Liberty Global Ltd.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's first quarter 2021 investor call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode. Today's formal presentation materials can be found under 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 2 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. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission. including its most recently filed Forms 10-Q and 10-K, as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

I would now like to turn the call over to Mr. Fries. Great. Thanks, operator, and hello, everyone.

I hope you're doing well, and we, as always, appreciate you joining our Q1 results call today. Charlie and I are going to run through what we hope are some abbreviated remarks, leaving a bit more time for your questions. And I've got pretty much the entire team on the call, and I'll get them involved as needed. I'm going to kick it off on slide four, if you're following along with some key headlines for the first quarter. But before I do that, let me just say that we continue to remain focused on our employees and customers, first and foremost. during what remains a pretty challenging period in Europe as it relates to COVID-19. Although we've seen infections in all of our markets coming down from peak levels, vaccination programs on the continent had a slow start, as you probably noticed. As a result, travel restrictions and protocols are still pretty tight in Europe. Now, despite these pandemic-related challenges, we're very encouraged by the operational progress we made during the first quarter of 21. The commercial momentum we experienced throughout most of last year has carried right into the new year. In Q1, we added nearly 40,000 new customers compared to a loss of 20,000 last year, and over 225,000 broadband and mobile RGUs. That's up over 60% from the same period in 2020. On a consolidated basis, we grew revenue. We grew operating free cash flow, and that's despite COVID impacts and some merger or synergy-related costs that Charlie will walk us through. As a result, we're confirming our free cash flow guidance today, which despite continued investments in future growth, We expect to be up over 25% this year to $1.35 billion. And that's regardless of when the Virgin Media O2 transaction closes. Obviously, completing that JV will be a major milestone for us. I mean, technically, the transaction is still under review by the CMA. But as you would have seen, they provisionally cleared the deal last month without remedies. So we're still expecting a June closing. Once that happens, we will have created fixed mobile champions in all of our core operating markets. And whether we bought the mobile asset like we did in Belgium or Switzerland, or whether we joined forces with the number one mobile operator like we did in Holland or we're doing in the UK, the benefits of fixed mobile convergence are powerful. And they're supported by what I've started to call the four S's, for lack of a better term. And that means scale, synergies, strength, particularly competitive strength, and strategic optionality. Let me walk through these quickly. From a scale perspective, These deals make us the number one or number two telecom operator in every market in just about every product. So beyond the benefits of convergence and nationwide customer reach, we gain the ability to shape the ecosystem from a regulatory, competitive, and structural point of view. I just can't tell you how important that's going to be going forward. As we discuss often, the synergies in these combinations are substantial. They represent a built-in value accelerator for us. Our track record so far is outstanding on achieving fixed mobile synergies. Those who have followed us would know that. And as we sit here today, there's a future synergy MPV of over $12 billion in Switzerland and the UK. Perhaps most importantly, when you combine market-leading talent, product innovation, and convergence, our fixed mobile champions have the strength, the competitive strength, to drive long-term financial and operating growth. And then finally, the combination of scale, synergies, and strength opens up a whole range of strategic options in areas like content or ventures or new financing mechanisms or infrastructure. Now, I don't have to tell anyone on this call what's happening in the infrastructure or network space. You're all watching it. But I have said many times that we're in a great position to take advantage of that, whether that's by monetizing tower assets, tapping into new capital sources to leverage our own networks, We're generating new revenue stream, and I'll get into that a bit more on the next slide. The last headline here relates to our current $1 billion buyback program, which has been progressing at a pretty rapid pace, you may have noticed. We spent around $450 million in the first four months of the year, really just to take advantage of the value gap in our stock, especially with the growth we're delivering and the pending transaction in the UK. And I expect a lot more to say about that on the second quarter earnings call. Now, slide five just runs through the logic and rationale of the Virgin Media O2 combination through the lens I just walked through, scale, synergies, strength, and strategic optionality. So first, we're creating the clear number two operator in the market after BT, with 42 million fixed and mobile subs, 11 billion pounds of revenue, and nearly 4 billion pounds of EBITDA. But we're also combining two best-in-class infrastructures, including the largest and most admired mobile platform with 40% of the market, and the UK's fastest broadband network, serving over half the country with one gig speeds by year end. By the way, our broadband and pay TV market share is also about 40% on the Virgin footprint. Synergies in the deal are the largest I've seen, amounting to an MPB of 6.2 billion pounds or around 540 million pounds on an annual basis. I think it's important to remind everyone that 80% of these synergies are cost-driven and should be achieved in roughly three years, and that assumes a 700 million pound integration cost. I'll also add that these numbers have been vetted multiple times by both Virgin and O2 and clean teams working together, so we really hit the ground running on synergies. By the way, this is a great moment to congratulate our very own Lutz Schuller on his anticipated appointment to the CEO role upon closing. As you all know, Lutz has been with Liberty for over 10 years now, most of that time building our highly successful German business that we sold to Vodafone for 12 times EBITDA, and then since then reinvigorating growth at Virgin Media. What you may not know is he spent the 10 years prior to joining us working for Telefonica in their German mobile business. So he's uniquely qualified in terms of fixed mobile convergence, transformation, value creation, and of course he has a terrific knowledge base on both shareholders. The balance of the leadership team, including incoming CFO Patricia Cobian, who's from O2, have been selected and will be announced as soon as we get final clearance. So Virgin Media O2 will start out with real advantages, including a winning team, strong product offerings, two premium brands, the best connectivity and entertainment bundles in the market, and the opportunity to create the UK's first fully converged and digital platform. The last point I'll address here relates to a question many of you ask us and we often address proactively. I'm referring to the strategic optionality the GAB will have on day one to both expand, upgrade, and monetize its fixed infrastructure. We've already talked publicly about the opportunity to extend Virgin's 1GIG network to an additional 7 million homes, allowing us to tap into new revenue streams like wholesale, of course, retail convergence, and B2B, and perhaps giving us access to new sources of capital on really attractive terms. And we'll quickly explore strategies to maintain our significant speed advantage on our existing 15 million homes using new technologies like DOTSIS 4 and even XGS Pond through our existing DUCs. I think we're all excited about the options here, which are meaningfully more attractive as a combined fixed mobile champion in this market. Now, clearly our confidence in those fixed network strategies is emboldened by Virgin Media's recent performance. As you can see on slide six, Q1 was another strong quarter for Virgin Media with our best revenue performance in over two years. And that was driven by record low broadband churn, strong top line growth in B2B, and new FMC bundles. Customer additions also fueled revenue. Despite the price announcement, which is typically a tough order for us, by the way, we actually added 31,000 new customers and registered our fourth straight quarter of customer growth in our BAU markets. Broadband is a great story here in the U.K., with a four-fold increase year-over-year in net broadband ads. In fact, over the last four quarters, this is a great stat, Virgin Media added over 170,000 new broadband subs in the UK. In the four quarters prior to that, that number was 20,000. Now, there's a lot of significant drivers behind this acceleration, including the launch of intelligent Wi-Fi with Plume, acceleration in FMC bundles, the launch of 5G in January, and sustained investment in gigabit network expansion, digital transformation, and customer service, all of which are instrumental components in establishing a stronger and nimbler business for the future. This all bodes really well for the JV with O2. Now, I'll end with a chart on slide seven that summarizes some of the key operating highlights for Liberty Global on a consolidated basis, and then for the big four opcos, Virgin Media, Sunrise, UPC, Telenet, and Vodafone Ziggo, moving left to right. I think it provides a good perspective on how each business is evolving side by side. And I could probably spend 20 minutes on it, but instead I'm going to spend about two and a half. And I'll start with three general comments about the group. First of all, if you just scan the net ad data at the top of the chart, first three lines, you'll see a lot of green arrows pointing up. And that reflects strong improvement year over year in customer, broadband, and post-paid mobile growth across our opcos. So it's not just Virgin Media that's accelerating. It's happening pretty much across the board. You'll also notice that we've ramped up our one gig networks. with Switzerland and Belgium now reaching 100% of customers with a one gig offering, and the U.K. expected to be at 100% and Holland at 80% by the end of this year. So when we show this chart in early 2022, those numbers will all read at or around 100%. None of our peers can say that. Then finally, a comment on fixed mobile convergence ratios, which continue their steady rise of about 150 to 300 basis points, Belgium and Holland are now at or above 45%. And Switzerland is at 55%. That reflects high convergence at Sunrise, but only 25% at UPC. So large, untapped cross-sell opportunities in Switzerland and in the U.K. Now, I've already talked about Virgin Media, so I'm just going to add a few quick comments on some of the financial data. First, a quick explanation of the ARPU decline of 4%. This was impacted negatively by three things. Number one, only one month of price rise contribution. That was in March. Number two, the headwinds of end of contract and annual best tariff actions, which we talk about every quarter. Number three, a decline in other revenue like phone usage and pay-per-view. And then on EBITDA, which was down 1.9%, I think it's important to point out that the figure includes a nearly 1% drag from merger-related charges associated with the joint venture. So if those costs were excluded, the EBITDA loss would have been close to 1%. Those same costs, by the way, had about a 2% drag on operating from cash flow growth. Turning to Switzerland briefly, the new Sunrise UPC is off to a great start. Andrea and the team delivered a strong Q1 with 56,000 broadband and post-paid mobile ads. That's up 50% year over year. And that was fueled by sales momentum across both brands and record MPS at both Sunrise and UPC. They also rolled out, you may have noticed, a commercial they want to offer to new and existing customers. That's called Together More Wow. That's a program that rewards existing customers with benefits like a free SIM and discounted sports and security packages, essentially similar to what we've done in markets like Holland, and then motivates new and cross-sell customers with giveaways like laptops, iPads, and TVs, and the reaction so far has been very strong. Now, you can expect regular updates on the integration process in Switzerland, which at this stage is going really well. The first positive synergies materialized last month, and you might have noticed that the headcount restructuring was just announced. Financially, Revenue was largely flat in the quarter, with EBITDA down 7.3%, and operating free cash flow down 6.2%. But those numbers include about $11 million and $20 million, respectively, of what we call cost-to-capture. Those are the cost-to-capture synergies. So the organic result, if you will, was better. Charlie will cover those numbers in a moment. Telenet also had a strong quarter, with robust operational performance in both broadband and mobile, adding 9,000 broadband subs and 15,000 post-pay mobile subs. They also grew fixed ARPU 1% as customers migrated to higher-tier broadband and multi-play packages. Now, look, fixed mobile convergence continues to be, has always been, the main focus at Telenet. They added 19,000 new converged customers in the quarter, and they've launched a new innovative fixed mobile package that they call One, which you can read about. Charlie's going to cover financials, but with 3% and 5% EBITDA and OFCF growth, Telenet's off to a good start to the year. And then lastly... Vodafone and Ziggo had a mixed quarter, to be fair. We continue to feel a bit of pressure on broadband. But at the same time, fixed ARPU was up 4%, and post-paid mobile subs were strong. Yerun and the team have really leaned into a number of programs to drive broadband growth, including smart Wi-Fi and broadband speed increases across the entire customer base. They're also on track, as I just mentioned, to double the gigabit footprint to about 80% by the end of the year, and then nationwide coverage in early 2022. On the mobile front, Convergence continues to deliver low mobile churn, which helped drive 51,000 postpaid ads in the quarter and push fixed mobile convergence penetration up to 45%. So it's good to see Vodafone Ziggo deliver another good financial quarter with revenue up 2% helped by double digit B2B growth and their 11th consecutive quarter of positive EBITDA growth with 3% in Q1. And that's despite COVID impacts. So wrapping it up, a strong quarter for us operationally with continued momentum in customer broadband and mobile growth and all guidance confirmed. Our strategy to build FMG champions and core markets is weeks away from our biggest milestone yet with the completion of the Virgin O2 deal. Meanwhile, the benefits of fixed mobile convergence continue to materialize around scale, synergies, competitive strength, and strategic optionality. And we remain committed to our levered free cash flow growth plan this year anchored around a steady buyback program that seeks to take advantage of what we all feel is a meaningful value gap in the stock. So with that, Charlie, over to you.

I'm starting on a slide titled Returning to Revenue Growth. The group saw revenue growth of 0.2% in the first quarter, despite continued restrictions from the pandemic impacting our growth rate by an estimated 60 basis points, with drags predominantly related to year-on-year reductions in roaming. Our operations with more substantial model businesses endured greater impacts in the quarter, and we saw a $9 million drag in Switzerland, though trends continue to improve with underlying results positive. We estimate headwinds of $8 million in Belgium and $16 million in the Netherlands. The 1.8% growth of Vodafone and Ziggo represented eight consecutive quarters of top-line growth, with strong performance across both consumer and B2B segments in the quarter. On the next slide, we provide details over adjusted EBITDA, where cost-to-capture synergies weighed on results. Despite strong revenue performance, Virgin Media EBITDA declined 1.9% due to pre-merger cost-to-capture, And as previously highlighted, ongoing investments in digital and customer care onshoring leading to increased operating expenses. As the benefits of these initiatives continue to materialize, trends will improve in the second half of the year. In Switzerland, a 7% headline decline is explained predominantly by impacts from COVID and $11 million of cost to CAPTCHA, with the first synergies starting to materialize from April onwards. Our more established converged assets delivered a very strong performance. The Telenex growth rates benefited from the acceleration of programming rights in the prior year period, as live sporting events were paused in March 2020, and that's an impact that will unwind in Q2. Focusing now on OFCF, where despite the headwind of $30 million of cost to capture, the consolidated group delivered 5% growth. Those strong results across the UK and Ireland and Belgium were predominantly due to the in-year phasing of capital projects. The Netherlands achieved 17.5% year-on-year growth with capital intensity of 19% capex for sales and an OFCF margin above 27% with aspirations for further digital and systems efficiencies despite having completed their Synergy program. Focusing on our core Liberty Global performance metric of free cash flow, we delivered $93 million of free cash flow in Q1 despite the phasing of interest payments predominantly falling in the first and third quarters of the year. We are on track for our four-year guidance of $1.35 billion, which represents 26% year-on-year growth, with growth accelerating even more on a per-share basis as we aggressively retire our stock. Turning to our capital allocation dashboard, we ended the quarter with nearly $3 billion of cash, having allocated $447 million to buybacks across the first four months of the year, representing nearly half of our current $1 billion authorizations. Looking to leverage across our portfolio, we continue to operate long-term fully hedged credit silos. At our UPC credit pool, we refinanced the Sunrise acquisition debt, reducing our cost of debt to 4.2%, securing $18 million of annualized interest savings going forward. These efforts included an issuance of sustainability-linked notes with embedded commitments for improved energy efficiency and the use of renewables. Finally, we value our ventures portfolio at $2.5 billion, reflecting the full-color unwind of our 9.9% stake in ITV, the step-up in value of our Univision stake following the announced merger with Televisa, and the partial monetization of our skills investment. To conclude, we continue to innovate to bring the best products to our customers, and our convergence strategy is delivering. Following a strong start to the year, we are refining our Virgin Media guidance, improving our EBITDA outlook from low single-digit decline to broadly stable. It's a small change, but ensures investors have the best sense of the underlying trends as we seek to close the O2 merger in the second quarter. We're confirming all other previously announced guidance metrics. And with that, operator, over to questions.

Thank you. The question and answer session will be conducted electronically.

If you would like to ask a question, please do so by pressing the star icon or asterisk key followed by a digit 1 on your phone. In order to accommodate everyone, we request that you ask only one question. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to give everyone an opportunity to join the queue.

And our first question will come from Polo Ting with UBS.

Yeah, hi, thanks for taking the question. Yeah, hi, thanks for taking the question. So I just want to come back to your comments about strategic optionality in the UK. So can you maybe give us your latest thoughts in terms of cable wholesale and a potential fibre JV in the UK? So where are you on talks with potential partners? And are you mainly talking to financial partners or strategic partners? And then also, can you maybe talk about your 50% stake in Cornerstone? And is this strategic or non-core?

Sure. Hi, Paulo. Listen, I can't get into too much detail on who we're talking to and who we're not talking to. You can respect that. I will say, though, that the opportunity from our point of view looks great. very real. Today, if you look at the 2.6 million homes that we've built already in Lightning, as we go forward, the vast majority of those are fiber. We have great experience in construction of fiber. We have a ready-made operating platform to go out and build fiber. And so our ability to ramp up quickly and have behind it a brand and a product and a bundle to go out and penetrate with is pretty attractive. So, you know, I'm not going to get into specifics today, except to say that we are gearing up, if you will, to present that opportunity to potential strategic and financial partners to expand our footprint. Of course, if we did that, then the question we have to ask is, well, are we going to exploit that opportunity ourselves and leave it for Virgin alone, or will we provide wholesale access, and that is a negotiation in some respects with your partner and what's the best return to both the core business as well as to investors if we had some. So it's ongoing. The cost to build has come down. Our ability and effectiveness at building has gone up. Our knowledge of the markets and where we would build is terrific. So I think those 7 million homes are really ours for the construction, if you will. But who and when and where and why, I think we're going to keep that to ourselves for now. Except you should expect it to be a fiber build that Virgin Media is likely to be the core customer of that network. And that wholesale access to that network will be a commercial negotiation process. but likely just to ensure that we're getting great utilization. Because while we may be able to penetrate 30%, and we've shown that over and over again on our 2.6 million homes we built with Lightning, if you got to 40, 50, 60% penetration on that new construction, that's obviously a better return for everybody. So stay tuned, I guess, is all I can say. And then what was your second question, Paulo? Sorry.

It was about cable wholesale, but also your Cornerstone Tower joint venture. Because obviously that's part of your, I think, the perimeter of your UK business. So how do you think about that and cable wholesale?

I think we'll address that when the transaction closes. We'll sit down and look at that tower asset strategically. Obviously, we're in a position to, if we wanted to, monetize it as JV. You should assume that there's a possibility we would look at that favorably. So let's wait for the transaction to close. It's a decision we would likely make jointly with our partners, Telefonica, but we're obviously in a position to monetize that if we felt it was appropriate and we either needed or wanted to get the capital out to do some of these strategic things.

Thanks. You got it. Thank you.

Thank you. Our next question will come from David Wright with Bank of America.

Yeah, thank you very much for taking the call, the questions. And I guess it's just a subtle follow-on from the question before. I think your current run rate, build rate or so on Lightning is sort of, you know, 400 to 500,000, 400 to maybe 450,000 per annum. I think that's where you've been running and where you've possibly indicated you could you could continue do you think there is an opportunity with your current resource um to raise that run rate uh mike do you think there's an opportunity to kind of do what bt did and double down and you know with with the capital behind it from whatever source to to double that run rate into a you know one million per annum build thanks

I think there is, and I'll just let Lutz provide a little color on that. I'll simply say that the 400,000 to 500,000 homes was a balance between what our capacity was and what our desire to generate free cash flow is. So I think we were trying to optimize the build. Lutz has always been banging on the table to build more. But we were saying, well, we can build more. We should build more over time, but let's try to optimize the financial results as well. But, Lutz, why don't you address the build capacity?

Yeah, so, I mean, you compared a bit with OpenReach as well. Now, they are currently using predominantly PIA, using their own docs. At the moment, we have this only at a percentage level. below 20% and the opportunity is to go up to 40-50%. So you can expect that this is one lever to accelerate the machine. And second, we have prepared the machine for further scaling, meaning that our partners can ramp additional employees and development colleagues and also we can even start a more regional approach. So we know where the 7 million homes are. We know how to scale the machine. We will absolutely take more use out of PAA. And as Mike said before, right, we have to get the financial construct right, the partnering right, and then also, obviously, an agreement with our future shareholder, Telefonica.

May I just add an additional question, which is we're obviously talking now about the lightning infrastructure. Is it in your mind at all to consider wholesaling the existing cable footprint? Thank you.

Well, we have obviously considered that, and I think we will continue to look at that as a possibility, but premature to discuss that today. obviously it could be utilized in that regard. It would depend on a number of factors, you know, what sort of partnership and benefits we would get from doing something of that nature. So it's premature, I think, to get into that, but it's obviously a theoretical possibility. You know, as I mentioned, the 2.6 million homes are largely fiber anyway that we've already built, and the existing homes, you know, the existing 13 million homes that are HFC are also, if we chose to, either easily upgraded to DOCSIS 4 or Fiber or potentially could be made accessible on a wholesale regime. Just premature to think that through. I think the main focus today is to get the Virgin footprint extended to be the number one broadband platform in that marketplace for the foreseeable future, not forever. And we have a great opportunity to do that based on the conversation we just had here.

Thank you very much.

And moving on to Michael Bishop with Goldman Sachs.

Thanks very much.

Great, thanks very much. Just a question on Switzerland. So we saw the sort of big bang launch of the new tariffs from the beginning of March, but I was wondering if you could just elaborate a little bit more on the medium-term strategy with regards to the combined Sunrise business. mainly from the perspective of, you know, are you still, I guess, pursuing this sort of old sunrise strategy, which is, you know, unlock the low churn in the market through promotions to try and drive more of a natural balance in market shares in the market, given what Swisscom has, or are you thinking more around, you know, potentially more price inflation? So just wondering, you know, essentially the old prices versus volume debate and what the strategy is. Thanks. Andre, you want to handle that?

Yeah, I can, of course. Yeah, thanks, Michael, for the question. So I think what we have seen in the Swiss market is that the promotional activities have been quite intense. Nevertheless, on both ends, on the Sunrise business and the UPC business, we could lately benefit from it in terms of share of additions. And that has contributed to the stabilization of the top line evolution of the combined business. So overall, I think while that is a quite heated market, we are currently rather benefiting from the situation than suffering from it. Going forward, of course, what is most important to us is We drive more convergence. Through convergence, we create more stability into our customer base and create also more opportunity for cross and upselling additional services. So that is really the clear strategy that we want to pursue. In terms of price aggressiveness, I mean, it's not really about us, but in reality, the price aggressor in the market is really solved. with quite aggressive price points on mobile and on fixed, and we will have larger competition from them as they will benefit from the growing fiber penetration. In Switzerland, we think that we are well prepared with the convergence strategy that we are executing, which temporarily would give us an edge as we have the benefit of the fixed mobile product that sits on the HFC footprint and has a speed advantage. So overall, I think there will be a gradual change, I think, towards more convergence in the market, number one. Number two, I think the price aggression is unlikely to further accelerate, but potentially rather to soften over the midterm.

Great. Thanks very much.

And our next question comes from James Ratzer with New Street Research.

Hi. Yes, good morning, everybody.

Thank you very much indeed. I had a question just regarding the trends you're seeing in the UK ARPU at the moment. You've obviously got a little bit of drag from some of these Ofcom effects at the moment, but presumably some of those will start to lapse. over the next few quarters and then we have the price rise that you just put through in march so you know is that in mind just thinking about how we should think about the phasing around our poo for the next two to three quarters please uh luke you want to address that or i can let whatever yeah sure go ahead no i can i can um so so right as mike said um up up you down

drivers are that in Q1 2020 we fully benefited from a price rise in Q4 2019 which is not the case now so the price rise has started to materialize from 1st of March onwards in Q1 so therefore we will get the entire benefit out of it in Q2 So that is one driver. The other driver is, as you said, end of contract notification, average best tariff notification. Now, this is something which will continue. The overall impact is much less than we have planned for and estimated for, so roughly half of it. However, it is still existing. And then, right, there is pressure the acquisition market is is still quite heated um while the back book pricing is very rational everybody's doing price rise but out of the a bit lower acquisition prices we have also a bit of drag which i don't expect to change and then we had a these boxing events right there was a big boxing event and wider against fury which was a one-time off so so therefore I think the output development going forward is a bit more positive. Remember in Q2, we paused the sports content for our customers, so definitely that will now help us. But going forward, I don't want to come up with exact numbers, but I think we won't stay at minus 4%.

do you think we can kind of start to get back towards a more stable ARPU trend by the end of the year, please?

Yeah, I mean, this is, uh, it's always a balance between volume and value, right. And what the market is offering. And I mean, you have seen that, uh, we have created, um, huge customer additions, right? So customer additions compared to Q1, 20% are up 18%. So most of the growth is coming out of acquisition. And so that is always a balancing act. And I think it simply would be serious to now predict what will happen until the end of this year.

But I think it's fair to say that this quarter is an outlier, should be an outlier in terms of how negative it is. You shouldn't see something like this again in the balance of the year.

Yeah, and I think what I also want to mention is that with our most negative quarter, I think if you compare it with competition, I think it's one of the best absolute developments in the market.

Got it. Thanks, guys.

And moving on to Robert Grindle with Deutsche Bank.

Thank you.

Back to the UK, if that's okay, Mike. I think you're leading us from the earlier answers that you prefer an organic own-build scenario in the UK and have the experience and knowledge for that, and as Lutz says, you can scale. But is it tempting at all to supercharge the national opportunity for broadband post-02 by wholesaling off an altnet or even to buy an existing player who is building outside of your own footprint? Thank you.

Well, you know us, Robert. We will look at all options to accelerate and advance a particular strategy. And the ideas you describe are really incremental steps we could take to accelerate or improve upon a core plan, which is utilize the expertise we have, the brand and the product, and the penetration capabilities we have to expand the reach of the network while taking advantage of what we know to be a lot of capital, excess capital really, looking for business opportunities like this and potentially strategic partners locally who would join, with the benefits being not just acceleration of vergence growth, because we've proven with the 2.6 million homes that we've already built, we can and will expand. penetrate, you know, really well and grow the customer base in that new territory, but also the benefits that come from perhaps re-rating that project and getting, you know, being stronger financially, the benefits to our B2B business, which could be material. It's a lot of good things that occur if we're able to pull this off. And, you know, look, I don't want to imply to anybody here on the call that this is something for sure you should be baking into your plans right now. It's too early, and our JV isn't even closed yet. I'm simply saying that It's an obvious opportunity that comes from having the scale and the benefits of synergies and other aspects of the JV that we will and should be evaluating, and we think there are lots of opportunities to do that with or without financial and strategic partners. In the case of with, obviously that means it's a better impact financially in terms of using less capital, but even without, we think it's a great IRR. We've proven that on Lightning. we'll see how it unfolds. And the things that you described with buying alt nets or utilizing alt nets, those are sort of incremental steps that may or may not be accretive to the core strategy, which is, you know, you need to control your own destiny in this space. And I think that's our main goal. And if those other things can help realize that goal, we'll take a look at them.

Great. That adds a lot. Thanks, Mike. Mm-hmm.

And our next question comes from Jeffrey Volacek with Pivotal Research.

Good morning, guys. I wanted to focus on the strong UK data subscriber results. You've put a nice string of results together. How much of that is just churn dropping sort of dramatically, which is something you've seen in the U.S. around COVID versus increased Growth Connect activity? I guess you could talk about the sustainability of these results. And then have you seen any material pick up in consumer interest in being upsold to higher speed data packages?

Thanks.

Yeah. So I said before that our acquisitions are up by 18%. So this is almost making up for the entire number. So it's not so much churn driven. It is entirely acquisition driven. um and this is simply we think a question of demand for higher speeds as you said and also our digital digitalization program is really taking off so the digital channel share is has increased from 41 to 51 percent yeah so the digital machine is running here um on churn though it was uh three percent better so yeah so so minor from 14.5 to 14.2. But this is also success because we have increased prices. So the price increase quarter a year ago or 18 months ago exactly was then close to 20% shown. So it is better from both regards. But if you look at the exact number, it comes from acquisitions. And speed matters in these days. As you said, so our average consumed speed is 184 meg. Now, I think coming from the last quarter, 175. So a constant trend. And I mean, it's clear, right? At home, at the moment, homeschooling, homeworking, and then also entertainment, streaming, right, needs speed. Maybe to your question, Jeffrey, is it sustainable? We have commercial momentum as we speak, so that is good and we want to keep that. Obviously, when you look to the next quarter, that was indeed a quarter that has highly benefited from the start of the pandemic. Remember, you couldn't a churn onto the open reach network for some point in time because of the missing field technicians in the field. So I think don't make the mistake and expect the same numbers across the quarters. But in general, demand for speed is there, commercial momentum is there. And I think overall as an industry, obviously, right, we also need to find solutions for chipsets. And, right, I mean, there's a silicon shortage, as we all know. But the demand for speed and the commercial momentum is absolutely there. Great. Thank you.

Thank you. Our next question comes from Steve Malcolm with Redburn.

Good morning. Yeah, good afternoon, guys. I'll try and sneak in two if I can. Second one, very quick one. Just on slide 16, you talked about the lower cost of using passive infrastructure access from BT, I think £200 saving. Can you just give us some details on the overall economic decision there? Because obviously there's ongoing rental costs to BT to be considered. And also, as you consider increasing the scope of PIA from the 20% to the 40% to 50%, Does that impact where you decide to build, you know, given the availability of PIA across the UK? Just some extra color on the sort of moving parts of that decision around future build would be great. And then just following up from Lutz's previous comments, just a quick one. You know, obviously, it was very good to see the price rise land without any major churn impact. Sometimes the churn can lag, you know, as the new bills or the higher bills hit customers' accounts. Should we expect slightly softer Q2 as you see slightly increased churn on that price rise heading their accounts? Thanks a lot.

You want to take the second one first there, Lutz?

Yeah, so you're absolutely right. You see a bit more churn. Roughly, you see two-thirds of the churn when you really send out the letters. and one third when the bill kicks in. So therefore, we will see a bit of a churn out of that in Q2. And I think on your question, where are we intending to build? I mean, we absolutely take the commercials into account. So if it's more expensive, to pay for PAA than we build ourselves. If it's cheaper, we leverage PAA. And our overall selection of these seven million homes are more linked to how easy in general is it to access, so how far is it from our network? Is it entirely cities? Are we there already with Virgin Media, and therefore it's easier to penetrate? It's less the question, how much PAA are we able to use or not?

You think that number, I believe, goes to somewhere around over 50% at some point, my recollection of our plans. But we'll become an increasingly larger part of the build over time.

Yeah. I mean, we absolutely know, right. I mean, open reach is publishing where PAA is, is, um, available. And then obviously you take a bit of haircut to be on the safe side and, and therefore, right. The number we are planning with is something like 45%. Um, but let's, let's see, right. We are currently ramping it up, uh, coming from 18% and, uh, but, but definitely an opportunity. But it goes both ways, right? On one hand side, you can connect faster and cheaper. On the other hand side, obviously, all additional homes are a bit more far away from the network and therefore are slightly also a bit more expensive to connect.

Okay. But just to be clear, when you say you can go to 40 or 50%, that's a function of you becoming more familiar with the processes and just the way it works, right? And when you weigh up the costs, I mean, when you compare 390 with 590 on average, the 390 doesn't include the rental costs. Presumably, you've got to pay to open reach for access to those ducks and poles.

But remember, the 590 did include some PIA, right? In the first quarter, we were about 20% or something like that. So there is some PIA built into that. But it will definitely be. uh, a benefit to the overall cost for premise. Um, and as Luke said, we'll just be, you know, as we go street by street, town by town, we make those decisions in an optimal way for the overall project.

Okay.

And the machine is already scaling, right? So we are operating at 80% and it's not only a question of how quickly can we scale the machine, We are also doing new housing formations. We are doing infills. So there's still parts of our 400 to 500 lightning bills every year where you cannot use PIA. And when you look at the 7 million, it's naturally more, the ability of PIA is higher. Yeah, it's more new bill network extension now. More new bill, yeah.

Okay. Thank you. Yep. And moving on to Nick Lyle with Society General. Hello, guys. Hope you're well.

It was a question, Mike, please, on Vodafone Ziggo. The subs are sliding a bit faster again this quarter, and you've now got the analog switch off, so you can have a look again at at pricing and speed. Can you just tell us what your aims are, please, with Vodafone Ziggo in terms of subs numbers? Do you aim to try and stabilise and what could you use to do that? Or would you go for pricing instead? And could I also try and clarify, just on the fibre bill in the UK, how much do you think you could exploit the UK's super deduction on tax as well? Is that something that applies to all of the bill or just part of it? Maybe you could help us with that a bit. Thank you.

Yeah, maybe Jeroen Hohenkamp, the CEO of Vodafone Ziggo, is on the call, so I'll let him work through an answer on Vodafone Ziggo's strategy around broadband, because obviously he's man-building that strategy. And on the taxes, listen, I'm not entirely sure I'm with you on exactly what you're referring to, but obviously the broadband rates issue is very helpful for us in terms of new construction and fiber. And we're always looking to reduce that bill, if you will, which seems to us to be – we might have other ways of reducing that bill, by the way, beyond just Fiverr. So we're always focused on that particular tax impact. Charlie, do you have anything to add on that tax question?

Yeah, I would just say the other point is the accelerated allowance is 125% does apply to the build, and, yes, it would have a positive impact. I think it's too early to quantify it because it would clearly depend on the build rate, and it would clearly depend on learning a bit more about O2's tax profile. But clearly, given that O2 is a taxpayer, there will be some incremental cash flow savings generated from the new accelerated allowance.

I really want to tackle the Vodafone Ziggo question.

Yes, of course. Thank you for that question. I think I heard a few questions combined, something about broadband, something about value and strategy. So let me start with the strategy part. As you see, we've had a solid quarter with revenue growth, EBITDA growth, and we've had that quite consistently. So what I'd like to say is that our plan is working, and we've had from the start of the JV four years ago a real focus on fixed mobile convergence. And that is still the cornerstone of the strategy going forward. So fixed mobile is working for us. We've seen a reduction in churn on the mobile side of about 80%, 80%, and on the fixed side of about 50%, 50%. And that's remaining stable combined with much higher net promoter scores. So you also have to think, is there going to be more value or price? It's definitely going to be a value-driven strategy. Hence the things that we are doing, as you said, you talked about the analog switch-off. So we have indeed completed the analog switch-off. Quite a bit of work to take 1.2 million customers off the analog signal and move them all to digital. Why? It gives the customer a better experience. But also, and that's very important, it gives us the ability to increase the network capacity. But in that sense has allowed us to actually go through the COVID period with much more, much higher demand from our customers without any problems. It allowed us to, for instance, upgrade the fixed speeds by 40% on average in April, which we have done to our entire base at no additional cost. And also the value-driven things are that we are launching new smart Wi-Fi boosters and a new and improved app, really focusing on improving your Wi-Fi coverage in-house, the in-house experience from our customers. And that is driving a much higher NPS of about 20 points versus regular customers. And then last but not least, super important, Mike already spoke about the GigaNet coverage. Today we cover about 40% of the country with GigaNet networks. That will be 80% by the end of the year, and that will be 100% by next year. And today, by the way, that's already 500 meg to 600 meg across the whole country. So we're in a good place if you compare it to KPN, and we're definitely playing the value game versus other players in the market who are probably a bit more price-driven.

Great. Thank you.

And we'll take a question from James Ratcliffe with Evercore ISI.

Great. Thank you. Two, if I could. First of all, you know, continued strong performance on B2B and SOHO. Can you just talk about what your market share is and what share of the potential locations you either connect to or pass close by, so what the upside opportunity potentially there is? And second, on fixed mobile convergence, where will that 25% be in the UK once you close the transaction? And can you talk about how you are going to integrate the customers who might be O2 and mobile Virgin Media fixed line together and get them under the same plan? Thanks.

James, on the B2B question, it's unclear whether you're asking a generic question or a specific question around a particular market. But, you know, I can just tell you more generically. Yeah, I can tell you more generically that, you know, the B2B opportunity for us across the board continues to be, you know, perhaps the most exciting, one of the most exciting things that's occurring here. Many operations with double-digit B2B revenue growth in the UK in particular with Dark Fiber, with Soho and SMIC. penetration rates, I think our overall, Looch, correct me if I'm wrong, I think our overall market share of B2B in the UK is less than 10%, something like that. So there's massive opportunity to drive B2B in the UK with this combined business platform. And we've seen that same opportunity in all of the markets. So watch that space. And we'll start to highlight B2B more than just a comment as it relates to revenue. Because for us, as we upgrade networks, as we extend networks, the B2B element here in particular, Soho and SME, which is a growth driver in every country, but also, you know, Looch is the number one provider of backhaul and dark fiber in the UK as 5G rolls out. And that's going to be a continued source of revenue as well. So it's all good news, I think, on the B2B front. And with mobile, you know, joining us in the UK with mobile, that's obviously going to create another accelerator in terms of being able to reach a home market.

Mike, can I just add a couple of numbers there? This is our guesstimate of the addressable market, but if the Benelux companies, Belgium and Holland, are north of 30% market share, it's quite a bit north, I think. We're around 10% in most of the other markets, growing fast. So, you know, Switzerland and the UK, it's a big opportunity as we see it to sell a Soho product, not the Soho customer, but Soho product to customers. And that's something which has been proven in the Benelux. So we agree with you. It's a very strong growth lever for us.

Luke, do you want to address this?

I mean, the market share... Yeah, so first, I mean, the Soho market share, to be precise, is at the moment in the UK at 10.5%. So pretty much what Mike and Charlie were saying. And we are growing rapidly, as you know, right? So we have increased the customer base 28% year-on-year and the revenue 17%, right? And I mean, we have also, I think, in Germany, if I'm not mistaken, we had at the end 40%. So a huge opportunity. On fixed mobile convergence, well, I mean, what we are going to do with the joint venture, I think we only can decide really after company day one, as you know. But obviously having access to 33 million mobile customers and on the other hand side, having the opportunity to sell in 5G mobile networks into Virgin Media with a different brand, right? I mean, Virgin Mobile operates more at the low end of the market, so typically used for the second SIM card in the household, while O2 has the highest RPU, so it's the first SIM card in the household. So it goes without saying that this will help us to accelerate the fixed mobile converged customer base in the joint venture. How we are going to do it exactly, stay with us and we will disclose that then after closing.

Thank you.

And our next question comes from Matthew Harrigan with Benchmark.

Thank you.

Thank you. One really down in the wheat question on the presentation and then kind of a Davos question, if you will. If you look at slide 16, it looks like Project Lightning, the penetration rate suddenly spiked from 30% to 35% in the last quarter. I mean, that's a real anomaly. It generally just moves up or down by one or two. Is that accurate? And does that infer that despite the good customer number, you had some pressure on your legacy footprint? And then the more or less Davos question is, you know, the EU, to the extent you're still in EU markets, it's getting very aggressive. on technology policy. I mean, that's on things like, even like things like AI, I know you're on biometrics, but still we were quad play effort. You're becoming more and more relevant to that. I don't think you've got too much direct exposure. I guess that Luminoso, the NLP, uh, JV is the only thing I can, I can think of. Is there anything that agitates you on, on, on tech policy that you think really affects the economy or actually affects you directly? Thanks.

Well, I'll let Lutz dig into the 30% to 35% question, and I'll take on the Davos question quickly. Listen, I think in principle, Matt, when you step back, we are generally aligned with the EU on most, if not all, of their basic policy initiatives, whether that's initiatives around consolidation, around how to manage or address big tech, And I don't see really any red flags for us on the horizon. I see mostly positive developments on the horizon, especially if you look at local regulation. I mean, for example, Ofcom, I think, is taking a very positive position, and the posture is very favorable for us around network development and infrastructure investments and things of that nature. So on a country-by-country basis, we're really focused on those things, things that impact our business more concretely today. And then on a broad basis, I don't see anything in the near term, really maybe not even the medium term, on the more regulatory horizon, if you will, that's going to impact us negatively, but probably impact us positively. It's not that we believe in big tech. Big tech drives our business. On the other hand, we also understand where the regulators are coming from on that. I think it's a non-event for us for the most part. We don't get into that debate, kind of stay on the sidelines of it. But there's nothing that I see on the horizon that particularly problematic. You know, we're dealing with the Huawei issue from time to time, from place to place, but we've addressed that publicly, and that's more of a near-term issue that we think we can manage quite effectively. So I don't see anything on the horizon that concerns us. Looch, do you want to address the penetration rates of Project Light?

Yeah. I think, right, one of the very early cohorts has been addressing areas where we could get to substantially higher penetration rates. So therefore, we don't have in our business case really the 36% you're referring to. So we work with 30%. Having said that, I mean, currently we achieve these 30%, and our field sales force has over a year very limited access to prospects. The reason why I say that is that more and more we use also our digital sales machine to sell more lightning, and we apply more data in that and artificial intelligence, and we think there is a way to further increase lightning. So we don't change our guidance yet, but what we see currently, how we are able to sell lightning subs digitally, and what kind of intelligence we can apply here is looking very promising.

Thanks, Mike. Thanks, Luis. You got it. I think that's it, operator, if I'm not I'm mistaken unless there's got something else in the queue, Rick. We can wrap it up. Right. So always, we appreciate you joining us today. Listen, I'll just say a few things if needed here. But number one, stay tuned because the transaction in the UK we believe is imminent, of course, subject to CMA approval, but we believe imminent in a matter of weeks, really. And that's a big moment. That's a big moment for a number of reasons. One, because it is in itself a fantastic transaction for our shareholders, for our customers, for the UK market as a whole, but also because it means we will have essentially completed the conversion of our four largest markets into fixed mobile champions. And at that point, we can really start to drive the operational and strategic plan, but also the narrative, the key narrative that's critical for telling our story about where we're taking these businesses and how we're going to create value The second main point, just to leave you with what you've already picked up here, I think is momentum is in our favor here. The tailwinds are real in terms of broadband and fixed mobile convergence, and it's driven by innovation, by all the things we've talked about. But, you know, we certainly feel good about that momentum and, you know, believe that momentum is sustainable for the reasons we've discussed today. And the last point I'll make is confirming free cash flow guidance, 1.35 billion up 25%, more than 25%. and not to be lost there. We look at free cash flow per share more than free cash flow itself, and so from our perspective, you can do the math. The free cash flow per share story for us, we think, is even more relevant and something that we pay attention to. So those are three big headlines, I guess, to leave you with, and we appreciate you joining us on the call. We'll speak to you after the second quarter. Take care, everybody. Stay well.

Thank you.

Ladies and gentlemen, this concludes Liberty Global's first quarter 2021 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.