Liberty Global Ltd.

Good day, everyone. If you're holding for Liberty Global's second quarter 2023 investor call, thank you for your patience. The investor call will begin approximately in five minutes. Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's second quarter 2023 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 form of presentation materials can be found under the investor relations section of Liberty Global's website at libertyglobal.com. After today's form of presentation, instructions will be given for a question and answer session. Page two of the slides details the company's safe harbor statements 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 facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filing with the Security and Exchange Commission's including most recently filed forms 10Q and 10K as amended. Liberty Global disclaims any obligations 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. Mike Freese.

Okay, thank you, Operator, and welcome, everyone, to our second quarter investor call. Charlie and I are going to jump right into the presentation and our prepared remarks, and time for questions, of course, will follow. And I'm beginning on slide three with some key headlines from the quarter, all of which, as we'll discuss, support our core value creation strategies. And by value creation, we mean only one thing, staying aligned with shareholders as we work to increase the value of our stock. That's it. Now, some have asked for a clearer articulation of that narrative, which we've summarized right at the top of this slide. For us, it involves three main strategies. First of all, we're focused on maximizing the inherent equity value of our core operating businesses and doing what we can to ensure that that equity value is transparent or crystallized for the benefit of shareholders. Second, we're making smart investments in strategic adjacencies that both benefit our platforms and generate significant returns. And third, we're managing a dynamic capital structure that receives cash from operations and asset sales from time to time, which together with our sizable liquidity today, we are largely allocating to buying back our own stock. And we made good progress on all three strategies in the second quarter. I'll start with our national FMC champions in the UK, Switzerland, Belgium, and Holland. which continue to deliver solid operational performance. Financial results for the entire group improved sequentially, particularly just at EBITDA. And as Charlie's going to discuss in a moment, we're confirming all of our guidance for the year. Now, just diving into that for a second, we've talked about the importance of pricing actions at the OPCO level to balance out inflationary pressures and support revenue growth through 2023. As of now, you would have noticed we have taken price rises in all four core markets, ranging from a low of 4% in Switzerland to a high of 14% to 17% in the UK. And this means that customers have been notified and are already starting to respond, which you can see in our fixed and to some extent mobile subscriber results in the quarter. Two pieces of good news here, though. One, price reactions have been largely consistent with exactly what we expected across the board. And two... while we've absorbed that churn and subscriber rotation, we have not yet realized the financial benefits of those price rises. In the case of VMO2, for example, the vast majority of the fixed price rise will materialize in the second half of the year. And price rises in Belgium, Switzerland, and Holland just took effect in June and July. So the same thing. Now, second pillar of our value creation strategy is our ventures platform, where we remain committed to three core verticals, tech, media, and infrastructure. We also remain committed to smart, discipline management of these investments, which will include exits and divestitures where it makes sense. You probably read about all three media, which is our third largest portfolio investment. After terminating exclusive discussions with ITV, we're launching a broader process, which has already attracted interest from strategic and financial players on both sides of the Atlantic. And then from a capital allocation point of view, we are uniquely positioned with a strong balance sheet characterized by long-term fixed rate debt and significant cash resources, Today, we announced a material increase in our buyback program, which demonstrates our confidence in both our capital structure and our stock. More on that in a second. And then finally, several recent developments helped to turbocharge these initiatives. First, we acquired over 90% of Telenet in the first round of our tender offer, and we expect to get the balance of those shares in September. As a reminder, we financed this purchase with credit support solely from our Telenet stake. and we're quite encouraged by their progress on the infrastructure side of their business. We're also exploring the potential monetization of both UK and Dutch tower portfolios and what we expect could be premium market multiples. And finally, we're thrilled with the overwhelming support we received for our move to Bermuda. Thank you to those who voted. As a reminder, this is not a tax-driven deal, and no changes to our board, our listing, our financial reporting, or our day-to-day business will occur. What will change is our ability to pursue corporate and financial transactions, in particular at the FMC Opco level, that will help us create, crystallize, and share value with our investors. We're already busy on some of these ideas, and we'll keep you posted on those as they develop. Now, I mentioned the acceleration of our buyback program, which we provide a bit more detail on in slide four. First of all, the headline is that we're formally increasing our commitment from a minimum of 10% of shares outstanding to 15%. For those that pay attention to our activity, you'd know that through the end of last week, we'd already purchased about 8.4% and would have reached the 10% level probably by mid-August, hence the increase. Again, the 15% is a minimum, and we reserve the right to go beyond even that number, depending on market conditions. And the chart on the left is simply a reminder of how consistent we've been over the last six to seven years, reducing shares outstanding from $900 million at the beginning of 2017 to to less than $400 million by the end of this year, assuming the 15% minimum level is achieved. That's nearly a 60% reduction. Now, before I hand it over to Charlie, I'm going to quickly canter through our four main operating businesses. You'll see that this quarter we've included one slide per market that provides some brief commentary on the macro picture, our quarterly broadband and postpaid mobile results, high-level financial information, and some strategic updates. In the interest of time, I'll try to just call out a few things in each market, beginning with VMO2 on slide five. Now, from a market perspective, the economic picture in the UK remains challenged, with inflation still around 7% and GDP growth largely stagnant. As I mentioned, though, we raised prices in both fixed and mobile 14% to 17%, respectively. This was largely in line with the rest of the sector, and because of how we specifically do it, we should see the vast majority of those benefits build through the second half of the year. That was a slow quarter. for broadband and post-paid mobile ads in the wake of our price rise announcements, but we continue to grow our fixed base in greenfield territories, and we're maintaining a strong share of fixed gross ads across the footprint. The mobile market as a whole was soft in the quarter, but the O2 brand continues to see the lowest churn, and GIFGAF, which just launched its own contract plans, continues to grow well. I'll also add that we've seen some modest improvement in front book pricing in both fixed and mobile. Financially, VMO2 reported a sequential improvement In both revenue and EBITDA growth, revenues for the quarter grew 6%, but we're actually closer to 1% when you exclude the next fiber construction contracts. Charlie will get into those details. Mobile revenue and B2B continue to shine, growing 4.5% and 2.5% in the quarter. And EBITDA grew 4.4%, or around 3% if you adjust for the next fiber contracts. Strategically, we are executing our fiber extension and fiber upgrade plans really well. with over 640,000 homes delivered against a year-end target of 1.5 million. In the meantime, we continue to benefit from the country's largest gigabit network, reaching 16.4 million homes today. We like to make that point because we think fiber is critical to our future, but today we lead the market in speed. As you might expect, we're monitoring the alt-net space in the UK, and consistent with our strong view that the market needs consolidation, we're open to evaluating opportunities as they arise today. And finally, we're monitoring the Vodafone 3 deal and exploring win-win outcomes should that deal be approved. Now, moving to Sunrise on slide 6, the Swiss macro environment is more benign with continued low inflation of less than 2% in June. As we flagged earlier in the year, we implemented our very first price rise of 4%, which will take effect in July and support second-half growth. All customers have been informed, and so far, the sales, call volumes, and churn numbers have been really well-received and fall within expectations. Now, while Swisscom has added a CPI clause to their contracts, they've said they don't intend to take price rises this year or next. Salt, on the other hand, recently announced their own 3% mobile price rise. Now, our price rise, together with promotional intensity in the market, did impact broadband trends in the quarter, but post-pay growth was strong under the circumstances. Q2 revenue growth was negative 1%. That's an improvement over the first quarter, but still impacted by what we're calling the right pricing of our fixed UPC customer base, which should alleviate during the balance of the year. EBITDA growth in the quarter was flat, also a sequential improvement over Q1, and that's driven in part by lower costs to capture and lower labor costs. Strategically, we've successfully underpinned the Sunrise brand with a number of key initiatives, like our SwissKey partnership and what we call Sunrise Moments. And we feel really good about our ability to continue to take share with our broader portfolio. Meanwhile, from a network perspective, We're executing on our hybrid strategy, benefiting from our existing HFC network and benefiting from additional fiber-to-the-home wholesale agreements with Swisscom and SFM. Now, like many Western European countries, Belgium, on slide 7, has also seen a steady decline in inflation to around 4% in June, with consumer confidence stabilizing. All operators have taken price increases in Belgium, with Telenet implementing a 6% rise from June. Broadband and post-pay mobile subs declined in Q2, in part, from announced price rises, but also due to a slowdown in market campaigns in the wake of some IT migration issues. Financially, revenue grew 1%, and EBITDA was up 5% in the quarter, supported by mobile and B2B, but also a one-off settlement with Fluvius. Strategically, as I mentioned, we're particularly pleased with the rollout of Telenet's new net co-partnership called WIRE, and we see great potential for both high utilization and high margins that will support the fiber build-out, as well as some strategic financing opportunities. Then finally, in Holland, Inflation has also started to fall, reaching under 6% in June. On one hand, the market remains largely rational, with all operators taking high single-digit price increases and focusing their fiber build-outs largely in discrete regional areas when possible. On the other hand, KPN remains aggressive on the fixed front book pricing, which, together with the timing of our price rise announcements, negatively impacted broadband results in the quarter. Meanwhile, though, post-pay mobile ads continue to be strong, driving a 3.3% mobile service revenue growth figure. In fact, mobile services and B2B delivered their ninth and tenth consecutive quarters of positive growth. In Q2, both FMC households and SIMs increased, delivering significant NPS and customer loyalty benefits. And B2B continues to go from strength to strength, mainly driven by Soho. On the financial front, EBITDA is still impacted by inflation, in particular higher energy and wages costs. And then more strategically, we continue to invest in the wider customer proposition here with new OTT apps being added and the UEFA Champions League rights starting next year. So in a highly penetrated and competitive market, we believe differentiation remains key. It's also worth noting that we were the first operator, I think globally, to deliver a 15 gigabit per second speeds over a live DOCSIS 4 trial. That's a pretty big milestone and it underpins our confidence in in HFC and DOCSIS IV as a key technology for us going forward. Notwithstanding that, you should also assume that we and our partners continuously evaluate strategic options to ensure Vodafone Zero strengthens its market position. So that's a roundup of the four core markets, and I'll turn it over to you, Charlie.

The next slide sets out the quarterly revenue and EBITDA for each of our key operating companies. As Mike discussed, we largely expect an acceleration in growth in the second half of the year as the full impact of the various price increases across our companies becomes fully effective in Q3 and Q4. For the quarter, VMO2 on a reported basis delivered 6.2% of revenue growth. Excluding the impact of next fiber construction revenues, VMO2 revenue growth was 1%, with our mobile price rise supporting strong mobile service revenues, which offset fixed revenue pressures. We expect to see the impact of the fixed price rise build in the coming quarters, supporting improved sequential top-line trends in the second half. Vodafone and Zygo delivered stable revenues in Q2, as weakness in consumer fixed continues to be offset by strong B2B and mobile performance, with the Dutch business marking its ninth consecutive quarter of mobile service revenue growth. We expect our fixed price adjustment to around 8.5% to support revenue trends in the second half. Belgium delivered revenue growth of 1% in Q2 as the mid-June price adjustment in 2022 continues to support top-line fixed performance. And Switzerland saw a slight revenue decline in Q2, driven by continued pressures on consumer-fixed ARPU, as the continued impact of the UPC right pricing activity is partially offset by strong flanker brand performance. Sunrise has implemented a 4% price adjustment from July across all brands, which is expected to support revenue performance in the second half. Moving on to our Q2 adjusted EBITDA performance, BM02 delivered 4.4% EBITDA growth despite $22 million of OPEX cost to capture in the quarter. Excluding the next fiber construction contribution, EBITDA grew 2.8% in the quarter. We expect EBITDA trends in the second half to be driven by the timing of further synergy realization with support from our fixed price adjustments also expected to build to the rest of the year. Verifone Ziggo saw modest sequential improvement in EBITDA in Q2. The Dutch JV saw an EBITDA decline of 3.6%, driven by anticipated inflation headwinds from both energy and wages. And Telanet reported EBITDA growth of 5%, driven by a one-off benefit from expected settlement of some contingencies. Our price adjustments implemented in June will support growth in the second half of the year, as they did last year. summarize saw EBITDA stabilizing Q2 driven by an improved OPEX profile due to reductions in OPEX cost capture, offsetting continued headwinds from the UPC right pricing activity. And finally, a point on central revenue in EBITDA. You may have noticed in our filings that there is an accounting change impacting reported central results. This is driven by our intention and plans made this quarter to market and sell our internally developed Horizon and EOS platforms to third parties. As a result, The accounting rules require that any proceeds received from licensing internally developed software to third parties, which includes actually Virgin Media O2 and Vodafone Zigo, will now be applied against the net book value of our internally developed capitalized software until that balance is reduced to zero. Now, regardless of the accounting change which is required, we continue to receive cash proceeds from these arrangements. So as a result, the cash impact on our net central spend isn't impacted. In the appendix, we've seen our central results, including $31 million in Q2 net proceeds from FSAs with non-consolidated entities added back. And as I indicated previously, overall, there's no change to our net central spend from this accounting presentation change. And as we discussed at Q1, we continue to target recurring net central spend of $200 to $250 million. Turning to the capital allocation slide, all our core markets delivered capital intensity in line with their respected full-year guidance ranges. On a reported basis, we delivered distributable cash flow of $554 million in the first half, including $404 million of distributions from VMO2 from our share of the recapitalization and distributions of $27 million from Vodafone Zigger. We continue to have a substantial cash balance, but on a consolidated basis of around $4 billion, with just under $3 billion at the top co and a further RCF liquidity on top. I wanted to provide a deep dive onto our debt profile on the next slide and reaffirm that we operate a strong balance sheet. All our debt is fixed to maturity and the average tenor on our debt currently sits at around six years. We have also fully fixed all our interest rates and swapped any currency mismatches. All in, our blended, fully swapped cost of debt at a consolidated level today sits around 3.2% and around 4% across all our companies. As you can see from this chart mapping out our debt maturity profile, our first material debt maturities are in 2027, largely in the UK. This long duration provides a healthy period to find the right refinancing windows to further extend our debt, as well as optimise the refinancing cost. On the next slide, you can see a breakdown of our ventures portfolio, split into four verticals. This quarter saw a decline in fair market value of approximately $200 million, bringing the fair market value to a balance of $3.2 billion. This is principally driven by a reduction of $300 million in the valuation of some of our listed securities, as well as an updated valuation of two of our tech investments. The first pillar is our content pillar, which represents over 40% of the value of the venture's portfolio. Here we hold selected strategic stakes in a number of content players, ranging from studio production businesses to next-generation sports and gaming operations, as well as taking advantage of emerging Web3 platforms. This quarter, we saw a slight decline in the value of the content portfolio, primarily reflecting the recent decline in the ITV share price. Next is our technology pillar, representing around 25% of the total venture's portfolio. We continue to invest in early-stage product, service, and technology companies that hold strategic adjacencies with our FMC champions and are at the forefront of emerging advancements in AI, digital security, and cloud optimizations. The technology pillar is essentially self-funding, with the generated proceeds being reinvested straight back into the pillar. We do have some valuation reductions this quarter, notably in Plume, which provides smart home technology, and Lacework, a cloud security platform. Moving to our infrastructure pillar, this is currently concentrated around three main assets. Digital infrastructure companies such as Atlas Edge, our 50-50 JV with Digital Bridge, and our Edge Connect data center business. And then thirdly, our build vehicle in the UK, Next Fibre, which we've mentioned before, plans to build 5 to 7 million greenfield fibre homes. Supplementing these companies within the pillar, we strive to be one of the first movers in the emerging energy transition race, with our emerging solar energy business in egg continuing to execute along its growth trajectory. And then finally, in our fourth pillar, which is the financial pillar, we hold within it our 5% stake in Vodafone. To remind on our Vodafone stake, we had a limited capital outlay of only £225 million for the investment. And this quarter, we do see a reduction in the value of our stake given recent share price weakness in Vodafone. However, our downside risk is hedged through the collar structure we implemented at the time of the investment. Finally, we are reconfirming our guidance metrics for each of our key operating companies. And this is set out on this last slide. We've also reconfirming our group guidance of $1.6 billion of distributable cash flow And this is based on FX rates in February when we gave our original guidance. And with that, operator, over to questions.