Earnings Call Transcript
Liberty Global Ltd. (LBTYA)
Earnings Call Transcript - LBTYA Q4 2022
Operator, Operator
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Liberty Global Fourth 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 express written consent of Liberty Global is strictly prohibited. At this time, all participants are in listen-only mode. Today's formal presentation materials can be found underneath the Investor Relations section of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for a question-and-answer session. Page two of the slides details the company's Safe Harbor statement regarding forward-looking statements. 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 fact. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. The risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recent filed forms 10-K and 10-Q as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions of which any such statement is based. I would now like to turn the call over to Mike Fries. You may now proceed.
Mike Fries, CEO
Okay. Welcome, everyone, and thanks for joining our year-end results call. I hope you're all doing well. As usual, we have some prepared remarks that Charlie and I will manage and then we'll get right to your questions. And for that, I'll bring in my key leaders who will be ready to respond as needed. We're working off slides, as we usually do and they contain quite a bit of good information this time. So we'll assume you've got those in front of you or you'll access them at some point. Just a warning, this is our year-end call, so there's a bit more information than usual, but bear with us, we'll try to keep it crisp. I'll begin on slide three with some highlights for the quarter and the full year. And I have to start by saying that I'm extremely proud of my team in each of our operating businesses for how they executed through a challenging year. And just when we thought things were getting better, Europe was hit with a war in Ukraine, rising energy costs, record inflation, and a cost of living crisis that impacted customers really across the region. But despite these headwinds, we hit or exceeded all 16 guidance metrics for our big FMC operating companies that we established a year ago, and we beat our forecast for distributable cash flow at the Liberty Global level by $100 million, and that's using guidance FX. So this is the third year in a row that we were faced with external uncertainty but still managed to deliver on our public targets. Second, and perhaps not surprisingly, Q4 was a very strong quarter for us across the board and we delivered positive broadband and postpaid additions in every market, fueled by convergence offerings and Black Friday campaigns. And our largest operation, Virgin Media O2, delivered their best financial result yet, with double-digit EBITDA growth figures, supported by price adjustments, synergies, and net adds. And then third, we continue to benefit from consistent and steady revenue growth in our three most important segments, which are B2B, broadband, and mobile. And just as importantly, we're actively addressing headwinds in our B2C fixed businesses more broadly, with smart network and product innovation and I'll dig into both of these topics in a moment. And then fourth, we've maintained a clear and consistent approach to capital allocation. In 2022, we bought back 40% more stock than we guided to, a total of $1.7 billion or 14% of the shares outstanding. And we're on track for at least another 10% this year. And in a few slides, I'll expand a bit on how we see our capital allocation framework going forward. And then, finally, I'll let Charlie cover the details of our guidance, but I'll just highlight upfront that despite continued investment in fiber, 5G, and digital, this year we expect to generate another $1.6 billion in distributable cash flow in 2023. So a strong year for us operationally and financially and as we'll discuss in a moment we're well positioned to drive value for shareholders moving forward. Slide 4 is our standard schedule showing Connectivity Trends for our four large FMC Opco's over the last five quarters. One quick observation is that for the first time in over five years every market experienced positive broadband and postpaid mobile net adds in the fourth quarter. The top left shows VMO2, which has delivered three straight quarters of sequential growth in both broadband and postpaid net adds despite intense competition and the cost of living pressures in the U.K. Broadband speed upgrades together with strong momentum from our Volt bundle drove our best broadband quarter of the year. By the way, we outperformed BT again and we garnered an even higher share of national gross adds than we did a year ago. Q4 also saw a strong pickup in postpaid net adds in what is always an important trading period for mobile. And the O2 brand continues to perform very well, especially at the top end of the market with sector-leading churn well below 1%. Now Sunrise in Switzerland also had a strong fourth quarter with 53,000 broadband and postpaid adds. Importantly, after two quarters of losses in Switzerland we delivered positive broadband growth, helped by a strong Black Friday period focus on one gigabit offers and a new Netflix bundle we put into the market. This was a particularly good performance, given the continued higher churn we've experienced related to the UPC brand migration that we flagged really mid-year last year. Now in postpaid, Sunrise delivered another strong quarter with 34,000 adds supported by the Sunrise brand refresh and interestingly, our SwissSki sponsorship which is off to a great start now that the Ski season is fully underway. After nine quarters of broadband losses, Vodafone Ziggo delivered 7,000 net adds in Q4 in part, supported by its Ziggo Sprinters and Black Friday campaigns. Look at the Dutch market remains highly competitive with price and quality of service now becoming more important than fiber. When you look at customer churn, incidentally KPN lost broadband subs in the quarter. Vodafone Ziggo's 26,000 postpaid adds were negatively impacted by the loss of some corporate accounts, but were still higher than KPN in the quarter. It's also interesting that T-Mobile took some pricing in January up 9%. And then finally, Telenet added 13,000 broadband and postpaid adds which was largely consistent with prior periods and postpaid mobile adds were steady, supported by their bundles and it's really strong performance from the base brand, so, solid execution across all of our markets in broadband and mobile. And slide 5 is also becoming a standard chart for us, showing revenue growth across the four main FMC Opco's and then broken down by revenue segment. So there's five key takeaways here. First, if you look at the total revenue growth for each FMC Opco, you'll see that revenue remained resilient with broadly stable to positive trends across the group. As you move down the chart however, you'll see that consumer fixed revenue as a whole is consistently negative, from negative 1% to negative 4%. And that's impacted by losses in video and voice RGUs something you're well aware of as well as pressure on ARPUs and mix during this cost of living crisis. But interestingly, while we continue to lose video subs at a rate third of what's happening in the U.S., video is now only about 15% of our revenue. Now, I'll spend a moment on how we're addressing the headwinds in FIXED on the next slide. Now embedded in this FIXED B2C result are broadband revenues which continue to grow albeit modestly and will increasingly become a larger and larger part of the FIXED consumer story in every market. And then third, revenue growth in consumer mobile is all green, across the board driven largely by service revenue which is growing 2% to 4% across the group. This is a function of strong postpaid additions of course, and price adjustments through the year. And then fourth, B2B remains a growth engine across all assets with revenue increasing 1.5% to 4% and significant upside as we expand our reach and market share. And then finally, as the pie charts at the bottom make clear, we have a highly diverse and arguably defensive revenue mix with mobile both B2C and B2B, now representing almost half our turnover and B2B itself comprising 20% to 25% of revenue. Slide 6 dives a bit deeper into our fixed consumer business and how we're addressing some of the headwinds today. I'll start by showing fixed ARPU trends on the top left, which as you can see have been relatively stable in Belgium and Holland even slightly up. With both markets bidding down, price rise as well and dealing with limited front-book, back-book dynamics. In the UK, in Switzerland however, we've seen around a 3% decline in fixed ARPU related partly to the fact that we start with fairly higher ARPUs in each market and then that's compounded in the UK by declining video voice and cost of living pressures. And then Switzerland as we discussed we're managing through a migration from UPC to Sunrise, which has impacted ARPU. So what are we doing here? First of all, we're taking price increases on fixed. You know that around 14% in the UK and mid-single digit in Belgium and Holland and those are outlined on the bottom left you can see what we've done. Secondly, we're implementing a number of commercial initiatives that are critical here. By far the most important is our broad convergence strategy, which as we've demonstrated helps improve churn, NPS and cross-sell opportunities. We've talked about it before in Holland. FMC households have on average 20 points higher NPS and 50% less churn. These are real theoretical benefits to the fixed base as we converge. We've also invested significant effort into integrating streaming apps into our video platforms. Netflix for example is bundled in just about every market and we're increasingly able to add these subscriptions to our bill. We're also focused on rolling out all IP and at first video devices across our markets. In the UK for example, we're now adding video subscribers, not losing video subscribers actually adding video subscribers in January as a result of our Stream TV launch. And then our investments in digital are reducing friction and cost in the fixed consumer business. The tools we're rolling out are driving more online sales, reducing call center interactions, improving self-install rates and driving cross-sell opportunities. And then finally, we're making good progress on new revenue streams. And these include things like home security or telehealth and energy. We've rolled out products just like this in most markets, and we intend to continue to take advantage of our customer relationships and digital platforms to widen our revenue lens and find new areas of growth. Certainly, a significant part of our plans to keep growing broadband and improving our fixed consumer business relates to our fixed network investment strategies in every market, which we provide an update on in Slide 7. It's also important to remind folks that we are the broadband leader today in Europe, with over 31 million gigabit homes ready for service. And just as importantly, we have a clear path to 10 gigabit speeds in every market, with mostly creative structures, really creative structures that will ensure we're optimizing CapEx intensity. So the chart on the bottom left shows you that by 2028, we'll be 70% fiber to the home across what will then be a 36 million home footprint. Now that excludes whole buy arrangements in markets like Switzerland and Ireland, that add another 4 million fiber home takes us to 40 million and brings that fiber percentage to 75%. So we could be as many as 40 million homes by 2028. That's good organic greenfield growth. And our plans to get there are summarized on the right. You're familiar with our approach in the UK. We added or upgraded 1 million fiber homes in 2022 and that will accelerate by at least 50% in 2023. Again, most of that CapEx, especially the new build CapEx is being invested through our JV with Telefónica and InfraVia so off balance sheet. In Belgium, we've announced the deal with Fluvius, you're aware of that to build fiber across Flanders in a NetCo-ServCo structure that to close this summer. And in the meantime, we've agreed a reciprocal wholesale access deal with Orange that ensures that Telenet is the undisputed leader in the north with 70%-plus utilization and also capable of entering the sale. We completed our one-gig upgrade in Holland last year. And in Switzerland, as you know, we're going to use a hybrid approach with DOCSIS, fiber and whole buy. And then finally, Ireland will be our first market to launch wholesale services on our own fiber network in 2023 and that's after announcing a wholesale agreement with Vodafone. So we have a sound and we think efficient set of plans in every market to remain the speed and quality leader in fixed connectivity and you should expect that we'll keep you posted on progress here every quarter. Now shifting to slide 8, we tackled the valuation question directly this quarter. At first glance, this slide may seem complex, but it’s actually quite straightforward. Its purpose is to help clarify the valuation gap regarding our stock and focus on our FMC operations. One way to assess our current market valuation is by breaking it down into three components, as illustrated on the left side of the chart. Assuming full value for our cash balance and our ventures portfolio, the implied valuation of our FMC operations at the $21 price point stands at approximately 5.5 times EBITDA and about 13 times operating free cash flow, based on our reported figures for 2022. Moreover, our cash is sound and our venture investments are conservatively valued, held in tax-efficient structures, and we have already returned over $500 million to the parent company. Interestingly, at a price of $21, the free cash flow yield, after adjusting the market cap for ventures and cash, exceeds 30%. Transitioning to the middle of the slide, the analyst community has an average price target of $30 for our stock, suggesting a 40% premium to our current market price of $21. If we attribute that premium solely to the FMC telcos, it leads to an EBITDA multiple of around 6.5 and an operating free cash flow multiple of about $14.5 million. Notably, our peer group trades within a range of 6.5 to 7.5, with some even higher at 8.5 times EBITDA. Furthermore, at the $30 target, the free cash flow yield remains attractive at roughly 15%, whereas our peers generally see mid to high-single-digit yields. Analysts have provided various narratives to back their price targets, including telco sector tailwinds in Europe, improved pricing power, market rationalization, mobile revenue growth, and regulatory relief, and we concur with those insights. Additionally, they often cite three other key factors, such as the advantages from a subscriber base that's now 50% converged, the anticipation of continued synergy realization in the UK and Switzerland, and the robust free cash flow profile of our businesses, especially as we appear to be in a peak CapEx phase. Therefore, we don't find the $30 target unreasonable. We believe analysts may not have fully accounted for all the factors justifying a premium market valuation. While we can't specifically define what a premium market price should be, we can highlight the crucial elements that should support substantially higher values than our stock price, potentially even double the analysts' target. These elements are summarized on the right-hand side of the slide. Firstly, we have experienced six private market transactions in the past six years where EBITDA multiples reached as high as 12% and operating free cash flow multiples exceeded 20%. While synergies played a role in some valuations, these pertained to smaller cable TV operations rather than fully converged FMC champions. Based on historical transactions involving high-quality FMC businesses in Europe, we believe EBITDA multiples of eight to ten and operating free cash flow multiples of 18 to 20 are realistic. Furthermore, several additional value drivers that analysts may overlook support a higher valuation. We've made great strides in establishing true national leaders that are influencing market structures in every country we operate. Additionally, we possess hidden infrastructure potential through our towers and fiber networks that aren't fully acknowledged. We are also just starting to harness new revenue sources such as security, gaming, and telehealth, which we have recently introduced. Lastly, we are at what may be peak CapEx levels this year, which will lead to even better long-term cash conversion. Our unique approach to value creation involves agile capital allocation, maintaining a leveraged but low-risk balance sheet, and a commitment to share buybacks, all contributing to a strong strategy. Building upon that, slide 9 delves further into our capital allocation framework, which we believe distinguishes us from our competitors. Our priority starts with shareholder returns, as depicted on the left side of the slide. We have successfully retired over 50% of our shares over the past six years, averaging an 11% reduction per year. In 2022, we surpassed our initial buyback authorization by 40%, repurchasing 14% of shares while returning $1.7 billion in distributable cash flow to shareholders. Looking ahead to 2023, we remain committed to a 10% buyback floor and are making good progress. On the right side, we provide context for the buyback within our overall capital allocation strategy. We have three main sources of cash: our existing cash balance of $3.4 billion, the modest interest accrued prior to investments, and the $1.6 billion of distributable cash flow from our operating companies, which includes recaps. Lastly, we anticipate cash proceeds from the sale of non-core assets and venture investments over time. We are certainly a cash-generating business, but how do we allocate that capital? We prioritize our networks, especially fiber and 5G investments, at the corporate level. None of the associated capital expenditures come from our cash balance as we generate free cash flow at the operating company level, but it's relevant since it affects our distributable cash flow and constitutes a capital allocation choice. As noted previously, we are currently operating at peak capital intensity. The predominant use of cash is directed toward buyback initiatives, with more than $12 billion allocated since January 2017, and we remain committed to this strategy this year. Occasionally, we will invest in our FMC OpCos for strategic transactions that enhance value, such as the fiber joint venture in the UK or the acquisition of Sunrise. Additionally, we've been developing a substantial portfolio of strategically aligned assets in technology, media, and infrastructure. To elaborate on our strategy for investing in these assets, slide 10 illustrates our $3.1 billion ventures portfolio, which primarily consists of tech, content, and infrastructure segments, along with a few notes on any modest value adjustments made in the fourth quarter. As a reminder, we rely on a major accounting firm for independent annual assessments of our portfolio's value. In the three boxes on the top right, we highlight key updates. We have over 60 investments in our tech portfolio, with five companies representing approximately 75% of its value. These include companies delivering innovative cloud-based solutions like Plume and BitSight, a cybersecurity firm. Our net investment in these five companies totals around $100 million, while their conservative valuations currently stand at $700 million. Importantly, each is engaged or is planning to engage with our FMC OpCos, creating a mutually beneficial cycle that drives ongoing deal flow. Notably, our tech ventures team possesses an eight-year track record of generating returns in strategically aligned product, service, and technology companies, having already returned $500 million to the parent. Additionally, we showcase our three largest infrastructure investments, which include AtlasEdge, our joint venture with DigitalBridge, and the EdgeConneX data center business, wherein we hold a 5% share with EQT, as well as NEXFIBRE, the joint venture with Telefónica and InfraVia to develop five to seven million fiber homes in the UK. Each of these platforms utilizes either existing operating company assets or our strategic market positioning to create value. It's essential to note that these figures exclude our tower assets in markets like the UK and Netherlands, which we control through joint ventures. On the far right, we summarize our investment in Vodafone, noting that we consider the stock undervalued and expect several near-term catalysts to be advantageous. We've structured this investment strategically, minimizing the equity required while safeguarding our downside. Importantly, we have no scenarios where additional capital investments beyond minimal borrowing costs will be necessary, partially offset by dividends. We also plan to replenish this equity investment through asset sales, focusing on several opportunities currently. It's encouraging to see that Vodafone's stock has risen since our announcement, which we won't claim credit for, but it’s a positive development. Lastly, in the bottom right corner, we outline how we envision the evolution of this part of our business. The three main segments—tech, content, and infrastructure—are focused on technologies, services, or platforms that align with our core strengths and expertise. We've also added a fourth category called Financial, which encapsulates existing and potential investments in debt or equity of opportunities deemed strategic, distressed, or uniquely positioned for investment. Across the first three categories, our investing principles are simple. We seek businesses with significant growth potential, often those that possess scale, benefit from industry trends, and provide strategic advantages to our operating companies or other investments. We also favor companies centered around innovative or disruptive technologies that diversify or enhance our core operations. Lastly, we are committed to disciplined exit strategies and capital rotation. We have already begun assessing our positions and believe there are numerous assets ripe for monetization, including those within our Ventures group and externally, like tower assets. These are the foundational elements of value creation. We will persist in driving growth and free cash flow within our FMC champions while optimizing our ownership stakes over time, which may involve capital investments for M&A or strategic growth. Additionally, we will remain adaptable concerning listings and spins. Furthermore, we will continue to deploy capital effectively through our established buyback program. Finally, we aim to be opportunistic regarding investments that align with our core mission and capabilities. This latter point presents challenges, yet our history of successfully building, acquiring, and exiting assets within our sector provides us with the credibility to proceed. I want to avoid a situation where, in three years, we're managing $3.5 billion in corporate cash and $6 billion in liquidity, and I believe you're aligned with that sentiment as well. Our primary focus is on value creation, and we feel well-positioned to achieve that. Charlie, it's your turn.
Charlie Bracken, CFO
Thanks, Mike. On the next page, we've provided a summary of the revenue profile in our four key markets. 2022 saw stable revenues in three of our four markets and slight growth in Belgium despite the challenging macroeconomic environment. Fixed consumer revenue pressures across our markets were suffered by sensible price adjustments in Benelux and in the UK and we saw strong mobile and B2B growth across our portfolio. Virgin Media O2 delivered stable revenues in Q4 and across 2022 with continued pressures on fixed consumer ARPU and challenges in B2B being offset by strong mobile subscription revenue growth. Switzerland saw Q4 revenue growth decline, as continued strong mobile growth was offset by weaker B2B wholesale revenues and continued pressure on the consumer ARPU mix, as the business resets the pricing of its UPC customers in the migration to the Sunrise brand. In the Netherlands, despite a strong net outperformance, we saw a slight decline in revenue growth due to weakness in the consumer fixed business, partially offset by price adjustments, which we implemented in July. We delivered mobile service revenue growth of 6.3% in Q4, which was supported by a metal price adjustment in October. Belgium delivered Q4 revenue growth of 1.7% and 1.5% across 2022 and as the mid-June price adjustment continue to support top line fixed ARPU growth in the second half of the year. The next slide sets out our adjusted EBITDA performance in the quarter. The standout performance in Q4 was delivered by Virgin Media O2, posting full year adjusted EBITDA growth of 6%. In Q4, Virgin Media O2 delivered accelerated EBITDA growth of 10%, driven by synergies from the merger and the continued impact of price rises earlier in the year. This was despite $40 million of cost to capture, which hit the OpEx line this quarter. Versus the exceptional EBITDA growth in Q4, we do expect Q1 growth to be much more muted and this is impacted by the phasing of a delayed fixed price rise and tougher synergy comparative versus the prior year. Sunrise saw an EBITDA decline of 8.1% in Q4, as tailwinds from the MVNO synergies faded, combined with a continued weaker fixed ARPU mix. This continues to be as a result of the rotational churn challenge associated with the UPC migration to the Sunrise brand. We expect headwinds from this migration to continue to impact EBITDA trends in 2023 and in particular, impact the Q1 numbers. VodafoneZiggo saw a slight decline in EBITDA growth in Q4, driven by cost inflation headwinds, which offset the impact of price adjustments. We expect cost inflation headwinds in particular, in energy to impact our 2023 outlook with an estimated EBITDA hit of over €100 million from energy and wages. Telenet reported EBITDA growth at around 5% for the second consecutive quarter, driven by price adjustments. The business anticipates ongoing headwinds from energy inflation, as well as manage wage increases of 11%, which will hit from the start of 2023. The next slide provides a more detailed update on our energy costs. Before the Ukraine invasion, energy typically accounted for a low single-digit percentage of operating costs. And historically, our policy was to hedge those costs forward on a rolling 12-month basis. This hedging policy helped soften the impact of rising energy costs in our 2022 results and we were able to absorb the impact of the unhedged costs and still meet our EBITDA guidance in our OpCos. However, in 2023, you will see a full impact of the increased energy costs resulting from the invasion. And as you can see from these slides, we have broadly hedged the energy costs in each of our markets for 2023, but this has been at significantly higher rates than 2021 and 2022. We've highlighted the impact on each of our markets. But if you were to add them all up and use today's dollar exchange rates broadly, our 2021 energy cost of around $280 million increased to around $410 million in 2022 and will be around $600 million in 2023, and representing a hit to free cash flow across our portfolio of around $330 million as a result of the invasion. So like everyone else, we don't know where energy prices will settle out. But in the meantime we continue to execute our rolling 12-month hedging program, and it starts over 2024 hedges, which thanks to recent price declines are at lower prices than we have locked in for 2023. We're also investigating longer-term fixed rate deals through PPA agreements. The next slide gives an update on our progress on the UK and Swiss synergies resulting from the O2 merger and Sunrise acquisition. We remain on track in both the UK and Switzerland with our overall synergy targets with a very strong finish to the year in the UK. Now just to remind you at Virgin Media O2, we expect to deliver £6.2 billion of NPV synergies or an annualized run rate target of £540 million from the O2 merger. In 2022, we constantly delivered over 30% of our synergies in the first 18 months of the combined business and are on track to deliver the 50% by the end of 2023. Meanwhile cost of capture peaked in 2022 and with over £300 million recorded out of the total £700 million cost to capture envelope. Cost to capture are expected to roughly halve in 2023 falling to around £150 million as investment in mobile capacity to support the MVNO migration took place in 2022. In 2023, trends are expected to benefit from the continued flow-through of MVNO synergies along with the unlocking of further synergy streams, including labor and commercial. Moving to Switzerland. We reaffirm our target to deliver CHF 3.7 billion NPV of synergies and incur CHF 400 million of overall cost to capture. 2022 represents a peak year for cost to capture as approximately CHF 140 million of cost to capture supported the business and achieving nearly 50% of our synergy run rate target, including the early benefit of MVNO synergies supporting half one trends in 2022. The business aims to deliver around 60% of the synergy run rate target by the end of 2023 with key focus areas being the buildup of the DSL migration and headcount synergies and delivery of these synergy projects will be supported by an expected CHF 50 million of cost to capture spend in 2023. Turning to capital allocation. Q4 saw a step up in capital intensity across our key operations, as we expected and was consistent with our full year capital intensity guidance for the group. Moving to distributable cash flow. We achieved our distributable cash flow guidance for the year delivering over $1.7 billion of full company distributable cash flow in 2022 based on the FX rates at the time of our 2022 guidance. On a reported basis for the full year, distributable cash flow was around $1.6 billion, including $455 million of dividends from Virgin Media O2 along with $478 million coming from our share of the recapitalization of that company and $321 million from VodafoneZiggo. Finally, our outlook for 2023. Now I appreciate there's a lot on this slide, but to help you understand our current view and the 2023 key financial drivers and ultimately the free cash flow and cash flow distributions of our key assets, we've added our view on some of the drivers behind those assumptions. Starting with VMO2. On an IFRS basis, we expect to achieve revenue growth mid-single-digit adjusted EBITDA growth supported by synergy execution and inflation-linked price rise adjustments with headwinds from inflationary pressures impacting our cost base including energy. Now these numbers are excluding cost of capture for the year where we expect OpEx and CapEx cost to capture of around GBP 120 million, which is still within our multiyear expectation of GBP 700 million. We also guide to property and equipment additions of around GBP 2 billion benefited from project lightly moving off balance sheet but this is offset somewhat by the fiber upgrade accelerating and the 5G mobile investments. On cash distributions to shareholders, Virgin Media O2 is guiding to around GBP 1.8 billion to GBP 2 billion versus GBP 1.6 billion distributed in 2022. Turning to Sunrise. We expect low single-digit revenue decline for the year along with low to mid-single-digit adjusted EBITDA decline including cost to capture. As the business continues to navigate the impact of the UPC brand migration and lower tailwinds from the synergies in 2023. We guide to property and equipment additions as a percentage of sales to be around 15% to 17% also including cost to capture. Cost to capture spend will drop this year falling to around CHF 50 million, of which CHF 10 million is expected to be attributed to OpEx. VodafoneZiggo is guiding to an improved revenue profile supported by pricing actions and low to mid-single-digit adjusted EBITDA decline as the business will be impacted by cost inflation headwinds of around €100 million from energy and wages. Property and equipment additions as a percentage of sales is expected to be 21% to 23%. The Dutch JV is guiding to shareholder distributions of €300 million to €400 million of cash which is impacted by higher cash taxes and a tougher EBITDA outlook. This is versus cash distributions of €602 million in 2022. And finally on an IFRS basis, Telenet are guiding to revenue growth of 1% to 2%, supported by price adjustments and broadly stable adjusted EBITDA impacted by wage and energy inflation headwinds. Property and equipment additions as a proportion of sales are expected to be around 26% with an adjusted free cash flow outlook of €200 million for the year. This is lower versus the €409 million delivered in 2022, as free cash flow will be impacted by higher CapEx on 5G fiber build. And finally on group distributable cash flow guidance, regarding to GBP 1.6 billion of distributable cash flow in 2023 at guidance FX rates. We reiterate our commitment to buy back 10% of our shares outstanding in 2023. And with that operator, let's turn to questions.
Operator, Operator
The first question comes from Sam McHugh with Exane. You may now proceed.
Sam McHugh, Analyst
Thanks very much for the question. I'm just trying to wrap my head around Slide 21 and the central cost update. It's kind of a two-part question. The first bit is just I see that there are some changes happening with the P&E allocations. Just to confirm that's already captured in the OpCo guidance that you gave separately for example, like the Switzerland OpEx charge shift that's already in the Swiss guidance? And then secondly, how should we think about the cash burn in Central in 2023, relative to what looks like maybe €200 million loss in 2022. Thanks very much.
Mike Fries, CEO
Charlie?
Charlie Bracken, CFO
Yes. Yes I confirm just everyone understands what goes on we do it sort of our joint venture as well as our wholly owned companies. We have what we call technical service agreements to really support the tech spend, which has been coming consistently down actually over the years. And so that's baked in at the opco level, we've actually got a renegotiation with one of them pending, but broadly speaking it's all fully baked in. And then at the center as you know we've been running around this €200 million time number. Gives and takes on that depending a little bit on how much money we spend on development and new areas, but I think you should assume it's going to be broadly consistent around that number for the upcoming years.
Sam McHugh, Analyst
Fair. Thanks very much. Thanks, Charlie.
Operator, Operator
Thank you, Mr. McHugh. The next question comes from the line of James Ratcliffe with Evercore. You may now proceed.
James Ratcliffe, Analyst
Thank you. Two if I could. One, sort of, big picture and one more specific. You talked about you're seeing for converged customers higher NPS scores, lower churn, et cetera. What's the comparison to that? Because I certainly imagine that somebody isn't happy with their broadband service they're probably not going to add the mobile service as well. So can you talk about what sort of the comparison set for specific customers who do add on broadband what you're seeing versus customers who don't the converge route? And second just on the Vodafone investment. You're now a meaningful holder of a core partner of yours. Can you talk about anything that that would facilitate or anything you would make more difficult or limit in terms of your relationships around the JVs in particular? Thanks.
Mike Fries, CEO
Hi, James. Listen on the convergence figures. Lutz is on the call, I can let him chime in a little bit too. But in the case of Holland, which we cite regularly I think we're simply comparing FMC converged customers to non-converged customers. Now fair point if that's one you're making there could be some sort of self-selection there. If you are happy with us then you're likely to buy more products, which means you become happier, whereas people who are not happy with us generally may not buy more products in which case you might say, well, clearly they're not having customers. At the same time there's no other way to do it. I mean, you're either converged or you're not. And when you can drive 20 points of NPS and have your churn that's a big enough gap so to speak to support the premise that convergence works. Now we can maybe endeavor to provide a bit more color and detail around that going forward, but that is the basic set of statistics. On the Vodafone stake we are good partners with Vodafone. We do business together quite frankly in three countries. We own a power network together through this Beacon arrangement in the UK. We've just signed a wholesale deal to provide them fiber access in Ireland. And of course we're partners in Holland. So our touchpoints with Vodafone are many. This may or may not change that dialogue. We'll see. It's certainly not the reason we did it. The direct reason we did it, but I think it doesn't hurt to have to ensure that our conversations with them going forward about all of these business arrangements are open and direct. That's really all I would say there.
James Ratcliffe, Analyst
Great. Thank you.
Mike Fries, CEO
You bet.
Operator, Operator
Thank you, Mr. Ratcliffe. The next question comes from the line of Maurice Patrick with Barclays. You may now proceed.
Maurice Patrick, Analyst
Thanks, guys. Thanks for taking the question. Yes, if I could ask a question on the UK ARPU trends. I think the UK ARPU the fixed ARPU was down about 3% or so this quarter despite 6.5% price increase you put through early in the year. Just curious to your thoughts in terms of how the next pricing increased lands. Obviously you've communicated the increase. I wondered how much of that you thought would flow through into better ARPU and therefore what's baked into your guidance would be helpful. And just linked to if I can be curious to know your thoughts around front book and backward pricing in the UK, clearly a lot of back book pricing increases but the front book is still very promotional. What do you think that's set to narrow? Thank you.
Mike Fries, CEO
Okay. I'll take the first one. Lutz you take the second one. I think on the pricing, I will say is that we anticipate our mobile and fixed pricing to behave – the impact of that pricing to be similar to prior years. And we said in the past, I think what we believe generally happens in fixed pricing, where we get roughly half of that if not more and mobile pricing a larger percentage. And so for sure we expect to either do as good or better, it's a larger increase that's certain in which case you might argue, hey, it's going to be harder. On the other hand, we have a lot more tools in place to manage customers in this particular go-around. And as you would have read in the – going forward we have put into the Ts and Cs of contracts in the fixed side of our business in RPI plus 3.9% moving forward. So now you'll know next year, what that price rise is based on January's RPI. It won't be something we're making. It won't be a decision we're making on a discretionary basis it will look like BTs. Lutz, do you want to handle the front book back book question?
Lutz Schüler, CFO
Yeah. Maybe the only thing I would add on the pricing is right Mike said, we have much more tools in place. So we are a month into it. And we know exactly how many customers of which cohorts have reacted in whatever way of form. And we also therefore understand exactly how much of the retained revenue we got. And we – I won't disclose any number, but so far we are fully on plan. The last year you referred to that there are two things right? One thing is you do a general price increase and you get a certain reaction. And then second, during the entire year customers have been optimizing their bill irrespective of price rise, because they don't want to keep using their landline or they want to get rid of mid-tier video content to simply optimize their bill. And therefore, you're right last year, the net of the part have been negative. Now we are not giving a guidance for this year, but we are guiding an overall revenue growth and so we are much more confident on this piece of it as well. Front book back book. So in general you are right. This is a strategic challenge. So you see price increases now across most of the operators, but you still see high competition in the acquisition market. Now, the way we are dealing with it in a positive way is twofold. One, we are not offering promotions on broadband. We're not following promotions of broadband around £21, £22 so we are staying closer to £30 leveraging our speed advantage. So the promotions you've seen from us the last three months are selling more 50 mg, close to £30. And therefore, we have less of a back book front book issue. And the second thing is, we are also – with our digital capabilities, we now can test different ways of selling. So instead of an end of a promotion step-up we are also offering within the minimum contract length that customers are paying half of it. But in the minimum contract length then they pay a higher price so there's less of a churn. So there's a lot of optimization going on and stay tuned.
Maurice Patrick, Analyst
Great. Thank you so much.
Operator, Operator
Thank you, Mr. Patrick. The next question comes from the line of Robert Grindle with Deutsche Bank. You may now proceed.
Robert Grindle, Analyst
Yeah. Hi, there. Hope you can hear me. On the UK cable upgrade and new fiber JV 1.5 million new fiber homes for the combination in 2023, doesn't appear massive versus one million achieved in full year 2022. Are you being cautious here? Perhaps it takes a while to get to run rate and perhaps related to the question is the press as you're looking at out net acquisitions? Are you tilting away from build to buy? And how quickly can VMO2 sell off the new build, once it's happened? Thanks.
Mike Fries, CEO
Yes, there are several pertinent questions there. Regarding the speed, I want to emphasize that we have until 2028. We have never indicated specific figures or timelines suggesting that this will happen immediately. It will take some time to ramp up operations, and while a 50% increase is reasonable, it could be exceeded. This process is not a sprint; we aim to have 80% of homes equipped with fiber by 2028, which aligns with our long-term strategy. We will proceed at a pace that makes sense for us. Currently, as Lutz would mention, we have a one-gig network serving 16 million homes, providing an average speed of 300 megabits, which is significantly faster than what the average British household receives from other providers. We are in a strong position as we continue our development. We're not in a situation where we need to transition from copper to fiber or deal with similar challenges. In fact, we are already ahead in this competition and are solidifying our long-term standing. Lutz, would you like to address the second part?
Lutz Schüler, CFO
Yes. Can you repeat the question, Robert. So, what was it again?
Robert Grindle, Analyst
How long does it take VMO2 to sell off the new JV once homes are passed? And are you tilting more to buy than build in the JV homes?
Lutz Schüler, CFO
Okay. So, I mean the first one, we are as you know, very experienced to get to the penetration on the lightening network. With now, next fiber there's no change there, right? Because Virgin Media O2, is building the network for next fiber and where the media is also the anchor tenant of it. So we are selling into it. And so you know that we are getting to a far higher penetration than any altnet got to. And you know, also how quickly we ramp up. So, I don't expect any changes here in the future. So, we plan exactly with the same. And then obviously, it Virgin Media O2 is not a shareholder of next fiber. So this is more Liberty Global Telefonica and InfraVia. But altnet are getting under stress. This is our perception. The reason is they don't get to the penetration they need to. So according to our numbers, there are 7.6 million fiber homes in the UK from altnets and the penetration is around 15%. And from a pure wholesale perspective, we all know you need 40%, and cost of capital are increasing. So opportunistically, we will look at it and we will take the opportunities then as they come.
Operator, Operator
Thank you.
Mike Fries, CEO
Next question, operator.
Operator, Operator
The next question comes from the line of Luis Sanchez-Lecaroz with Credit Suisse. You may now proceed.
Luis Sanchez-Lecaroz, Analyst
Hi. Thank you for taking my questions. I wanted to follow up on the previous question and specifically looking a little bit deeper on the €1.5 million for next year? And can you give us the split between upgrade and rebuild rollout? And then looking into the UK guidance, can you let us know if you are factoring in the construction revenues from the new fiber JV and the retail business that you would get from greenfield areas? Thank you.
Mike Fries, CEO
I think we mentioned that the split is about 50/50. However, I'm not sure if we have pinpointed the revenues from the new fiber or specifically called them out, but there will be some revenue, albeit modest and not significant.
Charlie Bracken, CFO
That’s the correct answer. This is not a massive number, but there is some modest revenue baked into our numbers.
André Krause, CFO
We are in the process of building the network for our next fiber project, and we are receiving payments for that. At the same time, we are selling the network, which generates wholesale revenue. There have been changes in our profit and loss statement, but we haven't disclosed specific numbers regarding the division between expansion and upgrades, and we prefer not to do so. What I can say is that these are two distinct activities; expansion requires significantly more effort and resources. We have previously mentioned that in 2022, we expanded at a faster rate than in 2021, and we aim to continue that trend in 2023. Regarding upgrades, this involves pulling fiber through our existing ducts, which demands much less effort. We have also indicated that we are spending around £100 for each home passed, highlighting the reduced workload involved. I want to emphasize what Mike mentioned earlier: we aim to utilize our core network to its fullest before selling fiber, as doing so prematurely doesn’t provide any real commercial advantage for us right now. Therefore, we have the time we need.
Mike Fries, CEO
Thanks, Luis. Next question, operator.
Luis Sanchez-Lecaroz, Analyst
Thanks.
Operator, Operator
Thank you, Mr. Lecaroz. The next question comes from the line of Polo Tang with UBS. You may now proceed.
Polo Tang, Analyst
Hi, thanks for taking questions. I have two. The first one is on Switzerland. So a question for André. Can you talk through the competitive dynamics in the Swiss market? And maybe talk in a bit more detail about the issues that you're facing with the retirement of the UPC brand? And going forward, should we expect maybe a relatively stable broadband performance in terms of net adds for Switzerland but maybe it's just a case of re-pricing taking its time to work its way through. Alternatively, where are the other moving parts that are driving the Swiss EBITDA declines in 2023? And then second question is really just about fiber wholesale in the UK. So I appreciate that you're still in the process of upgrading your cable network to fiber, but have you had any discussions with other communication providers about wholesaling on the VMO2 network? And do you think that this could be a meaningful revenue stream going forward? Alternatively, is the Equinox 2 pricing from Openreach now an unstoppable train meaning you have no chance.
Mike Fries, CEO
Let me address the second question first. As I mentioned, we're in the process of building a network that we expect will cover 80% of the market, but this will take time and won’t happen overnight. Investors in the telecom sector typically seek long-term stability and a fair market environment. From our perspective, Equinox 2 is not expected to significantly affect our long-term plans. However, it seems that BT's reaction has been somewhat hasty and indicates a broader market overreaction. We believe that Ofcom understands the wider context and will examine Equinox 2 thoroughly during the consultation process. Regardless of whether we roll out wholesale services this year, next year, or later, it’s important to note that our decision to upgrade to fiber for 16 million homes was not solely driven by the need for wholesale revenue. We indicated that this upgrade aligns well with DOCSIS 4 technology, independent of wholesale gains. That said, we do aim to expand wholesale revenue beyond Virgin Media O2 as our primary partner, and the upcoming fiber joint venture will advocate for its strategic goals. This market development is a long-term endeavor, and we believe no single action by a competitor will disrupt our progress. We remain committed to our strategy. Andre?
André Krause, CFO
Yes. In regards to competitive dynamics, I would say, Q4 has seen a lot of liquidity in the market. Also seasonally, Black Friday was probably the biggest sales event in the last year. As such, we have also seen a very high level of promotional activity. We were benefiting from that from a customer perspective. As you've seen and not only us, but also competitors gained quite a lot of new customers in the market, but the pricing levels or the discount levels on those promotions are not really sustainable and are also causing some of the pressure that we have the migrations at customers that are looking at the front book prices at or migrated at back book prices, that is, of course, attention that is not making our life easy with all of the customers that we want to migrate over to the new Sunrise portfolio. As a result of that, we have started already in Q1 to reduce our promotional aggressiveness mainly on the main brand. Our Flanker brand will not be addressed by that, mainly because the Flanker brand has a different role and needs to play also the role of being more price aggressive. But on the main brand, we want to protect the back book better with lower promotional aggressiveness in particular, with promotions that do no longer offer a discount over the first contract term, but at maximum only half of the first contract terms, so that customers get, again, used to actually pay the normal list price. Now in terms of dynamics for next year, clearly the main driver for next year is those right pricing of the mainly fixed customers coming from UPC that is roughly less than one-third of our total customers and not all of those customers will be necessarily a drag to ARPU and to direct to our revenues. But some of those are, if you think about it I mean there are of course, certain customers that are sitting on one or two products, where we still have a good opportunity to cross and up-sell products, provide more for same for example or more for more. While there is a certain segment of customers that has already maxed out the product range and is sitting on an out-priced price point that no longer exists on the new front book. And in order to maintain those customer relations healthy and to continue working with them, we are doing this right pricing exercise. That's the main drag I would say also on the top line for next year. On top of that I would say on the EBITDA guidance, we of course continue to actually prep the business to capture growth going forward. So we continue to actually do OpEx investments on the digital side. We also do have some increase in OpEx that is coming from cloudification things moving from CapEx to OpEx. And we have a number of other, I would say marketing activities that for the first time will hit full year range like for example the Swiss sponsorship, which we only started in 2022 but we'll see for the full extent only in 2023. But the major driver I would say of the headache is really the right pricing in that relatively small fixed customer segment. All other growth engines. If you look at mobile, if you get D2D, if you look at flanker brand, maintain healthy but we are accelerating this exercise now to actually create a growth platform that we can start from going forward.
Mike Fries, CEO
I'll just add that I have confidence in Andre and the team to manage through this. There's deep knowledge and understanding of the market and this is a blip not a change in direction. On the other hand, I would also point out that Charlie skipped over in his guidance slide, the fact that Switzerland is guiding to 320 million to 350 million of free cash flow in 2023, which I'm going to guess here Andre I think it's up 30% to 40% over 2022. So despite the challenges that Andre is working through at the revenue and customer level, which I'm sure we will get through, the business is generating significant free cash flow and on pace for the kinds of free cash flow results we had initially anticipated when we made the acquisition.
Polo Tang, Analyst
Clear. Thanks.
Operator, Operator
Thank you, Mr. Tang. The next question comes from the line of Steve Malcolm with Redburn. You may now proceed.
Steve Malcolm, Analyst
Yes. Good afternoon, guys. And I'll go for 1.5 questions, one in the UK just a quick follow-up to an earlier question. First just going back to the UK and the price moves look that you're enacting at the moment. I guess if I look at 2022, looking from the outside in my perception would be that the fixed line price rises didn't land probably quite as well, as you'd hoped and the mobile price size maybe landed a bit better. I don't know if that's right, wrong but that's my impression. As you go into 2023, look you said you've got more tools at your disposal, but obviously, it's a very, very big price rise. So I guess the instinctive reaction would be that you're going to see more churn, you're going to some more promotional activity. But could you just elaborate maybe on those best actions that you can take to prevent that and give us sort of a bit more confidence that we don't see the ARPU reactions that we saw following the price rise last year that would be great. And then just coming back to the point on Vodafone. Mike, you said that the reason for the investment was not to sort of create more touch points of Vodafone was it exactly? Was it just because you thought the shares were cheap. And if that is the case, can you maybe give us some sort of guidelines as to what is sort of in and out your scope? Is it just sort of contiguous sector telco media anything that you think is sort of opportunistic. Or does there have to be some kind of existing relationship for you to invest shareholders' money in stocks like Vodafone? Thank you.
Mike Fries, CEO
Lutz, do you want to start with that?
Lutz Schüler, CFO
Your overall observation about last year is correct, but I believe the reasons are slightly different. If we set aside the price increase for a moment, customers on the fixed side are optimizing their bills since the average ARPU is £50. To manage household expenses, they tend to focus more on fixed services than mobile ones. Regardless of any price hikes, customers are dropping their landlines in favor of mobile and selecting only the video content they really need. We’ve noticed that trend. On the mobile side, however, the opposite is occurring; customers are keeping their old phones for a longer time. These trends would have occurred with or without price increases due to the cost of living challenges. Regarding the price increase itself, it’s worth noting that if we consider the situation a couple of months post-bill, we find that on the fixed side, around 50% of the price increase has been absorbed. For mobile, since the increase only affects airtime and not hardware, the overall price increase is much smaller and is included in the terms and conditions. Therefore, there appears to be minimal or little backlash. Looking ahead to this year, while we are not providing guidance on fixed ARPU, we are implementing several new strategies. One major change is that we are sending customer letters over a two-month period in a staggered manner. This approach has two main advantages: it allows us to ensure we have enough agents available to manage inquiries, which wasn’t always the case last year, and it also gives us real-time data on customer calls and the most effective retention strategies regarding customers and ARPU. We can see what’s happening within a 24-hour period, providing ample room for optimization. We can take advantage of the convergence of our fixed customer base by offering mobile services, interesting content, and hardware. Although I can’t disclose much at this point, I want to reiterate that we are on track with the fixed price increase, and we have communicated the mobile pricing change as well. So far, the response has not been more significant than a year ago. I hope this provides clarity.
Mike Fries, CEO
Looking at Vodafone, we believe the stock appears undervalued. There are many undervalued stocks right now, including ours, which is why we invested $1.7 billion last year. This particular investment also seems undervalued and we anticipate some near-term catalysts that will positively impact it. It was a relatively small investment when considering how we financed it. We have numerous interactions with Vodafone, and I look forward to having a constructive dialogue with the current and future CEO regarding these issues, as well as with the Board if needed. We're not acting as activists, but we do want to engage in discussions to understand their strategy and potentially influence it if it aligns with our interests. Our intention is not to create tension or stress; we viewed this as an opportunistic transaction that was financed effectively, allowing us to invest a relatively small amount in a stock that is at or near a 25-year low. That's the perspective to consider. We won’t be making ten more of these investments, but we will remain opportunistic in situations we believe align strategically and financially.
Steve Malcolm, Analyst
Okay. Thanks a lot.
Mike Fries, CEO
You got it. Yes. Rick, I don’t know if we have time for one more or if the minutes passed, should I close it off?
Operator, Operator
Just take one more Mike and then shut it down.
Mike Fries, CEO
Okay. All right. Thanks for hanging in guys. We’ll take one more.
Operator, Operator
We'll take the last question from Carl Murdock-Smith with Berenberg. You may now proceed.
Carl Murdock-Smith, Analyst
Hi, thanks very much for the question and taking time for one last one. So I'll just ask one. I think, slide 9 is a very powerful one, on the long-term buyback commitments over time. Obviously, you've committed to a floor of 10% buyback this year. That commitment was first actually made 2.5 years ago at the Q2 2021 results and kind of I think that long-term commitment, as also shown on slide 9 is very, very important. Did you at all think about giving a longer-term buyback commitment rather than just committing to the 2023 buyback? And how should we be thinking about your ongoing commitments in future years? Thanks.
Mike Fries, CEO
Yeah. That's good question, Carl. I appreciate you asking that. We're not today providing any additional long-term guidance, but you don't have to do much reading between the lines to conclude based on everything I said in my remarks that we're committed to shareholder remuneration. So you should expect overtime we'll continue to provide updates on that long-term strategy. And I think past is prologue.
Carl Murdock-Smith, Analyst
Okay. That helps. Okay. That’s great. Thank you very much.
Mike Fries, CEO
You got it. Thanks everybody for hanging in. I appreciate you enduring the long remarks. If you're still on we had a lot of info and a lot of talk about and a very strong 2022. And I think all the building blocks in place for strong 2023 and most importantly for value creation. So I appreciate your support. And we're always around for questions if you have any as a follow-up. Thanks everyone.
Operator, Operator
Ladies and gentlemen, this concludes Liberty Global's Fourth 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. Have a good day.