Good morning, ladies and gentlemen and thank you for standing by. Welcome to Liberty Global’s First Quarter 2023 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. Mike Fries..

the proposed purchase of the minority stake in Telenet and our intention to redomicile from the UK to Bermuda. I’ll talk about these in a few minutes, but both steps will open up opportunities for value creation and value crystallization.

The anchor of our capital allocation model remains our stock buyback program, which is in full swing with $330 million purchased year-to-date, and that’s towards our goal of 10% of total shares by year-end.

And while we’re not changing the 10% goal today, given current trading levels of our stock, you should expect that we may accelerate our purchases through the first half of the year and possibly beyond. It’s worth reminding everyone that our balance sheet is very, very strong. We have no long-term debt maturities for 6 years.

Our interest rates are locked in at around 4%, and all borrowings are siloed and hedged into local currencies. Now I’ve had a few folks ask me what we mean by value creation and how we measure it.

And for us, it comes down to really just 1 thing, and that’s making strategic, operational and capital allocation decisions that are ultimately reflected in the price of our stock. There is no other metric for us.

And while it’s frustrating for everyone that we haven’t seen the value reflected in our share price, potentially as much from industry multiples, currencies and macro developments as anything, we’re confident that these are the right core strategies.

Specifically, if we drive growth in our core FMC markets, use our capital structure to manage a levered equity buyback model and find ways to accelerate the monetization and crystallization of value for the benefit of shareholders is going to work for all of us. Now moving on to some operating updates.

Slide 4 presents our broadband and mobile connectivity trends for the last 5 quarters. And you’ll see right away that despite competitive pressure from incumbent telcos, resellers and in some cases, altnets, we continue to deliver solid results.

VMO2 on the top left added 29,000 broadband subs, which compares to a flat quarter 1 year ago and was a particularly strong result given the 14% price rise we announced in February. We’re seeing limited impact from altnets in the market since as I just mentioned, we already offer 1 gig speeds everywhere.

In fact, churn is stable, and our share of broadband sales is up to about 20% nationally in the UK and of course, even higher on our own footprint, which is roughly half of that. Also, we continue to add subs on both the BAU and new build territories.

VMO2 postpaid mobile adds were negative in Q1, which is typically a quarter with more activity at the lower end of the market. And as you know, we’re squarely focused on the more premium end of the market and do particularly well when new product launches are coming up.

We also reduced our retention offers a bit in order to maintain the customer value equation in the quarter. Sunrise had a strong quarter of 7,000 broadband adds despite continued headwinds from the UPC brand phase-out, which we’ve talked about.

Overall, the market was relatively stable from a competitive standpoint with a slight cool down in broadband price promotions. Now postpaid mobile ads at Sunrise were 36,000, which was a strong result given continued low prices from Salt and Q4 seasonality and was supported by both B2B and our flanker brand, Yellow.

VodafoneZiggo lost 9,000 broadband subs. That’s fewer than a year ago, but was impacted by overall lower gross adds in the quarter. The team has launched several initiatives to drive growth, including the continued rollout of smart WiFi pods now at 50% of the sub base and proactive network scans to improve connectivity performance.

Postpaid mobile adds in Holland were 39,000, roughly flat to the prior year. By the way, both Sunrise and VodafoneZiggo outperformed the incumbents Swisscom and KPN on broadband and postpaid mobile adds in the quarter. And then finally, Telenet reported largely stable broadband and 13,000 postpaid mobile adds in the first quarter.

The team launched their WiFi 360, a smart WiFi mesh technology that dramatically improves in-home connectivity, and they continue to rely on their converged portfolio of services. Slide 5 shows our revenue growth broken down by OpCo and core business line for the first quarter.

If you look across the top, you’ll see that total revenue growth was broadly stable if you aggregate the 4 main fixed mobile champions and trending up sequentially versus Q4. Only Sunrise, in fact, reported negative revenue growth driven by ongoing pressure in the fixed business related to the UPC brand phase-up.

And VMO2 on the left, delivered nearly 4% revenue growth in Q1, but that did include some construction revenue from the next fiber JV, which Charlie will explain further. Now working top to bottom across the opcos, and you’ll see that fixed consumer revenue continues to be impacted by video and voice losses. This is a well-known trend.

But the real story here is that broadband revenue, which is growing, is becoming a larger and larger component of fixed revenue. And together with price increases, will help stabilize the fixed business over time.

If you look at the mobile revenue line, total mobile growth includes handsets and remains solidly positive, but even more importantly, mobile service revenue was positive in every market, supported by price rises and solid subscriber growth.

And then finally, B2B revenue growth is always consistently strong with only VMO2 impacted this quarter by the year-over-year comparison to last year, which included installation revenue from some high-capacity data services.

All of our B2B operations are benefiting from new service and growing market share, and Charlie will get into a bit more detail on all of this in the financial section. I mentioned our pricing actions several times.

And on Slide 6, we summarized the moves we’ve made to offset the continuing impact of inflation on our costs, particularly in energy and wages. I’ll just make a few key observations here.

First of all, you’ll see that price changes in 2023 on the top right of the slide range from mid-single digit to mid-teens, considerably higher than 2022, which really was in the mid-single digit to low single-digit range, and that’s shown on the top left.

You may have noticed that the 4% Swiss price rise announced in early May is the first we’ve taken in some time in that market and the only 1 so far in terms of all the competitors, although Swisscom has introduced an inflation clause in their contracts for 2024.

So far, we’ve experienced only a mild reaction from Swiss consumers, which is encouraging and the UK price rises are also landing well and in line with our expectations. The teams are working hard on retention.

It’s also worth pointing out that most of the ‘23 price increases don’t really take effect until Q2 or Q3 and should be a tailwind for the balance of the year. And then second, all of our opcos now have either a direct pricing policy linked to inflation plus a margin in the contract or the ability to contractually raise pricing up to inflation.

That’s new for us to have that across the group. And then lastly, as summarized at the bottom of the slide, we continue to support these price actions by relentlessly focusing on the customer experience, whether that be through speed increases, bundle innovation, upgrading our TV experience or utilizing digital to improve our customer interactions.

And then finally, I’ll address quickly two recent announcements on Slide 7. The first is the launch of a voluntary and conditional tender offer for the Telenet shares we don’t already own at €22 per share, which of course, will be adjusted for the recently paid dividend.

Now since this is an active public transaction, I’m going to keep my comments brief. From Liberty’s perspective, getting to 100% ownership in Belgium helps us simplify our operating structure and will not require importantly, any of our corporate cash or liquidity to complete.

We believe the price is very attractive to Telenet shareholders and the transaction, which is subject to a 95% acceptance condition, has the unanimous support of the Telenet Board. Happy to take any questions on any of that. Now the second announcement relates to our desire to redomicile from the UK to Bermuda.

The principal objectives here are pretty simple and they are pretty compelling. Namely, we’re seeking to reduce administrative complexities and facilitate future shareholder value creation by aligning the U.S. style corporate law of Bermuda with our U.S. listing and quite critically, the expectations of our largely U.S. shareholder base.

As we’ve stated many times, we are always looking for ways to crystallize value for shareholders, and these include share buybacks, self tender offers, spin-offs, split-offs and other potential financings and transactions, each of which will be easier to execute as a Bermuda company.

For the record, we think it’s important to point out that move is not tax driven.

All of our revenue and income and net of our operating entities remain in Europe, and there will be no changes to our NASDAQ listing, our Board of Directors, our ownership or capital structure, our financial statements, credit arrangements or day-to-day operations, and we filed a preliminary proxy with the SEC and the definitive proxy will be finalized soon.

Both will be followed, of course, by a shareholder vote some time in late Q2 or early Q3. So a quick recap, all of our operating companies are on track to hit guidance and making the right network product and digital investments that will support commercial momentum this year and beyond.

Our capital structure is rock solid and provides flexibility to drive our buyback plans and new investments if and when those make sense.

Our ventures portfolio plus other strategic assets we own should generate cash over the next 24 months, and we remain committed to shrinking the value gap in our stock, which redomiciling to Bermuda should only make easier. Charlie, over to you..

Liberty Tech, Corporate and Ventures. Liberty Tech is our centralized tech operations, which provides services such as our Horizon entertainment platform and our connectivity platform, which we provide to our operating assets and joint ventures as well as to assets that we have sold.

For each of these customers, Liberty Tech has legal agreements setting out key terms and pricing for a number of years depending on the customer. The target is to broadly ensure that the spend is matched to these technical services agreements or TSAs.

As our customer base has evolved, we’ve been able to scale down these costs according to the customer demand and have reduced the net spend at Liberty Tech by around $200 million since 2018. We continue to see opportunities to further reduce these costs going forward and expect this category to remain broadly breakeven in the upcoming years.

During Q1, we renewed these TSA agreements with Switzerland and Ireland as well as saw the impact of the year-end 2022 renewal with Telenet. These agreements reflect commercial pricing based on independent reviews, not just at the Telenet Board level, but also with our joint venture partners.

However, with the renewal of the Swiss and Irish agreement, their associated revenues are now reported in our Central segment revenues. Although together with Telenet, these are eliminated in the consolidated numbers. At the OpCo level under this new agreement, this means that the central CapEx spend is fully accounted for in their financials.

So the impact of this is that going forward, our central financials were better aligned with the true central net operating costs on a fully allocated basis. And to help, we’ve updated the Q1 2022 central revenue EBITDA and EBITDA less P&E figures.

Our corporate category includes our head office functions, such as management, finance, legal, HR and corporate development necessary to manage our overall portfolio of assets.

This spend historically is around $200 million a year depending on what dollar exchange rates for sterling and euros, and we expect it to stay at this level for the next few years. The last category is ventures, which is the cost associated with managing our roughly $3 billion benches portfolio. The spend here is currently relatively modest.

We expect the net spend of these three central categories in 2023 to be between $200 million and $250 million of the net spend level. There was also a U.S. tax payment of around $80 million in 2023, largely relating to the GILTI transition tax from 2019, which will continue at this level until 2026 when the full payment will have been made.

The other key component of free cash flow at our Central Group is interest income on our $3-plus billion central cash balance, which we expect to be in excess of $100 million this year to date interest rates. On the next page, we provided a summary of the revenue profile in our 4 key markets.

Virgin Media O2 on a reported basis delivered 3.9% of revenue growth, including the impact of Next Fiber construction revenue. Excluding the impact of Next Fiber construction revenue, Virgin Media O2 revenue growth was broadly stable in Q1 as strong mobile service and handset revenues offset declines in fixed revenues.

The growth rate of fixed revenues in Q1 2023 compared to Q1 of 2022 was impacted by timing of our price rises, which were later in the quarter in 2023 than in 2022.

Switzerland saw a revenue decline in Q1, driven by continued pressures on consumer fixed ARPU as the business continues to navigate the right pricing activity related to the RPC brand phase-out. VodafoneZiggo delivered stable revenues in Q1 as weakness in consumer fixed was offset by our eighth consecutive quarter of mobile service revenue growth.

We expect our fixed price adjustment of around 8.5% to support revenue trends in the second half. And Belgium delivered Q1 revenue growth of 2.9% in Q1 as the mid-June price adjustment continues to support top line fixed ARPU trends, along with higher advertising, TV production and B2B revenues.

Moving on to our adjusted EBITDA performance in the quarter, as we suggested in Q4, Q1 was impacted by the phasing of inflation pressures on our wage and in particular, on our energy costs. Q1 saw Virgin Media O2 impacted by these inflationary costs as well as phasing impact versus 2022 due to the later timing of their fixed price rises.

Q1 2023 also didn’t have as much year-on-year benefit from synergies as there was in 2022. These factors resulted in a 0.9% EBITDA growth, including cost to capture for the quarter. Virgin Media O2’s guidance continues to target mid-single-digit EBITDA growth, excluding cost to capture for the full year.

We are reconfirming our full year Virgin Media O2 EBITDA guidance despite this as it’s underpinned by fixed and mobile price adjustments and continued synergy execution throughout the rest of the year.

Sunrise saw an EBITDA decline of 9.2% in Q1 as headwinds from the UPC right pricing activity continued to impact EBITDA trends, combined with the continued weaker fixed ARPU mix. Now this continues to be as a result of the rotational churn challenge assessed with the UPC brand sunsetting.

The business has taken pricing actions to help offset inflationary pressures, implementing a fixed price rise of 4% from July. VodafoneZiggo saw an 8.2% decline in EBITDA growth in Q1.

This was driven by the cost inflation headwinds of energy and wages, and it’s consistent with our 2023 guidance that Dutch JV will be impacted by €100 million of inflationary costs, particularly from energy and wages.

Whilst we expect to see these cost inflation impacts across 2023, we also expect to see some improvement in EBITDA trends versus Q1, in particular from the fixed price adjustment in July, which should result in a business meeting their full year guidance.

Telenet reported EBITDA decline of around 4%, driven by cost inflation, as strong top line growth was offset by 11% automatic wage indexation from January. Price adjustments of 6% are expected to support EBITDA in the second half of the year as they did in 2022. Turning to our capital allocation slide.

across all our core markets, we delivered capital intensity in line with our full year financial guidance targets. Moving to distributable cash flow.

On a reported basis, we delivered distributable cash flow of $20 million in Q1, including $198 million of distributions from Virgin Media O2 from our share of the recapitalization and $14 million of interest revenue from VodafoneZiggo.

As has been the case in previous years, Q1 is typically a lower net cash inflow quarter given the timing of interest payments on our debt stack. Our balance sheet remains in good shape, with all our debt fixed and with a relatively long average life for our debt across our companies of around 6 years.

We continue to have substantial cash balance with a consolidated figure of around $4 billion, of which just under $3 billion is at the Topco, as well as a further $1.5 billion of liquidity through our controlled revolving credit facilities. During the quarter, we saw cash outflows for M&A related to the Vodafone stake purchase.

Our share of the funding for our Edge Data Center venture AtlasEdge, acquisition of a German data center company and summarizes acquisition of EBL, a small Swiss cable company. My last slide confirms the 2023 financial guidance that we gave for each of our key companies.

We’re also reconfirming our group guidance of $1.6 billion of distributable cash flow, assuming the FX rates at the time of our guidance. And with that, operator, can we now turn to questions..

[Operator Instructions] Our first question is from the line of Robert Grindle with Deutsche Bank. Please go ahead..

Hi, there. Thanks for the questions. I wasn’t sure whether VMO2 will make a margin on the gross construction revenues. Perhaps you could just clarify that.

And how would you characterize the around 100,000 next fiber premises built in Q1? Are we early in a ramp-up phase there or on a go slow ahead of inorganic options, which have been subject to speculation in the press? Thank you..

Thanks, Ron. Charlie, why don’t you take the gross margin and Luke, you can address the 100,000.

Guys?.

Yes, I can. So the 100,000, Robert, I think your observation is right. It’s higher than 1 year ago. So we are doing a bit better. But it’s the beginning of the ramp-up, right? Absolutely. And I can also answer the margin question. So we are doing a very small margin on it. Very, very small margin. But there is some margin..

Thank you..

Our next question is from the line of James Ratcliffe with Evercore ISI. Please go ahead..

Hi, thanks for taking the question. Two, if I could. First of all, on Telenet.

Can you just talk about the rationale for bringing it in beyond just thought it was attractively priced? And what, if anything, you do differently owning 100% of that business versus 60? And secondly, on the Ventures portfolio, do you see that as being a net generator or consumer of cash over the next few years, given the both sale and potential investment opportunities you see? Thanks..

Listen, on the Ventures point, we will have to find out. As I mentioned in my remarks, it shouldn’t necessarily be assumed that it’s going to get bigger and bigger every year. We have a number of interest and investments we’ve owned for quite some time that could easily be monetized or disposed of. I’m not going to get specific with you.

So hard to say, quite frankly, but I think we are going to be looking at both disposal and investments with an eye to generating returns and/or realizing returns we’ve already generated. So I think it’s hard to say, but it could be either way. And I think at this stage, I know the things that we have lined up to possibly exit are quite substantial.

So let’s see. I think that should be something that’s evaluated over time on an opportunistic basis. In terms of Telenet, you mentioned the price, of course, we support what management is doing.

It’s heading into a very interesting period here where some time in the summer, the deal with Fluvius will get approved, and we will be launching into our first NetCo-ServCo model with pretty ambitious fiber rebuild and some really strong wholesale revenue in the market.

So it’s going to be really a great model for us or a great test case for us in terms of how these NetCo-ServCo structures operate and how we can almost take an incumbency position in wholesale and drive real value creation.

I think it’s easier for us to think about value creation opportunities, whatever those might look like as a private company for the foreseeable future. And of course, we understand the business, and John Porter and team have talked about the expectations of the business quite well.

We just think that as a private company, we’re going to have more optionality to both manage the business and ideally, over time, realize value from the business. I’ll leave it at that..

Thanks..

Thank you. Our next question is from Ulrich Rathe with Societe Generale. Please go ahead..

Thanks very much. So my question would be on the levered equity model. You have said that you’re quite comfortable with the situation. But I’m just wondering how we test the boundaries of this if interest rates stay at current levels, especially for the more highly levered entity.

So how do we think about the sustainability of the current levels of leverage in an environment, let’s assume that the interest rates stay where they are at the moment? Thank you..

Well, I’ll take you to make a couple of comments and then Charlie, you fill in here. I think as we’ve stated, I stated and Charlie stated in our remarks, today, we have the fortune – good fortune of operating a balance sheet with fixed rate, not floating rate debt, and no near-term maturities.

So we’re not unlike some peers in our industry forced to be in the market for quite some time. And I think that gives us the freedom to evaluate the right leverage over an extended period without having to do anything radical or rushed. So that’s luxury for us, in our opinion. And as you know, most of our covenant structures are extremely light.

Our capital structures are portable. There is no change in control provisions. It’s a pretty, I think, fortunate position that we’re in today relative to our peers. Charlie, why don’t you add to that? Charlie, you might be on mute or off. Okay, anyhow, that is see the balance sheet..

Can you hear me now?.

Yes. Got it now, Charlie. Go ahead..

Yes. Sorry, I was just going to say, the other thing you should remember is because of the long debt, the – by the time we get to that repricing and refinancing, these will be action through, these comes through their investment cycle. You think of Virgin with its fiber upgrade, etcetera etcetera.

So the free cash flow profile, all things being equal, will be more – much stronger than it is today. So I agree with Mike. We’re in a very lucky position that we’ve we have this flexibility, and we will just have to see how rates settle out. But there is certainly plenty of time for us to think about how we operate within that 4x to 5x range..

Thank you very much..

Thank you. Our next question is from the line of Polo Tang with UBS. Please go ahead..

Hi. Thanks for taking the question. It’s a question for André, if he’s on the line in terms of Switzerland.

Can you maybe talk through the competitive dynamics of the Swiss market in terms of what you’re seeing on both mobile and broadband, specifically what’s happening with promotional activity? And then just in terms of the recently announced price rises of plus 4%.

A few days ago, Salt announced that they would keep the price of their 10 gigabit broadband offer flat for the next 3 years at CHF39.95. So do you think this will limit benefit or impact of your price rises or a result of increased churn for Sunrise. Thanks..

Andre?.

Yes. Thanks, Polo, for the question. So firstly, I would say the competitive environment has quite changed in Q1, at least in the second half of the first quarter.

And we, as a player in this environment have changed our promotional activities and have reduced the intensity from no longer offering discounts over 24 months, on a 24-month contract, but have reduced it to a maximum of 12 months or a 24-month contract, which we believe is a very important step, not only to improve the economics of inflow, but also to change the dynamics on customer outflow.

So from that perspective, it feels like we have seen Swisscom moderating their promotional intensity already throughout the second half of last year. We have now following that trend with our change in Q1. So I think at least on the value brands, there is some moderation of the intensity.

On the, I would say, no first market of the end, where I would also position Salt to the most extent. Their prices remain important and intensity is as high as it was before.

But as you can also see from our inflow in Q1 in terms of net adds, with the change that we have done through the second half of the quarter, we have not been seeing a significant impact on our ability to drive customer inflow.

To the price increase question, well, firstly, we’re not really surprised that Salt is not following that because as I just said, their positioning is more based around price than it is around really value. And as such, we are not surprised about it.

And we also are not believing that this is changing our assumptions on the ability to lend the price increase that we have just done. But on the other hand side, to be honest with you, the price increase is becoming effective in July. So there is still a bit of time until we see how this is lending.

We have done, I would say, a cautioned planning on this. So we’re not expecting 100% of that to land. But so far, as Mike already said, the reaction to the price rise, have been moderate, which is a good sign. And also from the customers getting informed, we are not seeing any offer or difficulties that we were worried about.

So from that perspective, I think we are on the right path and the salt guarantee, which interestingly, I mean, I only have seen it, I supposed, on LinkedIn, so it hasn’t been widely communicated. But it’s something that we have envisaged and therefore, it’s not taking us by surprise at this moment..

I think the Swisscom reaction was they were surprised by it, but they felt it was a healthy thing for the market. And as you know, their contracts now allow for themselves in ‘24. So let’s see how it unfolds..

Thanks..

Thank you. Our next question is from the line of James Ratzer with New Street Research. Please go ahead..

Yes. Thank you and good afternoon. So Josh, if I could just follow on Switzerland, please.

And again, on the price change, could you just walk through, André, just how this price rise will be implemented? Is this across all your main brands for customers that are in contract? I mean does this mean that customers who are in cotton track have the option to leave when this price rise is implemented as we see in the UK? I just want to understand the kind of dynamics of the implementation of the rise.

And I think in the past, you’ve also mentioned that the migration from the UPC brand, which is a drag on ARPU, should be completed by the end of Q3, is that still the intention? And if I could ask a quick kind of technical follow-up question, next Fiber, I think in the July release last year when you launched it, you said you’d be doing 5 million homes by 2026, and the presentation here says 2028.

Is that kind of like-for-like comparison? Does this represent a delay in the build-out?.

On that first point, I think the 2028 figure refers to – includes also the upgrade of our 15 million homes or 14 that are already fiber to fiber. So that’s the date we’re referencing when we say 2028, of which Next Fiber is just a portion of that.

André, you want to handle the other question?.

Sure, yes. So on the technical implementation of the price rise, customers got informed or get informed now during the course of the April invoices, which are sent out during the course of May, after that those that actually are sitting on existing old contracts that have been signed before the beginning of the year.

They do have an opportunity to extraordinary cancel the contract within a 4-week window. So that is the first, if you want, a risk and a critical period that we are going through so far, roughly 0.5 million of customers have been informed. And so far, churn reactions have been very moderate.

So nothing that is beyond our expectation rather better than expected. Then the second thing is on that not all of our revenues are impacted roughly only 60% of our total revenues are impacted, and that includes not only new customers but also existing customers on contract.

It includes our Flanker brand, and it includes also a portion of the B2B business also, SOHO customers that are on consumer-like contracts. So that is how this is technically implemented. On the second part of your question, which was related to how long is this migration going to happen.

So what I said last time is the migration will take longer, but the impact we assume to turn neutral by Q3 or by the end of this year, whereas migrations will carry on for a longer period, but it will not be as harming any longer as the biggest pain is actually flowing out first..

Got it. That’s clear. And then to your, Mike, your assumption is still that you can get to 5 million new build in the UK by the end of 2026. I mean that’s very substantial..

Yes, we’re not changing that today. Yes, we’re not changing that today. But the 2028 figure we included both Next Fiber as well as what we call Mustang, which is the upgrade of our fiber across the fuller footprint..

Okay, thank you..

Yes..

Thank you. Our next question is from the line of Steve Malcolm with Redburn. Please go ahead..

Yes. Good afternoon, guys. I’ll follow-on the trend of trying to get into, if I can, you can further the note. The first is both on the UK actually. First on UK cash flows in the first quarter, which looked a lot weaker than Q1 last year and it looks like that was all on the operating activities. I think it was 770 outflow versus 320.

Can you just sort of give us an idea why the cash burn was sort of heavy in Q1? And maybe just help us sort of see the work for the trees a little bit in the UK with all the moving parts. I mean you did 660 of free cash flow guide in the UK, but I expected that to rise sort of a couple of hundred million this year.

Is that still sort of a reasonable thing in the air for how we think about the UK cash flows? And then just on the UK ARPU. It sort of deteriorated again in Q1. It was down, I think, 4% year-on-year. Obviously, as you move into Q2, you’ve got the price rise. I know it’s a very sort of complex calculus as it is in Switzerland.

Maybe just help us understand how we bridge the Q1 and the Q2 ARPU in terms of trend in terms of the price rise, most of voice all these different things and whether we can expect some sort of growth for the rest of the year in ARPU, whether declines are still in the order of the day. Thanks..

Yes. Lutz, why don’t you take the ARPU question and Charlie, you can prepare an answer to the cash flow question.

Lutz?.

Yes, sure. Hi, Steve, so on the fixed, two effects are important. Effect number one is that, as you rightly have said, customers are continuing to optimize their monthly bill, right? So there are still customers who get rid of the landline or who are getting rid of the mid pay TV content.

And therefore, right, so ARPU was down in Q4 last year something like 3.6% and now it’s around 4%. So that shouldn’t surprise you. And the second thing is that the price rise 1 year ago started to materialize from March onwards. And this year, it has started to materialize from April onwards.

So therefore, you’ve seen zero contribution from the price rise in Q1 different to Q1 a year ago. And how is the price rise materializing? So it’s kicking in as planned. And so we are very confident that we will land the price rise as we have planned for. And it’s not that we have a high-level average feeling.

Last time I said, right, we have the data now available from all our customers sitting on different product combinations, sitting in different areas in this – in the UK, right, overbuild, non-overbuilder, altnet, non-altnet, and also spread along tenure, right? So they are in different phases.

And so we are in the position to see how all of them have reacted. We are in the position to see what retention offers work well and further improve it. So therefore, we are in a pretty strong position here, and April numbers are in already, and so far so good..

And just on the free cash flow point. Steve, as you wonder, the working capital can be a very big variable of Virgin.

And actually, it was a particularly heavy outflow of working capital in Q1, but that will normalize through the year, has a little bit of increased year-on-year interest because of the way we face some of the interest payments and with the refinancings. But I think we are very comfortable with the guidance. We have not just given on free cash flow.

We didn’t actually clarify how much of it was from a recap and underlying free cash flow, but the business at least from our perspective, continues to be tracking exactly to budget, and we are pretty comfortable with them. And I would point out, we have actually locked in the incremental recap for this recent financing. So, we have money in hand..

Okay. Is it – I mean you are obviously very helpful to give us that presentation on the fact a bit of divisional cash flow last year, UK was just mid-600s.

Is it reasonable to assume a reasonable step-up from that in 2023?.

Steve, I am just not aware – I don’t think we want to get into the game and be too precise on that guidance. But as I say, we are very comfortable in our top level free cash flow target, and Virgin is a big part of that. And we feel pretty good about..

Okay. Thanks Charlie..

Thank you. Our next question is from the line of Matthew Harrigan with The Benchmark Company. Please go ahead..

Well. Thank you. When you look at potentially floating some of the individual company or country businesses, you have really focused on differentials in the interest rates and kind of the equity risk premiums by market. I mean clearly, you have got a lot of bumpiness in Switzerland right now.

It looks like the Dutch business could be extremely attractive to the market given the relative conditions in that country. How are the macro conditions really affecting the timing and the desirability of doing something? I know you want to get to steady state growth-wise in Switzerland.

But it looks like the Dutch business could be extremely attractive for an advance flotation as well if you can agree to something in concert with your partner? Thank you..

Well, you have pointed out a lot of really important facts there. You ended with one of the most important facts, which is we do have partners in two markets, the UK and in Holland. And making this – we can’t make decisions later. Having said that, we believe, over time, markets will rebound.

We are a bit more optimistic perhaps than others about where we will end up here in the next 24 months to 36 months. And I think that you could look at almost any one of these businesses as a potential candidate for listing at some point in time, if that’s the right decision to be made.

Certainly, we have talked most recently about Switzerland for all kinds of reasons. And as you pointed out, we want to be sure we are hitting our stride operationally, generating a free cash flow number that we think would be the right level for listing.

We are targeting CHF320 million to CHF350 million of free cash flow this year, which is a meaningful uptick from last year in Switzerland, and we expect that to continue to rise. So, the timing of something like that, it’s critical. But you should assume we are doing and have done quite a bit of work around that.

And the delisting in Belgium might seem counterintuitive based on this conversation, but not necessarily because we think there are lots of ways to get that business on better footing and perhaps more regional footing and without being specific, there will be opportunities to create value in that business as well.

And of course, VodafoneZiggo and VMO2, as you pointed out, our great businesses, compared extremely favorably to peers and incumbents and could also be interesting candidates. So, that’s always on the table.

As we are looking at each of these markets independently, but also through the lens of what will be the most impactful way to create value for shareholders. And so, I can’t be more specific than that, but we will look at it closely and we constantly look at it closely so..

Thanks Mike..

Thank you. Our next question is from the line of Maurice Patrick with Barclays. Please go ahead..

Hi guys and thanks for taking the question. A question on the Dutch business, in the UK, you very helpfully break out the sort of BAU and sort of new sort of growth areas in terms of net add stress that both are actually growing.

But in the Netherlands, it seems as though the broader markets Germany kind of flattish and you have got slightly negative numbers. KPN is sort of similar. I just wondered if there were any market share shifts in the kind of different demographics there. So, KPN has talked about growing its market share or trying to grow its market share in areas.

It rolls out fiber to the home. You do have altnets in the Dutch market, not the same magnitude as the UK, but you do have them. Just curious to in that sort of broadly flattish, but slightly negative net add numbers, if there were any share shifts in fiber areas versus non-fiber areas or to altnets or not altnets. I am just curious on that. Thank you..

Okay.

Jeroen, do you want to handle that?.

Yes, sure. Thank you for that question. I am Jeroen, Chief Executive of VodafoneZiggo in the Netherlands. You mentioned on the net adds, so we were about minus 8,000 negative reports on broadband. Last quarter, KPN was minus 13. So, they are kind of in the same ballpark. That by the way, said KPN has been rolling out a lot of fiber.

So, you can see the performance is not really there. So, a lot of competition is taking place in the promotional and the pricing space. To your point around do you see any very specific market share shifts, no, we don’t.

With one exception, and you kind of alluded to it, and that is where you do see fiber being rolled out in the first period, you tend to see a little bit higher churn. We see a small turn uptick in an area where our fiber has just been rolled out. Part of that is that because fiber has been rolled out, it’s new and customers do appreciate fiber.

But largely, we see coming from research why do customers then actually leave, the real reason is actually price because of the competition we are rolling out fiber tends to go in with quite strong promotional levels. And therefore, you see a small uptick in the region where fiber is rolled out. And after that, it normalized a bit.

Other than that, we don’t really see material share moves in the market..

Very helpful. Thank you..

Thank you. Our next question is from the line of David Wright with Bank of America. Please go ahead..

Yes. Thank you, guys for taking the calls. And I am going to sneak my two in as well. Look, just maybe possibly a very quick estimate of that ARPU – of the price rise in the UK, you have sort of talked before about how much of it you think you could monetize from kind of the gross line through to the net line.

Any updated expectations or thinking on that would be useful. And then second of all, I might just follow the question before on sort of listings, local asset listings, etcetera? What is interesting is that you are now effectively breaking up VMO2 over to some extent with the next fiber build, etcetera.

And there is something not dissimilar happening at Telenet with the Fluvius relationship.

I wonder, should we sort of think more about these kind of infrastructure building vehicles developing over time and perhaps something to help Switzerland with its fiber rollout, something to help Vodafone Ziggo with its fiber rollout over time, and maybe they are the assets that we could consider listing rather than what becomes increasingly a kind of service co on the other side.

Is that maybe a future we should think about team? Thank you..

I think it’s a fair point. I will take that question quickly, and then Lutz, you can handle the price rise point. I think that’s a fair point. And as I have tried to say, everything is in scope.

So certainly, in the situation Telenet’s created, that NetCo is going to be quite a large business with something like 60% to 70% of all broadband customers utilizing in Flanders anyway, that network. So sure, clearly, we will be looking at in an agile way what the best strategy is to create value or crystallize value.

And that could be an option in certain markets. So yes, I think you are – it’s not beyond to think that, that could be a strategy we take in certain markets. Lutz, do you want to handle the pricing at this point? Yes. Go ahead, David..

Yes. Sorry. Just maybe a follow-up and whether it’s a question for Charlie, too. But when we do think about leverage, obviously, there is no refinancing for some time.

But one thing I think the agencies have suggested is that the use of off-balance sheet ventures to build fiber networks could mean tighter sort of ratios around the ServCo as they effectively dilute away from infrastructure ownership.

So, is that anything you are starting to kind of talk to bondholders about or getting some pressure that essentially, they are bondholders in a VMO2 that is actually edging a little bit more towards ServiceCo, with the next fiber agreement?.

Charlie?.

Yes. David, I don’t think it’s an issue at least in the short-term. I mean in the case of Telenet, we obviously consolidate and as far as the bond holder was concerned, we are actually sharing some of the benefit of the build with a synergistic partner.

And I think in the case of the UK, the upside is going to have to fund the next wave of growth beyond the original lining home. So – but you are right that off-balance sheet vehicles are always taken into consideration by the agencies on what is the right rating. We are very familiar with that with TEF and Vodafone.

So – but I think the things found that we are pretty comfortable with our leverage range of 4% to 5%. We have obviously on maturity. We do understand this point about higher interest rates down the line, but I think we have to see, first of all what our business is like then, and we will, as I said earlier, be through that investment cycle.

So, for the purposes of today, there is no real change in the message to our bonds [ph]..

Plenty of time to. Thanks.

And maybe Lutz?.

Yes. Hi David. So, on ARPU, I think what we have said in the past is that on the fixed side, we managed to keep something like 50% of the gross price rise. Now – and I think that hasn’t changed.

What – obviously, what comes into the mix now is right that due to the cost of living crisis, completely independent of price rise, customers get rid of the landline or video, all mid-tier video, although this is getting less and less. And the majority of our revenue comes more from broadband.

So therefore, I mean we are not giving a guidance on ARPU, but I think you can take both effects a bit into account in your model. And on the mobile side, because customers are – the majority of customers are getting the price rise when they are within the minimum contract lengths, right, you retain much more of the gross price rise.

What is happening there, as you might now, is that we retain customers or when they come out of their contract length of 3 years, we upgrade them into a new contract. And the promise we are making is that the retention offer equals the acquisition offer for our new customers. And so therefore, we are very dependent on the market size.

The encouraging thing on the mobile side is, and I don’t know how closely you watch it, that the acquisition offers are less aggressive, less promotional, so that our retention offers are also a bit higher. And if you factor both in that could turn out to be quite positive. Hopefully, that helps, David..

That’s useful. I watch you closely. I have just taken a note, I am supporting. Thank you..

Thank you..

Thank you. Our next question is from the line of Carl Murdock-Smith with Berenberg. Please go ahead..

Thanks very much. And full disclosure. I am an OC customer, too, David, if we are doing that. I had a question for Lutz on kind of people and operational priorities in the UK.

So, with Jeff Dodds leaving as CEO and being replaced by Ulrik Benson [ph], I was just wondering if you could expand kind of on what made Ulrik the right candidate to be the new COO and kind of sitting down with him, what have you set at top of his priority list going forward? Thanks..

You are very curious. Look, Ulrik, right, for everybody on the call, is a very experienced senior CEO. He used to run William Hill, a gaming and betting company owned by private equity, acquired another company, Mr. Green, and managed to double the value of this company within 3 years. He is a digital native.

He is very experienced in what we call large-scale organizations, so meaning stores, meaning field, meaning customer service. And this also answers the question. So, we need somebody who is digital first, right. We are driving this company to a data first company.

We need somebody who understands large-scale organization and who has a proven track record to drive value out of it, right? So, this is – his profile fits perfect to what we – what I need here. And I mean, look, with Jeff, he was 11 years with Virgin Media and Virgin Media O2.

He helped me tremendously to land in the country with a lot of good stuff together. And so a year ago, he shared with me he was looking out for something else. And we couldn’t disclose what it is yet. But if you understand what it is and you know Jeff, it takes you millisecond to understand why he has taken that offer. So, stay tuned..

Great. Thank you..

Thank you. Our next question is from the line of Georgios Ierodiaconou with Citigroup. Please go ahead..

Sorry guys. I hope you can hear me. And I am also an O2 customer since we are all disclosing our usage. I just wanted to ask a question around price rises. Clearly, what we are seeing now from year-end is another round of back book increases, some front book increases as well.

But what we are liking to see in general in the sector, is these price increases actually being sustainable, and there is maybe every year, a bigger gap between front book and back book in some of the markets.

So, I am just curious to hear from your perspective how you are thinking about this evolution in the next couple of years because clearly, inflation is not going to be a bigger tailwind in your ability to raise prices in the future.

So, are you starting to consider maybe being less aggressive on retention I noticed you highlighted it’s true that you are doing better on KPIs on some of the incumbents? Is that a strategic goal for you, or could you accept perhaps softer KPIs in an attempt to improve financials.

And then very quickly, perhaps a follow on some of the previous questions around financing structure. At what point, given our maturities after 3 years or 4 years away, at what point would you revisit perhaps the capital structure that you have and maybe make different decisions around shareholder returns? Thanks..

On the financing structure, I am not sure I am getting the question clearly. I mean we have addressed the balance sheet and how we see it today. And of course, how – the position we think we are in over the next 5 years to 6 years, which is a strong one.

We also have referenced the fact that we are open-minded about ways to crystallize value in our operating businesses in the operating countries, whether that – and we have shown, I think in the past, the willingness and ability to do that. I am not sure we can be more specific about any of those today, but we hope to be in time.

That would be helpful for shareholders to be able to give clearer guidance on where we are going, but this is not the moment to do that, obviously. In terms of price increases, and this is a general comment and any of the OpCo CEOs are willing to chime in here.

Taking price increases that are approximating inflation is helpful, but it doesn’t necessarily mean we are going to be doing that every year at these levels. So, they are as we said, approximating inflation. So, there are benefits to the revenue and hopefully, to the EBITDA as well, but we are also seeing impacts of inflation.

If inflation declines, our price increases will decline as they have in the past to levels that are more reasonable mid-single digit in the UK, for example, we have always taken price increases there.

So, I think this is an extraordinary time, and it’s comforting to hear at least three O2 customers who just got a sizable price increase, our remaining O2 customers because perhaps you appreciate it as well that it’s a good service.

It’s – we are only offering that – really making that price increase apply to your service revenues, not your handset and things of that nature. So, we are trying to do the right thing by customers, but also be sure we are absorbing, if we can, some of these costs and ensuring that it’s a balanced arrangement.

If inflation comes down, which we think it will, then obviously, we are going to be in a different position relative to price increases. But the market appears to be willing to absorb some reasonable amount of price, which is very comforting for us in this sector. We have talked in the past that there are tailwinds here.

Pricing power is one of them, not simply pricing power associated with inflation, but pricing power generally because we are offering a better and better service and the demand for connectivity in particular and the quality of connectivity we provide supports those reasonable price increases in the long run. I think that’s our last question.

I will just….

Maybe, Mike, allow me to explain a bit also. And I think it’s for most of the codes, but how we are getting less and less dependent from price rises. It’s very simple. In the UK, every second household is a customer for us. We have the fastest broadband, the most popular mobile brand.

We have all the content our video customers want and we have all the devices our customers want. Today, every household is only using a fraction of our product. So therefore, having the data, or having the access to the customer will allow us to sell simply more from what we have.

And the more we are doing it and we are on the way doing it, the less we are dependent on price rises. Good point..

Good point. So anyway, thanks for joining us. Hopefully, we have done a good job of explaining the first quarter results in the context of our guidance and the phasing there and the decisions we are making around operating financial and strategic investments, which we think makes sense in the balance sheet position we are in, which is very positive.

And also, the optionality we are trying to create with this transaction where we read almost out of Bermuda. It’s important for you to understand that. Please read the proxy and please vote because that some time in late Q2 or Q3, we will put that to a shareholder vote. So, thanks for joining us and we will speak to you in August. Thanks, everybody..

Ladies and gentlemen, this concludes Liberty Global’s first quarter 2023 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. Thank you for joining. You may now disconnect your lines..