U.S. Markets closed

Edited Transcript of LBTYA earnings conference call or presentation 9-May-18 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2018 Liberty Global PLC Earnings Call

LONDON May 11, 2018 (Thomson StreetEvents) -- Edited Transcript of Liberty Global PLC earnings conference call or presentation Wednesday, May 9, 2018 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Charles H. R. Bracken

Liberty Global plc - Executive VP & CFO

* Lutz Schüler

Liberty Global plc - CEO of Unitymedia

* Michael Thomas Fries

Liberty Global plc - Vice Chairman, President & CEO

* Thomas Mockridge

Liberty Global plc - CEO of Virgin Media

================================================================================

Conference Call Participants

================================================================================

* Daniel Morris

Barclays Bank PLC, Research Division - Research Analyst

* Henrik Herbst

Crédit Suisse AG, Research Division - Research Analyst

* James Edmund Ratzer

New Street Research LLP - Europe Team Head & Analyst

* Jeffrey Duncan Wlodarczak

Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst

* Jonathan Dann

RBC Capital Markets, LLC, Research Division - MD and Head of the European Equity Telecoms

* Matthew Joseph Harrigan

The Buckingham Research Group Incorporated - Analyst

* Michael Bishop

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Nicolas Cote-Colisson

HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology

* Robert James Grindle

Deutsche Bank AG, Research Division - Research Analyst

* Ulrich Rathe

Jefferies LLC, Research Division - Senior European Telecommunications Analyst

* Vijay A. Jayant

Evercore ISI, Research Division - Senior MD, Head of Media & Cable, Satellite & Telecom Services & Fundamental Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2018 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 presentations can be found under the Investor Relations section of Liberty Global's website at www.libertyglobal.com. (Operator Instructions) As a reminder, this call is being recorded on this date, May 9, 2018.

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. Also, please note that nothing stated on today's call constitutes an offer of any securities for sale.

I would now like to turn the call over to Mr. Mike Fries.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [2]

--------------------------------------------------------------------------------

Thanks, operator, and hello, everyone. Appreciate you joining the call today. We've got a lot to talk about, obviously, so I'm going to skip the formalities and jump right in on Slide 4. I'm sure by now you've all seen the announcement of our definitive agreement with Vodafone to sell them our operations in Germany, Hungary, Romania and Czech Republic for EUR 19 billion or just under $23 billion.

This is an extremely important transaction, obviously, not just for shareholders, but also for our employees and our customers. In our view, the combination of our respective networks, our people and our services in these 4 markets will stimulate investment and catalyze innovation and I think, importantly, strengthen competition is exactly what Europe needs right now. More on this deal in just a moment.

And we also, of course, announced our first quarter results, which included our strongest revenue growth in nearly 5 years, driven in part by Virgin Media which delivered its fourth straight quarter of improved financial results of 5.2% revenue and 5.5% OCF growth.

And then finally, we are confirming our 2018 guidance today on a consolidated basis. And in light of the announced deal, Charlie's going to give you pro forma guidance, which skips out the countries that are part of the transaction with Vodafone as well us Austria, all of which will be reported on a discontinued ops basis going forward.

Now jumping to the deal in itself. You'll see some transaction highlights on Slide 5. And the 4 countries included here: Germany, Hungary, Romania and Czech Republic represent together 28% of our consolidated 2017 operating cash flow. And that does not take into account our 50-50 JV in Holland.

Here's how we look at valuation on this transaction. If you combine the 4 businesses, the total enterprise value is approximately 11.5x their aggregate 2017 operating cash flow. And not surprisingly, but we and Vodafone applied an even higher multiple to the German business, closer to 12x. And therefore, a lower but full multiple to the Eastern European markets.

Now we don't have the access to Vodafone's 2018 business plan. We don't have access to their forecasted synergies. And undoubtedly, there's going to be differences in IFRS and GAAP so you're invariably going to see different numbers out there from them. And that's how these things go. What matters to us, in this case, is fair value for what's demonstrable and that's 2017 operating cash flow.

After debt and working capital adjustments, total net cash proceeds from the transaction are expected to be EUR 10.6 billion or around $13 billion. And that assumes we delivered a CEE asset debt-free, and Vodafone assumes the debt in Germany.

Now, on top of that, we will keep all the cash generated by these businesses between now and closing, however long that takes. And we know at the top of everyone's mind is use of proceeds, I get that, but given that this transaction will take between 12 and 15 months to close, we're not going to start spending money that isn't ours. I'll simply say that our goal will always be to optimize growth where it makes sense and to maximize shareholder returns, no different than what we've done in the past, and exactly what we're doing with today's announcement.

The time period of completion will be driven by the regulatory process, and we believe the transaction will be notified to the European Commission as soon as possible for merger review. And we do not expect this deal to be referred back to the German regulator. Listen, this a large multinational transaction between 2 large multinational companies. And as such, it should, in our opinion, will be approved at the EU level.

If you turn to Slide 6. We lay out 4 compelling reasons why this deal makes sense, and I'll start with the economics. This is now the third transaction in the last 18 months or so where we demonstrated our ability to crystallize a premium valuation for our broadband and video operations. As you know both our Dutch and Austrian businesses were part of the fixed mobile merger at multiples closer to 11x. And with the growth and success we've had in Germany, not surprisingly, that multiple is higher here.

Now we're also convinced that this is incredibly positive transaction for consumers and for competition. Listen, don't be fooled by press reports or commentary that say otherwise. There's only one dominant provider in Germany currently controlling over half the broadband market with national fixed and national wireless networks. The rest of us are fragmented, and the market is screaming for investment, consolidation and convergence.

Together, our businesses in Germany would still be half the size of Deutsche Telekom, for example. The deal, in our view, is a natural combination of 2 companies that don't overlap and don't compete in cable today, and who are both committed to innovation and competition in Europe's largest market.

By the way, it's probably not lost on anybody here that Deutsche Telekom just happens to be pursuing this very same strategy in Austria due to their acquisition of our cable business in there which, by the way, we think makes a lot of sense. And of course, DT's trying to compete 2 mobile-to-mobile mergers, one in Europe and one in the U.S. So clearly, they see the world in a very similar light to us.

Now for those investors who have followed us through the years, you'd also know that this is not the first time we've rebalanced our business. This is in our DNA. Over the last 13 years, in particular, we've been entrepreneurial, agile and willing to change shape, when it makes sense.

Now just as we did over 7 to 8 years ago when we exited Asia at double-digit multiples to focus squarely on European consolidation, or even before that when we exited France and Scandinavia to invest in Switzerland and Germany, we think our long-term track record of value creation on this front is pretty good. Even after this transaction, we'll continue to be Europe's leading broadband and pay TV platform with strong businesses in the U.K. and Ireland, Belgium and Holland, Switzerland and Eastern Europe.

And together, these consolidated markets will serve over 26 million RGUs, generate $11 billion in revenue and almost $5 billion of operating cash flow. On top of that, of course, we'll continue to own our 50% stake of VodafoneZiggo in Holland, which serves 10 million fixed RGUs and another 5 million mobile customers.

Now speaking of value creation. The German market, in our mind, is a textbook example of how we do with. If you turn to Slide 7, you'll see that. Through some smart and timely acquisitions along with, importantly, focused and sustained operational execution, we have created Germany's leading cable TV operator.

Over the last 7 years, we grew ARPU over 50%. We increased revenue by 60% and we even doubled our EBITDA or operating cash flow. We did this by investing in the network by launching superfast broadband, delivering great video products and putting our customers first, all while growing EBITDA margins to over 60%.

Now on the right-hand side of this slide, you'll see how that strategy has paid off. Now during 2010 and 2011, we invested around EUR 2 billion in the acquisitions that formed Unitymedia. Since then, we've taken nearly EUR 4 billion of cash out through upstream dividend. And with this transaction, we'll realize over EUR 9 billion of additional cash for a total return of EUR 13 billion. That represents a cash-on-cash return of over 6x.

Now look, we're not a private equity shop, but we do look at our business through the lens of value creation. And we think that gives us latitude, and that's unique to us in some ways. The latitude to both explore and execute strategic transactions, just like this.

Now in the interest of time, I'm just going to quickly run through some highlights from our quarterly results, and then I'll turn it over to Charlie. As I indicated, we had strong revenue growth and strong operating cash growth in the quarter. And Slide 8 highlights some of the operating drivers behind those figures, mostly positive, but I'll start on the top left.

As you'll see, we had relatively weak quarter in net add growth, and there are several factors at play here. You'll pick up on these quickly. And even though we saw significant increase in net adds from Q4 to Q1 and Virgin Media, that was connected to better performance in our legacy footprint, we're still focusing primarily on Lightning markets and spending less on SAC and discounting less in those areas, which resulted in lower sales.

Elsewhere, if you go back over the last 3 to 4 years, you'll see that the first quarter is historically slow in Germany. And then we continue to encounter price and volume headwinds in Switzerland as a result of growing FMC competition. This remains a tough market. And while we're working hard to reduce churn, drive new bundles and build a sports platform, it's going to take time. And that's one of the reasons we've been looking at strategic alternatives there, as we've said in the past.

Finally, net RGU losses were up a bit in Belgium in the first quarter, mostly in video as a share shift continues with Orange. There's been a lot of focus on video subs in our industry, of course. We added video subs in our largest market, the U.K., but we lost a total of 84,000 in the first quarter. Now 25% of those subs were part of our low-end DTH platform in Eastern Europe, which we do not spend a lot of time or money on. And if you net those customers out, our Q1 and Q4 net losses were right in line with each other, which means that trajectory seems stable at the moment and remains better than it was, far better than it was 3 to 4 years ago.

Then, lastly, I'll just point out that RGU growth did trend up through the first quarter. And in April alone, we added nearly as many RGUs as we did in the first 3 months combined. So we're optimistic about the remainder of the year.

The other 3 metrics on this slide are all positive contributors to growth in the first quarter. ARPU continues to trend up, increasing 1.3% year-over-year. Now Virgin Media, in particular, saw another quarter of solid ARPU growth, which was offset by a decline in Switzerland. And B2B revenue growth was 12% in the quarter. That's 4 straight quarters of 12% or higher revenue growth.

Obviously, SOHO is the primary contributor there, growing nearly 20% in the quarter. And then postpaid mobile growth, largely driven by Virgin Media and Telenet, contributed to 5% mobile revenue growth in the quarter, despite continued regulatory headwinds. That's quite a turnaround from where we were a year ago. And we've yet to launch 2 FMC products on our MVNO platform in the U.K., and it's still very early days of penetrating the WIGO product in Belgium.

Now to conclude one update slide on Virgin Media, which will represent, as you know, around 50% of our consolidated results after completion of the transaction with Vodafone. Let me start by saying that this market remains competitive, but rational. And it's going to continue to present both operating challenges and opportunities for us. But by all accounts, we've righted the ship in the U.K. over the last 12 months and we think we're sailing pretty smoothly again.

Now evidenced, in part, by 4 straight quarters of improving revenue and OCF growth from the 1% to 2% level a year ago to over 5% in the past quarter. And we've talked about the key drivers of this turnaround, beginning with some critical changes in the management team and the structure, but 3 more are highlighted on this slide, 3 important drivers.

For starters, the 2017 price increase continues to land well. The digital tools we put in place are supporting better retention in ARPU, and that's resulted in another quarter of reduced churn. And in fact, a 3% sequential ARPU uplift in the last 6 months. And our competitors, by the way, are also raising rates, both BT and Sky increased their prices 4% and 4.5% somewhat recently.

We're also seeing the sustained benefit from our investment in network and product quality. We cannot underestimate how important this has been for us . For example, we now have over 1.6 million V6 boxes in the field, which are driving meaningfully higher NPS and lower churn. Now these customers watch more television, and they are happier.

Now Virgin's 350 megabit broadband service is now available to 95% of the footprint. And in the latest Ofcom report, I'm happy to tell you, Virgin scored highest in the market for broadband reliability. Anchoring Virgin's performance is continued and steady execution of the Lightning newbuild program, with another 111,000 homes added in Q1, bringing the total to 1.2 million premises released. Penetration rates, ARPUs, build cost, they all remained largely on track and that supports what we know are going to be strong capital returns here.

So in summary, we're pleased, obviously, to have announced the deal with Vodafone today. It's the right strategic decision. It's the right financial decision for all the reasons I've just articulated. And I think it's also important to point out that we believe we're seeing the playing field in Europe very clearly, which means we're staying agile and we're staying flexible and we'll always be opportunistic, not just about how to best drive growth, but also how to create shareholder value for you guys.

So Charlie, over to you.

--------------------------------------------------------------------------------

Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [3]

--------------------------------------------------------------------------------

So thanks, Mike, and hello, everybody. I will walk you through our Q1 financial results and then provide further detail on segment performance and then, finally, conclude with a high-level recap. So turning to our Q1 2018 financial results. In terms of our top line performance, which you can see on the upper left, we grew our rebased revenue by 4.2% to $4.2 billion in Q1. And by continuing to holding direct cost flat, we were able to generate rebased OCF growth of 4.7% to $1.9 billion.

These results were largely shaped by the strong financial performance of Virgin Media, as described by Mike earlier on. And we also benefited from the settlement of prior year retransmission fees related to the execution of a new carriage agreement in Germany.

Our Q1 property and equipment additions were $1.3 billion, which was 30% of revenue. And this was driven by continued investments in the U.K. and Ireland. Our capital intensity was 31.4% in the quarter. This level of spend was largely attributable to Project Lightning as well as our investments in customer experience and most importantly, the V6 upgrade program.

Moving to the bottom left of the slide. Adjusted free cash flow was negative $625 million in Q1, partially attributable to the phasing of interest payments. The year-over-year decline was primarily due to the net negative impact from vendor financing as repayments exceeded additions for the quarter. From a leverage perspective, our consolidated adjusted gross debt to OCF stood at 5.3x. While our net debt ratio stood at 5.2x, both on the basis of last quarter annualized OCF.

Net leverage was up sequentially from 4.9x at the end of 2017, which was mainly related to lower absolute OCF in Q1 versus Q4, which we annualized in our calculation, and that's a situation that we experienced last year as well. Our average tenor exceeds 7 years, with approximately 75% of our debt due in or after 2024, and our blended fully swapped borrowing cost is now down to 4.2%. Finally, we repurchased nearly $500 million of our stock in Q1 as part of the $2 billion repurchase program that we previously announced at 2018.

Turning to our results by segment. We present rebased revenue and OCF for our operations. As seen earlier, Virgin Media delivered rebased revenue and OCF growth of 5.2% and 5.5%, respectively, through improved cable offer and another strong quarter in mobile. Unitymedia in Germany delivered 8.7% revenue growth for the first quarter, while OCF grew 11.8%. Both revenue and OCF were boosted by the settlement of the prior year fees that I mentioned earlier, in relation to the new German carriage agreement.

The benefits of the settlement of prior year fees in revenue and OCF were $33 million and $24 million, respectively. Our German operations also benefited from higher cable subscription revenues through continued RGU and ARPU growth. Additionally, B2B revenue doubled compared to Q1 2017, largely driven by an increase in wholesale voice revenue. This positive impacts were partially offset by the headwind from our analog switch off in June of last year, which reduced our Q1 revenue in OCF by $7 million, and will continue to affect growth at Unitymedia until the impact [lapse] in Q3 of this year.

In addition, mobile revenue was $8 million lower year-on-year as a result of the transfer of our wholesale handset program to our central and corporate segment, which was effective January 1, 2018. Our CEE segment posted 4.3% rebased revenue growth and 6.3% OCF growth for the first quarter, supported in part by newbuild activities across the region.

And in Belgium, Telenet's revenue declined by 1.3% on a rebased basis in Q1, driven by lower cable and mobile revenue and a $5 million headwind due to a VAT-related benefit that we recorded in Q1 of 2017. Revenues have been impacted by unlimited data plans in the Belgian market, which has reduced our out-of-bundle usage. In addition, the regulatory impact of roam-like-at-home also reduced mobile revenue.

Cable revenues have been affected by customer losses reflecting market competition as well as the decision to delay our annual price rise in Belgium, pending regulatory determination on wholesale pricing. This price rise has historically been implemented in Q1, which was the case in 2017. Meanwhile, Telenet's rebased OCF growth was 2.5% in Q1, benefiting from the continued migration of legacy MVNO customers to our own mobile network.

Moving to Switzerland and Austria. Our revenue was broadly flat in a challenging market, with the effect of competitive pressures offsetting the increase in revenue from MySports distribution fees, mobile services and B2B revenue. Our Swiss revenue was also affected by a $4 million headwind relating to a revenue reversal in Q1 of 2018, and a further $4 million impact related to the recognition of unclaimed customer credits in Q1 of 2017.

The 10.3% rebased OCF contraction in Switzerland and Austria in Q1 was heavily impacted by the previously mentioned challenging market dynamic and increased content costs related to MySports, which are more heavily weighted to the first and fourth quarters of the year. After considering the distribution fees that we received from other cable operators, our MySports programming costs were approximately $10 million in Q1.

In the central and other segment, we continue to streamline our cost base. We reduced our central and corporate net expenses by approximately 5% on a rebased basis. And then finally, on this slide, taking a step back. Most of our operations have delivered solid OCF growth this quarter. And when we look at our results without the drag from Switzerland, we're pleased with our performance.

Moving to the conclusion slide to wrap things up. In summary, we've had a promising start to 2018. The transaction with Vodafone highlights the strategic value of our assets, and on the operational front, we delivered the strongest quarterly revenue growth in nearly 5 years, supported by an acceleration in U.K. ARPU and the German carriage fee settlement. B2B continues to achieve double-digit revenue growth and we expect strong growth to continue through the remainder of the year.

On an investment perspective, we continue to deploy capital in newbuild and improving the customer experience to drive steady RGU growth and reduce churn at our existing footprint. We expect to see a much more meaningful OCF contribution from newbuild this year.

If not for the Vodafone transaction, our 2018 guidance would have been unchanged. However, given that we expect to treat the assets being sold to Vodafone, as well as our Austrian business that has been sold to Deutsche Telekom has discontinued operations, we're also providing new 2018 guidance on that accounting basis, namely: generate around 4% rebased OCF growth for continuing operations; deliver $1.6 billion of adjusted free cash flow from continuing and discontinued operations; spend $4 billion on property and equipment additions, including $800 million on the newbuild and upgrade projects for continuing operations; and finally, purchase another $2 billion of our equity.

And with that, operator, we would like to turn over for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll take our first question from Michael Bishop with Goldman Sachs.

--------------------------------------------------------------------------------

Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

--------------------------------------------------------------------------------

Just 2 quick questions for me. Firstly, I appreciate you don't want to talk about the use of proceeds given the regulatory approval. But if I could just ask about how you're thinking about the buyback in the medium term and considering, obviously, there's a break-free and you have this deal going on and also the Austrian disposal, so whether there's any potential to increase the buyback near term from the $2 billion? And then secondly, you mentioned you're looking at strategic alternatives very closely in Switzerland given the slightly weaker performance. So just wondering if there's any update there on your thinking?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Sure. Thanks, Michael. Look, and I'll repeat what I said in the remarks. The deal won't be done for over a year. So if you can tell us where stocks and interest rates and market multiples will be 12, 15 months from now, I'll tell you what we'll do with the capital. I can assure you we have no deals in the queue that require any capital, so there's nothing for us to announce. There's no big transactions pending. There's nothing -- we even have our eye on, to be honest with you, that would require capital. And I think, as you know, and I've already indicated, buybacks are a big part of what we do. We've already bought back half this company in the last 10 years. And at today's price, where it is right now, if this is where the stock was in a year, we'd probably use every penny of it to buy the stock back, that's what I'll tell you. In terms of what we're going to do in the next quarter or 2 or 3 in terms of increasing that buyback, let's see how things unfold. We've announced the $2 billion buyback. That's a big chunk of our market cap. This is historically how we have seen and believe is the best use of capital when you've got a stock that we believe is undervalued. So we're, obviously, not changing our stripes here, guys. Let's be clear, we're not changing our stripes. We're simply saying that we don't know where the market will be. And as I just said, if we think that this price today, right now, you are probably valuing the rest of our stuff at 5x. I'm a buyer. Call up Rick Westerman, I'm a buyer. But we don't have the money today. So we're not going to predetermine where that money is going to go. We're not working on any transactions that require the money. So there's really nothing more to say other than that we aren't changing our stripes. This is who we are and who we've been for 13 years. We bought that 900 million shares already. So I don't anticipate anything changing materially there, Michael, and let's see how the year unfolds.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

And we'll take our next question from Jeff Wlodarczak with Pivotal.

--------------------------------------------------------------------------------

Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [5]

--------------------------------------------------------------------------------

A couple on the deal. Can you provide more color on what your cash proceeds will likely to be after paying off the debt? It was on Hungary, Romania and Czech Republic assets and any tax associated with that sale. And then how much cash -- can you give us some color, you expect to generate from these assets over the next year or so until deal close?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [6]

--------------------------------------------------------------------------------

Yes. Yes. Thanks. So the EUR 10.6 billion or the roughly $13 billion number is kind of how this transaction was built up. So there's been some dueling enterprise values out there, and I tried to indicate in my remarks that -- and we get that. But you can't -- but if you believe the EUR 10.6 billion or EUR 10.8 billion that we and both Vodafone reported, that is the cash proceeds figure after all debt is accounted for, Jeff, and all taxes. And I'll tell you that, at this point, we view -- we think there will be no cash taxes owed on this transaction. We get to the EUR 19 billion by simply adding, as GAAP accounting requires us to do, the various liabilities in the transaction. And that is EUR 19 billion. So everybody's got their approach to it, that's fine. The main figure here is we agree on the net proceed, so you can build up the enterprise value as you choose. We did it on a GAAP basis, and that's how we got to EUR 19 billion, which is 11.5x 2017 operating cash flow. But the EUR 10.6 billion figure is after all debt is either assumed in Germany and therefore reduced from the EUR 19 billion, or already repaid. We're delivering the Eastern European assets debt-free. So that is the number.

--------------------------------------------------------------------------------

Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [7]

--------------------------------------------------------------------------------

Great. And then how much cash you anticipate generating in the assets that you're selling to Vodafone over the next, I guess...

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [8]

--------------------------------------------------------------------------------

Charlie, you want to address that figure?

--------------------------------------------------------------------------------

Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [9]

--------------------------------------------------------------------------------

I think, we -- where we own -- don't forget, Jeff, we own the free cash flow of the assets between now and closing. So we're not changing our guidance for this year, it's a $1.5 billion, $1.6 billion of cash flow this year. And obviously, we'll give guidance in relation to 2019 when that comes about. In terms of the split to '19 -- you got to be careful because, obviously, we are currently scaling our customer centers, I'd rather not break it out as we speak. But you should assume until this deal closes, it's the same free cash flow guidance we've been giving you.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [10]

--------------------------------------------------------------------------------

He's asking about Germany specifically, and it's a big chunk, right. You know the operating free cash in Germany so -- and you can look at the free cash in their own earnings results. It's a big number.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

And we'll take our next question from Vijay Jayant from Evercore.

--------------------------------------------------------------------------------

Vijay A. Jayant, Evercore ISI, Research Division - Senior MD, Head of Media & Cable, Satellite & Telecom Services & Fundamental Research Analyst [12]

--------------------------------------------------------------------------------

First, given the sale announcement today, the pro forma leverage, is it still going to be the same or do you think you need to lower that uptake, given Germany's free cash flow contribution? And second, I really appreciate your comments about where the stock is and how you would use your proceeds if you have to do something today on it. Just wanted to understand, with your current portfolio really focusing on the U.K., do you think you're strategically complete there because we always keep hearing ITV and some wireless assets might be an opportunity at some point. But just want to understand, obviously, I think as part of the stock reaction is that some of the proceeds may be used to fortify some of your existing portfolio. If you could address that will, that would be really appreciated.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [13]

--------------------------------------------------------------------------------

Sure. Charlie, I'll let you prepare the leverage question. On the U.K., today, we are not stressed about our position there. We think we are relatively complete strategically in that market as we sit. As you've seen in the results, we've had 4 straight quarters of improved performance, back to the 5%, 5.5% growth, and that's attributable to the things I referenced in the remarks, of course, stronger management, focused on retention, the Lightning build, a great network. Well, all of the things work. And so we actually feel like we're hitting our stride in the U.K. based on the business we have today. We have a completely unexploited mobile platform with 3 million subs that are, just now, migrating to the full MVNO deal with BT. And we're in the works, in the midst of developing a quad-play plan for the U.K. and Ireland market, which we haven't even rolled out. So we, as you know, have a very full MVNO deal with BT and we think tremendous opportunity to very cost-effectively push convergence across the Virgin platform. And the Lightning build itself is giving us greater reach and greater strategic relevance in that market. So -- and of course, on the content front, we've got access to the sports, we've got the Netflix on the box, we feel like we're complete in that regard as well. So there are no transactions we are contemplating in that market. As I'm sure, most people would want us to do, we're focused on execution, operations and delivering, we think, some of the best results that market has to offer in terms of both share of broadband adds. We're the only person adding TV customers. We're generating 3% ARPU growth over the last 6 months. We've got good margins and a strategic plan to extend the reach of our fiber-based networks. So it feels pretty compete to me at this point.

--------------------------------------------------------------------------------

Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [14]

--------------------------------------------------------------------------------

And just on the leverage -- sure, yes. As you know, for a very long time, our leverage target, I think it's more than 10 years now, it's been 4 to 5x. I don't see any reason why we would change that target. We're currently at the top end of the range. We always evaluate what is the right part -- place to be in the range, but 4 to 5 still feels the way to generate shareholder returns in this business. And I think the remaining assets, still very attractive as Mike has articulated.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [15]

--------------------------------------------------------------------------------

Yes. And after this transaction, we will be reducing debt, of course, across Eastern Europe and the UPC credit pool. You might want to address that, Charlie.

--------------------------------------------------------------------------------

Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [16]

--------------------------------------------------------------------------------

I mean, we will obviously need to pay debt down on the assets we're selling because we're currently, as a group, just above 5x. But the question of whether we would take the whole group down into an investment-grade rating or whatever that is, that is not the current intention. We're going to stay with our current levered equity strategy of 4 to 5x.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

And we'll take our next question from Daniel Morris with Barclays.

--------------------------------------------------------------------------------

Daniel Morris, Barclays Bank PLC, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

I've got a couple of follow-ups in the U.K. as well, please. It's great to see the strong ARPU momentum. And you mentioned, also, that some of your competitors are raising price. So I just wondered if you can kind of confirm that, that momentum should continue through the back half of the year. And I guess the context here is that, despite the price increases on the main brand, we've seen, I think, incremental competition and I see some price reductions in the low-end offers in the U.K. since the VDSL price cut come through. So your thoughts on U.K. ARPU here. And just as a quick follow-up. We heard Vodafone this morning talking about potential cable wholesale access. We've got a digital single-market review. They pointed out that LLU is a big part of the German market. It's an even bigger part of the U.K. market. So just can you update your thoughts -- update us what your thoughts on potential for cable wholesale access and risk reward on that, please?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [19]

--------------------------------------------------------------------------------

Sure. Tom, why don't you prep on the of ARPU question, I'll will let you take that one. On the cable wholesale access, listen, we don't think it's necessary and we don't believe it's an appropriate remedy in Germany for this transaction or, quite frankly, anywhere. We continue to believe that if you go back over the last 8 or 10 years, we have been the only challenger to incumbent telcos. We have been the only operator forcing investment and innovation in these markets. And as a result, we're in a position today where we think we're finally reaching some scale, but it's not done. We don't have complete national reach in any of our markets hardly. And today, it's still very much a David and Goliath story. Having said that, national regulators in Europe are quite vociferous and anxious, and they have quite a bit of political tailwinds around what they may choose or not choose to do. The Electronic Communications Code, which is still on a summer plan to be, in our minds, resolve relatively favorably in terms of how you define symmetrical access and significant market power, but we'll find that out. So in our view, we don't believe it's necessary and we don't believe it should happen. Having said that, it did occur in Belgium, as you know. And in that market, we're doing fine in terms of both our ability to compete and our ability to provide the access that's required and the returns we get when we add customers on a wholesale basis. So it's not something we think is necessary. It's not something we believe is required. But is it devastating to our business in Belgium? I don't think so. We've actually managed through that quite well, especially on an economic basis. But we will try to do our best to make sure regulators, especially in Europe -- the European Union, continue to see us in the proper light. And again, on the German deal, listen, Tim's going to say what Tim's going to say, that's okay. I love him. But in the end, we know and we all know what the German market needs. It needs a proper challenger. It needs somebody with scale, who can truly provide convergence, force investment and innovation that hasn't really occurred. And the video market is highly competitive in Germany. Half the customers don't even have pay TV. Netflix and Amazon have very strong penetration rates. I don't know where he is coming up with his stats, but the German video market is a very low ARPU, highly competitive business. And I think the combined company will do wonders, for not just our customers, but broader German customers in terms of giving them what they need, which is cost-effective and cost-efficient bundles, both mobile and fixed. Tom, you want to address the ARPU question?

--------------------------------------------------------------------------------

Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [20]

--------------------------------------------------------------------------------

Yes. Thanks, Mike. Look, clearly, a much improved ARPU picture in the U.K. And being called out on a deck, 2 consecutive increases of 1.5% taking us to 3% over the 6 months, so there's been a lot of focus on that, both in terms of the price rise that we implemented last November and in particular, the base management that we've implemented since that period. And I think that's where we are seeing the [relative guide] in particularly that we have retained more of the price rise. We are applying our digital support systems more effectively. And our teams in the context [is] just better resourced, better trained and better supported across the business because we have got innovations here like V6 box, our EOS group -- EOS box, which a much stronger TV box, continued rollout of the improved router for the broadband customers. So we're in a much better position there and we're focused on that. And that's, obviously, had an impact, to some extent, on the volume piece, and that's an issue that we can now address going forward. And I think you'll see us address that in a very judicious way. It's true that some of the other operators have discounted down the bottom. But frankly, that's not where we're at. We've got now 75% of our customers on 100 meg or more. So that's up from 50% a year ago. So the low end discounting down at the DSL with a very low VDSL under 40 meg is not our position. Going forward, I think, just as we took our price rise in November last year, I think you can anticipate that we'll do the same this year. And I think with the improved ability to land that price rise, I think we're going to have a higher degree of confidence in our ability to do that. And in terms of ARPU going forward, we've got to look at innovations to continue to trend. And one of those coming through is the targeted advertising, where we've joined with Sky in a joint venture there, and so we'll be looking at that opportunity. So to the extent there's some elements in ARPU, particularly the home telephony, where there has been a decline, we're looking at elements that will substitute that. But as I suggested on the top line, we still think we can grow ARPU on the top line. Thank you.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Robert James Grindle, Deutsche Bank AG, Research Division - Research Analyst [22]

--------------------------------------------------------------------------------

My first question is about the technical services payments from the sold assets to you guys. I think around $60 million OpEx, $70 million CapEx in the first year, post completion. Do you guys make a good healthy margin on such payments or are they just to cover your costs and you'd sort of rather those disappear as quickly as possible? And my other question is with regard Project Lightning, new homes in U.K. and Ireland, just over 110,000. That's a bit lower than the prior run rate. Is that sort of an underlying slowdown or is this something to do with the horrible weather we've had here in the U.K. or something else?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [23]

--------------------------------------------------------------------------------

On the TSAs, listen, I think your latter point is the right one. We are -- and I think Vodafone would agree, trying to migrate out of these agreements as quickly as possible. We don't want to be a service provider and they don't necessarily want us to be a service provider. So there's a very complex and detailed migration plan, which I don't believe we're disclosing the details of. But trust me when I say that it's not for us a revenue stream or source of profit that we're going to bake in the guidance or necessarily look to monetize or promote. It's a necessary part of the transaction. We totally appreciate that. We're willing to provide these transition services, subject to a very specific migration plan. And we're not losing money on it, let's put it that way, but we're not really making money either. And that's the same structure we have in place in Austria and the same structure we have in place in the Netherlands. In terms of Project Lightning, Tom, I'm sure you'll add to this. It was a quarter where we had, of course, winter day, shorter day and weather patterns. So from our perspective, this is not an indication of how we're ramping up or where we think we can continue to grow and the newbuild program. It, I think, is an extraordinary quarter. Tom, do you want to add any color to that?

--------------------------------------------------------------------------------

Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [24]

--------------------------------------------------------------------------------

Yes. Now, look, I think that's exactly it. The comparable is with Q4 '16 and Q1 '17. And both those numbers were higher than the prior year period. So basically, you're seeing a wind down as you run into Christmas and then a day on period -- as you come back after the holiday period, as well as having the weather effect. So we're certainly up year-on-year. Against the background, we are relative to where we were over a year ago. Clearly, we have a tapered ambition at the pace of the build, but we're certainly demonstrating we can build at this pace and effectively -- and sell effectively.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Let's take our next question from Jonathan Dann with RBC.

--------------------------------------------------------------------------------

Jonathan Dann, RBC Capital Markets, LLC, Research Division - MD and Head of the European Equity Telecoms [26]

--------------------------------------------------------------------------------

Is there any thought about redirecting some of Project Lightning to some of the countries where you're not building? And then I suppose, could you just sort of provide some confidence that the vendor financing inflows will swing back positively through the rest of the year?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [27]

--------------------------------------------------------------------------------

Charlie, you want to address the vendor financing point?

--------------------------------------------------------------------------------

Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [28]

--------------------------------------------------------------------------------

Yes. I can provide confidence, Jonathan. The vendor financing is very cyclical, and this is very typical on what's been happening, but very comfortable that it will flow back into Q4 and extremely comfortable confirming our free cash flow guidance.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [29]

--------------------------------------------------------------------------------

Yes. And then in terms of newbuild outside of the U.K., we did build, I think, another 100,000-some-odd homes in the quarter. So we're, definitely, not just building in the U.K. We're building other markets, a bit in Germany, a bit in Central, Eastern Europe, a bit in Belgium, even a bit in Switzerland. So we are constructing homes and extending reach in all markets. Obviously, in different economics and different build costs, but we are, in fact, doing some of the same stuff outside of the U.K.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

And we'll take our next question from Ulrich Rathe with Jefferies.

--------------------------------------------------------------------------------

Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [31]

--------------------------------------------------------------------------------

I have 2 questions, please. The first one is on the deal whether you have already agreed any particular arrangements if remedies come through. I mean, I'm not -- obviously, not now to talk about remedies specifically, but just wondering if there are arrangements in place that Vodafone and/or you -- or you would share them in case the commission comes up with any ideas that sort of destroy a bit of value in that transaction? That would be my first question. The second question is the RGU intake, you sort of, Mike, you highlighted reasons why -- high-level reasons why it's a bit slower in the U.K. and in Germany. But sort of going back historically, I mean, it really is a bit of low point in that consolidation parameter. I think it's never been at [6,000.] So I'm just wondering could you be -- give us some more sort of specific color on why it was quite as low in the U.K. and in Germany? Has it all turned out? And not necessarily forward-looking, but just exactly what happened in the quarter on those 2 accounts?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [32]

--------------------------------------------------------------------------------

Sure. We don't have anything to offer in terms of remedies, either what they may look like or what we may have agreed to in terms of how they may unfold or impact us. On the RGU intake, Lutz you're on the call, do you want to talk about Germany?

--------------------------------------------------------------------------------

Lutz Schüler, Liberty Global plc - CEO of Unitymedia [33]

--------------------------------------------------------------------------------

Yes, we can. So we made 29,000 RGUs. That is indeed, 29,000 lower than the year before. There's 2 reasons for it. One is that -- you remember, we did the analog shutoff second half of last year. And because of that, we were pretty busy with that and didn't really shift gears for gross adds in the way the gross admission could do. And number two is, also, you see 5,000 higher churn in the video business, also kicking in -- if you compare that with the previous quarter, 15,000. Now it's 20,000 Quarter 1 year-over-year comparison. So a bit higher video churn also because of the analog shutoff. But that is behind us now, and now we have shifted gears and you will see a stronger net adds as you're used to from Germany.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [34]

--------------------------------------------------------------------------------

And in the U.K., I mean, Tom, you can add here. Our Lightning net add have gone up every quarter and Q1 Lightning net adds were actually higher than Q4. Actually, our highest quarter of Lightning net add. The issue is on the [BAU,] where we did much better than Q4. I think we lost about 24,000. But in the end, that was a function of what Tom described, which was holding discipline on promotions, pulling back a bit on SAC and marketing and putting a lot of effort into our own Lightning territory. But do you want to talk about how that looks like in April, Tom, and going forward?

--------------------------------------------------------------------------------

Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [35]

--------------------------------------------------------------------------------

Yes. I think, really following up on the point that you just made and I mentioned earlier, I think, having made significant difference to our ARPU position and solidified our operating metrics there, I think we are in a stronger position, frankly, to try going forward. We've also changed the seasonality of this business because before we used to have a price rise at the end of Q1, which used to have a Q2 impact, we've obviously shifted that the November. So we're actually in a good trading position at the moment. And we see ourselves as building volume quite successfully through Q2. So partly, it's a cyclical change. And I think, in the end, we've got to look at these numbers on over a 12-month period. And partly, frankly, it was a choice in Q1 where we were really focused on ARPU and that did have a trade-off against volume. Maybe we're a bit too firm on some of our pricing decisions, but we just wanted to get that piece right before pushing on.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

We'll take our next question from James Ratzer with New Street Research.

--------------------------------------------------------------------------------

James Edmund Ratzer, New Street Research LLP - Europe Team Head & Analyst [37]

--------------------------------------------------------------------------------

Just 2 quick questions, please. Firstly, I mean, given the share price reaction we've seen this morning on the deal, I mean, are there scenarios in which you would consider increasing your share buyback above $2 billion? I mean, I presume, you've got to be pretty confident that this deal will get regulatory clearance, so spending liquidity now and bringing forward some of the share buyback surely would seem like a good idea at the current time. And then, secondly, I was wondering if you could just give us some more update around Project Lightning takeup. I mean, you did used to provide that chart showing takeup by cohort every quarter. I see that chart is no longer in the presentation. I mean, can you confirm are you still seeing 15% takeup after the first 3 months, even in the latest cohorts? I mean, what can you say about how that is trending compared to what we've seen in the past?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [38]

--------------------------------------------------------------------------------

Lightning is trending right on track. We didn't put it in because we had all the extra slides for the deal. But I think we're at 34% after 36 months on the chart. And I think, Tom, you can address how we're doing in the 1 and 2 year time frames, but we're on track. Do you want to add any color to that, Tom?

--------------------------------------------------------------------------------

Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [39]

--------------------------------------------------------------------------------

I'd just add, [the point of profile,] frankly, is very similar to what we showed in the past with a good early takeup and then a steady build. And as Mike said in that final quarter, we're at 34% but now nudging 35%. I think we'll be able to show we're breaking through that 35 mark. And of course, we'll keep pushing those penetrations right across the timescale.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [40]

--------------------------------------------------------------------------------

Yes. And on the buyback, let's see when we get the Austrian deal close. We think that's pending here and should definitely close relatively soon this year. Let's see where the stock is trading. But as I've indicated just a moment ago, there's no change in our buyback approach. And we have, in the past, certainly, raised the buyback and especially in moments where we believe the stock is particularly undervalued. So let's see how things unfold here. Let's get the Austrian deal closed, and we'll keep you posted.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Matthew Joseph Harrigan, The Buckingham Research Group Incorporated - Analyst [42]

--------------------------------------------------------------------------------

I actually have 2 big-picture questions. One, the transaction value was roughly what we thought the assets were worth on an organic basis. Vodafone talked about EUR 7.5 billion value in synergies. I'm sure you were allocated a portion of that. I'm trying to figure out what might be amiss with our organic valuation? I mean, certainly, 8.6x organically -- now the number that Vodafone tossed out next year wouldn't be all that appealing for some of the other businesses, particularly Germany [is at a] premium. Charlie's talked -- you will only have 2 businesses and newbuilds on the core business, you're kind of low 20% on the CapEx to sales on the core business, but you're well above 25% in Germany even now without all that much newbuild activity. When you spoke with Vodafone, is there some sort of sense that maybe they thought the core capital intensity on the business is going to be a lot higher than the low 20s longer term? And I think that 1 percentage point of CapEx to sales is probably worth about 2 points in the valuation. And then, secondly, maybe even grander question, is why now? I mean, cable valuations are very depressed, we get the fixed mobile convergence side a lot of attractive deals done in Europe, but I mean you're managing this asset very well under Lutz. I get this has been going on for a while, it's frustrating. But do you think you possibly could have gotten better value in 6 to 12 months, even though this is still an attractive deal on the surface?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [43]

--------------------------------------------------------------------------------

I don't know, Matt. I think we feel we got fair value. As I said, we look at the business as a -- we look at the deal as a 12 multiple, that's how we see it. I don't have access to their business plan. I don't know what they're fiscal 2019 estimates are that they used in their press release. We didn't share synergy numbers. So they're going to spend the multiple the way they need to spend it to their shareholders, and I'm cool go with that. What I know is what we delivered last year in operating cash flow, only a few months ago. And when we were negotiating this, it was -- certainly, we hadn't even finished the year. What we felt a proper multiple on that would be given where the market sits and in relation to our own stock price. And 11, 12x for this group, in our opinion, is fair value or we wouldn't have done the deal. At this point, it's a meaningful premium to any and all cable stocks. It demonstrates our ability to monetize and crystallize our businesses we've been building for some time and we believe are undervalued in the scheme of things. Could we have waited 1 year or 2, possibly. What would the market have done in that market, we don't know. Where would growth be, where would interest levels be in a merger, who knows? But the transaction was presented at this particular juncture. We look at our future in that market and realize that we were subscale and somewhat landlocked. They were anxious to consolidate their position, which we think makes great sense for customers and for the country. And as a result, we reached a deal we think was double-digit multiples in excess, 11 to 12x for the group. I don't know how anybody on this call could look at this transaction and say, "Man, you guys really didn't nail it. You should have waited for 12.2 or 11.9." I'm not quite sure that extra EUR 100 million here or there would have made a difference in the end. This is about crystallizing a moment for our business that we generated 6x cash on cash returns on, and then looking at our options as time progresses here and as we see what the capital could be used for. So I don't believe there's -- it would have been a good idea for us to wait, and I think this is exactly what our business needs. And I think the market will see that in time.

--------------------------------------------------------------------------------

Matthew Joseph Harrigan, The Buckingham Research Group Incorporated - Analyst [44]

--------------------------------------------------------------------------------

And one of the reasons why your CapEx to sales is as high because you have a low video ARPU, which make you less vulnerable to streaming and all that. But do you still agree with Charlie's perspective if you can get to low 20s CapEx to sales or do you think that you might be stuck more in the mid-20s even as things like Project Lightning wind down?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [45]

--------------------------------------------------------------------------------

I think, we're -- listen, we are always evaluating our CapEx. We will continue to evaluate CapEx in relation to our free cash flow profile. We still believe and are focused on free cash flow. So we'll continue to look at our CapEx carefully. The newbuild is a high return use of capital. We'll stick with that for the time being because we know we're getting good IRRs on that investment and we're advantaging the strategic platform that we're investing in and building. There are other things where we can be more efficient on CapEx, we're looking at that. So you can expect us to have a very strong view -- or I guess I would say we're going to look very carefully at our CapEx going forward and its impact on free cash, especially on a pro forma basis, because we want to be able to generate the returns we think we need.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

We'll take our next question from Nicolas Cote-Colisson with HSBC.

--------------------------------------------------------------------------------

Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [47]

--------------------------------------------------------------------------------

Do you see some dissynergies in central Europe after you selling Hungary, Romania and Czech Republic? Or do you think overhead costs can be reduced post disposals?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [48]

--------------------------------------------------------------------------------

It's unclear at this point what the dissynergies will be. I think for the longest -- for a very long period of time here, we're going to be owning and operating these businesses just as they are. And so there's no immediate impact, certainly, not in 2018 on margins or synergies that might impact our business. Business as usual. And so I think the 2018 period will be as it is, so to speak, no dissynergy whatsoever. Going forward, we're going to be, I would say, highly strategic and highly analytical about exactly what the operating model should look like, where our synergies still reside, how we continue to drive scale. And we'll bring you into the -- under the tent on that as we get smarter. But today, there'll be no change in the business, so you shouldn't expect any dissynergies.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

We'll take our next question from Henrik Herbst with Credit Suisse.

--------------------------------------------------------------------------------

Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [50]

--------------------------------------------------------------------------------

I have 2 questions. First one was on, as you point out, there is still -- you will continue to operate in the business for quite a long time before it will close. Are there any potential adjustments to the price depending on what the business looks like at that point? And then secondly, just in terms of the U.K. and the gross adds, which -- it seems like lower gross adds and part of that seemed to be self -- yourself pushing more for retention of ARPU. I'm just wondering, are you seeing any size of the U.K. market as a whole slowing down, so lower market gross adds? And with competition at the lower end, I think there were press reports about you potentially launching a low-end brand at some point. Have you thought about sort of trying to take a bigger share of that pie by using a no frills brand?

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [51]

--------------------------------------------------------------------------------

Yes. On the contract point there, there are no price adjustments for performance in the transaction. Tom, do you want to address the second point?

--------------------------------------------------------------------------------

Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [52]

--------------------------------------------------------------------------------

Henrik, on the second point, I think, frankly, it's a small point and we'll leave it to others. We're in a position as the highest ARPU operator in the market. And with a growing business, as I suggested earlier, sure we didn't really focus on that price point in Q1. We can target good volume growth in Q2 at a good ARPU, and so we're continuing to focus on that. So the short answer is no, we're not going to deploy a low-end frankenbrand.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

Actually, this does conclude today's question-and-answer session.

--------------------------------------------------------------------------------

Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [54]

--------------------------------------------------------------------------------

All right. Well, listen, we appreciate everybody joining us for the call. I'll just repeat a couple of things. We do believe, and I think time will support, the fact that this is a very good deal for us strategically, financially. We think the deal will get approved. We think -- nothing is changing in our focus on how we create value, particularly for shareholders. There's no change in the basic strategy. If we can find deals like Germany with 6x cash on cash returns, we'll do them. If our stock stays where it is, we'll buyback a ton of it. So there's no change in this. We just want to get the transaction launched. Once it's done, we want to get it approved, which we think it will be. And in the meantime, we're focused on keeping the operations in a growth mode. And I'm particularly pleased with the performance of Virgin, as should you be, I think, in terms of our ability to get back to the revenue and growth profile we're looking at, and its ability to be strategically and I think particularly powerful brand in the market. So we look forward to catching up with you soon. You know where to find us in the meantime. Thanks very much for joining.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes Liberty Global's First Quarter 2018 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.libertyglobal.com. There, you can also find a copy of today's presentation materials.