Liberty Global plc
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good morning, ladies and gentlemen and thank you for standing by. Welcome to Liberty Global’s First 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. 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 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. Fries.

[Michael Fries:]

Great. Thanks, operator and hello everyone. I hope you are doing well. And we as always appreciate you joining our Q1 results call today. Charlie and I are going to run through what we hope are some abbreviated remarks, leaving a bit more time for your questions. And I have got pretty much the entire team on the call and I will get them involved as needed. I am going to kick it off on Slide 4 if you are following along, with some key headlines for the first quarter. But before I do that, let me just say that we continue to remain focused on our employees and customers first and foremost during what remains a pretty challenging period in Europe as it relates to COVID-19. Although we have seen infections in all of our markets coming down from peak levels, vaccination programs in the continent has a slow start, as you probably noticed. As a result travel restrictions and protocols are still pretty tight in Europe. Now despite these pandemic-related challenges, we are very encouraged by the operational progress we made during the first quarter of ‘21. The commercial momentum we experienced throughout most of last year has carried right into the new year. In Q1, we added nearly 40,000 new customers compared to a loss of 20,000 last year and over 225,000 broadband and mobile RGUs, that’s up over 60% from the same period in 2020. On a consolidated basis, we grew revenue. We grew operating free cash flow, and that’s despite COVID impacts and some merger- or synergy-related costs that Charlie will walk us through. And as a result, we’re confirming our free cash flow guidance today, which despite continued investments in future growth, we expect to be up over 25% this year to $1.35 billion, and that’s regardless of when the Virgin Media-O2 transaction closes. Obviously, completing that JV will be a major milestone for us. And technically, the transaction is still under review by the CMA. But as you would have seen, they provisionally cleared the deal last month without remedy. So we are still expecting a June closing. Once that happens, we will have created fixed mobile champions in all of our core operating markets. And whether we bought the mobile asset like we did in Belgium or Switzerland or whether we join forces with the number one mobile operator, like we did in Holland or we’re doing in the UK, the benefits of fixed mobile convergence are powerful and they are supportive of what I have started to call, the 4Ss, for lack of a better term, and that means

[Charles Bracken:]

I am starting on the slide titled, returning to revenue growth. The group saw revenue growth of 0.2% in the first quarter despite continued restrictions in the pandemic impacting our growth rate by an estimated 60 basis points, with drags predominantly related to year-on-year reductions in roaming. Our operations with more substantial mobile businesses endured greater impacts in the quarter, and we saw a $9 million drag in Switzerland, but trends continued to improve with underlying results positive. We estimate headwinds of $8 million in Belgium and $16 million in the Netherlands. The 1.8% growth at VodafoneZiggo represented eight consecutive quarters of top line growth, with strong performance across both consumer and B2B segments in the quarter. On the next slide, we provide details of our adjusted EBITDA, where cost-to-capture synergies weighed on results. Despite strong revenue performance, Virgin Media EBITDA declined 1.9% due to pre-merger costs to capture and, as previously highlighted, the ongoing investments in digital and customer care on-shoring, leading to increased operating expenses. As the benefits of these initiatives continue to materialize, trends will improve in the second half of the year. In Switzerland, a 7% headline decline is explained predominantly by impacts from COVID and $11 million of costs to capture, with the first synergies starting to materialize from April onwards. Our more established converged assets delivered a very strong performance. But Telenet growth rates benefited from the acceleration of programming rights in the prior year period as live sporting events were paused in March 2020, and that’s an impact that will unwind in Q2. Focusing now on OFCF, where despite the headwind of $30 million of costs to capture, the consolidated group delivered 5% growth. The strong results across the UK and Ireland and Belgium were predominantly due to the in-year phasing of capital projects. The Netherlands achieved 17.5% year-on-year growth, with capital intensity of 19% CapEx for sales and an OFCF margin of above 27%, with aspirations for further digital and systems efficiencies despite having completed their synergy program. Focusing on our core Liberty Global performance metric of free cash flow, we delivered $93 million of free cash flow in Q1 despite the phasing of interest payments, predominantly falling in the first and third quarters of the year. We are on track for our full year guidance of $1.35 billion, which represents 26% year-on-year growth, with growth accelerating even more on a per share basis, as we aggressively retire our stock. Turning to our capital allocation dashboard, we ended the quarter with nearly $3 billion of cash, having allocated $447 million to buybacks across the first 4 months of the year, representing nearly half of our current $1 billion authorization. Looking to leverage across our portfolio, we continue to operate long-tenor, fully hedged credit silos. At our UPC credit pool, we refinanced the Sunrise acquisition debt, reducing our cost of debt to 4.2%, securing $18 million of annualized interest savings going forward. These efforts included an issuance of sustainability-linked notes, with embedded commitments for improved energy efficiency and the use of renewables. Finally, we value our ventures portfolio at $2.5 billion, reflecting the full color on wind of our 9.9% stake in ITV, the step up in value of our Univision stake, formally announced merger with Televisa and the partial monetization of our Skillz investment. To conclude, we continue to innovate to bring the best products to our customers and our convergence strategy is delivering. Following a strong start to the year, we are refining our Virgin Media guidance, improving our EBITDA outlook from low single-digit decline to broadly stable. It’s a small change but ensures investors have the best sense of the underlying trends as we seek to close the O2 merger in the second quarter. We’re confirming all other previously announced guidance metrics. And with that, operator, over to questions.

[Operator:]

Thank you. [Operator Instructions] And our first question will come from Polo Tang with UBS.

[Operator:]

Thank you. Our next question will come from David Wright with Bank of America.

[Operator:]

And moving on to Michael Bishop with Goldman Sachs.

[Operator:]

And our next question comes from James Ratzer with New Street Research.

[Operator:]

And moving on to Robert Grindle with Deutsche Bank.

[Operator:]

And our next question will come from Jeffrey Wlodarczak with Pivotal Research.

[Operator:]

Thank you. Our next question comes from Steve Malcolm with Redburn.

[Operator:]

And moving on to Nick Lyall with Societe Generale.

[Operator:]

And we will take a question from James Ratcliffe with Evercore ISI.

[Operator:]

And our next question comes from Matthew Harrigan with Benchmark.

[Michael Fries:]

Right. So always, we appreciate you joining us today. Listen, I will just say a few things, if needed here. But number one, stay tuned because the transaction in the UK, we believe, is imminent, of course, subject to CMA approval, but we believe imminent in a matter of weeks, really. And that’s a big moment. That’s a big moment for a number of reasons, one, because it is in itself a fantastic transaction for our shareholders, for our customers, for the UK market as a whole, but also because it means we will have essentially completed the conversion of our four largest markets into fixed-mobile champions. And at that point, we can really start to drive the operational and strategic plan, but also the narrative, the key narrative that’s critical for telling our story about where we’re taking these businesses and how we’re going to create value. The second main point, just to leave you with what you already picked up here, I think as momentum is in our favor here, the tailwinds are real in terms of broadband and fixed-mobile convergence, and it’s driven by innovation, by all the things we’ve talked about. But we certainly feel good about that momentum and believe that momentum is sustainable for the reasons we’ve discussed today. And the last point I’ll make is confirming free cash flow guidance, $1.35 billion, up 25% or more than 25%. And not to be lost there, we look at free cash flow per share more than free cash flow itself. And so from our perspective, you can do the math, the free cash flow per share story for us, we think, is even more relevant and something that we pay attention to. So those are three big headlines, I guess, to leave you with, and we appreciate you joining us on the call. We will speak to you after the second quarter. Take care, everybody. Stay well.

[Operator:]

Thank you. Ladies and gentlemen, this concludes Liberty Global’s first 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.