Liberty Global Ltd.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's first quarter 2022 investor call. This call and the associated webcasts 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 sections of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for a question and answer session. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Form Act of 1995, including the company's expectations with respect to its outlook and future growth prospects, and other information 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 recent filed forms, 10Q and 10K, as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any changes in its expectations or in conditions on which any such statement is based. I would now like to turn the call over to Mike Friese.

Okay, thanks, operator. Hello, everyone. We appreciate you joining us today for our first quarter results call. As usual, I've got a number of folks from my leadership team on the call with me here, and I'll be sure to get them involved in the Q&A as needed. But first, Charlie and I are going to run through the slides that we've posted on the website. Hopefully, you've found those slides. We've added a few more to the finance section, so Charlie's working a little harder today. And I'm starting on slide three with some key highlights from the quarter. First, like each of you, we remain extremely troubled and concerned about the war in Ukraine, and our thoughts and prayers go out to everyone impacted by this crisis. I have to say I'm particularly proud of how our operating companies and employees have stepped up to support those in need. In addition to things like free or reduced connectivity costs, humanitarian aid, and programs to hire Ukrainian refugees, We also signed a joint statement by EU and Ukrainian telco operators to reduce wholesale roaming and termination rates between the EU and Ukraine in order to ensure communication remains cheaper and easier for Ukrainians inside and outside the country. Now, looking at this more broadly, every European company has addressed how the current macroeconomic environment has affected their operating results, and Charlie's going to do that in a few slides. The punchline for us, however, is that we've been able to manage well through the current environment of higher inflation and declining consumer confidence. Anyone who has followed our industry knows that we are highly resistant to economic volatility, since connectivity is one of the most important services consumers buy. And while our markets as a whole experience a slowdown in sales in Q1, which is not atypical for the first few months of the year, our disconnect or churn rates remain very low. Charlie will walk through how we're responding to cost and supply side factors, but it's worth pointing out right up front that and we've been able to minimize the financial impact with reasonable price adjustments pretty much across the footprint. That's just one reason why we're able to deliver stable to growing revenues across our FMC operations in the first quarter, and importantly, strong EBITDA growth in our core markets. There's been a lot of talk lately about the role of M&A in the European telco sector. I think it's fair to say this is an area where we've consistently overachieved. So far this year, we closed on the sale of our Polish business to Iliad for 1.7 billion, or nine times EBITDA. And as reported, Telenet very effectively monetized its tower portfolio for 745 million euros, or 25 times EBITDA. I have to say, given current prices, this may be the largest gap between public and private values that I've ever seen, with no discernible decline in private market demand for telco assets. And not surprisingly, we've accelerated our buyback program, which, as you'll recall, was targeting a minimum of 10% of the shares this year. We're already 50% of the way there through today, and we'll continue to take advantage of current prices as long as we can. And finally, as Charlie will explain more fully, we are reiterating our 2022 guidance today, including our $1.7 billion of distributable cash flow. More details on that in a minute. So we certainly have a lot to be confident about as we look to the balance of the year with things like integration synergies in the UK and Switzerland, strong cost controls, and the expected benefits from price rises supporting our growth targets. Turning to slide four, we try to simplify the presentation a bit with just one operating slide that shows our connectivity trends for broadband and postpaid mobile over the last nine fiscal quarters. The main takeaway here is that despite a softer sales environment in many of our markets and announced or implemented price increases, we had a good first quarter. The only standout is Virgin Media 02, where broadband and postpaid mobile ads were flat for the quarter, and there's some very good explanations for those results. Starting with broadband, where three things impacted Virgin Media O2's net ads in the first three months of the year. To begin with, as you know, VMO2 implemented its largest price rise since 2014 with a 6.5% discretionary increase across the board. Of course, we took no price increases on broadband in 2020 and a 4% rise in Q1 of 2021. Now, typically, growth slows in the quarter where we take price rises. The good news is that customer reaction to the increase in Q1 measured in churn and MPS is exactly where we expected it to be. The unexpected news is that broadband sales in the UK market as a whole were down in the first quarter, reflecting the end of lockdowns, perhaps, and consumer attention being redirected to other costs like utility bills. And for VMO2 gross ads, this was compounded by reduced marketing and promotional activity in January and February while the price rise was landing with customers. I think it's also important to point out that we do not see any noticeable impact from fiber overbill, which shouldn't be surprising since we're already marketing 1 gig services to 100% of our homes and continue to see meaningful increases in average customer speeds in our network, which now exceed 230 megabits per second, up 24%. Speaking of networks, just a quick update on our fiber expansion plans in the UK. The fiber rebuild is on track, and we should have the goals achieved by year-end that we set for ourselves. And we receive strong interest from the financial community on our plans to build an additional 5 to 7 million greenfield fiber homes with concrete discussions underway as we speak. Now, sticking with the UK, post-paid mobile growth for VMO2 was a tale of two brands, really. Our Volt launch drove great O2 mobile gains, even with the announced average price rise of 8.8%. This has certainly proven the magic of convergence, if you will. But we did see a drop-off in lower ARPU Virgin mobile subs as we implemented a new terms and conditions for them, as well as we lost some Virgin SIMs as folks subscribed to the Volt bundles. Now, several things give Lutz and his team confidence that we'll see an acceleration in broadband and mobile for the balance of 2022, including product innovations like TV Stream, a continued footprint expansion through our Lightning program, and, of course, the benefits of digital. Now, I'll just hit the other markets briefly, since results were strong in each case. A summarized UPC had a good broadband and post-paid mobile growth in the first quarter, totaling $56,000. Broadband was supported by the new full-service offering from Yalo. That's our discount brand in Switzerland. and post-paid mobile momentum was driven by premium and challenger brand segmentation, despite a relatively competitive market. A few other points in Switzerland. We remain confident in the hybrid network strategy, which gives us access to the best networks wherever we are, including Swisscom's Fiber, where we just signed a new wholesale deal. We also launched Sunrise Moments, which is a loyalty program that provides reward packages and exclusive access to cool concerts and live experiences. So far, a great response. And then lastly, but maybe not surprisingly, Sunrise outperform Swisscom in Q1 on pretty much every key financial and operating metric. Now, Vodafone Ziggo lost broadband subs in the quarter, which they attribute to both the continued competitive pressure from KPN and the launch of the new F1 season on the Viaplay platform, which KPN basically gave away for free to their customers. Both the mobile apps at $37,000 were attributable to a softer B2C market, but Vodafone Ziggo outperformed KPN again and regained the leading NPS position across both fixed and mobile. And Convergence continues to pay dividends in Holland with a total of 1.5 million FMC households now, where MPS is 19 points higher and customers are 50% less likely to churn. Not much to report on Telenet that John didn't already cover in his earnings call. Generally, low churn and low gross ads means there was simply less flux in the market. And Telenet delivered positive broadband and postpaid mobile ads regardless. And that was helped, of course, by the one product that they are marketing today. Now, two more slides from me before we get to Charlie's finance presentation. As I mentioned in my opening, transformation through M&A seems to be a hot topic these days in Europe. So I thought it might be useful to refresh folks on our journey from a cable company operating in a dozen European markets just five or six years ago to a fixed mobile champion operating in a handful of Europe's most attractive markets today. This is a great example of getting smaller to get bigger. If you look at the left-hand side of the chart, you can see that we reduced our footprint from 12 countries to essentially 5 today, exiting markets at private market values that range from 9 to 12 times EBITDA. You'll all remember those deals. At the same time, though, through fixed mobile mergers or acquisitions, we increased our subscriber base from 58 million fixed to mobile connections to 85 million, with fixed becoming a much smaller part of the equation. At the same time, while consolidated revenue declined, from 17 to 8 billion. We gained exposure to a much bigger revenue base of 19 billion through our 50-50 JVs in the UK and Holland. So aggregate revenue, if you will, expanded 60% to 27 billion. And there were four great reasons to do this, and they're laid out pretty clearly on the right-hand side of the chart. First, it's all about national scale in the connectivity business, and we're now number one or number two in just about every market, right behind the incumbent, who is generally slower, less agile, and less entrepreneurial. Secondly, the synergies in fixed mobile mergers are substantial with low execution risk. You know our success in Belgium and Holland where we generally exceeded targets or achieved the goal earlier than forecast. And our recent combinations in UK and Switzerland are tracking right on course with expectation that total synergies will reach 11 billion on an MPV basis at which about 8 billion will accrue to Liberty Global proportionally. You can do the math yourself on a per share basis. Then third, the strength of these businesses lies in the power of convergences. already at or approaching 50% FMC penetration with fixed mobile bundles that provide faster speeds, more data, smarter video solutions, and entertainment perks. As we've already demonstrated, the benefits to ARPU, Churn, and MPS allow for sustainable growth in what we believe are Europe's most rational markets. And then finally, as we've discussed many times, scale and competitive strength give us the strategic optionality and confidence to shape our markets and make decisive moves on networks, content, and capital structure to It simply wouldn't be possible as a smaller operator. So you're familiar with all those projects at the bottom of the slide and the opportunities we're focused on, including fiber expansion, wholesale revenue, and infrastructure modernization. Now I'll end on a slide entitled Allocating Capital Efficiently. This might be the most important slide today. We've demonstrated a willingness and an ability to transact when it matters. I've shown you that. The transformation we underwent with divestitures, acquisitions, and JVs involved 11 different European markets over basically five years. I also reiterated the strategic and operating rationale for those decisions where we've prioritized national scale, executable synergies, competitive strength, and control over strategic market developments. That's half of the value creation story. The other half is what we do with the capital we realize or upstream from divestitures, JVs, and operating subsidiaries. As this slide shows on the left, in the last six years, we've generated $22 billion of cash to the parent company, $12 billion in net proceeds from those asset sales, $2 billion in net proceeds upon the formation of our JVs in Holland and the UK, and an additional $8 billion in free cash flow during that period. Over that same timeframe, we've allocated $18 billion of that capital into three value drivers. By far the largest investment, $13 billion, or 72% of that, has gone right back into our own company in the form of stock buybacks. $4 billion, or about 22%, has been used for mobile acquisitions in Belgium and Switzerland, deals that position us as a fixed mobile champion in those markets. And about $1 billion, or 5%, has been used to expand our ventures platform, which, as you know, we value today at over $3.4 billion, or $7 a share. All that leaves us with roughly $4 billion on the balance sheet today. I'll address right now what is likely to be the first question. How will you allocate the $4 billion? I'll also give you the answer that I normally give, which is that our future investment of cash is unlikely to look meaningfully different than what you see on this slide. We will continue to prioritize stock repurchases while keeping an eye out for direct investment opportunities either into or around our core FMC operations. Nobody is pleased with the stock price today. You can put John and me at the top of that list. When we look at the European telco space, we see headwinds and tailwinds for the sector at large. But our tailwinds are enhanced by having national scale in the best and most rational markets, by having unrealized synergies, by having the willingness and ability to be strategically agile and opportunistic when it matters, and by running a levered equity capital structure that prioritizes buybacks and value creation, especially on a free cash flow per share basis. Obviously, we're ready and excited to invest in those tailwinds, especially at these prices. Charlie, over to you.

Thanks, Mike. I will begin by discussing our revenue performance in Q1. Overall, it's been a strong start to the year with our core assets delivering stable to slight growth with more support from pricing to come from Q2. Virgin Meteor O2 delivered stable top-line growth, including stable mobile revenues, excluding handsets. This being driven by a tough B2B comp, which we expect to ease throughout the year. We expect revenue trends to recover throughout 2022 as the impact of price rises land from Q2. Moving to Switzerland, we delivered continued revenue growth of 1%, driven by mobile subscription revenues and B2B, in particular wholesale voice. We continue to execute on brand segmentation with reduced discounting to drive an improved ARPU mix. In the Netherlands, we saw stable revenue growth supported by mobile subscriptions, which reached a five-year high in Q1, We continue to see fixed ARPU growth at 2%, and effective from July 1st, we will implement a price rise of 3.5%. And in Belgium, top-line growth of 0.7% was driven by growth in mobile and B2B subscriptions, in addition to wholesale and roaming revenues. Telnet has brought forward its price increase of 4.7% to June, given the existing inflationary pressures, which should benefit revenue performance in the second half of 2022. And now, moving to EBITDA. I will start with Virgin Media 02, where we delivered over 2% EBITDA growth, which was slightly better if you exclude cost-to-capture costs. This was driven by strong cost control, including the benefits of migrating the Virgin Mobile MVNO from EE to Vodafone, lower sales commissions, and deal-related cost synergies. We continue to expect EBITDA growth to accelerate through the year at Virgin Media 02, given pricing moves and further synergies. Sunrise UPC delivered close to 10% EBITDA growth in the quarter, This was flattered by the phasing of cost-to-capture costs, which were lower in Q1 2022 compared to Q1 2021. The strong underlying EBITDA performance was driven by the increasing MVNO synergies as we migrate UPC mobile subscribers to Sunrise. It was also impacted by the phasing of our marketing spend from Q1 to later in the year, and because of this re-phasing, our full-year guidance for Switzerland remains the same despite the strong Q1 result. Vodafone's Zygo reported healthy 2% EBITDA growth, in part driven by a 4% decline in operating costs. It was also impacted by the end of the Formula One contract at Zygo Sports, which although it contributed to lower top-line growth, was more than offset by the associated content cost savings. Telenet reported a modest decline in EBITDA of minus 1.7%, driven by the impact of wage inflation and higher network costs, plus a top comparison compared to a VAT refund in the prior year. So overall, the consolidated group reported over 2% rebased every day growth. Moving to free cash flow and the key drivers, we delivered $137 million of full company free cash flow on an adjusted and distributable basis, despite the phasing of interest payments, which fall predominantly in the first and third quarters of the year. Our capital intensity has remained broadly stable in Q1 year on year. We made the 2022 telenet tax payment of $92 million a quarter earlier than last year. We received dividends and loan interest in the quarter of $109 million from our Dutch JV. As we highlighted at year end, we now include direct acquisition costs in our definition of adjusted free cash flow, which is how it's presented on this slide. We incurred $17 million of direct acquisition costs outflows in the quarter, leading to adjusted free cash flow of $137 million. Because the UK JV recapitalization is expected towards the latter end of this year, this means our distributable free cash flow is the same as our adjusted free cash flow for this quarter. Moving to the next slide, I wanted to address key inflation and macroeconomic challenges that we are facing across our core operations. As everyone knows, we've seen inflation has picked up materially in UK and Europe, albeit not much in Switzerland. This impacts our business in a number of ways, including our pricing actions, where we have in some cases brought forward and increased price rises, and also where we benefit from direct inflation links, such as the one we had with O2 in the UK. Secondly, we see a number of impacts within operating costs and capex, which I will discuss. Starting with energy, across our four largest fixed-level convergent assets, we typically see energy accounting for low single-digit percentage of operating costs. From a hedging perspective, we typically target hedging 12 months out, But for 2022, we do have a degree of unhedged exposure of Virgin Meteor 02. It's run just under half of the total cost. Vodafone, Ziggo and Telenet to manage through the remainder of the year. Secondly, on wages, we see different impacts. But overall, we only have direct links to inflation in Belgium. And our wage increases have largely been agreed for 2022 in line with budget. Thirdly, we see continued bottlenecks in supply chains. which to date has had limited direct impact on CPE and network projects, but it is something we continue to try and manage as best we can, leveraging our scale. Despite these macro inflationary headwinds and based on today's energy prices, we're still reiterating all of our four-year guidance targets. Turning to synergies and the costs associated with capturing them, we've included the next slide to add visibility on the key projects underway through 2022, And also to recap on overall cost to capture, which are peaking in 2022, particularly in Switzerland. Starting with Sunrise UPC in Switzerland, we continue to expect to deliver a 3.7 billion Swiss franc NPV of synergies and incur 400 million Swiss francs of one-time cost to capture them. Over 150 million Swiss francs of cost to capture are expected in 2022, which is approximately one-third OPEX and a balanced CAPEX. We continue to benefit from the early execution on MVNO synergies, particularly in the first half, and also headcount synergies. We also expect DSL migration synergies to start to build during the year. Moving on to Virgin Media 02, where we expect to deliver 6.2 billion pounds of MPV synergies, we expect roughly a third of synergies to come through in the first 18 months. We expect 2022 to be a peak year for cost of capture. with over £300 million of a total £700 million of expected cost of capture to be spent this year. Key synergy projects underway for 2022 include the MVNO migration, initially to Vodafone and then ultimately to the O2 network, network synergies headcount, and executing on revenue synergies, including Volt. The next slide is our standard overview of our capital allocation framework, starting with the buyback. We accelerated execution of our annual 10% target during the first quarter, and year-to-date we've completed around 50% of the buyback, or 27 million shares, through 7th of May. This has been taking advantage of some dips in the share price, which we continue to view as undervalued. Our balance sheet position remains strong, with total liquidity of $4.7 billion, including $3.2 billion of cash. Performed for the published proceeds received in April, we continue to expect to end the year with around $4 billion cash balances, although this will be impacted if we increase the buyback. Our debt position remains very strong, with average debt maturities of six years or longer in every operation. All our debt continues to be hedged into the currency of the underlying cash flows, and virtually all of it is fixed at a blended cost of around 3.4% across our consolidated debt silos, and around 4% if you include Vodafone Zigo and Virgin O2. As interest rates rise, this should be a source of value to our shareholders. And lastly, turning to ventures, where the fair value fell slightly to $3.4 billion, driven primarily by the fall in the ITV share price during the quarter. There is more detail in the appendix, but net investments in the quarter were around $65 million. Turning to the next page, we are confirming our 2022 distributable free cash flow guidance of $1.7 billion at the guidance FX rates. This is despite the higher energy and inflation costs that we're now experiencing. We're also reconfirming all our opcode guidance targets shown here on the left-hand side. From a foreign exchange perspective, the stronger dollar year-to-date, particularly against the pound, does drive a headwind to our reported free cash flow, with around a mid-single-digit percentage headwind from the currency, assuming current spot rates. We anticipate being able to limit this impact relative to the $1.7 billion, but clearly currency remains volatile. As a reminder, distributable free cash flow is a new metric we use that includes both our free cash flow as historically defined and additional cash that we receive from our joint ventures for recapitalizations. Our distributable 2022 free cash flow forecast does include cash that we expect from a debt raising of Virgin Media O2 later in the year as part of their 1.6 billion pound overall shareholder distribution guidance. Despite the credit market volatility, we remain confident that the credit markets are open to support this financing of what will still be, by historic standards, very attractive rates. One final housekeeping item to flag is that from the second quarter, we begin reporting EBITDA, which is EBITDA after leasing expenses. Many of our European competitors report EBITDA due to the significant difference in lease accounting between US GAAP and IFRS. We believe this metric will provide a clear and comparable approach to our European competitors, particularly reflecting the impact of tower transactions. Of course, we will still continue to report adjusted EBITDA. And with that, operator, can we hand over to questions?