debt. We would argue that these swaps totaling $23 billion for an average remaining life of 5.25 years are a significant asset. And indeed, in our balance sheet, we recorded an in-the-money valuation for our interest rate swaps of over $1.5 billion. Specifically, we have around $10 billion of notional swaps maturing in 2028 and $9 billion in 2029. This allows us to refinance near-term maturities and push out the tenor of our bank debt while still benefiting from the underlying swaps, which can remain in place until 2028 and beyond. And as a result, we have a limited debt repricing risk apart from any change in what's called the credit spread.

So as a case study, we took advantage of this at VMO2, proactively refinancing $2.4 billion across March and April, largely addressing the 2027 maturities with only a 20 basis point increase in spread. So overall, for VMO2, this extended the average life of the debt stack by 0.4 years at less than a 0.1% increase in the overall weighted average cost of debt. And lastly, as a reminder, all our debt is fully siloed and FX matched, and we intend to remain proactive in terms of pushing out our maturities to maintain turnup. Lastly, I wanted just to reconfirm all our 2024 guidance across all the OpCos which we set out in Q4 in February. Now I won't run through all the metrics again. But after a strong start to the year financially in Q1, we remain confident across all the OpCos in terms of hitting the numbers. And that concludes our prepared remarks. And operator, we're now ready to move to Q&A.

Our first question comes from Joshua Mills with BNP Paribas.

I had a couple on the Netherlands and then one on the U.K., if that's okay. So I think in the VodafoneZiggo disclosure last night, you talked about improved Net Promoter Scores now related to FMC. It'd be great if you could share some detail about perhaps how your net promoter scores are performing in that business and if there's any green shoots there, which might point to a better net out trend through the course of the year. And then related to that, you mentioned as well in the call that fiber-to-the-home overbuild is one of the issues you're seeing in the Netherlands. I'd like to clarify whether that is coming from the altnet survivor from KPN. And then if I just move on to the U.K., my question there is if you could provide a bit more color around how much of the postpaid subscriber losses were related to this change in billing system and give an indication of what the underlying surplus in the quarter would be, that would be much appreciated, too.

Thanks, Joshua. As you know, Jeroen Hoencamp, CEO of VodafoneZiggo for some time, has officially retired as of yesterday. So he's off on vacation. But we have Ritchy Drost, the CFO, you all know quite well on the call with us today. Ritchy, do you want to address the NPS point?

Yes, thank you for the introduction. We do not measure VodafoneZiggo's NPS directly, but we do track it through our brands, Ziggo and Vodafone, among others. We're seeing a gradual increase in NPS scores across all three brands, leading to positive NPS, particularly on the fixed side, which has been a challenge for us in the past. All three brands are performing positively, contributing to an increase in NPS when we combine them with our FMC offers. This improvement is due to enhancements in our entertainment value proposition and continuous improvements in customer service. I hope that answers your question. If you'd like, I can also address the second question.

And on that point, Ritchy. Yes, go ahead. Go ahead.

Yes. So by now, both KPN, Odido and ourselves are public. So we have a pretty good feel on how the market is doing. I would always say that if you look at our churn, it's mostly triggered not by fiber, but by the sheer fact that the fiber players actually use price and promotions as one of the instruments to actually get traction on the fiber footprint. If you would slice and dice ourselves and compare it for instance to the incumbent KPN, KPN in itself has, on a like-for-like basis, also pretty moderate performance, I would say, both consumer and B2B, which basically then leads to the Odido results as well as Delta that didn't go public. If you combine Odido and Delta, they take effectively the growth in the market, which is predominantly the growth in new build homes taking broadband services. So that's a long way of saying that it's not the incumbent KPN and ourselves but the growth cost to the other two big players using price a lot as the instrument to gain volume.

Yes. It's important to note that the other two companies are operating in separate regions. They're not competing directly with each other, and they are not saturating the market at the $1 million to $1.5 million range. The situation is somewhat fragmented, but from an external perspective, it appears to be a reasonable overbuild scenario. Lutz, would you like to address the postpaid billing question in the U.K.?

Yes, certainly, Joshua. A few points to note here. Typically, the first quarter is a weaker period for postpaid net additions, with a difference of 50,000 compared to last year. We have completed the migration of over ten million customers from one CRM system to a new one. This transition can affect some customers who could not be transferred to the new system. While we are not disclosing exact numbers, you may find similar CRM migrations in the market that reflect positively on our performance. Additionally, I want to emphasize that while you can review postpaid net additions, our future strategy involves positioning O2 as a value brand and targeting monthly payment customers seeking value. We are focusing on two distinct segments: one for premium offerings and another for value. This strategy is already contributing to growth in our service revenue, with a notable 42% increase before any mobile price rises. I hope this clarifies things.

I'll just add one point, which I think is important to remember. Since we formed this JV, we've grown the mobile contract base every year, and we've had consistent mobile service revenue growth. So I would view this as more of a blip than a long-term trend.

Our next question comes from the line of Maurice Patrick with Barclays.

If I could ask a question on the U.K. market, please, really relating to the net add trajectory and state of competition. So I'm sort of curious that the U.K. broadband market has grown in size over the last few years. The last 12 months seems to have topped out. Just curious if you think the market can grow maybe in the next 12 months. And just linked to it, if I look at some of the altnet data, it looks like in the last 12 months they've added about 0.5 million customers in the U.K. market. I wonder, you've historically, I think, talked down the impact of altnet. I wondered the extent to which those are now starting to impact your unit adds in your legacy footprint.

Lutz, why don't you address the net add question?

Certainly. If you look at the net additions for Q1 this year compared to Q1 last year, the figure is 20,000. There are a couple of points to consider. First, the market is somewhat weaker, showing a decrease of about 7% according to our data. Second, we’re observing more effects from alternative networks, though it's not significant; if you look at the difference from two years ago, we aren't dealing with large numbers. My perspective is that alternative networks are not achieving the market penetration they desire, which is leading them to become more aggressive in their promotions, and we can see some of that impact. The question remains how long this situation will persist. Additionally, we’ve added 1 million fiber homes and are beginning to sell more in our expanded network, but this process takes time since it involves fiber technology. Last year, we began selling fiber as a new video product, and we are gradually increasing our sales each week. We are confident in this area, so we expect to see a greater impact on our net additions from fiber going forward. I hope that clarifies things.

We discuss altnet every quarter and recognize the capital they have invested and the network they have built. Our focus is on the next 18 to 36 months, assessing their ability to sustain their growth and achieve their expansion goals. The outlook appears uncertain. However, despite the existing network, which is substantial, their market penetration is not strong enough to ensure financial viability, with levels around high single digits to 10%. This approach is unlikely to be sustainable in the long run. Nonetheless, they have a built network and will strive to generate returns from it. They are definitely engaged in the market.

And the market is growing. Do you believe that the U.K. broadband market will grow over the next 12 months?

Lutz, do you have any thoughts on this? Generally, there's a lot of swapping occurring, and there's considerable fluctuation in the market. We believe our business will expand. The overall market typically grows each year, but we think we are capturing more than our fair share for sure.

Yes. But there's not a lot of growth, yes, in the market.

Our next question comes from the line of Ulrich Rathe with Bernstein Societe Generale Group.

In the prepared remarks, Mike, you mentioned the embedded aspects within the network carve-outs. In Belgium, it seems the apartments are quite clear in terms of how this might work. However, in the U.K., it's a bit less certain. You referenced some unsolicited interest already, but could you explain the value creation levers you anticipate from the carve-out? Additionally, in the Netherlands, you mentioned a distribution outlook of up to $300 million available for distribution and nonrecurring investments. Could you provide more clarity on that at this time? Or is it more appropriate to wait until the investment opportunities arise to detail how those might be allocated?

Yes. Charlie or Ritchy, you can address the cash upstream question. I believe there are numerous value creation opportunities in the U.K. Firstly, we can separate our network construction and assets into a structure that could attract interest from both strategic and financial investors. This interest could lead to capital raising at favorable multiples, and more importantly, enable us to potentially expedite our operations in that market. We already expect to reach 5 million homes with NeXfibre by 2026 and plan to complete the remainder of our upgraded network, which we refer to as fiber up, by 2028 or 2029. However, if we can speed up these builds and the migration of customers to those fiber networks, it would be even better. We believe this approach provides financial flexibility and options to enhance our actions in that market. There is significant private equity capital at play, with about $2 trillion circulating, a substantial part of which is directed towards infrastructure. We are confident that the infrastructure sector remains robust and that there is considerable interest in NetCos that commence with 35% to 40% utilization, substantial EBITDA, and a clear strategy. Our network, which will ultimately reach 21 million homes, is set to be the second largest in the market, attracting wholesale customers over time and providing us with a competitive edge to maintain and expand our broadband customer base. There are many advantages to this process. We are not the first to consider structuring our business this way; we have done it in Belgium. John is on the call and can share insights into what we are already witnessing there, particularly with wire and the opportunities that have emerged in the Belgian market, including potential collaboration with Proximus to streamline fiber construction and avoid unnecessary capital expenditure. Thus, we see numerous opportunities arising from this journey that could significantly benefit Virgin Media O2.

Regarding the shareholders, Ritchy, I’m not sure if you want to address this, but as is typical in the telecom sector, spectrum auctions occur from time to time. We cannot comment on specific auctions, but we want to ensure that if an auction comes up, we haven't misled our investors. Ritchy, do you have anything to add?

I think that's well said, Charlie. So we're reconfirming the up to $300 million with the remarks we made at the year-end results in line with what you just said.

Our next question comes from the line of Robert Grindle with Deutsche Bank.

I'd like to ask about the Benelux holdco. The idea seems to have shaken out interest, as you said, Mike, from external investors. It sounds encouraging given the lower negative implied equity on the OpCos. Is this interest or contingent on fully controlling Ziggo or not necessarily? Is there any movement on Ziggo from your co-shareholder in Paddington? And if I could have a very quick follow-up on the U.K. net point. Do you need to offer more altnet-like than VM prices to get customers onto Nexfibre? Or so far, at least, do you think the Virgin brand carries the premium to what the other outlets are charging?

Lutz, you can work up an answer on the U.K. altnet point. Listen, I think the interest that private equity could have in the Odido Benelux asset is clear. You're talking about a defined region with a lot of similarities, $3 billion of EBITDA on a combined basis, potential synergies, if there's further consolidation of ownership interests and obviously undervalued assets that have good cash flow characteristics, et cetera. And I'll add lastly, unrealized value in infrastructure, whether that's through wire, the NetCo in Belgium or from towers that haven't yet been monetized in Holland. So there's lots of interesting elements there to, I think, attract interest. Would it be contingent on getting control of the underlying asset? Not necessarily. It doesn't appear to us to have to be contingent on that. And I think you'll have to ask our friends in Paddington what their long-term game plan is with the Dutch business. At this moment, there is nothing to report. And I think they've obviously been highly focused on the perimeter that they're building and exiting certain markets and doubling down in others; you have to ask them where Holland sits in that scheme of things; that's for them to answer not us. But obviously, we're good partners. We've been good partners for a while. We're making moves here that we think will add value to our stock price long term but also are strategically accretive, and we're going to make those moves either way. Let's see what they instigate if anything, but we're moving forward.

Yes, regarding your question about ARPU, the short answer is that we maintain the ARPU premium. We are not offering Virgin Media in areas with network expansion at lower prices than in other locations. We are gradually moving towards regional pricing, but it's a matter of how we apply this in the future. We are not pursuing this strategy currently. What we have recently introduced is the capability for customers to record with fiber or TV content. Previously, we offered streaming, which is a lower-end video product plus broadband. If you combine that, it results in a slightly lower ARPU, but this is not due to a lack of premium for Virgin Media. It is because the 360 product, the box, was previously unavailable, and we expect this change will have an impact.

Our next question comes from the line of Steve Malcolm with Redburn Atlantic.

First of all, regarding the status of the retail relationship between VMO2 and Nexfibre, part of the lowered guidance for this year was due to some delays in preparing for the marketing efforts. Where do you stand on that journey? Are you up and running? The net adds may have been late, and this point in the market is a bit weak, but do you feel you are where you need to be in terms of marketing that footprint? Secondly, Mike, you mentioned your Liberty post Sunrise spin. There are still many interesting aspects of the story, but one of my concerns is that if the share price doesn't increase, the market cap could be relatively low, around $2.5 billion to $3 billion. Liquidity might become an issue. Is that something you've considered? What steps can you take to address this regarding buybacks and similar actions? I’m curious about your thoughts on liquidity after the spin.

Yes, thank you for the question, Steve. Lutz, you can work on Nexfibre, but let me address the second question first. I want to ensure I understand it. We believe that the steps we're taking, particularly regarding Sunrise, will address this issue. As shareholders, and we are all shareholders here, if we receive a substantial share of stock from Sunrise and the remaining company doesn’t trade well, we will consider what actions we need to take to bridge or reduce that gap with the remaining company or explore other options. We're approaching this one step at a time. We do not expect anything other than an adjustment in the valuation of Liberty Global following that spin. As we continue to show that we're successfully executing our growth and strategic plans, the assets we own and control, along with our partnerships, are valuable. Regarding the $3 billion point, I'm not sure I understood that fully. Steve, could you clarify your question about $3 billion so I know what you're referring to?

I think one of the challenges you face is that you're quite a unique company. You're listed in the U.S. and operate here, and your market cap is relatively high. It can be complicated. As your market cap decreases, it may become more difficult for investors to engage with your shares, which could affect liquidity. There was the issue with Telenet, which was very small but a bit different. Are you at all concerned that if the market cap doesn't change according to the steps you're taking, it could make buying back stock more challenging because the small size of the company might impact liquidity? Also, how do you see this evolving after Sunrise, especially since it may result in a significantly smaller company again?

I understand your concern. Our expectation is that the RemainCo will rise in value from its current position because we believe, depending on how the spin unfolds and the value assigned to the shares, that the remaining assets are also undervalued. You mentioned that they might continue to trade at the same level, and we will deal with that if it happens. At this point, we anticipate that the RemainCo will be re-evaluated, and that the underlying businesses we maintain in the U.K., Belgium, and other markets will be valued similarly, as we've shown that there is intrinsic value not currently recognized in the stock. If this doesn't happen, we'll address it when necessary. I'm not going to speculate on our future actions just yet, but you've raised valid points, and we will see how it develops. I am quite confident about two things: first, that the Swiss transaction will be transformative and is going to take place, which we will all appreciate, and second, that it will change the way people perceive Liberty Global regarding our approach to value creation and distribution, as well as how we manage the remaining businesses to build that value. But let's wait and see. I acknowledge your point, and I won't make premature predictions; we will look at how things play out. Lutz, would you like to address the Nexfibre issue?

Yes. Yes. Yes. So I mean I agree, right? We have 1 million homes built and so therefore, now the sales machine is ramping, and it has to further ramp quarter-over-quarter over quarter. And our relationship with Nexfibre is very good because, first, you need to build a network, right? And a year ago, the big question was, hey, you have to double your bill. Is this working, blah, blah, blah. And it did, right? We celebrated 1 million homes. And now the question is, do you get to the penetration we need for this network? And what the Nexfibre team is able to see is what I said before that month over month, we are selling more, more and more. And the driver for that first was get the fiber product ready, right? So therefore, we couldn't simply keep doing what we were doing with Lightning because that was Cox. And second now, we have to ramp the sales channels, especially field sales, right? As you can imagine, if you have now much more homes you want to penetrate, you need the field sales channel to target these customers where build is. And so we are ramping month-over-month also our field sales team and train them. And therefore, we are confident that we are getting to the number we have agreed with Nexfibre end of this year.

Our next question comes from the line of Matthew Harrigan with the Benchmark Company.

I actually have two questions. I'll start with the more straightforward one. When comparing Liberty Global to U.S. companies, you have advantages with new joint ventures and other factors. However, in terms of core business, you're outperforming U.S. peers in units. Both you and your peers are gaining pricing power, but their video business is struggling significantly. I believe there is a decent contribution margin there, even if it is downplayed. In your video business, while you are losing some units, it clearly isn't in freefall. You also benefit from consumers shifting to streaming, which positively impacts your broadband business. I think you likely have better contribution margins and more stability in your video operations outside of the U.K. on the continent. This isn't something you discuss extensively, but do you have any insights on how this fits into your overall strategy for core operations? I have a follow-up after that.

I believe you've described the situation accurately, Matt. While we face similar trends as U.S. operators, our impact is not nearly as severe. Our video losses are only a small fraction of theirs. The trend is consistent; we're not expanding our video subscriber base and are, in some cases, working to maintain it. We're transitioning rapidly to IP boxes and have integrated all applications. We're implementing strategies to enhance the video product's appeal within our bundle, including offering affordable IP devices and subsidizing certain streaming services. We aim to keep our video customers engaged, but our customer losses are not as high as those of U.S. companies and are likely to remain lower. The same applies to our broadband subscribers; we are not experiencing losses at a similar rate. Generally, we have been growing our broadband customer base, except for Holland, which has been challenging, as we've noted in previous quarters. Overall, we are expanding our broadband customer numbers and capturing our fair share or more. Our contribution margins are also strong; broadband margins exceed 90 percent, while video margins, especially in continental Europe, are around 75 to 80 percent. Although our video business is relatively small, it is more stable overall. That said, our mobile business accounts for 50 percent of our revenue and is a core revenue stream rather than a minor focus like in the U.S. It is growing every quarter, with mobile service revenue increasing consistently. Alongside that, our B2B segment is also experiencing growth every quarter, providing us with great momentum. We continue to seek improvements in our fixed business, especially through investments in fiber and bundling, which consume a significant amount of our time, energy, and capital. This investment is yielding positive results; our fixed average revenue per user has either improved or shown positive growth across all markets over the past four or five quarters, indicating that our strategies are effective.

Yes. Looking at NetCos over time, it appears to be a promising new growth sector, although there are complexities involved, especially when your joint ventures already have their own joint ventures. It's fascinating to observe that much of the technological growth seems to benefit from your network and 5G over time. When you consider NetCos, is there anything in their structure that could facilitate easier growth capture in new tech businesses, aside from what you've already achieved with your venture portfolio, which has contributed positively to your economics?

Well, that's a good question. I mean, look, the NetCos that are embedded inside of our OpCos, if you will, are owned by the OpCo. So any benefit that comes from setting up a NetCo, financing a NetCo, selling a NetCo, partnering with a NetCo bringing in new revenue streams to that NetCo are going to accrue to the owners of the OpCo and that's not really our ventures portfolio as such. Having said that, we certainly are always looking at ways to create additional value in and around those NetCos. We're looking at metro fiber, for example, our investment in data centers and the edge. Those things all relate. The OpCos aren't pursuing those business opportunities, but we at the ventures are pursuing those kinds of business opportunities around the OpCos, if you will. In some cases, we'll work together. There's opportunities for VMO2, too, to do work for us on our charging points what we're trying to build in the U.K. So there will be, I would say, synergies. But I think the ownership of these opportunities are pretty distinct. We have partners in the U.K., and what we do has to be something that TEF wants VMO2 to do. So there's quite, I think, an appropriate set of governance rules there. But I think they do fuel each other. There are benefits for sure. And I think you'll see us take advantage of any and every opportunity to invest in infrastructure in and around our OpCos as those OpCos themselves take advantage of the infrastructure they've been sitting on for decades and try to finance those and identify value in those in a new way.

I think operator we have time for one more question.

On a related note, I would like to discuss the waterfall chart on Slide 10, where you suggest that the equity is undervalued and assigning a value of zero to the FMC operations. I believe that the equity is indeed undervalued, but I have some reservations about the specific components. My main concern is regarding the Ventures portfolio and whether it is being accurately valued. Do you think the current share price reflects a true opportunity in that market, or is it being unfairly discounted? Additionally, you mentioned the potential for another $300 million to $400 million in pipeline monetization by year-end. Will this indicate the beginning of a longer-term strategy to monetize the Ventures portfolios? Alternatively, whenever I hear discussions about AtlasEdge or EdgeConneX, you seem particularly enthusiastic. Should we expect the size of that Ventures portfolio to increase or decrease in the long run?

It's a good question. I want to clarify that the valuation of our ventures portfolio comes from Deloitte, not from our own estimates. We are very careful and thorough in assessing the value of these assets. It's not arbitrary. As for whether we're receiving full value from the market, that's subjective and difficult to gauge since we don't get feedback on a daily basis. However, with our recent sale of All3Media for 12 times its value, it suggests there's potential there. The portfolio includes various sectors, some of which are at different stages of maturity. Our content segment, being the largest, has opportunities for further rationalization and potential monetization. The infrastructure area holds promise too; we have options to monetize but are also excited about the opportunities available to us. Our tech investments generally pay for themselves, funded by the exits they generate annually. The benefits of our tech investments mostly impact our operating companies, as we are investing in AI, cloud, and security firms that we hope will become customers, partners, or suppliers. It’s a complex situation with each vertical possessing distinct traits. These assets have developed over time, and the critical question is what they will look like in the next one to three years. We anticipate a mix of monetization and investment, and the composition of our portfolio might change. We’re not establishing specific targets, yet we maintain a disciplined approach, concentrating on areas that we believe investors will value, like infrastructure. For instance, the decision to exit All3Media and invest that capital into Sunrise was intentional. We continuously evaluate our portfolio as a chance to create value while also redistributing it into other strategic initiatives aimed at improving our stock performance.

Thank you all for being here today. We hope you gained valuable insights from our update, particularly regarding the five initiatives we've implemented in just ten weeks. Throughout the rest of the year, we are focusing on growth, strategically positioning our operating companies, and exploring ways to monetize or enhance the value of the assets they possess. Our primary goal is to deliver that value to you. The Sunrise transaction is a key priority for us. You can expect that we will prioritize initiatives that we believe will benefit our shareholders, and we look forward to providing you with updates in the next quarter. Thank you for joining us. Ladies and gentlemen, this concludes Liberty Global's First Quarter 2024 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.