Liberty Global plc
Q2 2022 Earnings Call Transcript

Published: 29 Jul 2022

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by and welcome to Liberty Global's Second Quarter 2022 Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. At this time all participants are in a listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for a question-and-answer session. Page 2 of the slides details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical 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 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. Please go ahead.

[Mike Fries:]

All right. Hello, everyone. Thanks for joining us on our second quarter results call. We've got a lot of ground to cover today, so we're going to jump right into it. And Charlie and I will handle the prepared remarks using the presentation we posted and hopefully, you've got in front of you, and then we'll get to your questions. I'm starting on Slide 3 as I usually do with five key headlines from the quarter. First of all, it goes without saying that these are challenging times for all of us. Every market is grappling with inflation, higher energy costs, supply chain issues and concerns about recession. Obviously, we're not immune to these macro conditions as such. And to be clear, we are experiencing some headwinds across our business, principally in energy costs and some emerging signs that consumers are growing fatigued and more price conscious. But on the other hand, having operated through several of these moments before and based upon the strong performance we were able to sustain during the pandemic, we think we're really well positioned to manage through the current environment. The demand for connectivity, fixed and mobile, has never been stronger, and we don't see anything impacting that long-term secular trend. In fact, we see more positive catalysts for consumption going forward, whether that's smart 5G solutions in the B2B space or the continuation of hybrid working, the proliferation of gaming, adoption of streaming services or whatever ultimately flourishes out of the new metaverse. Secondly, on top of these secular drivers, we have some built-in tailwinds that support our operating and financial momentum. As we've reported, in just about every market, we've been able to adjust our prices to reflect rising inflation to the quality of our connectivity services. We're also right on track with the realization of significant merger synergies in the UK and Switzerland, which, combined, will ultimately generate annual cash flow benefits to us of nearly $1 billion. And then we continue to support volume growth and ARPU with innovative products and services across our FMC platforms. I'll talk about that in a second. Third, consistent with these plans to innovate and compete, we have prioritized the continued development of both our fixed and mobile networks. Now as you would have seen, we've announced some, we think, really smart and accretive decisions recently that will solidify our position as FMC champions in these core markets. This includes two recent announcements

[Charlie Bracken:]

Thanks, Mike. The next slide sets out our revenue performance in Q2. Broadly, we've managed to deliver stable revenues despite a true economic climate as price rises across our portfolio begin to feed through into increased revenue growth. Because of its price rises, Virgin Media O2 has returned back to overall revenue growth this quarter, showing, in particular, strong revenue growth in mobile. Although fixed subscription revenues were broadly stable, a decline in install revenues from circuit installations in our B2B division compared to last year meant overall fixed revenue showed a small decline. In Switzerland, stable revenue growth in the quarter was a mix of continued strong mobile growth driven by strong volumes across our brands combined with the decline in fixed revenues. Fixed revenues declined due to ARPU pressure, with some softer volumes in part because of the brand migration from UPC to Sunrise in the quarter. In the Netherlands, we saw a modest revenue decline year-on-year driven by ongoing declines in the B2C fixed base, partly offset by strong mobile and B2B revenue growth. The business introduced our blended 3.5% price adjustment in fixed this month, which we expect to improve fixed revenue growth in the second half of the year. And in Belgium, Telenet top line growth continued, driven by the 2021 price adjustment on subscription revenue, strong handset sales and roaming visitor revenues. Given the price adjustment of 4.7%, which landed in June, we expect further support to the top line in half 2 as it lands across the majority of the base. Moving on to our adjusted EBITDA performance in the quarter. Virgin Media O2 delivered around 4% EBITDA growth in Q2. This included a $19 million OpEx cost to capture within the quarter. EBITDA performance was driven by the price adjustment and early synergy realization. We continue to expect EBITDA growth to trend upwards in half 2 as the impact of the price rises continues to land as well as the realization of further merger synergies. Sunrise saw EBITDA growth moderate after a strong Q1, with Q2 broadly stable. This was due to higher cost to capture operating costs compared to Q1, and a big part of the $19 million of cost to capture in the quarter was due to the Sunrise rebranding. Excluding the cost to capture, the EBITDA growth was supported by the ongoing benefits from the MVNO migration executed last year. VodafoneZiggo witnessed an EBITDA decline of over 2%, driven by the top line decline and cost inflation, including energy. The business also stepped up promotional activities for the Ziggo Sprinters campaign in the quarter. And finally, Telenet reported a modest decline in EBITDA driven by the continued impact of energy and labor costs. Overall, in line with guidance, we expect EBITDA growth to be largely half 2 weighted supported by the mid-June price rise. The next slide has an update on the key inflation and macroeconomic challenges that we discussed last quarter. Firstly, on our energy costs, which typically constitute a low single-digit percentage of operating costs. For 2022, we're now around 90% hedged in terms of our exposure across our operating companies. And we also continue to hedge opportunistically for 2023 and are looking to be fully hedged for 2023 by the end of this year. Secondly, wage increases have largely been agreed across our businesses, in line with the budget. However, we continue to monitor the impact on our workforces given the tight labor markets. Thirdly, although we continue to see some macro-driven pressures on our supply chain, we have managed to leverage our scale and long-standing supplier relationships to manage them well. In response to higher inflation, generally, we've implemented a number of price adjustments across our markets, which are generally higher than in prior years. Despite these higher increases, our internal trends currently show that our price rises in the UK and Holland have landed successfully with limited churn impact. Finally, we continue to see our integration efforts in the UK and Switzerland support profitability, which differentiates us from our competitors given the multiyear synergy runway ahead in 2 of our biggest markets. Moving to free cash flow and the key drivers. We delivered $564 million of full company free cash flow on an adjusted and distributable basis in half 1. The second quarter was a strong quarter for the distributable free cash flow. It was over $400 million and was supported by dividends from Virgin Media O2 and VodafoneZiggo. Turning to our capital allocation slide, and starting with capital intensity on the left-hand side. We're on track relative to our CapEx guidance across the 4 major OpCos in the first half of '22. As you can see, capital intensity varies across the businesses. And Mike's already covered a number of our updated fixed line network investments, which is a major driver, depending on the local strategy. On mobile, we continue to progress well with 5G, with the OpCos at different stages, often driven by the release of spectrum. Swiss coverage is the highest at around 95%, the Dutch are at 80%, with the UK and Belgium now starting the rollout. On a consolidated basis, our CapEx split continues to be around half on product enablers and CPE and the other half on baseline, capacity and new build upgrade. On the right-hand side of the slide, we give an overview of our debt complexes. We believe that these are well hedged and provides significant value to our shareholders. The interest expense on all our debt is 100% fixed. For any variable debt that we raise, such as term loans, we swapped to fixed rates to maturity. For any debt not raised in the currency of the local company, the debt is swapped back into local currency. And our debt is solid across various debt complexes. That means that even if one gets -- a company gets into distress, it will not affect the other companies. And virtually all of our loans don't have any covenants. We've also locked into a long-term debt structure with an average life of 7 years. Our Swiss franc and euro borrowers have all locked in fixed rate debt below 4%, and in the UK where there are higher underlying interest rates, we've locked in 7-year debt at 4.6%. Lastly, turning to ventures. The fair value of the portfolio fell slightly to $3.2 billion driven primarily by the continued decline in the ITV share price during the quarter. Now you can find additional detail around our portfolio and the key quarterly movements in the appendix. Turning to our guidance. We're now confirming the guidance of each of our key companies set out on the left-hand side of the page. We're also reconfirming our group guidance of $1.7 billion of distributable free cash flow. This is based on guidance FX. And since we guided, there's been a pressure, particularly on the pound/euro relative to the dollar. Despite this, we continue to track well on free cash flow, as highlighted by the strong Q2 free cash flow performance. Now as a reminder, distributable free cash flow was a new metric we introduced in 2022 that includes both our free cash flow as historically defined and additional cash that we received from our joint ventures from any recapitalizations. Our distributable 2022 free cash flow forecast include cash that we expect from a debt raising at Virgin Media O2 as part of the GBP 1.6 billion overall shareholder distribution guidance. Now despite the market volatility, we successfully arranged attractively-priced financings to fund the distribution, not least as we have pre-hedged interest rate exposures last year before the rates started rising. We've continued to execute on our buyback commitment, having already almost closed on a 10% buyback floor that we've been publicly targeting, having bought back 50 million shares year-to-date. As Mike mentioned, we're looking to execute another $400 million for the remainder of 2022 and take advantage of what we see as a large value gap in our stock. Our balance sheet position remains strong, with total liquidity of $5.6 billion, including $4.2 billion of consolidated cash, which does include a large cash balance at Telenet coming from the tower proceeds that they made. Given the increase in the buyback by $400 million, we now expect to end the year with around $3.6 billion of corporate cash. So that doesn't include the Telenet cash, the corporate cash, which we can obviously use to support returns for our shareholders. And with that, operator, let's go to Q&A.

[Operator:]

[:]

[Stephen Malcolm:]

It was just a question on the UK joint venture and the decision to relever it, whether you've given any thought to not doing that. I mean it doesn't seem to have benefited the shares, particularly as we go into tougher economic times as an argument that the business will be better off being levered a little bit less lightly than has been the case. It gives options [ripe for] the future. So just any thoughts on that and how you think about the leverage going forward, and whether you try and run it up towards that 5x ceiling or whether a lower level might be more appropriate in these are somewhat more challenging economic times.

[Mike Fries:]

Well, I'll take a crack at that, and Charlie, you can fill in the gaps, or André. But first of all, thanks for the question, Steve. Listen, the margins on these NetCo structures, as you are probably familiar, very, very high. And this NetCo, in particular, is a light NetCo, meaning that many of the activities are being offloaded to Virgin Media O2 themselves. So it's our belief that the funding structure we put in place is fairly typical and not overly aggressive at all for these types of platforms and that the equity and the debt together provide all the capital we need to get it done and that it's certainly consistent with the leverage structure we've implemented elsewhere in the organization on businesses with lower cash flow margins. So it seems appropriate to us. And -- yes.

[Stephen Malcolm:]

Mike, sorry, I just -- I was more about VMO2 leverage rather than the NetCo leverage….

[Mike Fries:]

You mentioned NetCo. Sorry.

[Stephen Malcolm:]

Sorry, sorry. My bad...

[Mike Fries:]

No problem. No worries. Charlie, do you want to address leverage overall? Go ahead.

[Charlie Bracken:]

Yes. Sure. Look, first of all, as you know, we've always been very comfortable with 4 to 5x leverage. Secondly, we are -- and this is a great customer, by the way, to net margin and the rest of the treasury team. We've been able to secure some very attractively-priced financing, at least for this recap. And if you can borrow sub-5% type numbers, I think it's pretty attractive for shareholders. We can distribute the cash back to you, and we can drive higher returns for the long-term shareholders benefited. Thirdly, I think there's a pretty strong free cash flow cushion and an even bigger one if you wanted it because you could obviously scale back in the new build CapEx. So I don't think these companies were overlevered. I do hear you that if one were to IPO in Europe, there is a traditional policy of having a lower leverage, but I don't think we're looking at an IPO of the Virgin Media O2 at least in the near term, not least because the story is coming together very, very nicely. And I must say this off balance sheet JV that André has done, it's really very impressive. So in our minds, no, there's no reason to not leverage up if the money is there at an attractive price. You might have seen with Telenet, we at least felt, I think it was very important to be given the dislocation of the market. And in fact, there wasn't -- we [had] arranged very attractive financing. So they've got a terrific debt stack, low 3% fixed rate, 6-plus years. In that market, I didn't think it was sensible to commit to a dividend policy when you are recapping that business. Because you know what, you don't know what the price of the debt will be, and you don't know who'll do that. So I think there's a distinction between that, at least in the UK, if that helps.

[Stephen Malcolm:]

Can I just ask one quick follow-up on the NetCo and just how the anchor tenancy works? Do you commit to certain volumes? Or is it just best efforts?

[Mike Fries:]

There's no minimum volume commitment. We shouldn't get into too many details here, but Virgin Media O2 will be an exclusive anchor tenant and will use that network.

[Stephen Malcolm:]

There will be a minimum volume that you will have to deliver onto the network. Is that right?

[Mike Fries:]

There will not be.

[Stephen Malcolm:]

There won't be. No minimum volume. Okay.

[Mike Fries:]

Correct.

[Operator:]

And our next question comes from the line of Luis Lecaroz.

[Luis Sanchez-Lecaroz:]

How quickly do you think you can start rolling out and getting customers on board given the complexity of planning and supply chains in the UK?

[Mike Fries:]

Lutz, do you want to address that?

[Lutz Schüler:]

Yes. So we used the time -- yes. So I mean maybe three answers here. Number one, right, we have built already 3 million homes. So that means we have a strong relationship with a couple of vendors here, helping us with our network. Second, right now with Liberty Global, Telefónica and the joint venture, we can now give long-term commitments to these partners, suppliers in the market. And we have used exactly that to ensure already additional Tier 1 supplier, and now we're able to sign these contracts. And so you will see from us a jump-start going directly into high level after closing of the joint venture.

[Operator:]

And our next question coming from the line of James Ratcliffe of Evercore ISI.

[James Ratcliffe:]

I'll continue on the topic of NetCos. I mean you've done one now in Belgium, and for the expanded footprint in the UK. I can certainly understand the benefits of giving investors the opportunity to target an infrastructure play, who might not find an OpCo particularly attractive. How do you balance that against the fact that this is creating a wholesale NetCo that would certainly ease competitive entry for alternative providers rather than owning the network potentially entirely yourself and with the OpCo and having quasi-monopoly status, particularly in those additional areas of build out?

[Mike Fries:]

Well, James, I think in the UK, it's a pretty easy answer. This is all greenfield territory. So it just -- as with Lightning, when we build a network in the new markets that Virgin Media has been expanding into for years, we get between 25% and 30% penetration right away, even though there's other operators or everybody's already marketed that territory. So we feel very confident in our ability to penetrate this new greenfield network, up to 7 million homes of it and to penetrate it well. And we're not necessarily -- most anybody who will -- who joins us on this NetCo infrastructure will already have marketed those territories and have other options for entering those territories. So we're not giving anything away here. These -- many other operators already got access to multiple networks probably, or at least one, for sure, in the territories that we're targeting. And if they join us on ours, it just reduces our overall cost and increases our overall return on infrastructure we would be building anyway. So it's a no-brainer in the UK. And I think in Telenet's case, remember, they already opened their network. Telenet's already a wholesale provider on HFC. All they'll be doing is becoming a wholesale provider on fiber over time and retaining and growing that wholesale revenue, which already supports their business. So I think in Belgium, it's also -- makes logical sense.

[James Ratcliffe:]

Just a follow-up, if I could. When you think about the other parts of the footprint, both JV and wholly owned, does it make sense, structurally, for the NetCo and the OpCo to be separated if you're not talking about footprint expansion? Or are those 2 pieces still classically better together?

[Mike Fries:]

There's pros and cons. The pros, or what we're leaning on here in both instances, the pros are you're bringing in typically higher leverage, outside capital and an infrastructure focus to an asset class, if you will, that's generally highly valued, and in recent times, materially higher multiples than our own business. So there's financial reasons, strategic reasons and ideally operating reasons for those separations. It doesn't mean it works in every case. Certainly doesn't work in every case. And for example, in Switzerland, we're not doing this. In Ireland, we're building fiber but retaining control of the asset, because it's a relatively small investment in a relatively inexpensive build. And it's unclear we would be able to attract interest in something that small. So I think, yes, it's horses for courses. And I think that's the smart and agile way to run a business. You don't come at it with a blocked view. "It's only going to look like this." You look at the market and the variables in the market, and you make the decision that creates the most value. I think that's exactly what we're doing.

[Operator:]

Our next question comes from the line of Sam McHugh of BNP Paribas.

[Samuel McHugh:]

Just sticking on the UK, sorry. You mentioned a bit more impact from dilution and discounting. So when we think about ARPU trends through the year, should we think about them as being pretty similar to this quarter and maybe getting a tiny bit worse? And I think in that context, we're also in the headlines around TalkTalk. I'm pretty sure you can't comment on it. But strategically, do you think it makes sense to get a bit more exposure to a discount market at this juncture in kind of the macro cycle?

[Mike Fries:]

Answering your second question would be doing just that, commenting on it. So no comment. But do you want to handle the first question, Lutz?

[Lutz Schüler:]

Yes, sure. I mean we have done the price rise in Q1. Our customers had done a 30-day cancellation period, and we have applied 6.5%, right? I mean other market participants have used a different mechanic, meaning a higher price rise, no immediate cancellation, right? And they have applied the price rise also for customers who are within their existing promotional period. So therefore, you can, from our side, say price rise has landed in Q1 as planned, and there's more customers coming off the promotion period over time, and will therefore get the price rise during the year. The other thing, and Mike has mentioned that, we see both in the acquisition market and also in the retention market a bit more pressure, yes? And we think that it's partly coming from the cost of living crisis. So meaning that when you look at sales for acquisition, it's more focused around 50 meg products circling around GBP 20, GBP 25. And then obviously, when there's a lot of advertising of these products in the market, the appetite of existing customers to reduce their monthly bill and the cost of living crisis as low. So we see it a little bit, and it's hard to predict how this was developed during the course of the year. But we are not seeing a destabilization of ARPU, if that helps.

[Operator:]

Our next question comes from the line of Robert Grindle of Deutsche Bank.

[Robert Grindle:]

Sticking with the UK. How would it work if there was M&A in the fiber JV footprint? Is it that you'd swap CapEx for an acquisition and not build in those areas? Or could the footprint grow by more than the 7 million by M&A? And if, say, VMO2 bought more customers onto the JV, you're more successful in getting the penetration up. Do you just get the value of that through the equity stake? Or do you get a sort of an earn-out as penetration moves up?

[Mike Fries:]

Yes. That's a good question, Rob. I'd say in your first question, all the above in terms of how that would work in the M&A structure. We would -- and I think we say that -- I said that, in my remarks, this JV could certainly make acquisitions of existing altnets, and if they were interested or if it made sense and there was no regulatory and financial support for the decision, and I think we're positioned to do that with three partners who have capital and understand the business very well. Let's see how things unfold, but that's one of the interesting upsides here, for sure. And then on the second question, there aren't that many customer bases to buy, so I wouldn't even comment on it. I mean most of the altnets don't have retail operations. Or if they do, they're quite small. So I'm not sure that would, in the case of altnets, that would be material.

[Robert Grindle:]

Yes. I was referring to a regular retail ISP, actually.

[Mike Fries:]

I know you were.

[Operator:]

And our next question comes from the line of David Wright of Bank of America.

[David Wright:]

Perhaps just a little more top down, Mike. We've talked about strategy over the last few years. Very clear that you guys executed deals to build the FMC champions. And then there was always a potential to consider local listings to open up the asset and investment opportunity to guys who maybe can't sort of acquire the U.S. holdco. It does feel like that's maybe -- that opportunity has perhaps been moved on a little. And I know the NetCo-ServCo question earlier. Is that perhaps a better route now to sort of unlocking value is to start bringing some of the infrastructure assets together? And I know you didn't go into this JV with VMO2. You went in test as equity shareholders. And then I guess just a part 2 on the sort of NetCo concept. The one thing we are noting is that a lot of telcos are doing this. You mentioned it's similar to other deals. But what it is tending to do is bring complexity into the equity case, which is bringing increasing conglomerate discount. And of course, you are essentially shifting away from NetCo to ServiceCo because you are selling part of your infrastructure. And that means ultimately a derating of your multiple. And I know that you very often talk about the market disconnecting your share price with the value of your company, but is this not compromising that to some extent? I'd be interested in your thoughts.

[Mike Fries:]

Yes. Those are really good questions, David. I think on the second one, I don't think it is compromising our goal. Let's just take the UK, for example. It's an incremental investment on top of a core FMC business that we believe has immense tailwinds, whether they're synergy-driven, brand-driven or operating-driven. And we make that argument all day long. You'll put whatever multiple you think it's worth. We'll think it's higher, and we know it is. Having said that, this particular expansion of the network is incremental and on top of that and we believe, as you've already indicated, could generate potentially higher multiples if we ever brought in additional financial partners or did some sort of roll up or things of that nature. So I think we're -- it's the best of both worlds where we're actually strengthening the core FMC business, validating what we think value is in that core FMC business by giving it room to expand and grow its footprint in a really cost efficient and, we think, accretive structure. Now it might be slightly different. I understand your point perhaps differently in Belgium, where you're taking a business and breaking it in 2, if you will, and what does that look like and how would that be ultimately valued. And I think even in that instance, I mean, Telenet is trading as an integrated company at a pretty low multiple today, you would know. And over time, let's see how these strategies unfold. We're pretty bullish on what John's pursuing, and we think the ServCo will be valued at a particular number based on its ability to retain and grow customers. And if I know the Telenet management team, they're going to kick some butt and ensure that Telenet remains the primary brand for consumers in that market, no matter what network they're using or who owns the network. And if I know this team like I do, they're going to make sure this NetCo, together with their financial and strategic partners, is the fulcrum and most important NetCo -- network in that marketplace. And the only way to pull it together with Fluvius was to do it like this. Fluvius didn't have an interest in public stock or anything else. So part of it was circumstance in that market, but part of it, I think, it is the right strategic outcome. Now it's not the same in every case. And as I said just a moment ago, it's not as if we're going to pursue this in every instance. But it's our job to look at every market differently to see what is the right way to create value, to crystallize value and to demonstrate value, but also most importantly, to sit back and make an argument that this is going to increase the core business over time. And then how you perceive it or the market perceives it, well, we'll take our chances with that. But we know that both these transactions fundamentally grow the core business that we're invested in. And the structures we're using to do that are, we think, accretive both to today's values or multiples, and that should play out over time just as we think. In terms of listings, listen, there is -- it's not a great market to be talking about IPOs. And I don't know that we're saying we won't be doing it ever or in any instance. I just think it's obvious that with the current environment, we're not prioritizing it. And both -- our core businesses need time, especially in the UK and Switzerland, to mature and demonstrate the core benefits of both synergies and growth that we know they can demonstrate. So we'll come back to that question if and when it makes sense. It obviously doesn't make sense now, but we never say never. We're not shutting the door on those ideas. We're just understandably focusing on other strategies. And we have a very interesting infrastructure portfolio. Not to go on too long here, but you mentioned infra as really an asset class. And we've developed some very interesting investments in infrastructure. Telefónica has their own infra platform. Is it possible that we would look, at some point, to build or combine the ownership of these infrastructure business? Possibly. You know us. I mean we look at everything. That's what we get paid to do, is to make sure we're always looking out for shareholders and trying to figure out what will create the most value for us together. And so that certainly could be an idea down the road we'd investigate.

[Operator:]

Our next question comes from the line of Polo Tang of UBS.

[Polo Tang:]

Maybe just fixing onto Switzerland. Can you maybe talk through the competitive dynamics in the market and what has been the reception to the new tariff portfolios from all the operators? And you flagged softening trends in terms of fixed line, but how optimistic are you that this can improve going forward?

[Mike Fries:]

Sure. And André is on the line. So André, why don't you take that?

[André Krause:]

Yes. Thanks for the question, Polo. So firstly, I would say the competitive dynamics in the first half year has been changing a bit but restoring to recent levels based on the, I would say, portfolio refresh that we have seen. Why is that? We have seen that in the first quarter throughout the second quarter up until beginning of May, promotion intensity was reducing, and we were following that trend. Then with the new portfolio of Swisscom, we have seen that while the promotion intensity has come down, Swisscom has introduced drug discounts, like, for example, the online benefit, which customers could sign up for, which has increased their competitive position on the front book. As such, we look forward to also bring up our promotional intensity again a bit in order to keep the pace in the market. So I would say that we have been at the beginning of the year, which is not what we have hoped for, but it's a reality, and we are not giving up on that. The fixed softening that you are referring to is very much driven by the consolidation of the brands, and that starts with sunsetting of the UPC brand, which obviously we have started to reduce our commercial activities on that brand a bit earlier and are now ramping up again the full fixed intake on the new portfolio. And I can say I'm pretty happy with the performance that we are seeing on the new portfolio. It does exactly what it should. It drives more bundled sales. And of course, we will continue to fine-tune it in order to get back to the initial momentum that we had at the beginning of the year on fixed. And on mobile, we are continuing to doing well as you can see from the numbers.

[Mike Fries:]

I'll just repeat quickly what I said at the outset in the remarks, which is this market, Switzerland, is really unique. It's almost living in a bubble here. Inflation is low single digits. Interest rates have maintained. I think they're just now at zero. Consumer confidence remains higher than other markets. So Switzerland always seems to perform really, really well in difficult times. And it's a -- I think, a safe haven as such, but we're certainly glad to have a lot of capital invested here, and I think that's just giving André and his team a lot of tailwinds to keep managing the business well.

[Operator:]

Our next question comes from the line of James Ratzer of New Street Research.

[James Ratzer:]

The question I had was just with regards to the buyback. I mean I applaud the decision that you're allocating more capital towards the buyback. But when you sat down at the Board level and thought about the extra $400 million you were going to commit, I was interested to understand what are the choices you looked at. And in particular, did you not feel it was interesting this time to look at buying equity in Telenet, which has come down by more than the Liberty Global share price? And if I could ask a point of clarity on an earlier question from Steve around -- you said no volume commitments from VMO2. Can I just ask what commitments, if anything, you are making to the new joint venture? Because you say anchor tenant. I just wanted to understand what anchor actually means in this sense and what security the debt lenders are therefore getting in the new joint venture.

[Mike Fries:]

Yes. On the second question, and André, you step in here if I miss any, but on the second question, we're basically agreeing to use this network and nobody else's. So remember, as we've rolled out the 3 million homes that we now have historically called Lightning, we have been exclusive obviously users of our own network in that context in getting 25% to 30% penetration. So in a sense, the lenders or our partners can, to some extent, bank on the fact that we are going to be aggressive marketers on this footprint as we have been on the prior 3 million homes, and they can take comfort that we'll get to a certain level of penetration, and we won't use anyone else's network. I think that's what anchor means in that context. On the buyback, we always look at different options and choices. It's never a singular decision. We're always allocating capital. Just in this announcement around the U.K., we will be putting capital into that joint venture. We've got the Ventures portfolio. We're always looking at the most efficient way to put our capital to work, and buybacks is one of many of those ideas, but it's always a fundamental approach that we take to both creating value and the capital allocation. We haven't looked at Telenet as such, but I don't disagree with you. I think Telenet is poised to improve from here, no question about it. They've answered all of the outstanding issues, for the most part, around the JV and the NetCo they've created. I think they're not stressed about a potential fourth entrant. I think in their Capital Markets Day, they'll clarify many of these things. But I think Telenet certainly is undervalued, and for the first time, probably trading at a lower multiple than we are, but that's unusual and probably unlikely to remain, let's hope, for all of our sakes. So we look at all different types of things. I'm not going to comment specifically on what we might be looking at vis-a-vis Telenet.

[Operator:]

Our next question comes from the line of Ulrich Rathe of Jefferies & Company.

[Ulrich Rathe:]

I have also a question on the UK, the operational side of things. It sounds like the fixed price rise was about a 2 percentage point tailwind, whereas the ARPU trend improved by 1/4 of that, roughly, painted with a very broad brush stroke. So question. Can that drop-through improve later in the year? What are the mechanics of that relatively minor drop-through of the incremental price increase versus last year?

[Mike Fries:]

Yes. Go ahead, Lutz.

[Lutz Schüler:]

Yes. I'm not sure if I can add so much color to it and if I understood the question right, right? I mean as I said before, right, we have landed the price rise in Q1. We had -- the customers have had the cancellation, right? That is gone. So therefore, it is implemented. And now customers who used to be on a promotional period, when they come off that, will also get the price rise. So during the year, the ARPU will grow out of that effect, right? And then there's another effect that is that if we keep acquiring customers with lower acquisition ARPU, which we have done, so you can see that. You can see also that the acquisition market as such was under pressure. And if we are forced to give higher retention discount, and we have also done that, then that eats obviously into this ARPU increase. Now therefore, it's a bit dependent on the cost of living crisis, I would say, predominantly, not only but predominantly. And so therefore, we are very careful giving a guidance on that going forward, yes? I think the good thing is that, right, we have a lot of growth levers besides that, right? So we are fully materializing the synergies, 100 -- right, 30% end of this year from [540], and we are fully on track to do so. We are digitalizing our business. So we have an increased benefit out of that. And now with the fiber joint venture, obviously, right, we have a faster network expansion, meaning for Virgin Media, we can -- broadband, we can sell more of it. And then also because now, right, a possible wholesale partner has immediately a speed advantage getting to 1 gig speed in 60 million homes and has now the security to have future-proof network with 21 million homes, latest 2028. This itself is also another growth wave, which will come for sure. So therefore, I think on one hand side, we are a bit affected by the cost of living crisis, and it's hard to predict, I mean, but we can show a growing top line in that. And second, we are sitting on 3 growth waves, which are very tangible and solid to serve. And this is what we are doing.

[Ulrich Rathe:]

That's helpful. Can I just clarify one aspect of your answer? What you didn't mention was more aggressive retention discounts. So can I just confirm you haven't upped the retention discounts in this price rise here?

[Lutz Schüler:]

No. So the retention discounts, during the price rise, were exactly the same like a year ago. Also, the retention volume was the same. So this is year-on-year the same. What we are seeing more, starting in Q2, is irrespective of price rise, a higher appetite to renegotiate the contract down to a higher discount from simply customers coming out of their minimum contract period, right? And this is completely irrespective of price rise because they have had the 30 days unexceptional cancellation, right, but they haven't used that. So that has landed in Q1, as I said before, in the same way like done a year ago. But what we are seeing now is a bit higher demand for retention discounts. And this is now the question, how is that going to happen to progress going forward, right? That's the question, and therefore, we are a bit careful. Does that help?

[Ulrich Rathe:]

Yes.

[Mike Fries:]

I think, operator, we are -- are we at time? Or are we taking one more, guys?

[Charlie Bracken:]

We're at time.

[Mike Fries:]

Okay. Awesome. So listen, thanks for sticking with us. So we went a little bit over. Apologize for that. And I like Lutz' phrase, growth waves, because we've got those really in all of our businesses. I think, number one, we're able to power through this macro environment really well in the businesses that we're in. I think you know that. You've seen us do that in the past. We've got tailwinds in many markets around synergies or new brands or new products that I think are going to benefit us in the second half. And I think just as importantly, we're demonstrating to you again that we're good at optimizing capital and allocating capital, and our fixed network strategies that we've announced in the last couple of weeks are right in line with that approach, and I think will be highly accretive to us operationally and financially today and down the road. And then lastly, we're all about buying our stock, and the increase shouldn't have surprised you because we've been sort of signaling it. And we're committed, of course, to the 10% next year as well. So it gives you some comfort that we're going to keep this program moving.

[Mike Fries:]

So thanks for joining us, and we'll speak to you soon. Take care. Have a good summer. Bye-bye.

[Operator:]

Thank you. Ladies and gentlemen, this concludes Liberty Global's Second Quarter 2022 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There, you can also find a copy of today's presentation materials. We thank you for your participation and ask that you please disconnect your lines. Have a great rest of the day, everyone.