Liberty Global Ltd.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's first quarter 2024 investor call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. At this time, all participants are in listen-only mode. Today's formal presentation materials can be found 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 two of the slide 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 form, 10Q, 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. Mike Freese.

Hello, everyone, and thanks for joining our first quarter investor call. Charlie and I are going to handle the preparatory marks as we usually do, and then during the Q&A, I'll get other folks from our management team involved Now, to get us started, I'm going to jump right in on slide four with three key takeaways from Q1. First of all, on our last call, we articulated a strategic plan to both create and deliver value to shareholders. The rationale for that plan was pretty clear. Despite repositioning our operating perimeter over the last five to seven years with timely market exits and in-market consolidations, despite purchasing nearly 60% of our shares, and despite successfully redomiciling to Bermuda, we continue to trade. at a substantial discount to our sum of the parts or net asset value. So as we stated in February, from this point forward, we are focused on maximizing the intrinsic value of our core assets and, where possible, delivering that value to shareholders over time. Towards that end, we made five announcements last quarter. In the last 10 weeks or so, we've actually made substantial progress on each of them. In particular, our plans to list our Swiss operating business and spin off those shares to our stockholders. More on all of these in just a moment. Second, with continued uncertainty in the macro environment, particularly around interest rates, we think it's smart to keep reminding everyone of how strong our balance sheet is today and tomorrow. Charlie will cover the details, including recent refinancings, but we're sitting on $3.2 billion of consolidated cash, which rises to $3.9 billion if you include liquid securities, and we continue to benefit from a long-term fixed-rate credit structure. We also remain extremely disciplined when it comes to capital allocation at the corporate level. whether it's our buyback program or selective deleveraging or strategic venture investments. Each of these things will drive returns to the business and to shareholders over time. And then finally, we're investing for growth across our FMC Telco footprint. For example, our fiber upgrade and extension plans in the UK and Ireland and Belgium are picking up speed and we're on track to reach roughly 20 million fiber to the home premises by the end of 2026. And that represents just about 50% of an expanded 40 million home footprint. 5G is the same story, where in addition to consumer and competitive retail benefits, we also are starting to see real B2B opportunities emerge from mobile private networks and network slicing and IoT applications. And then finally, like our peers, we believe the investments we're making in digital and AI will be game changers for us. Now let me dive into each of these over the next few slides. Beginning on slide five, which recaps the three core building blocks of the strategic plan we laid out for you last quarter and the steps we've taken since then. So starting on the left-hand side of this slide, first and foremost, we're focused on maximizing the value of our FMC telco operations in every market. As a reminder, these operations in the aggregate serve 85 million fixed to mobile connections, generate over 25 billion of annual revenue and 9.3 billion of annual EBITDA. They're generally number one or number two in just about every product with outstanding brands and outstanding management teams and we believe they are valued at zero in our stock price. Now, needless to say, these are not easy businesses to manage. I think we make that point every quarter. Markets are competitive, consumers are under pressure, and the capital intensity is high, but they are large subscription-based revenue streams with extremely attractive margins, and we're sitting at the center of the most exciting ecosystem on the planet. You name it, AI, digital, edge, metaverse, cloud, streaming, all of these innovations are drive an unstoppable demand for bandwidth and connectivity. And whether we're driving better retail market share with digital and AI or expanding our B2B business with new 5G and ICT services or de-layering to optimize the infrastructure values that are embedded in our operations, we think we have numerous strategic options for value creation in these FMC markets. The second building block is our highly targeted and strategic investments in tech content and infrastructure that both support those core telco operations and provide the opportunity for significant value creation in their own right. It's hard to know how much of this $3 billion portfolio is being valued in our $6 billion market cap today, but we're actively managing these positions and, where appropriate, crystallizing value. And then third is our renewed commitment to create and deliver value to shareholders. We would continue to shrink our equity, executing on the growth and strategic plans that should improve our trading multiples. And finally, where appropriate, putting value in your hands through spins and dividends and things like that. On the right-hand side of the slide, we provide an update on the five key steps we have publicly disclosed. Of course, there are many more initiatives we're not talking about today, but you should assume we're working on. Starting with our FMC champions, our plans to carve out the fixed network in the UK and create a separate net code there are well underway. We've hired Deloitte and BCG to help us with the actual planning, processes, and financials, and without asking, have received significant inbound interest from infrastructure investors. That's not surprising. This will be a substantial asset, which if we were to include our next fiber JV, will reach 21 million fiber homes across the UK. So stay tuned for more information about this. Secondly, we've made good progress in the Benelux. Regarding our Benelux Holco, we continue to see the potential synergies across the Dutch and Belgian markets improve, and that we're quietly entertaining indications of interest to actually invest in Liberty Global Benelux at a meaningful premium I might add to our trading multiple today. On the ventures front, we have now received the approvals required to complete the sale of all three media for 12 times EBITDA, and we expect that to close May 15th. Again, this would result in $400 million of cash proceeds to us, which we then intend to invest in the Sunrise spin transaction. This is just one example of how our Ventures portfolio creates valuable assets and then helps us fund our broader strategic initiatives. By the way, last year we committed to realizing between $500 million and $1 billion in asset sales by the second half of 2024. With the partial sell-down of Towers in the UK and this all-three media deal, we already surpassed 500 million, actually closer to 600 million. And just to let you know, we have an additional three to 400 million in the pipeline, which might be realized by year end. And finally, we come to the main objective. And that, of course, is creating and delivering value to shareholders. Our stock buyback program remains a key part of that strategy. And we've now purchased approximately 3% of our shares year to date. And as you recall, we've authorized up to 10% of shares for 2024. Today, we have 372 million shares outstanding. That's down nearly 60%. from over 900 million shares at the end of 2017. Now perhaps most important of all is the value we expect to create with the separation and listing of Sunrise in Switzerland, and then the subsequent spinoff of those shares in the fourth quarter of this year. And slide six provides an update on where that transaction stands today. Now perhaps just to recap the transaction rationale for a moment, I mean by listing Sunrise on the Swiss exchange, the goal is to create a fully distributed local valuation for the company, which will represent, we believe, a meaningful premium to our stock trades or whatever value we're being attributed today. The Sunrise equity story is compelling. Switzerland is a stable three-player market where Sunrise stands out as the only pure play national champion. Andre and the team have multiple growth levers in front of them. And perhaps most importantly, significant free cash flow margins, which will underpin an attractive dividend story. We're targeting Q4 this year to complete the transaction, which will entail spinning off again 100% of the shares to Liberty Global shareholders. The current schedule is to file a confidential form F4 with the SEC next month. As a reminder, we will be injecting 1.5 billion Swiss francs, or about $1.7 billion, into Sunrise. to deliver the company pre-spend. Obviously, this will increase the equity value of the listed vehicle, which accrues directly to you in the form of a higher Sunrise stock price. And Charlie will talk about this math in a moment. And then funding the $1.7 billion will come from a combination of all three media proceeds, that's about $400 million, Sunrise free cash flow through the course of 2024, that's about plus or minus $400 million, and then approximately a billion of corporate cash. Not surprisingly, at J.P. Morgan and UBS, have been approached by both financial and strategic parties interested in potentially participating in this transaction pre-listing. I'm simply going to say we're in a listening mode, but we do not intend to slow the process down, and we are committed to proceeding either way. This transaction is happening. Many of these groups are attracted to the dividend profile sunrise, which we expect will pay out a minimum of 240 million Swiss francs per year, and that would rise over time. Just to put that into perspective for a moment, the dividend from Sunrise alone that I just mentioned would represent a 4% yield on the entire market cap of Liberty Global. Now, so far, 11 analysts have figured that out and have published reports on the Sunrise spin, which pegged the equity value in the range of $11 per Liberty share. Now, we're not commenting on these numbers, but it sure looks significant in relation to our $16 stock price. Your opportunity to learn more about this is coming up soon. The management team intends to conduct a capital markets day in due course, followed by a complete roadshow. Now, someone asked, what happens to the remainder of Liberty Global after the spinoff? Before answering that, I think it's important to put things into context for a second. Sunrise only represents about 12% of our aggregate EBITDA and around 20% of proportionate EBITDA. So the bulk of our fixed mobile converged business remains unchanged for now. And as we've just talked about, we believe we have a lot of really strong opportunities to drive value in those remaining markets. Of course, our cash balance will be reduced by around a billion, but we still generate free cash flow upstream. And as I mentioned, we continuously look at asset sales to replenish our cash. And then lastly, Sunrise, like all of our operating businesses and even those we've sold, by the way, will still be reliant on Liberty Global for certain technical product and administrative services, which will continue to offset a bunch of our central costs. Now, before handing it over to Charlie, I'll hit a couple of operating updates beginning on slide seven, which shows broadband and postpaid mobile ads for each market over the last five quarters, as it's a slide we show every quarter. On the top left, you'll see that Virgin Media O2 delivered 5,000 broadband net ads in the quarter. That's despite a soft overall market with estimated industry sales off 7%. Our share of gross ads continues to rise, and that's supported by our Greenfield Next Fiber expansion, which recently reached 1 million homes. Importantly, you'll notice that we added a blue box for each opco, showing the evolution of fixed ARPU. VMO2's ARPU performance has improved every quarter, with essentially flat ARPU in Q1, even before the benefit of a contractual 9% price rise, which kicks in April. Postpaid mobile sub growth in UK was impacted by a weaker handset market in Q1 that impacted O2 primarily. Our flanker brand, meanwhile, continues to add customers. O2 was also impacted by churn attributable to a legacy IT migration. And despite that, mobile service revenues were up 4.2% in the quarter. Now, Lutz is on the call. He can take questions. But we feel good about the investments he's making in the commercial machine. And we expect to see those benefits build as he returns to growth in 2025 and beyond. Sunrise had a strong quarter across the board, returning to growth in broadband with 6,000 net ads, reflecting strong inflows and improved term performance on the Sunrise brand and continued momentum on YALO, the Flanker brand. Consumer loyalty programs and a lower impact from the UPC migration drove those term benefits. And as we foreshadowed, fixed output performance has improved every quarter since year end 22. In mobile, the combination of Sunrise, YALO, and B2B drove another strong quarter of postpaid ads at 26,000. Looking forward, Andre and the team are implementing a number of initiatives to continue the commercial momentum, which bodes well for the second half of 2024 and, of course, bodes well for the upcoming transaction. Turning to the Netherlands, Vodafone Ziggo saw a slight improvement in broadband net losses versus the last three quarters, but continues to be impacted by promotions and high levels of fiber overbuild. This is the story there. Now, the value over volume strategy that Jeroen and the team have been pursuing is, in fact, paying off. And you can see that with fixed ARPU up about 4% in each of the last three quarters. Meanwhile, the mobile business is strong with another quarter of post-paid mobile growth and mobile service revenue up 6.5%. The Belgian market remains competitive with Telenet losing 6,000 broadband subscribers despite stronger growth sales and reinvigorated FMC marketing campaigns. The post-paid mobile base was largely stable. On the positive side, churn has improved from the second half of last year. When John and the team were managing through some IT migration issues, in fact, they've seen major improvement in resolving those technical problems with customer service time back to normal. Looking forward, in our view and their view, more personalized customer experiences, expansion into the south of the country, and the fiber upgrade that's underway with wire should drive better commercial momentum. And then I'll end with a simple slide highlighting several of our active investment programs. that will support the long-term growth and competitiveness of our FMC champions. On the top left, we summarize the status of our fixed networks. As you see, at the end of 2022, we reached 32 million fixed homes, of which around 12% were on-net fiber homes, but importantly, 100% were capable of one gig speed. Now, that last point is key. We continue to have speed leadership in our markets. Just take the UK, for example, where the average customer there of ours is getting 350 megabit And that's exceeding the average fiber customer speed, according to Ofcom. By 2026, our footprint will have expanded by 25% to 40 million homes. And that's mostly through Greenfield Network extensions, but also includes some wholesale arrangements. And those 8 million homes have and will continue to represent a significant growth opportunity, as we've seen at Virgin Media through the last five to six years. And thanks to the investments we're making in the U.K., Ireland, and Belgium, nearly half of those 40 million homes in 2026 will be on net fiber homes. In two of those markets, Belgium and the U.K., we will have created netcos that house, manage, and derive revenue from those networks, and you're aware of those value creation opportunities. At the bottom, you can see our 5G coverage ratios in 2024, which range from 100% in Switzerland and Holland to 50% and greater in the U.K. and Belgium. three of our four markets will reach 100% by 2026, with only the UK on a slightly slower path. I think it's important to point out that both fixed and mobile CapEx are not far from their peak periods. In fact, mobile CapEx peaks this year, and fixed CapEx is not far behind that. And the point here is that we, like other European telcos, will start to benefit from even higher free cash flow margins when these programs either complete or are moved off balance sheet. Then on the right side, We are also beginning to reap the benefits of our considerable investment in digital, as well as our more recent AI initiatives. Just a few examples here. Having just completed our IT migrations of the O2 Postbay mobile base in the UK and Telenet's residential subs in Belgium, we're now operating nearly fully digital customer experience platforms for those customer bases. On the mobile front, with fully virtualized five GSA cores under development in Belgium, the UK, and Switzerland, we're going to be able to provide much greater scale, flexibility, and cost benefits to customers. Network as a service is early stage. We talk a lot about it, but we've demonstrated both our technical readiness and the potential benefits of these use cases at Mobile World Congress in Barcelona. And on AI, we're focused on harnessing the power of predictive and generative AI to increase productivity and efficiency at scale across our network customer and employee platforms, making our customer facing agents smarter, predicting network outages and reducing power consumption. and streamlining internal processes are just a few of the applications we're rolling out. Now, many of these things are happening under the radar, and we're all being careful not to overpromise, but our team is convinced that these and similar innovations will provide us and our sector more generally with a much needed source of both revenue growth and operating efficiencies. With that, Charlie, let's take them through the financials.

Thanks, Mike. The next slide sets out a summary of the revenue and MDA profile in our four key markets. we saw broadly stable reported revenues across all opcos in Q1. Virgin Media 02 reported stable revenue, but excluding the impact of next-fiber construction, a revenue decline of 4%. This was driven by low-margin handset and B2B fixed revenue declines, which we highlighted in Q4 as part of the softer revenue guidance. However, underlying service revenue performance did improve, even before the Q2 price rises, with stable fixed revenues and mobile service revenue growth accelerating versus the fourth quarter. About a few days ago, revenue was up close to 2% this quarter, supported by tailwinds from the 2023 price rises, with another record quarter of mobile service revenue growth at over 7%. Fixed mobile pricing was supported by healthy ARPU growth, as we capture the benefits of the mid-2023 price adjustments. and Telenet delivered stable revenue in Q1, supported by consumer mobile revenue underpinned by price adjustments last summer. Sunrise posted stable revenue in Q1, mainly led by the positive impact of the July price increase and continued momentum in B2B, offset by lower handset revenues. Moving on to our Q1 adjusted EBITDA performance, Virgin Media O2's adjusted EBITDA decreased just under 2%, including next fiber construction, as VMO2 invested in the future growth drivers that we laid out in the 2024 guidance. Specifically in Q1, there was a step up in IT transformation costs, and VMO2 has started scaling our marketing efforts in the next fiber areas. Vodafone Zygo delivered close to 9% EVDA growth, driven primarily by the reversal of energy cost headwinds and, of course, the revenue growth. IntelliNet delivered stable EVDA for the quarter due to price increases, lower programming and interconnect costs. along with lower energy costs, which were offset by higher staff-related expenses following the mandatory 1.5% wage indexation increase. In summary, it's posed a stable adjusted EBITDA growth, including cost to capture, driven by lower OPEX and direct costs, and we expect cost optimization benefits to be more visible from Q2. So into the next slide, we give an update on the key metrics underpinning our capital allocation model. recurring upstream free cash flow from our wholly-owned FMC opcos, and cash distributions from our 50%-earned JVs, our holdco cash and liquidity, and the fair market value of the Ventures portfolio plus listed stakes, and finally, the underlying equity values of all our FMC champions. So starting on the top left with the breakdown of our free cash flow profile for Q1 2024 by operating company, along with four-year guidance. Now, as has been the case in previous years, Q1 is typically a modest cash outflow quarter, given the timing of cash interest payments on our DESAC and with limited cash distributions in the JVs, which tend to be back-ended loaded to the second half of the year. Turning to our cash position, our consolidated cash balance was $3.2 billion at the end of Q1 2024. And in the chart, there is a walk versus the closing Q4 balance, including the modest cash outflow related to operations was about $0.2 billion in Q1. Ventures investments, which were primarily in Atlas Edge and Edge Connects, were about $0.1 billion and share buybacks of around $180 million during Q1, which again is consistent with our guidance for up to 10% buyback in 2024. Moving to ventures, compared to the fair market value of our ventures portfolio, this increased in the quarter, driven by an increase in the value of our stake in EdgeConnects, plus our listed stakes, including ITB, which was offset by a decline in tech valuations, primarily laceworks. We made net investments into ventures in Q1 of approximately $100 million, primarily in Atlas Edge and Edge Connects, and both assets are within our infra pillar, which is focused on the data center space where we see strong growth potential and a clear right to play. And finally, to highlight on a per share basis the key value drivers of our stock, largely speaking, analysts share our view that there's a significant discount in our stock, which is currently trading around $16 to $17 per share versus the average analyst valuation of $26 a share. But as Mike indicated in our Q4 strategy update, we are keen to close that gap. If we start with our $3.2 billion cash balance and take out to summarize the leveraging injection of $1.7 billion, which is around $5 per share, we get to a value equivalent to $4 per share. Our venture portfolio, regularly valued by an independent third party, is worth $2.4 billion or $7 per share. Well, our listed equity stakes plus the cash we're going to get from the all three media sales are worth a combined $1 billion or $3 per share. Now moving to the sunrise spin and assuming and only assuming the current average analyst valuation of the company of 8 billion Swiss francs, we arrive at $11 per share per former for the cash injection of 1.5 billion Swiss francs committed by Liberty Global. Now if you add all these up without any value attributed to the other FMC champions, The implied value of a Liberty Global share comes out to be around $25 per share, assuming 350 million shares around the time of the Swiss spinoff. Lastly, we highlighted a Q4 on a peer-comparable basis, enterprise value to operational free cash flow. We believe that there's also significant equity value in our remaining proportionate interest in BMO2, Vodafone, Ziggo, Telnet, and Ireland, with cash being upstream despite the current elevated investment cycles related to 5G and fibre to the home. Turning to our balance sheet, we continue to have a strong position and continue to do opportunistic refinancings. During March and April, we refinanced nearly all of the remaining 2027 maturities at BMO2. As opposed to the usual slide showing our siloed debt by OpCo, this chart highlights our aggregate debt position, including the joint ventures where we earned 50% by debt instrument. Overall, we have around half our aggregate debt in the form of bank debt and the other half in bonds. And as the chart shows, the bank debt typically has a shorter remaining duration versus our bonds, as the latter are typically issued with around a 10-year maturity. Crucially, all of our variable bank debt is fixed using swaps, typically until maturity, with the swaps independent, and that's really important, of the underlying bank debt. We would argue that these swaps, totaling $23 billion for an average remaining life of five and a quarter years, are a significant asset, and indeed in our balance sheet we record an in-the-money valuation for our interest rate swaps of over $1.5 billion. Specifically, we have around $10 billion of notional swaps maturing in 2028 and $9 billion in 2029. This allows us to refinance near-term maturities and push out the tenor of our bank debt, while still benefiting from the underlying swaps, which can remain in place until 2028 and beyond. And as a result, we have a limited debt repricing risk, apart from any change in what's called the credit spread. So as a case study, we took advantage of this at BMO2, proactively refinancing $2.4 billion across March and April, largely addressing the 2027 maturities with only a 20 basis point increase in spread. So overall, for VM02, this extended the average life of the debt stack by 0.4 years, at less than a 0.1% increase in the overall weighted average cost of debt. And lastly, as a reminder, all our debt is fully siloed and FX matched, and we intend to remain proactive in terms of pushing out our maturities to maintain tenor. Lastly, I wanted just to reconfirm all our 2024 guidance across all the OPCOs, which we set out at Q4 in February. I won't run through all the metrics again, but after a strong start to the year financially in Q1, we remain confident across all the OPCOs in terms of hitting the numbers. And that concludes our prepared remarks, and operator, we're now ready to move to Q&A.