Liberty Global plc
Q2 2021 Earnings Call Transcript

Published: 30 Jul 2021

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's Second Quarter 2021 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 expressed 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 statement is based. I would like now to turn the call over to Mr. Mike Fries.

[Michael Fries:]

Thanks, operator, and hello, everyone. As always, we appreciate you joining us today for the Q2 results call. Now we've got a lot of ground to cover, so I'll begin with some operating results and a deep dive into a couple of topics that I'm sure will be of interest to you all. And after Charlie covers the financials, we'll get right to your questions. I'll kick it off on Slide 4 with 5 key headlines that should capture the broader narrative of the quarter and our value creation opportunity. First of all, our goal of creating FMC champions in our core markets is working. We made a very conscious and deliberate shift in our strategy 4 to 5 years ago, which saw us exit subscale markets at premium multiples and concentrate our resources into really 4 key countries where we've become fixed-mobile champions. I'm going to illustrate this more fully on the next slide. But despite reducing our geographic reach by 40%, we increased aggregate revenue by 40% and now serve a larger base of 85 million fixed and mobile subs. And those FMC champions are driving scale and growth, supported by unrealized synergies of $12.6 billion from our last 2 deals in the U.K. and Switzerland, that's on an NPV basis. And by the way, given our ownership, over $8 billion of that will accrue to our shareholders. Second, the demand for fast and reliable connectivity in Europe continues to anchor strong commercial momentum across our footprint. I'll speak to the numbers in a second, but we reported good revenue of subscriber growth and a standout quarter from Virgin Media O2. Third, we've talked quite a bit over the last year or so about our network strategy options. Yesterday, we made a big move in the U.K. announcing our plans to upgrade to fiber across our footprint. I'll speak to that in a moment. But the main takeaway is that we have great options in every market, and one size will not fit all here. To answer the question preemptively, cable and DOCSIS will continue to play a big role even in markets where we intend to upgrade to fiber. And given our speed leadership today and heavy investment in fiber-rich HFC, we can approach this moment in an offensive posture, with a clear focus on free cash flow and accretive returns on capital. Fourth, it's becoming increasingly hard to ignore our ventures portfolio, which has been valued by third parties at $3 billion or about $5 per share. That's around 20% of our current stock price, and I'm guessing very little is being recognized today. We're going to continue to provide greater and greater transparency of our tech, content and infrastructure investments that each strategically aligned with the core operations, and they also benefit from our unique track record within telecom and treasury and M&A. We also announced that we are in nonbinding negotiations with Iliad's Polish subsidiary to sell UPC Poland for $1.9 billion, that's about 9.3x EBITDA. We don't normally announce these things, but Iliad was required to do so for other reasons. And -- but I can tell you, these sorts of asset sales at these sorts of multiples should also help bridge the value gap in our stock. And then speaking of our stock, we're making a big commitment today to put our money where our mouth is. Rather than decide periodically how much and at what price we're going to purchase shares, we're announcing today our commitment to buy back 10% of our market cap annually for 3 years, which means we're adding $400 million to our current $1 billion program for the remainder of 2021. Now I just referenced the transformation of our platform over the last 4 to 5 years, and we've been trying to find a way to better illustrate the transition to an FMC champion. And Slide 5 does that, I believe. If you had asked me 10 years ago, do you think you can build a better, stronger business by exiting half your markets and concentrating all of your resources into a handful of fully converged fixed-mobile operations? I probably would have said, I don't know. I'm not sure. But when broadband competition intensified and cable consolidations slowed and the demand for broadband capacity and mobility skyrocketed, we rapidly pivoted and we're a much stronger and more valuable company today for it. That involved 4 key steps

[Charles Bracken:]

Thanks, Mike. I'm starting by highlighting our strong performance in Q2, where we achieved revenue growth across all markets and consolidated revenue growth of 3.4%. Now whilst there's an element of COVID recovery in areas like sports and broadcasting, there has been very limited recovery in areas like roaming, and we're seeing positive underlying growth across all our businesses. The U.K. grew 4.4%, which includes a roughly 2% benefit from premium sports with continued strong convergence volumes and B2B performance driving growth. Telenet also realized strong underlying growth in Q2, but only a 4% growth rate does benefit from a EUR 30 million year-over-year improvement in broadcast revenues. And as we guided earlier, Switzerland has returned to revenue growth, fueled by continued strong mobile volumes, B2B performance and a consumer business that continues to stabilize through positive broadband sub momentum. Whilst VodafoneZiggo continues on the trend of strong financial growth, posting a 3% year-on-year increase versus the prior year, which marks a milestone of 9 consecutive quarters of positive growth. Q2 saw growth across all segments, including mobile on both the consumer and B2B sides of the business as COVID drags abated. On the next slide, we provide details of our adjusted EBITDA, where costs to capture synergies continued to weigh on results in the U.K. and Switzerland. Relatively, they performed in line with the prior year despite $8 million of premerger cost to capture. And it's worth noting that the recovery in premium sports revenues is offset by increased programming spend year-on-year given the credits that we received in Q2 of 2020. The Swiss performance continues to improve and a 3.1% decline is explained by $9 million of cost to capture and high growth in related investments in marketing and B2B. Synergy benefits are limited in the quarter despite the recent MVNO migration back to our own network as those savings will become apparent in half 2. Telenet's growth rate was suppressed due to the acceleration of programming rights in the prior year period as live sporting events were paused in the second quarter of 2020, the benefit of which was seen in the Q1 results. But taken together, Telenet achieved nearly 2% first half year EBITDA growth. And in the Netherlands, a 2% EBITDA decline is expected given the estimated EUR 21 million impacts of COVID-related temporary broadcast suspension, a nonrecurring settlement in Q2 of 2020. VodafoneZiggo remains on track for full year guidance. Focusing now on OFCF. We presented a year-to-date view of our performance, illustrating the significant OFCF generation of our core businesses. Despite a headwind of $58 million of cost to capture, the consolidated group delivered 2.1% growth in the first half. U.K. OFCF grew 2.3% in the first 5 months of the year, and we reached a milestone of 2.5 million Lightning homes. We continue to build efficiently and our cost per premise continued to trend lower, delivering a cost per home of GBP 576 in the quarter. The Swiss team remained focused on the integration and incurred significant costs in the first half to achieve longer-term synergy realization. The $41 million of half 1 costs to capture helped lay the groundwork for future network migrations, IT integration and the alignment to the product road maps, including B2B. Although OFCF growth in Switzerland would otherwise have been positive. In Belgium, OFCF declined around 1%, whilst in the Netherlands, OFCF grew 1.6% in the first half as we continue to invest in the network and remain on track to have upgraded 80% of our footprint to 1-gig speed by the end of the year. Focusing on our core Liberty Global performance metric of free cash flow, we delivered $717 million of free cash flow in half 1. Our strong first half performance indicates we are on track for our full year guidance of $1.35 billion, which represents 26% year-on-year growth, with growth accelerating on a per share basis as we continue to aggressively retire our stock. As of July, we retired nearly 80 million shares since the year-end 2019. And the next slide illustrates our year-to-date buyback performance. As you can see, as of July, we repurchased $765 million of Liberty Global stock as we approach our initial $1 billion authorization. As Mike announced, we're committed to repurchasing 10% of our market cap a year over the next 3 years, which serves to increase the 2021 buyback to around $1.4 billion, supported by our significant free cash flow and our corporate liquidity, which includes a cash balance of $4.1 billion as of quarter end. Our ventures portfolio is currently valued at $3 billion, which reflects the full color around one like ITV, which we completed in early Q2, and the continued monetization of our Skillz stake where we've realized over $80 million to date. During the quarter, we also announced the creation of our AtlasEdge joint venture with Digital Colony, utilizing our owned real estates to provide cloud providers, streaming services and enterprises with high-performance edge-of-network facilities, through which they can distribute low-latency applications and services such as 5G, gaming, IoT and edge compute. We expect that transaction to close in Q3 of 2021. To conclude, we are executing our FMC strategy across all markets, with positive revenue growth across our markets, synergies validated in the U.K. and upgraded in Switzerland. In the U.K., we're excited to announce a cost-effective upgrade to full fiber by 2028, and we're increasing our buyback program for 2021, whilst committing to repurchasing 10% of our market cap annually over the next 3 years. Finally, we are converting all guidance targets, noting Virgin Media O2 management were not part of the merger clean team, and as such, are in the process of validating the combined business plan. And with that, operator, we'll take questions.

[Operator:]

[Operator Instructions]. We'll go ahead and take our first question from David Wright with Bank of America.

[Operator:]

We'll take our next question from Robert Grindle with Deutsche Bank.

[Operator:]

Our next question comes from Akhil Dattani with JPMorgan.

[Operator:]

We'll go ahead and take our next question from Nick Lyall with Societe Generale.

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We'll take our next question from Steve Malcolm with Redburn.

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We'll take our next question from Matthew Harrigan with Benchmark.

[Operator:]

Our next question comes from Andrew Beale with Arete Research.

[Operator:]

We'll take our next question from James Ratcliffe with Evercore ISI.

[Operator:]

We'll go ahead and take our next question from Ulrich Rathe with Jefferies.

[Operator:]

I'd like to now pass the call back to Mike Fries.

[Michael Fries:]

Okay. Thanks. Listen, I appreciate you staying out with us. I know there's other calls happening today, and so you're probably already on your way. But look, at [indiscernible] in my point of view, growth continues in our FMC champions and synergies are just now starting to show up. So that's going to be a positive tailwind here in the medium term. We're excited to start providing greater transparency around our network strategies with the U.K. being the first of those announcements. And I can assure you, we're looking at these things through an offensive and accretive lens, and we have the luxury of doing that because we have such a fiber-rich network to begin with and a strong broadband base as we sit here today. Pay attention to the ventures portfolio. It's growing in value and significance and we'll keep you posted on the Polish deal, which is just another reaffirmation of the private market value of our businesses. And lastly, we're excited about the buyback commitment. It's a strong statement from us. I think that's something you can take to the bank, if you will, a year, in the next -- this year and for the next 2 years, and that's got to be useful for investors who want to see us deploy capital in one of the most obvious places, and that's our own share. So I appreciate you joining. We'll speak to you soon. Have a great August. Bye-bye.

[Operator:]

Ladies and gentlemen, this concludes Liberty Global's Second Quarter 2021 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.