Liberty Global PLC (NASDAQ:LBTYA) discussed its strategic plans and financial performance during its second-quarter 2024 earnings call, highlighting a robust balance sheet and a focus on delivering shareholder value. CEO Mike Fries outlined the company's initiatives, including the Sunrise spin in Switzerland, a collaborative agreement with Vodafone (NASDAQ:VOD) in the UK, and progress in the Benelux region.
Despite competition and challenges, particularly in the mobile sector, Liberty Global reported positive financial results for VodafoneZiggo and a steady broadband performance. The company's Ventures platform achieved significant noncore asset sales and is targeting further disposals before year-end.
Liberty Global's consolidated cash balance stood at $3.5 billion, with the company aiming to close the valuation gap and unlock the remaining value in cash Ventures and other FMCs.
Key Takeaways
- Liberty Global's strategic plan involves maximizing FMC (NYSE:FMC) operations, capitalizing on the Ventures portfolio, and delivering shareholder value.
- Financial highlights include a strong balance sheet, a consolidated cash balance of $3.5 billion, and positive results for VodafoneZiggo.
- Challenges in the mobile sector are being addressed, with plans to rebuild postpaid mobile momentum.
- The company is restructuring operations into NetCos and ServCos to generate stable cash flow.
- Liberty Global is on track with its goal of $500 million to $1 billion in noncore asset sales.
- The average analyst valuation for Sunrise implies a $12 per share contribution to Liberty Global's stock price.
Company Outlook
- Liberty Global remains committed to closing the valuation gap and unlocking the remaining value in cash Ventures and other FMCs.
- The company's debt profile is strong, with no significant maturities until 2028.
- In the UK, Virgin Media O2 is focusing on growth drivers despite a soft postpaid mobile market.
- The Swiss market is experiencing less promotional intensity, which may benefit customer retention.
Bearish Highlights
- Virgin Media O2's adjusted EBITDA decreased by 1% in Q2 2024, impacted by reduced B2B fixed contributions.
- Postpaid mobile subscriptions turned negative due to the loss of low-ARPU B2B contracts.
- The UPC brand retirement's impact on financials is expected to diminish, indicating a transitional period for the brand.
Bullish Highlights
- VodafoneZiggo experienced 8% EBITDA growth, driven by the reversal of energy cost headwinds and lower consultancy service costs.
- Fixed ARPU continues to grow, and churn is declining due to effective customer value programs.
- The company has exclusive broadcasting rights and a strong FMC proposition, bolstered by a successful loyalty program called Priority.
Misses
- The company did not provide specific dates or numerical data for certain financial metrics.
- There was no announcement regarding potential acquisitions of TalkTalk or other companies.
Q&A Highlights
- Executives discussed the potential for consolidation in the UK market and the benefits of upgrading to fiber.
- The company is exploring opportunities in fintech, entertainment, and healthcare sectors.
- Liberty Global is monitoring the competitive dynamics in various markets and adjusting its strategies accordingly.
Liberty Global's earnings call revealed a company strategically positioning itself for future growth while managing current market challenges. With a strong balance sheet and a clear focus on operational efficiency and shareholder value, Liberty Global is navigating a competitive landscape with a multifaceted approach. The upcoming Capital Markets Day in September is expected to provide further insights into the company's long-term strategy and market positioning.
InvestingPro Insights
Liberty Global PLC's (LBTYA) latest earnings call underscores their commitment to shareholder value—a commitment that is echoed in their financial metrics and strategic moves. With a market capitalization of $7.09 billion, the company's aggressive share buyback strategy and high shareholder yield stand out as key factors in their plan to close the valuation gap and enhance value for investors.
InvestingPro Tips reveal that Liberty Global is trading at a low Price / Book multiple of 0.39, as of the last twelve months leading up to Q1 2024. This could indicate that the stock is potentially undervalued relative to its assets, which may appeal to value-oriented investors. Additionally, the company's impressive gross profit margins of 67.15% during the same period demonstrate efficient management and a strong competitive position in the telecommunications industry.
While analysts do not anticipate the company to be profitable this year, and it has not been profitable over the last twelve months, the stock has been trading with low price volatility and is nearing its 52-week high, with the price at 94.36% of this peak. This could suggest a level of market confidence in the company's long-term strategy and operational execution.
For readers looking to delve deeper into Liberty Global's financial health and future prospects, there are additional InvestingPro Tips available. By visiting https://www.investing.com/pro/LBTYA and using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking further valuable insights. There are currently 9 additional InvestingPro Tips listed for Liberty Global, offering a comprehensive analysis for potential investors.
Full transcript - Liberty Global Inc (LBTYA) Q2 2024:
Operator: Good morning, ladies and gentlemen and thank you for standing by. Welcome to Liberty Global's Second 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. [Operator Instructions] 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. Mike Fries.
Michael Fries: Okay. Hello, everyone. Thanks for joining the call today. We've got a lot of ground to cover, so I'm going to jump right into prepared remarks. My senior team is also on the line as usual. So I'll be involving them in the Q&A when we get there. So I'm starting on our Q2 highlights slide. On our year-end call in February, you'll all remember that we laid out what I think is a clear strategic plan which included 3 core elements: first of all, maximizing the intrinsic value of our FMC operations, that's critical; second, using the Ventures portfolio to create liquidity to support those operations and to invest in strategic platforms and then most importantly, putting all that together to both create and deliver value to you, shareholders. At the top of this slide, we provide an update on each of these core initiatives beginning with Switzerland, where the Sunrise spin which we have talked quite a bit about, is on track for the fourth quarter of this year. The purpose here is to hand shareholders a significant and well-deserved dividend of what analysts are estimating is around $12 per Liberty Global share. As a reminder, Sunrise represents only about 20% of our proportionate EBITDA and that excludes, of course, the value that might be attributed to cash and Ventures in our stock price. Now those Sunrise valuations of $12 of Liberty Global share are supported by CHF1.5 billion of deleveraging that we will fund pre-spin and it's supported by a commitment for Sunrise to pay an annual dividend of CHF240 million beginning next year in 2025. So those 2 things are anchoring at $12 per share. Now we scheduled the Sunrise Capital Markets Day. I'm sure you saw that for September 9 in Zurich. Of course, there's going to be a live webcast and replays and management is going to hit the road right after that. So hopefully, you'll have a chance to connect with Andre and his team. They are an outstanding group. I'm sure you'll see that immediately. You also should stay tuned for more deals on the spin mechanics and logistics as we finalize the SEC process and start working towards the shareholder meeting in the fall. So a lot of communication will be heavily engaged in making sure we understand everything that's happening there. Now we have got 3 key strategic updates in the U.K. as well along the same strategic path. Earlier this month, we announced a fairly comprehensive agreement with Vodafone in the U.K. which strengthens and extends our mobile network sharing agreement which we've had for some time and that's going to occur whether or not the merger with 3 [ph] goes through. And it includes the right for VMO2 to purchase spectrum, should the deal be approved. And both of these address some of the concerns raised by the CMA, including rebalancing spectrum among operators but in either case, are highly accretive to VMO2. Then on the fixed network front in the U.K., we've now reached 5 million fiber homes across VMO2 and next fiber and that build-out and upgrade is ramping up and accelerating. Also, our announced plans to create a U.K. NetCo on track in the first half of 2025 with financing discussions probably commencing really Q4 this year and I'll give you a bit more on the developments in a moment. Moving to the Benelux, where we are also making meaningful strategic progress at the country level in Belgium and Holland and that progress is going to support our ambition to create a general operating platform with scale, with synergies and with strategic optionality. So for example, in Belgium, we announced a preliminary agreement or MOU with Proximus to avoid overbuilding each other with fiber in about 2 million homes. And just as importantly, for each of us to use the other's network, in those areas so we can maximize utilization. In the Netherlands, the 5G spectrum auction finally occurred and we were able to recently acquire 100 megahertz of 3.5 gig spectrum well below the expected price we thought we'd pay. And then sticking with Holland, we could not be happier of the hiring of Stephen van Rooyen, who will become CEO of VodafoneZiggo in September. I've known Stephen a very long time and this is not the first time I've tried to hire him by the way, both we and Vodafone recognize right away his deep expertise and brand and production and innovation that he's developed over 17 years at Sky. And we're convinced he's going to bring the right energy, operational focus and strategic direction to this critical market. And then finally, as I just mentioned, we're using our Ventures platform to provide a source of capital that we can rotate into other strategic opportunities and also an investment vehicle for innovation and new skill-based businesses that align with our core value creation goals. Now we're delivering on that first objective. With $650 million of asset sales in the last 6 months. A large portion of which will support deleveraging of Sunrise pre-spin and we remain focused on larger platform opportunities, as you can tell by our plans to increase our stake in Formula E and our increasing commitment to digital infrastructure and I'll talk about those in a moment. And moving from those strategic initiatives at the top of that page to our regular Q2 highlights, I'll start with our balance sheet and capital allocation model which are in great shape as we point out on every call, our debt profile is long term. Fixed rate and siloed with no debt at the parent company and no material maturities until 2028. We're also sitting on a cash balance equal to roughly half our market cap. And by the way, we continue to shrink that market cap through an aggressive buyback program which saw us repurchase 5% of our shares year-to-date, towards a planned 10% of shares through year-end. We also continue to both invest in growth and execute at the core FMC operating level and that includes powering through headwinds. We talk about this as do our peers, every quarter, we are facing an increasingly competitive marketplace with consumers who continue to feel the stress of inflation and macro challenges. You'll see in a moment, while our fixed ARPUs are rising or stable and that's great news, we're feeling pressure in the mobile sector from promotions and from flanker brands. Despite that, we are confirming all of our 18 different guidance metrics, that's right, 18 different guidance metrics we provided with the exception of one which is revenue growth at VMO2. We are lowering that as a result of slower hardware sales in the Mobile business. Now these are low-margin revenue sales at best. So we're still going to hit our EBITDA and free cash flow guidance in the U.K. That's important. In this slide by emphasizing that we are also seeing some tailwinds, in particular, as we begin to reap the benefits of 4 things: number one, our investments in fiber and 5G which remains substantial. number two, the growth in our flanker brands; and number three, our access to new revenue streams and new homes generated by our fixed network strategies and then last, the hidden value of our digital infrastructure assets. I'm going to touch on all of these but the punch is that we feel we have a pretty good operating and strategic toolbox here to help us work through this transition and ultimately deliver that value to shareholders we've been talking about. So moving to operating highlights. -- until we provide our traditional KPIs on this slide, the big FMC OpCo's. I'm going to move clockwise from top to left. Starting at the top left, you'll see that Sunrise had a really strong quarter, leading into the spin which is always good. Broadband and postpaid mobile ads were 38,000. That's nearly double the prior year and up around 20% sequentially. This is also the third straight quarter of broadband growth improvement in Switzerland driven by reduced churn on the main brand and continued strong inflow. We're also benefiting from progress on the migration of the UPC base which we've talked out for 4 or 5 quarters now. And that should be largely completed by year-end. Those factors, along with the price rise last summer have helped deliver 4 straight quarters of fixed ARPU improvement. Sunrise also delivered another strong quarter of mobile postpaid growth, supported by improved churn and our flanker brand Yallo. The market continues to be highly competitive and this is a theme everywhere with Budget brands, heavily discounting and that's adding pressure to mobile ARPUs. Moving to Belgium; Telenet's results were largely consistent with prior quarters and up from Q2 and Q3 last year when the company was managing through IT challenges. We lost around 5,000 broadband and postpaid mobile subs in the quarter in a very competitive Flemish market, with intense promotions, by the way, ahead of this anticipated mobile launch from DIGI. To combat that, we are executing a multi-brand strategy, as you know. Most importantly, though, we now have a nationwide FMC flanker brand that's available not only in the Flanders but also in the South of Belgium, where we've just launched and are targeting a modest 10% market share. Everything is off to a good start there. And then finally, fixed ARPUs at Telenet continue to grow mid-single digit. That was helped by the price rise last year with this year's price rise of 3.5%, taking effect early June and also landing well. And then moving to VodafoneZiggo, while it was a challenging quarter in the Netherlands operationally. The financial results were outstanding. Charlie will cover those numbers. VodafoneZiggo delivered a steady quarter on broadband with slightly improved losses of $23,000 in a highly competitive market. The good news is that churn is declining on the back of extensive programs that provide more value to customers including speed increases or entertainment, customer experience improvements, fixed ARPU continues to grow in the mid-single-digit range in Holland, supported by the retention of last year's 8.5% price increase. And after steady gains, postpay mobile subs turned negative in the quarter but that was driven primarily by the loss of low-ARPU B2B contracts with local government. Similar to fixed postpaid, mobile ARPU was up mid-single digit, supported by the price rise last October. And looking forward, Ziggo implemented a 2.5% fixed price rise in July which is landing well. And it is also supported by our exclusive UEFA broadcasting rights, a strong FMC proposition and I think importantly, our successful loyalty program called Priority. And then finally, in the U.K., despite a tough trading environment, Virgin Media O2 delivered its fourth straight quarter of improved fixed ARPU results with 3% year-over-year growth in the second quarter reflecting our focus on value over volume and the retention of price rise benefits. We continue to take a higher share of gross adds in the broadband market as broadband growth in the nexfibre footprint continues to be steadily and is expected to ramp in the second half. However, as with any price rise quarter, we have seen a moderate increase in churn with overall broadband losses of $12,000 [ph], broadly in line with the prior year. The postpaid mobile market in U.K. continues to be soft. You're hearing that, I think, from all of the operators, especially at the premium end, weakness in the handset market continuing. Now while O2 churn remained stable, Lutz and the team are implementing a series of measures to rebuild postpaid mobile momentum in the second half. That includes proactive campaigns to drive retention, strong offers around new hardware launches from Samsung (KS:005930) and Google (NASDAQ:GOOGL) and iPhone later this year, renewed energy and our FMC packages and better performance in the indirect channel. So 2024 is a transition year, as we've said in the last few quarters here and we are focused -- I know the team is focused on preparing VMO2 for a strong 2025. Again, each of [indiscernible] are on the call, so we can dig into any of these markets during Q&A. Now I move to the next slide. We've talked a lot about our fixed network strategies, in particular, our fiber build plans. And then more recently, our efforts to dealer certain of our businesses by separating out our fiber and HFC networks from the service platforms. Now we've already achieved this in Belgium and we talked about it with the formation of wire which together with our partner, Fluvius, now owns and controls the Telenet HFC network passing 4 million homes plus or minus, with a commitment to deliver fiber to 80% of those homes over time. Wire is already wholesaling network to Telenet and Orange Belgium across vendors and representing about 50-plus percent utilization of the network. And they also recently announced you might have seen an MOU with Proximus to share the fiber build-out in around 2 million homes and to whole buy access from each other which would bring utilization of the wire network in those areas to over 80%, it's among the highest in the world. Similarly, we've announced our intention to create a NetCo, light wire [ph] from our 16 million fixed network passings in the U.K., 3.8 million of which have already been upgraded to fiber, together with our JV which we call nexfibre, VMO2 will ultimately have access to between 21 million and 22 million fiber homes in the U.K. and that's about 80% of the urban market. And the combined network would be available to third parties, potentially driving utilization and newfound wholesale revenue. So why are we doing all this? What is the rationale for what appears to be from the outside of relatively complicated restructuring of our operations into NetCos and ServCos in these 2 markets? I think the answer is pretty straightforward, actually. On the NetCo front, once the physical infrastructure is isolated in these platforms, they can generate made stable and high-margin cash flow driven primarily by the fixed monthly wholesale payment they receive from retailers for utilization of that network. As the utilization rate climbs, the cash flows improve, driving long-term returns to financial and strategic investors. These platforms also allow us to attract new capital which helps accelerate our network upgrade and extension plans and they can facilitate in-market consolidation of both network and operating platforms. The remaining ServCo can also benefit from the separation which we end up with is an asset-light, typically a digital-first business model that prioritizes customer experience in order to differentiate from other retailers. There's more focus inevitably on innovation to drive new revenue streams as well as the opportunity for end-market consolidation of other B2B and B2C service providers. On the far right-hand side of the slide demonstrates the hidden value in our network assets. What we show here are 9 recent fiber transactions that have been concluded in Europe where the median EBITDA multiple in those deals was about 18x. Of course, there's a wide variance of valuations which reflect things like the CapEx profile, the amount of overbuild in the market, forecast and utilization rates and what the wholesale revenue opportunity is. But we pair that to integrated telco multiples of mid-single digit where most of us are trading, this is obviously a significant premium. Now these are not easy transformations. The execution risk can be high but we're focused and we have focused our resources on the 2 markets where this will most easily be achieved. And I think where the dynamics will generate the most significant value creation for shareholders. So stay tuned. Now before handing it over to Charlie, I'm just going to spend a moment on some development in our $3 billion Ventures platform. To begin with, in October last year, we cited the $500 million to $1 billion of noncore asset sales before mid-2024. Good news, we've achieved that goal with over $650 million of proceeds through Q2 and we're targeting another $100 million to $150 million before year-end. This is consistent with our strategy of rotating capital as I said, out of Ventures and other noncore holdings and into higher growth or higher return opportunities. Obviously, the sale of All3Media and the use of that $400 million to deleverage Sunrise pre-spin is an excellent example of that. We also remain focused on building larger positions in scale businesses like Atlas (NYSE:ATCO) Edge in the digital infrastructure space where our portfolio now totals $1 billion. And Formula E, where we just announced our intention to increase our stake from 38% to 65% and what we believe a very attractive valuation. Now interestingly, I haven't talked a lot about Formula E. So on the right-hand side here, we provided a short update of this platform. After just 10 seasons, this is 1 of the fastest-growing motor sports in the world with over 400 million global fans, races that span 4 continents and revenue growth of nearly 20% As a reminder, we have an exclusive license with the FIA for electric racing that runs another 15 years. And we're riding the tailwinds, obviously, riding the tailwinds of vehicle electrification with the support of car brands like Porsche (ETR:P911_p), Jaguar, Maclaren, Messarati and Nissan (OTC:NSANY), who are also committed to that. Next season, the Gen3 EVO car be 30% faster than an F1 car at the zero to 60-mile per hour range with massive headroom on speed and performance moving forward. And the format of this racing is extremely exciting with nearly twice as many competitive overtakes per race as F1 and every champion pretty much so far being decided on the final weekend of the season. Also important to note, Formula E has been Net Zero since day zero which is another major selling point for sponsors and for fans. We definitely have work to do, particularly on the monetization of media rights globally. Another thing, this is work in progress after 10 seasons only. I think it took Formula 1 75 years to get to where it is. And we're going to continually refine the racing series, along with the FIA and with iconic racing partners like Andretti and Penske, I think the bottom line is with final future investment, the upside here, we believe, is significant and we are squarely focused on realizing that potential. So Charlie, over to you now.
Charles Bracken: Thanks, Mike. The next slide sets out the quarterly revenue in EBITDA for each of our 4 key markets: we saw similar trends to Q1 with broadly stable reported revenues across all our OpCos in the second quarter. Sunrise delivered stable revenue in Q2, supported by the July 2023 price rise and continued growth in mobile subscriptions and B2B. Now because there's no price rise this year, the second half of the year will be a price rise benefit, Telenet too posted stable revenue in Q2 despite slightly weaker mobile performance. And Virgin Media O2 reported broadly stable revenue but excluding the impact of the nexfibre construction, saw a revenue decline of around 4%. Now, the key driver of this decline continues to be lower year-on-year hardware sales which are only a very low margin and have a limited impact on the EBITDA of the company do impact top line growth. Now despite this, overall mobile service revenue and fixed subscription revenues did grow. And encouragingly, as Mike noted, in fixed, we saw improved ARPU trends supporting fixed revenue growth. At VodafoneZiggo, revenue was up 1.5% this quarter, supported by price indexation, continued growth in mobile and B2B fixed revenue. Q2 was another record quarter on mobile service revenue growth. Moving on to adjusted EBITDA performance this quarter; Sunrise posted stable adjusted EBITDA growth, including cost to capture driven by the revenue increase in the quarter and lower OpEx, particularly in labor costs and marketing spend. Telenet's EBITDA was down around 9% year-over-year, reflecting a tough comparison base against Q2 of last year. Now this included a EUR 10.5 million onetime benefit they got last year. In addition to this, the decline was due to higher staff-related expenses following the mandatory 1.5% wage indexation and growth in our overall FTA base. This quarter, we also had increased sales and marketing expenses, including the FMC launch in the south of the country compared to the same period last year when we scaled back our spending due to IT platform migration issues. Virgin Media O2's adjusted EBITDA decreased 1%, including nexfibre construction, as the quarter saw a reduced contribution from B2B fixed, Additionally, in Q2, VMO2 continued to invest in the future growth drivers, largely in IT and digital efficiency programs. And VodafoneZiggo delivered around 8% EBITDA growth driven priority by the reversal of energy cost headwinds and lower consultancy service costs. Now this is partly offset by wage increases due to the new collective labor agreement. Turning to the next slide, we give an update on the key metrics underpinning our capital allocation model. In the first half of 2024, we saw consolidated free cash flow and central spend on track. And as is the case in previous years, I anticipate cash distribution of the JVs will be realized in the second half of the year. In relation to our cash position, our consolidated cash balance was $3.5 billion at the end of Q2 2024. And the quarter saw cash inflow related to operations of $0.3 billion. We realized net cash from our Ventures of $300 million and share buybacks were around $170 million during the quarter, consistent with our guidance for up to 10% buyback in 2024. On Ventures, we closed Q2 fair market value of around $3 billion following the All3Media disposal. We made net investments of around $100 million in Ventures focusing on AtlasEdge and EdgeConneX, both the data center assets and part of our infra pillar, where we see strong growth potential and are focused on creating new unicorn assets. And finally, change to our some of the parts, we'd like to highlight the key value drivers of our stock on a per share basis. We believe the current share price of $18 to $19 per share still does not reflect the inherent value of the business and we're committed to closing this valuation graph and the Sunrise spin is the first step to do it. Encouragingly, the current average analyst valuation for Sunrise of CHF8.4 billion which is up from CHF8 billion in Q1, now implies a $12 per share contribution to the current Liberty Global stock price. And as we go through the Sunrise spin-off execution, our aim is also to unlock the remaining value sitting in cash Ventures and the other FMCs, with Sunrise in the run trade separately. So when taking the book value of cash, listed stakes and unlisted Ventures which sums to around $14 per share and combining with the Sunrise $12 per share, the implied value of a Liberty Global share is around $26 per share. This is even without attributing any value to the remaining FMCs. The implied value of current average analyst target price of $25 a share but if the Sunrise value is realized over time does imply very substantial upside on non-core from a preferred value of $7 a share to $13. Turning to our debt stack, we continue to have a strong position, maintaining long-term fixed debt profile of around 5 years. We also continue to hold our cash and liquidity at the parent company with the debt stack siloed at the key FMC assets. Now our debt silos do not face material maturities until 2028 and we remain proactive in extending the tenure. This is facilitated by our extensive swap portfolio with the swaps independent of the underlying bank debt. And importantly, this allows us to be opportunistic and strategic in the market and strengthens our attractive debt position. At Sunrise, we're proactively deleveraging ahead of the spin to ensure an initial leverage range of 3.5x to 4.5x. The CHF1.5 billion deleveraging which is approximately $1.7 billion will be funded by Liberty Global Corporate cash, summarize 2024 free cash flow and the all 3 media proceeds which we received in Q2. And lastly, I'd like to give you an update on our 2024 guidance. At VMO2, the company expects to deliver a low- to mid-single digit decline in revenue excluding nexfibre construction. Now this is a decline as a result of the lower margin hardware revenue which continues to be a headwind. However, the other revenue teams are expected to be stable and adjusted EBITDA, adjusted free cash flow and all other 2024 guidance is reiterated at VMO2 as the company continues to invest in its growth drivers. To underpin this, VMO2 has had a solid start to the year with a slightly better than 2% EBITDA decline. I also want to additionally reconfirm all other guidance at Telenet, Sunrise and VodafoneZiggo. And that concludes our prepared remarks for Q2 2024. And I would like to hand over to the operator for Q&A.
Operator: [Operator Instructions] The first question is from the line of Carl Murdock-Smith with Berenberg.
Carl Murdock-Smith: I just wanted to ask about Virgin Media O2 and the fiber rollout. So fiber now passes 5 million premises. But of that, how many are actually ready for sale? And how many broadband customers do you have on the fiber infrastructure, particularly in upgraded cable areas? The reason I'm asking is there were a few reports a few months ago that you faced delays in being able to launch services to fiber customers in project Mustang areas, where there was previously cable network.
Michael Fries: Well, I mean, I'll let Lutz dig into the details. I'm not sure we're disclosing that much information, Carl. But the $5 million breaks out into both, nexfibre about $1.3 million, I believe and the balance on our VMO2 upgrade or fiber up as we call it, we're connecting customers on nexfibre. I'm not sure we disclosed our penetration rate, Lutz. And Charlie jump in here, if you think we have, I'm pretty sure we have it. And then we're taking our time on converting HFC customers to fiber, just getting ourselves ready to do that more than anything. And that's as much around how we package and market products and services than where we build or where we don't build. So in terms of homes ready for service. Lutz, I don't believe we're providing that detail. That's how the fiber homes break out. But clearly, we're gearing up to take advantage of these fiber homes or we wouldn't be building them in the first place. But jump in here, do you think there's more we're going to say, Charlie, or Lutz.
Lutz Schüler: I mean, we are only selling…
Charles Bracken: Sorry. Lutz, I was just saying we haven't provided final [ph] numbers.
Michael Fries: Yes. Okay. Go ahead, Lutz.
Lutz Schüler: Yes. I was -- the only thing I can add is that at the moment, we are well positioned with our HFC work with our 60 million homes. So therefore, we have taken a conscious decision not to start selling fiber -- but as Mike has said, we will do and you see in our churn numbers that, at the moment, customers are not leaving our network because of fiber.
Operator: Next question is from the line of Maurice Patrick with Barclays (LON:BARC).
Maurice Patrick: It's Maurice here from Barclays. Sorry for the U.K. question. But I see in the financial, you lost, I think it was 12,000 broadband customers but you had growth in nexfibre. I'm just conscious listening to the -- looking at the BT numbers yesterday, they saw $190,000 losses of customers in Openreach, they said they were seeing increased loss to competitors but also a soft pull by markets. So just curious as to given you presumably you lost about $30,000, $40,000 of our legacy footprint, are you seeing more impact from altnets? Is it a soft market? What's driving that shift? And should we see improvement in the coming quarters?
Michael Fries: Go ahead, Lutz.
Lutz Schüler: Yes. Thank you for the question, Maurice. So in the net add development outside nexfibre, we are a bit better this year in a price rise quarter compared to last year. So therefore, yes, I agree altnets are increasing their activities, right? They're built less but they try to sell more and therefore, you see aggressive promotions. But in the scheme of things, we managed to keep our base stable in the price rise quarter. And we have now managed also to increase the ARPU and the fixed service revenue first time in 3 years. And this is a result of a completely different way of working, right? We understand every household we are serving. We have -- we run 25,000 campaigns in parallel. And we come up with individual product and price combination and therefore, we are able to maximize retained revenue. Something we have achieved for several years and it starts now to really pay off since Q3 last year. On the nexfibre area, we haven't disclosed any numbers but it is fair to say that we are a bit behind in our ambition. The reason for that is that fiber is a new product. So we had to also deliver the video product. It's a bit of different sale, it's a different sale process. It's a different provisioning process but we are getting better and better. And we stick to our ambition that end of this year, we have sold so many fiber customers into the nexfibre area that turns into a growth driver for '25. But I think it is simply a ramp time. We lost a couple of months there. But month over month, we faced record months in sales and provisioning. And we want to sell and we will much -- sell much more in second half. I hope that answers your question.
Maurice Patrick: Yes. Just maybe on the phasing, sorry for a quick follow-up. But if you look at the cadence of net-adds and ARPU, it should be maybe different this year given the way the price increases put through?
Lutz Schüler: I mean, it could be but the majority of our customers are in contract. So we know exactly how many will be out of contract. So we don't expect a massive different phasing there, a little bit, it could be.
Operator: The next question from the line of Ulrich Rathe with Bernstein Societe Generale (OTC:SCGLY) Group.
Ulrich Rathe: I wanted to ask a little bit about the Belgian memorandum of understanding. So the idea for the mutual wholesale access, could you just confirm that's at the active for the passive level? And also when you envisage sort of an agreement eventually, obviously, the terms aren't really announced and probably not finalized it. But do you essentially foresee this JV to -- JV, sorry, this carve up to offer terms to each other, to the partners on a reciprocal level that are different from the terms that are offered to other takers? A virtue of the underlying agreement? Or are the wholesale essentially going to be open to all take us at the same level?
Michael Fries: Yes, it's a really important question. And just to remind everybody that -- the contract is under -- is now being reviewed the regulators. So we're hopeful they'll see it -- the way we see it as a very constructive development for the market and for the operator. John, Do you want to address the specific issue around wholesale rate to the extent we're disclosing that at all?
John Malone: Yes. But first of all, for clarity, it is a passive -- reciprocal passive deal ultimately with Proximus, where Telenet will be building 60% and Proximus 40% in the collaboration zone which is about $2 million of the homes path in Flanders. The principle of it being open and nondiscriminatory is already a public principle articulated by the regulator. And we do have a regulatory process which will be underway here very shortly. But like I said, the principle of a nondiscriminatory regime will be in place in part of that agreement.
Operator: The next question is from the line of Polo Tang with UBS.
Polo Tang: It's on Switzerland. Can you maybe talk through what you're seeing in terms of competitive mix in the Swiss market? And can you maybe comment on a few specific factors. So for example, what's happening with promotional activity, specifically in the Swiss market. Also, is there still a drag on financials and KPIs from the retirement of the UPC brand. And then also going into Q3, Q4, should we expect your Swiss financials to see slower growth as you start to lap your 4% price rises from July 2023.
Michael Fries: I mean I'll let Andre address the competitive dynamics. And I think I mentioned in my remarks, Polo, we believe the UPC migration will be done by year-end and we'll have an increasingly smaller and smaller impact on results. And I don't believe we've provided quarterly guidance but take a look at where we are year-to-date through the midyear and where we ought to get to the full year guidance. So I think you can do that on your own. Do you want to talk about the competitive dynamics andre?
André Krause: Sure. Yes. Thanks for the question, Polo. So I would describe the competitive dynamics as promotional intensity being high but at the same time, we are seeing a bit of a worrying off effect. Meaning liquidity in the marketplace is somewhat reducing. I guess, customers are increasingly getting tired of the ongoing price promotions being the only argument being raised. On the back of that, I think our inflow was benefiting from 2 additional features that we have launched. One was the Flex (NASDAQ:FLEX) upgrade program on hardware which is a very strong driver of our inflow at this moment. So that's perceived as a differentiating factor. And second to that, we have also announced that we are increasing our HFC speeds for 70% of the population in Switzerland to 2.5 gig. That's another differentiating factor. Very relevant one, we believe, because, a, of course, there's only 40% of the country today covered with fiber and all additional HFC coverage is having a unique situation, not only delivering 1 gig but now 2.5 gig which we think is also strengthening our position with customers when fiber rollout will increasingly get to areas where we have been a unique selling proposition with HFC so far. So I think that's positive. Additionally, I think worthwhile mentioning where we have seen good dynamics on our own info. You've seen 33,000 and 5,000 on mobile and broadband, respectively, on broadband; now the third quarter consecutively where we have been in the positives. That is not only on the back of strong inflow but furthermore we have reduced churn which is on the back, again, of increased retention activities, increased and improved service capabilities and our ability to differentiate through the product additions that I mentioned. So I think overall, it remains an intense market but we see some wearing of promotional activity, I would say, to consumers. And on the back of that, we just recently also have seen that the amount of discounts being granted has been slightly reduced. So I think that's a positive indication going forward and we will continue to drive that trend.
Michael Fries: And as with other markets, having this dual-brand strategy is making a world, a difference because you can compete with Salt on one hand and Swisscom on the other hand, with products that match their offers and the customers they're targeting.
Polo Tang: But just on that dual-brand state question. You only have one.
Michael Fries: Go ahead, Polo.
Polo Tang: Just on the dual-brand strategy. You don't have one in terms of the U.K. because you have a premium Virgin Media O2 brand. So that's a different setup from other markets now.
Michael Fries: No, we have giffgaff. Giffgaff is our, well, flanker brand, if you will, in the U.K. and arguably one of the stronger elements of growth. giffgaff is a really digital-first incredibly popular mobile brand which at some point, could be a broader telco brand. But that's our brand in the U.K., giffgaff. Do you want to say any more about that, Lutz? Okay.
Operator: The next question is from the line of David Wright with Bank of America (NYSE:BAC).
David Wright: I guess, Mike, Lutz, just more of a question on U.K. potential consolidation. I'm just wondering whether this dynamic of the altnets maybe focusing the financial resources more on loading the network and provisioning rather than building. Does that create any potential sort of hurdles to consolidation, the fact that you might -- any of these businesses might have incumbent subscribers, maybe on discounted pricing, could that create any more regulatory challenges? And I guess there's an obvious kind of TalkTalk has, I think, even themselves have made it quite clear the there's an element of distress around that business at the moment. Do you think given the kind of going concern risk that the U.K. regulator could even consider customers from TalkTalk possibly even being acquired by the 2 biggest network operators yourselves and BT?
Michael Fries: Well, I'm not going to speak about TalkTalk. You can read about their situation. And it's premature to determine or even guess to what the regulator may or may not do and what they may or may not do. We're not assuming TalkTalk is doing anything but competing with us until they're not. So not much to add to that. On the altnets question, I mean you are seeing what you described which is a slowdown in build as financing and capital slowly dries up and I think that will continue. There will be winners and losers in that game. Some continue to raise capital. Others will consolidate and others will stop build. And so inevitably, one way to improve their prospects is to start selling more directly and perhaps more competitively, it's still very early days. It's too soon to tell whether this will have an impact on the broader market, whether it will have an impact on their futures and -- or our ability to consolidate or not in this market. But I think the trend is the same and I'll let Lutz if he wants to -- or Andrea, if you want to speak to it. The trend is the same. There are companies like -- nexfibre which is fully financed at GBP 4.5 billion that we own a piece of, that is going to be building, full stop and is going to generate -- get to 5 million to 7 million homes in home. No question about it. There's VMO2 which is going already at 16 million [ph] and 3.5 million, 4 million of which are fiber and is going to get to full fiber, full stop. So there's going to be platforms like ours with 21 million to 24 million homes and that's a certainty and BT is a certainty. And the rest, we'll see how it shakes out. I think it's -- the writing is on the wall, so to speak but that doesn't mean between here and there, it's a straight line. There will be puts and takes. We look at M&A prospects along 3 or 4 levels. First of all, what's the overbuild with us, if we can upgrade at GBP 100, what's it worth it to us to acquire an existing fiber home that somebody spent GBP 500 to build. Secondly, the quality of that network, obviously, what it would cost us to get to our sort of level of sophistication. And thirdly, is there a customer base. And maybe your main question is, does the existence of a customer base on an alternate change that dynamic materially. And I would say no. If there are customer and we would look to see how those could be integrated or required or migrated. That in and of its doesn't change the principal analysis. It's more about where they built, how much they've spent to build and how it fits with our broader strategy. I'll maybe pass Andrea, do you have anything to add to that as the Chairman of nexfibre.
Andrea Salvato: No, I think you've summed it. Yes, Mike. I think you summed it up well, Mike. I would simply say that there's also a certain amount of value expectations, I think that need to get reset in the market, before we can start to see material consolidation. So I think that's one of the other issues that people are struggling with at the moment.
David Wright: Just put the -- you just put the infrastructure multiple out there, haven't you guys in one of your early slides, I think you've given the market its price point.
Michael Fries: Well, I would say those are pure NetCos with scale and cash flow. So it's a little different. That kind of is a little different market. Yes and existing customers; but a fair point. Yes, there you go.
Operator: The next question is from the line of Joshua Mills with BNP Paribas (OTC:BNPQY).
Joshua Mills: It comes back a bit to the cable versus fiber debate. And my question is, how do you -- can you talk a bit about how you're testing DOCSIS 4.0. And then going back to Andre's comment earlier of the improvement in speed in the Swiss cable network, can you maybe give any stats about the kind of commercial benefits you're seeing where you do upgrade can to faster speeds and maybe just give us a sense of how much the network longer term will go to that? And maybe if I could tack on 1 small question. One of the points of the Proximus sale today is they're now going to be wholesaling from you on cable in 700,000 homes. I think in the past when you've talked about your cable versus fiber strategy. One of the points about the U.K. was a benefit of upgrade to fiber gives us that opportunity to wholesale. Now you're doing that just on the cable network, so you don't need to make that investment. Do you think this could be a template for other markets in the future as well? And how should we think about that?
Michael Fries: Yes. That's a good question. And Josh and I'm not sure we have enough time to answer it but I'll take a quick crack on it and maybe Enrique can chime in here, too. First of all, we have been wholesaling cable or a hybrid fiber coax in Belgium [ph], I don't know, 5 years or something like that. We were regulated in Belgium and obligated to open up the cable network and Flanders. And we did and Orange Belgium is a very happy customer on our cable network and has hundreds of thousands of customers and will be and has already committed exclusively to our fiber build as we do that through wire. So there are situations where either it's HFC or fiber, wholesalers are happy as long as they're getting the speeds they want the service, the quality, it works fine. We haven't done it anywhere else. We haven't been obligated to do it anywhere else. It doesn't mean we couldn't do it elsewhere. But I think when you step back and ask the question, why wouldn't we do it, in say, the U.K., principally, it's because the cost to upgrade the fiber and the cost to upgrade to DOCSIS 4 in the U.K. is about the same within spitting distance, so to speak and when you have the choice of upgrading to DOCSIS 4 or fiber in a market like the U.K. where you own your own DOCS, it's pretty clear that fiber makes more sense for the long term when you -- might need to look at DOCSIS 5, DOCSIS 6. But more importantly, when the entire wholesale market is working off of a fiber platform, beginning, of course, with Openreach and even altnets then to be competitive to be in that marketplace, you're going to need to go fiber. So there's a market check. What's needed at the commercial level, what's the rest of the sector doing in that market around access or kind of technology. So that's driving the decision in that market. In Belgium, we are happy as HFC wholesalers and we'll continue to do that for some time. But slowly and over time, we'll migrate that network to fiber as we've discussed and clarify today with that MOU. And then Switzerland, we're taking an even different approach which is let's use the best technology for the particular customer in a particular region. And so in that market, we have a complete option, a menu. We can access our 2.5-gig HFC platform. We can access the Swiss -- Swisscom's fiber platform. We can build fiber. We really have the best of all options there. Clearly, we'll migrate as many customers as we can to our own infrastructure because that benefits margins but we really have the flexibility to be competitive from a retail point of view with whatever technology makes the most sense. So there's not one size that fits all in this equation but it typically revolves around the cost to upgrade, the market realities of the competitive environment, the wholesale environment, the revenue opportunity in wholesale and whether or not regulators are requiring us to do one thing or another as they did in Belgium, for example. So I think we're taking the right approach. If you dig into each and every one of them, you'd see that they are the correct way to attack the economics, the technology, the customer opportunity, the competitive environment. And it's great to have that ability to be flexible. So I hope that's addressing your question. But if there's anything further, maybe follow-up and let's make sure we've done it.
Joshua Mills: Yes, that's very clear. And I'm guessing the -- any detail on how faster broadband speeds on the cable out in Switzerland, as the old cable network might wait for the C&V now [ph].
Michael Fries: Okay. Yes, they'll dig into that for sure. Operator?
Operator: The next question is from the line of Luigi Minerva with HSBC.
Luigi Minerva: It's about the Netherlands and your pricing strategy. If I think about your broadband price increase last year, I think you just did exactly what KPN did back in July 2023. Now this year, KPN is going for 3.8% growth. And VodafoneZiggo is going for 2.5%. And I was wondering what is the rationale behind this and how you see competitive dynamics in that market?
Michael Fries: Yes, we've got Ritchy on, who's our interim CEO. I think it's as much as anything to do with the fact that we're trying to remain competitive in a declining inflation market which doesn't call for the same sort of increases. But Ritchy, do you want to provide more color on our price increase level?
Ritchy Drost: Yes, for sure. Thanks, Mike. The 2 things. First and foremost, we do a price increase both on the back-book and front-book. It's not similar to the others in the Dutch market. But also keep in mind that the inflation in the Netherlands is falling. Last year, we had about 10% inflation. And we did an 8.5% fixed price increase. This year, the inflation is 3.8% and we're doing 2.5%. The price increase in itself is, I would say, not a reflection of the competitive position in the market but it's all about price value perception. We do see that customers who decide to leave us, use cost of subscription as a main reason for them to churn. And hence our decision to go slightly below the inflation level to make sure that the price sort of value perception stays in balance with market expectations.
Michael Fries: Last year, as you recall, KPN took a price increase on their back-book and lowered their front-book. So some of this is signaling to perhaps. We've always taken price increases on both front book and back book. So hopefully, there's a more rational market here.
Operator: The next question is from the line of James Ratzer with New Street Research.
James Ratzer: So if it is possible, just go back to talk about TalkTalk in a little bit more detail. I know you might be limited in what you can say. But are there any scenarios, you can see in which you might interest in acquiring some of the asset or the rate at which customer base is declining at the moment just makes it kind of too risky to get involved like the asset you think you see now that when it comes to closing. [Indiscernible] you had on that particularly would be really interesting.
Michael Fries: James, I want to make sure I heard the first part of it. I got the jist of the question around M&A but which entity are you referring to?
James Ratzer: TalkTalk, in particular in the U.K. because that -- [indiscernible] so just to get your thoughts on that, though it is too risky an assets to be looking at right now, given the rate customers are coming down?
Michael Fries: Yes. No, I got you -- I just didn't hear that first part, you're coming in and out a little bit. I don't think we have anything to say about TalkTalk today. I mean we watch as others do, with great interest of what's happening across the sector in the U.K. but obviously, with TalkTalk, they're competitor. And we certainly are watching what they're doing and what they're considering doing and with their B2B, with their network, with their consumer business, it's really outside of our control. And if there were opportunities, you should assume we would be looking at them but there's nothing I can say about that today.
Operator: The next question is from the line of Matthew Harrigan with the Benchmark Company.
Matthew Harrigan: I think I'm last American [indiscernible] these days. Conceptual question really at the some various other industry organizations, I think you had some consultancies, like McKenzie really commented on how you've had trillions of dollars of equity value created, Silicon Valley and other places of telecom networks and you've really obviously borne the cost without necessarily having that much impact. Is there anything that's different about the service code that would enable you to participate better in fintech, entertainment, health care, et cetera? Is that like a -- at least complementary rationale for doing this relatively complicated structure?
Michael Fries: Well, possibly, Matt. I mean, I think both entities, Netco and the ServCo are probably better positioned to compete long term and take their fair share of that ecosystem. I mean, you correctly point out that net neutrality as a whole, created haves and have nots, right? And the haves are anybody in the big tech space, selling apps and access largely for free. And we in the infrastructure, connectivity space have obviously experienced more competition, higher CapEx and higher usage and capacity requirements. So with some ability to pass that a lot of consumers but not as much as we'd like. So going forward, there's a handful of things the industry in network-as-a-service. I'm sure you're following that, new products and services in the home and how we might take advantage of that. AI which is going to give us a much stronger, some more sophisticated way to manage customers and our networks. But the Netco cervical model itself certainly should create a more agile ServCo management team and product and brand, looking at accessing the NetCo as well as perhaps other networks to try to drive services into the home and into business. And the NetCo itself will become really a connectivity provider first but also depending on who the user is, more sophisticated transport hub. So I don't think it, by definition, makes it easier to ensure that the next 10 years don't look like the last 10 years but I think it certainly bends that way. And I think in some instances, depending on how well we execute and kind of structure we put in place and the capital we have, think it could actually that but we've got things to do the board even in our integrated businesses to make sure that the next 10 years look different than the last 10 years. And I think the toolbox, as I said, the outset is pretty good to make that happen.
Operator: There are no further us time. So I would hand the call back to Mike Fries.
Michael Fries: Great. Thanks, everybody, for joining. I hope you have incredible summer wherever you are, whenever you're doing and do please put in your calendar September 9 in Zurich or September 9, wherever you'll be, be connected, of course, to our Capital Markets Day. For Sunrise, we really look forward to getting that process moving in earnest in the fall. So thanks and we'll speak to you soon again.
Operator: Ladies and gentlemen, this concludes Liberty Global's second quarter 2024 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 the presentation materials.
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