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Edited Transcript of LBTYA earnings conference call or presentation 14-Feb-20 2:00pm GMT

Q4 2019 Liberty Global PLC Earnings Call

LONDON Feb 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Liberty Global PLC earnings conference call or presentation Friday, February 14, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles H. R. Bracken

Liberty Global Plc - Executive VP & CFO

* Lutz Schüler

Liberty Global Plc - CEO of Virgin Media

* Michael Thomas Fries

Liberty Global Plc - Vice Chairman, President & CEO

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Conference Call Participants

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* Andrew Charles Robert Beale

Arete Research Services LLP - Senior Analyst

* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* David Antony Wright

BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director

* James Edmund Ratzer

New Street Research LLP - Europe Team Head of Communications Services & Analyst

* James Maxwell Ratcliffe

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Matthew Joseph Harrigan

The Benchmark Company, LLC, Research Division - Senior Equity Analyst

* Nick Lyall

Societe Generale Cross Asset Research - Equity Analyst

* Polo Tang

UBS Investment Bank, Research Division - MD & Head of Telecom Research

* Robert James Grindle

Deutsche Bank AG, Research Division - Research Analyst

* Samuel McHugh

Exane BNP Paribas, Research Division - Analyst of Telecom Operators

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's Fourth Quarter 2019 Investor Call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of the call or webcast in any form without the expressed written consent of Liberty Global is strictly prohibited. (Operator Instructions)

Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. (Operator Instructions)

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 recent 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 its conditions on which any such statement is based.

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

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

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Thanks, operator, and welcome, everyone. Good to be back online with you. We have a lot to talk about today. So I'm going to kick it right off with some highlights. Then Charlie will hit the numbers, and we'll get to your questions for the balance of the hour.

I'm on Slide 4, which is a good snapshot of the year. I'm just going to say upfront that there are a handful of important story lines here, so bear with me. I want to spend a few minutes on this page. And I'll start with the fact that we met or exceeded all of our guidance targets for 2019. And you would know that revenue was largely flat year-over-year. We had positive customer ARPU growth. That was offset by a small customer loss of 74,000. Our rebased operating cash flow of $4.9 billion was down 3% year-over-year. That's essentially what we forecasted and, by the way, was right on budget for us. And we've widely reported the reasons for that, right, namely the turnaround in Switzerland and the headwinds in the U.K., which we'll talk a lot about today.

And then finally, we had better-than-budgeted capital efficiency, which helped deliver $770 million of free cash flow, exceeding our guidance. And that's a number that's up nearly 100% year-over-year.

Now as we've discussed for some time, just to put these numbers into context, Europe is a more mature market today than it was 5, 10 or 20 years ago. Broadband growth is slowing, that's inevitable. And the video business, while much healthier than the U.S., is flattening out in most countries. Having said that, though, the opportunity to drive sustainable growth and healthy free cash flow is as real as it ever was. And to achieve that, our operating strategy is clear. Number one, we're investing in gigabit broadband speeds across our footprint, usually well ahead of the fiber guys. Two, we're digitizing the customer experience to improve cost and churn. This takes some upfront investment that works everywhere we do it. Three, we're prioritizing profitable video subscriber growth, which makes total sense as we roll out advanced set-tops, integrate apps and support the bundle. And four, we're committed to driving fixed-mobile convergence. There is no debate here. A fixed-mobile convergence delivers significant synergies and a winning customer strategy that improves churn and NPS and grows market share over time.

Now by the way, some of you were wondering if we would ever be able to resize and rescale our operating model after the Vodafone deal and the sale of Austria, and the answer is yes. You'll notice that total central costs were reduced by $170 million or 16% in 2019 and with continued reductions coming in 2020, and Charlie will dig into those numbers. We also announced a partnership with Infosys to deliver the services required to our TSA partners, like Vodafone, and to ensure that the revenue and costs completely align in those contracts over the next 4 to 5 years. So hopefully, we've put that issue to bed.

Now continuing on this slide. Last year was pretty transformational for us on the strategic front with the sale of 4 markets to Vodafone for $21 billion. This transaction, perhaps more than anything, highlighted the disconnect between public and private market values in Europe. The price to Vodafone, which by all accounts, they were and remain thrilled with, was around 11x operating cash flow or EBITDA all-in, which is twice where our current trading multiple seems to be. The deal also validated the power of fixed-mobile convergence mergers, with reported synergies to them, I think, around EUR 7.5 billion on an NPV basis. And it left us with significant liquidity, right, which now sits at $11 billion, including $8 billion of cash.

And of course, we used a large proportion of those proceeds on capital returns to shareholders. We bought back a record amount of stock last year, repurchasing $3.2 billion of our equity or approximately 16% of the company. $2.7 billion of that was through the Dutch auction tender that we completed in September at $27 per share. And to show our continued commitment, now we're announcing today another $1 billion buyback authorization. That number might seem small to some of you. But if you go back over the last 10 years, this number is consistent with our buyback programs of the past. Usually, the quantum of our buyback authorizations generally represents around 5% to 10% of our market cap and around 75% to 125% of our projected free cash flow. In this case, we're right down the middle with 8% of our market cap and 100% of our free cash flow guidance, which is $1 billion for 2020.

And then the final story line here is that we're in a great position to continue crystallizing value in our core markets. I won't run through each country, and I'm not going to talk about real or hypothetical discussions. But the strategies that we might be pursuing are completely consistent with what we've been doing over the last couple of years. Fixed-mobile convergence works, and fixed-mobile combinations are materially accretive operationally and financially to our core cable platforms. You should assume we're always examining those options. And that's because our fixed networks are extremely valuable. We'll be 1 gig everywhere many years before the incumbents. And with that expansion comes opportunities to finance, capitalize and resell our infrastructure. You should assume we're examining those sorts of options as well.

And then lastly, as we demonstrated in 2019, our operations are highly cash-generative and already delivering substantial free cash flow, which, as our guidance for 2020 indicates, we'll continue to grow significantly, both on an absolute basis and a levered free cash flow per share basis as we continue to shrink our equity.

Now that was a mouthful, I realize. And I'm happy to take questions on any or all of it. But since the U.K. is our largest market, let me spend a couple of minutes on Virgin Media, and I'm on Slide 5 now. Consistent with the European theme I just outlined, the last 18 months had been a bit tougher in the U.K. as a result of 3 key challenges.

First, the broadband business has become more competitive and promotional with the entire market slowing down. And we're still adding broadband subs and holding share primarily because we're investing in gigabit speed and network expansion, but price competition at the low end of the market has been aggressive.

Second, the video market is also flattening. Sky has lost millions of satellite subs, a portion of which they've converted to Now TV. We've done much better than our peers, but we're still losing video RGUs as we focus on higher-end customers.

And third, the impact of external headwinds has been significant. In the last 3 years, we've incurred over GBP 200 million in increased costs associated with broadband tax increases, inflationary programming contracts, mobile regulation changes and other factors. And despite these challenges, as our fourth quarter results demonstrate, we are more than holding our own in this market. We delivered the highest revenue and the highest customer ARPU growth in Q4 at around 1.5% each. We had a record year for mobile postpaid sub adds. And CapEx discipline drove operating free cash flow up 26% for the full year, and that's including the cost of bundling out over -- building out over 0.5 million new premises through Project Lightning.

Just to reiterate, because I know it's on everyone's mind, Lightning continues to be a smart use of Virgin's free cash flow. We've now built over 2 million homes, and we're serving over 450,000 new customers. We generated GBP 240 million of revenue, GBP 120 million of OCF. And just as importantly, penetration rates and ARPUs are still tracking. And the cost per premise declined 20% last year, which helps solidify our capital returns.

Now the bigger question on your mind is the strategy moving forward for Virgin Media, I imagine, and the short answer is we're confident that Virgin has a sound operating plan that will retain and grow customers, drive modest revenue and operating cash flow growth and deliver significant and sustainable free cash flow over the medium term. And that's the base case, so excluding any strategic transactions we might consider in the market. And we say medium term, because as we foreshadowed, 2020 will be another year of unavoidable headwinds. I'm referring, of course, to Ofcom's out-of-contract notification requirements, another increase in our annual broadband taxes and contractual programming cost increases, all of which will total about GBP 100 million in negative operating cash flow this year.

Now Lutz has his work cut out for him. But in my opinion, he's doing all the right things. First of all, he's revitalizing the talent and leadership at Virgin. The addition of Severina Pascu, who transferred from Switzerland to the U.K. as CFO and Deputy CEO, is a great move for us. They're going to make an outstanding team, in my view.

Secondly, he's focused on the right organic growth drivers, get the network to 1 gig everywhere and well ahead of the competition, who are all busy making promises while we're delivering. This is a huge strategic and political advantage for Virgin, by the way; continue pushing our fixed-mobile leadership and preparing for a switch over to the Vodafone MVNO, which provides access to 5G and much better pricing; and invest in the customer experience through digital initiatives that will create better customer journeys at lower cost. All those things are working and will work.

And then obviously, we continue to explore strategic options in the market. For example, there is a clear opportunity to scale up our network and potentially look at other infrastructure-related moves that create value. And by the way, everything we're doing today with Lightning is self-funded out of Virgin free cash flow. And if we were to look at expanding to an additional 7 million to 10 million homes, we would almost assuredly seek to do so off balance sheet and with third-party partners or financing sources. I hope that's clear to folks.

Now let me switch to a couple of other markets quickly here on Slide 7. And the folks have asked this in the past: why would Vodafone or Deutsche Telekom pay us 11 to 12x EBITDA for our cable assets? Or why would we acquire mobile assets in Belgium or Holland, admittedly at lower multiples, but why would we do it? And I think perhaps the best way to answer that question is to look at the JV in Holland with Vodafone, which, after just a couple of years has achieved everything we hoped it would, and is in the process of becoming and has become the undisputed market leader in Holland.

2019 was a breakthrough year for VodafoneZiggo. They hit or exceeded all of their guidance targets, which included modest declines in fixed RGUs but considerable market share gain from KPN. It was a similar story in mobile with VodafoneZiggo adding 269,000 postpaid subs and the incumbent going backwards. That helped drive revenue and EBITDA up 1% and 4%, respectively, last year. So they're back to growth in this market. And the JV delivered EUR 470 million of levered free cash flow. So put a market yield on that, and you'll arrive at a pretty meaningful equity value for both partners.

How have they done that? Well, they filed the same playbook that has underscored all fixed-mobile mergers in Europe. They've already hit 85% of the publicly disclosed synergy target of EUR 210 million. They prioritized product innovation, including nationwide gigabit speeds, the launch of next-gen set-top boxes, product simplification; I mean they took bundles from 42,000 to 300; and a great set of content arrangements like Ziggo Sports and HBO. And through convergence, they've become the #1 fixed broadband provider in Holland with 7 out of 10 homes taking at least one product from VodafoneZiggo. So simply put, the strategy worked.

And finally, a short update on UPC Switzerland and where the business is clearly turning around. And why do we say that? Well, we hit all of our internal targets for 2019, including a 40% improvement in fixed customer loss, a 40% improvement in RGU loss and revenue and cash flow results right on plan. Even in this heavy investment period, UPC Switzerland generated $300 million of operating free cash flow and significant free cash flow or levered free cash flow.

There have been 4 consistent drivers to our success, and this is going to start to sound repetitive because it's the same strategy we're deploying in all of our markets. Beginning with a nationwide 1-gig launch, which already reaches 75% of Swiss homes, well ahead of Swisscom and Sunrise. We've transformed the TV proposition with advanced TV boxes rolled out to 60% of our sub base now. And like U.K. and Holland and Belgium, fixed-mobile convergence is taking hold with a 70% improvement in mobile subscriber adds last year and a doubling of the NPS. And then finally, our investment in digital across the organization and including customer interaction is working. We've had the highest NPS since we began measuring it 11 years ago.

So at this stage, we're happy to own this business. Switzerland is a strong and rational market with a stable economy and good political support for our initiatives. I just met with the President of Switzerland, and she was thrilled that we're still there to drive innovation. On top of that, we're delivering 50% operating cash flow margins and significant and growing free cash flow from this point forward. So I guess if Swisscom and Sunrise can trade at high single-digit multiples of EBITDA and mid-single-digit levered free cash flow yields with results similar or not even as good as ours, there's tremendous value to be created with this business on our own.

So to wrap up my remarks for the balance of 2020, we're focused, first and foremost, on navigating the headwinds in the U.K. market and delivering steady and growing free cash flow. Virgin is a strong brand with the best network, the fastest broadband speeds, all of the key content and a robust fixed/mobile strategy. And these are powerful drivers for operating success. And I believe in this team, they're going to get it done. And just as importantly, and as you would expect, we're exploring strategic opportunities in the U.K. and all of our core markets to create meaningful value today and over the long term. So 3 drivers: sustainable and growing levered free cash flow, real strategic opportunities to close the value gap in our core markets and $11 billion of liquidity to fuel this narrative.

Charlie, over to you.

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

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Thanks, Mike, and I'm now on the page titled Group Overview. Mike has already given detail on the results of our key markets and the annual figures, so I'm going to focus on the key financials for Q4. Group revenue declined in Q4 0.5%, and OCF declined 4.1%. Both figures are broadly similar to the Q3 figures. The reduction in CapEx in Q4 to 28.2% of sales versus 32.9% last year continued the 2019 trend of lower capital intensity and resulted in a Q4 OFCF of $433 million.

Liquidity remains very strong with $8.1 billion of cash and revolver credit facilities of $3 billion. Since year-end, we've been very proactive on the refinancing front, and we now sit with a fixed cost of 4% for our interest and an average maturity on our debt of approximately 7.4 years. Total consolidated debt was $26.3 billion, which resulted in a consolidated debt-to-OCF ratio of 5.4x gross and 3.7x net. And you should note, we've changed our targeted 4 to 5x debt-to-OCF leverage definition from an LQA, last quarter annualized, to an LTM, last 12 months, OCF basis, as we believe an LTM approach is more appropriate metric for our portfolio of maturing assets. Now in Q4, the LQA numbers would have been slightly lower than the LTM at 5.2x gross and 3.6x net.

On the next slide, we continue our additional disclosure, which we've had over the past few quarters, on how our central spend breaks down. Now as you can see from the chart, total central costs have been reduced by roughly $170 million in 2019, and we have further reductions planned for 2020. Now of the total $890 million spend in 2019, $660 million related to centralized technology and innovation activity. Roughly half of this spend relates to the companies that we have sold but continue to supply what is called TSA revenue or transitional services agreements revenue. This also includes our Dutch JV. The balance of the spend relates to our retained companies, in particular, Virgin Media in Switzerland.

Now in 2020, we estimate that this total T&I spend will be around $600 million with over $300 million of revenues being earned from the various TSA agreements. We expect this TSA-related spend to decline over the next 4 to 5 years as the contracts roll off, and a net spend of approximately $300 million to our retained operations will also decline and should be flat to down over that time frame. Much of this spend is with third parties, which makes it relatively easy to scale down. And we've recently announced additional efficiencies through a deal with Infosys, who've taken responsibility for the flexing down of the spend, further derisking it to our shareholders.

The balance of our central spend is our corporate spread, including typical corporate activities of finance, legal, HR, management, et cetera. Following our corporate downsizing in the summer, this was reduced from $260 million in 2018 to $230 million in 2019, and we expect this to be lower still in 2020.

Turning to the next page, we've set out the key financial metrics for our core divisions. Now as promised, we will now show the OCF and OFCF of all our companies after the allocation of those central T&I costs. There is further detail in our 10-K and press release for those that want more detail on these allocations, but this is designed to allow our investors to compare our key divisions on an apples-to-apples basis with, for example, Belgium and our Dutch JV, who've always disclosed OCF and OFCF after their share of centralized T&R costs.

As you can see, on a fully allocated OFCF basis, Belgium made $838 million of OFCF for the full year 2019, with our Dutch JV making $1.1 billion. We expect the Dutch JV over time to reach the same OFCF margin of around 30% that Belgium currently achieves as it completes the integration of its fixed and mobile operations. Switzerland made $298 million of OFCF in 2019 at a margin of around 24%. We're also targeting margin increases for Switzerland going forward as the heightened investment related to the turnaround plan is completed.

Finally, the U.K. made just under $1.1 billion in 2019, which included an investment of $390 million in Lightning construction CapEx. Whilst we would expect the ex-Lightning margin of 22% to also increase as capital intensity declines, the higher programming costs of the U.K. relative to other markets as well as the fact that it rents a mobile network, not owns one as we do in the Benelux, mean that the long-term OFCF margin is more likely to be in the mid- to high 20% of sales rather than around that 30% mark.

On the next slide, we break out the key drivers of the group's free cash flow, which remains our key focus from a financial performance point of view. Overall, free cash flow was ahead of guidance at $770 million. Net interest payments were $1.1 billion in 2019, including interest income. And we would expect our interest payments to modestly decline in 2020 -- this is not least due to the recent refinancings of our debt -- cash tax of $358 million included a $72 million U.S. tax payment. And we would also expect this to decline in 2020. The Dutch joint venture contributed $214 million to our free cash flow through dividends and interest on our shareholder loan. The EUR 100 million shareholder loan repayment in 2019 is not included in our free cash flow definition. That means that total cash returned to us from the JV was $325 million.

At our guidance FX, the Dutch JV has recently guided to $450 million to $560 million of total cash available for shareholder distributions in 2020. And clearly, we would expect to receive 50% of that figure. Finally, our cash flow from working capital items, including customer cycle, vendor cycle, operational finance, restructuring and VAT cycles, amongst others, was broadly flat with a net investment of cash of $37 million. And we expect broadly the same pattern in 2020.

Turning to the last page, we set out our key guidance metrics. The key focus remains on free cash flow. And we're guiding to 30% year-on-year growth to around $1 billion, and this includes the Lightning construction CapEx. So without that, the number will be higher. This is underpinned by a mid-single-digit increase in our OFCF as a mid-single-digit decline in OCF is offset by further reductions in overall capital intensity. And as Mike mentioned, we continue to see value in our stock, and the Board recently approved a buyback authorization of $1 billion.

And with that, I'm going to turn it over to the operator to answer questions. (Operator Instructions)

So with that, operator, over to you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Vijay Jayant.

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James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [2]

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It's James Ratcliffe for Vijay. I'm wondering if you can go into -- give us some more color on the expected impact of the front book/back book or loyalty/penalty work in the U.K. and both in terms of the magnitude, the timing when you expect this impact. And any thoughts about how you're going to balance potential ARPU impacts versus potential gross add impacts from the environment?

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

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Thanks, James. I'll say a couple of things. I'll let Lutz chime in here with his thoughts. First of all, we're not providing any specific detail around that for obvious reasons. It's not really in our best interest to tell you specifically what we think we will or won't do, how we'll price things and/or what we think the impact will be because this is obviously a competitive market.

Second thing I'll say is we've already implemented the program about 10 days ago, I believe, in advance of the requirement to start notifications tomorrow, just to get a sense of how customers are reacting and what we think the outcome will be. And I would say we're conservative overall in our assumptions of the impact. There's a wide range of impacts, of course, but we're overall conservative. And I think we have a lot of tools at our disposal here to ensure that the impact is minimized.

But I think as it relates to almost our entire guidance and budget this year, I would say, in all instances, we have been conservative. Lutz, do you want to provide a little more color on that?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [4]

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Yes. I mean there's some public data available, of course, but broadly half of our customer bases is out of contract. So they have the opportunity to look for new deals. I think what we are doing to simply keep them onto our network is a couple of things. So first of all, until end of March, we have given all our customers, 1 million altogether which have a speed below 100 meg, a speed upgrade free of charge. So we're simply playing a different beat in terms of speed. And we are leveraging that to keep our customers with us.

As Mike said earlier on, we drive fixed-mobile convergence, roughly 1, 2 percentage points. People who have quad-play with us churn less. And then we have also to offer more stuff on the content side. So I guess what I'm saying is, yes, it is a change. We are definitely informing our customers about our products. But we have also a lot to offer, and we play in the high-value segment, meaning that our customers value our products, and therefore also, are not necessarily so price-sensitive than customers in the lower-end segment.

We have planned carefully for it. We are attending days in the market, sent out 60,000 letters. And so far, I think the impact is absolutely under control.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [5]

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By the way, the 50% back book, front book, it's about the same as Sky. So it's not that dissimilar from other players in the market.

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Operator [6]

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And our next question comes from the line of Polo Tang from USB -- or UBS.

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Polo Tang, UBS Investment Bank, Research Division - MD & Head of Telecom Research [7]

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I've got one question and one clarification question. So in terms of strategic options, press reports have stated that you're in talks with Sky about both the fiber JV and the potential cable wholesale deal. If such a deal did happen, can you remind us what the merits of a deal would be from both a Liberty Global perspective but also a Sky perspective? And the clarification question is really just about guidance because -- can you clarify what's implied for your U.K. and Swiss guidance because you obviously said mid-single-digit declines to the group. Telenet guides towards plus 1%. And you've outlined $100 million impact from U.K. headwinds. So does this imply, therefore, minus 5% OCF decline in the U.K. and high single-digit OCF declines in Switzerland?

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

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Charlie, I'll let you prepare for the guidance question. On the strategic options, Polo, as I said at the -- in my remarks, I'm not going to get into great detail about what we might or might not be doing. It doesn't generally serve us well.

On the other hand, just speaking theoretically, what would a partnership with anybody -- doesn't have to be Sky -- a partnership focused on driving greater reach for the Virgin network mean to us? I think that's pretty straightforward. Today, Virgin reaches half the country. We think we have a brand, a product, a capability that's underutilized and getting our network and/or products to the rest of the U.K. market would be, just by itself, a very valuable outcome.

Secondly, we've already shown with Lightning that there is potential to penetrate and drive returns on capital. And while we're not willing to sacrifice our free cash flow to do that on balance sheet, because we believe in levered free cash flow and levered free cash flow per share, we would certainly entertain ideas or ways of achieving that off balance sheet that could accelerate the reach of 1-gigabit speeds and the Virgin brand. And you would expect us to do that.

So there's lots of almost logical reasons why extending our reach, driving scale and doing it in an efficient way from a capital point of view would be hugely valuable to Virgin and to us and to you and others as shareholders.

On the wholesale question, trickier, obviously. But if you look at Virgin today, we're only utilizing about 40% of our network. So on footprint, generally, we've got 40-plus percent of the network being utilized, which is the highest market share of anybody in our footprint. But nonetheless, there are other operators and those who don't utilize our services at all. So the question really is whether you build out another 7 million to 10 million homes or you look at your existing footprint, should you consider monetizing the value of this 1-gig network, there are obviously pros and cons. The pros are immediate cash flow to the bottom line that would both drive expansion of the network in a self-funded manner and value creation because we know infrastructure assets trade at much higher multiples than even we're able to sell in the private market, our assets.

And then secondly, of course, the benefits would be -- well, basically, that is the primary benefit. The negatives, of course, as I mentioned, would have to be examining the impact on your own business itself, so cannibalization and what are the negative synergies, if you will, of that.

So we examine it closely. As you know, we already provide wholesale access in Belgium, something we're quite familiar with technologically. Commercially, it's not something we want to be regulated, and it won't be regulated in the U.K. But it's something we ought to be looking at constructively to see if there's value-creation opportunities. And so of course, we will be doing that. Go ahead, Charlie.

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

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Yes. Just to say, as in the past, we're not going to give specific guidance for our retained operations. But look, as you rightly point out mathematically, both companies will see the declines.

The biggest issue, I think, in our guidance, and Mike referenced to this, is this end of contract life. We also don't think any company in the U.K. can give you precision on what it means because there's so many variable factors. And I would echo Mike's comment that we've tried to be prudent in our guidance, just to make sure we don't mislead you later in the year. But hopefully, we've been conservative. At least that's what I hope, nothing else.

But the other thing we highlighted, there's a big shift going on between OpEx and CapEx. Now I'm sure many of you are aware of this, but as the world moves towards cloud services, that is a very different accounting treatment. So for example, a cloud product is an OpEx cost; whereas if it's a data center, as it was 5 years ago, that's CapEx. So some of the decline in OCF and the increase in OFCF is just that shift between -- from CapEx into OpEx. And that's one of the reasons why we're continuing to really focus on operations, our bonuses and the way that our companies are run on the OFCF line. Because for us, that is a much better metric going forward of the underlying cash flow generation.

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Operator [10]

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

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David Antony Wright, BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director [11]

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Mike, if I could just ask you one more question on the whole concept of building and potentially creating some kind of off-balance-sheet venture. You talked about having an infrastructure investor alongside -- I guess, by definition, off-balance sheet probably means this would have to be some kind of 50-50 JV or less from your side. So that would imply a fairly substantial infrastructure investor. Could you also consider bringing another party in, maybe a wholesale operator, as a kind of joint partner on a venture like that? Could that be foreseeable?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [12]

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I think it's safe to say, David, that we're examining all options. And you should expect us to be doing that. And that this will take time. Those are 2 points I'd make. So yes, it would and could make sense because, obviously, if you're going to build 7 million to 10 million homes, while we believe we could penetrate effectively at the 30% level, as we seem to be doing effectively on our own Lightning expansion, wouldn't -- it would be materially better for a partner and financing if you could add additional operators onto that network or drive greater penetration of the network.

So there's puts and takes there. But clearly, we would be interested in discussions, not just with financial partners but also with network operators who are interested in the same opportunity. So I think the answer to that question is yes, we would. And I'll just repeat that this is not happening in the first quarter. This is not stuff that's going to occur overnight. This is a long game that will need to be played in the market.

Remember that both BT and the altnets are virtually nowhere in the marketplace. Maybe they've built as many homes as us in the aggregate, but our Lightning machine at 400,000 or 500,000 homes a year is working like clockwork, with declining cost per premise and consistent top line and customer results. So even at just 0.5 million homes a year, we're going to keep driving the growth of the Virgin network.

We ought to be looking at ways of supercharging that, but doing it in a manner that's consistent with our belief in levered free cash flow and levered free cash flow per share. And I think that's achievable. It's not going to happen overnight, but it's a kind of thing we should be looking at, and we're uniquely positioned. I'll repeat that: Virgin is probably uniquely positioned to be the one to evaluate those types of opportunities. Just another example of where we sit in this U.K. market and why our business, we believe, is worth a heck of a lot more than 0.

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David Antony Wright, BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director [13]

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And my follow-up question, if I can, please, Mike, is given that BT is talking about ramping up potential build by a factor of 2: 25,000, 30,000 to even 50,000 a week in the kind of midterm, is the capacity for you guys to kind of double your build as well? Is there actual capacity of the workforce required to dig roads to actually lay this cable? If BT is doubling their build, is the capacity left for you guys to do the same?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [14]

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We think there is. And remember, if we were to -- and I'll let Lutz chime in a little bit. If we were to expand beyond the Lightning program -- which is a fairly targeted program where we're extending network, and it's a fairly intensive construction process -- if we were to extend beyond that, and for example, the Liberty networks entity we set up were to build networks, similar to, say, how CityFibre is building networks that would be faster and more efficient using PIA and existing BT infrastructure. But Lutz, why don't you comment a little bit on the current supply situation in the U.K. on resources?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [15]

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Yes. So I think we definitely get ourselves prepared to ramp up the build, right? I mean last year, we've done 505,000 new premises. We are leveraging PIA. And so we are definitely understanding how to use the ducts and poles of Openreach. So for that, we have secured also certain resources. And also, we have just finalized a new RFP to ensure vendors -- vendor partnerships for the future.

And I think that we have a good relationship built up over years with our vendors. And if you're a vendor in the U.K., you want to stand on 2 legs instead of 1. So we have met really big vendors who only want to engage with one company. So therefore, I think, yes, it is a critical resource. And we are prepared to deal with it like that, and we have done some commitments to increase -- to make sure that we are enabled for increased rollout for the next year.

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Operator [16]

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And our next question comes from the line of Nick Lyall from SocGen.

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Nick Lyall, Societe Generale Cross Asset Research - Equity Analyst [17]

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Just a simple one for me, please. Just on the buyback, Mike, on the $1 billion permission. Why pick that number? I was just interested. The number is down obviously versus the tender last year. The shares are pretty low now. Does that mean there's maybe more of a focus on M&A rather than buyback? Could you just walk us through that, please?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [18]

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Sure, sure. As I mentioned in my remarks, Nick, historically, if you were to take a look at all of our buyback authorizations in the past, they have more or less been of an equal quantum. So by that, I mean, if you look at generally what we've done outside of the Dutch auction tender, we've normally announced at this point in time, buybacks that equal roughly our free cash flow guidance and roughly 5% to 10% of our market cap. And so here, we're at about 8% of our market cap and 100% of our free cash flow guidance.

That's good discipline. That means that we're able to drive free cash flow back to shareholders. It doesn't mean that we won't do other buybacks. I'm not being specific about how quickly or how slowly we might put that capital to work. And it wouldn't be a surprise to you that while we're certainly pleased and believe that $27 a share was a smart decision on our part and, of course, we have information you -- that you would have as well. But on the other hand, we know where our strategic opportunities are, and we believe we know where value sits. So while for us $27 a share was certainly a price we were willing to pay, at $20, I wish we'd waited. So I think to some extent, we're looking to be smart here. And as to the timing of buybacks, not simply to rush into a decision, knee jerk.

It's not necessarily a buyback or M&A decision. As we look at it, we're sitting on $11 billion of liquidity, $8 billion of cash. I think there's a lot of things that go into capital allocation decisions on our part, but we think it's the right message today. It's not -- doesn't mean we won't do additional buybacks. It doesn't mean anything. It just means that we believe, at this point, that's the right number to allocate, and we'll get at it. So there you go.

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Operator [19]

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And our next question comes from the line of Ben Swinburne from Morgan Stanley.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [20]

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I will limit myself to, I guess, one question around the U.K. Last quarter, you gave us some nice disclosure on Lightning's financials within Virgin, some additional detail this quarter on their CapEx. I'm just wondering if we're at the point now where the free cash flow burn of that project has peaked or if we have kind of line of sight to when that shifts from maybe a free cash flow headwind to a free cash flow tailwind in the business as you guys continue to scale it. And then just broader on the U.K. for any of you. I don't know if now that Brexit is, I guess, largely behind us if you're starting to see sort of the economic headwinds to become -- to hit your business at the consumer or business level abate a bit or even reverse as we head into -- or as we're starting here in 2020.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [21]

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Yes. On the Brexit question, while we did see modest consumer reaction to the uncertainty and the volatility in the political process, you should expect that we're seeing more optimism. And I think the market generally is seeing more optimism in the clarity of the process today. Now it's still a moving target in terms of the final deal and all that, all those good things. But I would say, on balance, this is a positive for us: resolution, clarity, general certainty. And we should expect, and we intend to see, hopefully, more tailwinds in that regard than headwinds.

Charlie, you can jump in here on the Lightning financials, but it's my recollection, looking at the specific P&Ls, that we have -- already are starting to see improvement in the negative free cash flow of that business with $120 million of EBITDA in 2019 that I believe grew around 40% year-over-year from the prior year ought to be growing?

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [22]

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That's right.

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

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Yes. It's pretty material improvements in operating free cash flow. Go ahead, Charlie.

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [24]

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Yes. But let's also to be clear. I mean as Mike said, it's a very high -- well, we believe it's a high-return project. I appreciate there are others who are concerned. But in our minds, the maths stack up, and the performance is supporting that.

So -- and you can work this out from the disclosures. We invested on an OFCF basis about $320 million in 2019. The other number we disclosed here is the CapEx we spent on construction. But remember, we are also investing CapEx into CPE and the like against $1.4 billion for the core business as usual. So that's the kind of quantum.

It will get less in 2020, at least on our budget numbers, it will. But it's still going to be a negative investment as we try and continue to support this rollout and build towards getting more scale in the market.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [25]

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But it's [absolutely] improving through the year. That's the point.

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [26]

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Yes, yes. But less negative. Sorry, Mike -- but less negative. But I'd really rather not give specific guidance. But it won't be -- it will be less than $320 million. Can I make that statement?

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Operator [27]

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And our next question comes from the line of Matthew Herring -- Harrigan from Benchmark.

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Matthew Joseph Harrigan, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [28]

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This is one question, but it's a bit of a long question. I think VodafoneZiggo has just been a great template for fixed-mobile convergence, and you probably get more rational pricing behavior there competitively, as well as getting the integration benefits. And presumably, with the small cell topology for 5G, that just keeps getting better and better. But how much do you think you leave on the table on a fixed MVNO with Vodafone in '21 versus getting everything done outright and putting the 2 businesses together? And also, when you look at Vodafone dallying with Openreach and CityFibre and not having much of a backlog and being aggressive on broadband pricing, is there some scenario where just beyond limited financial engineering or an outright sale, you could actually look at something in the U.K. or even Switzerland in terms of doing new JVs or chasing someone else's equity as opposed to an outright cash sale today at the 11x multiples that we saw in Germany, et cetera?

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

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Thanks, Matt. That was actually a very clear question, even though it was long, as you say. But I'd say a couple of things. Number one, on the Vodafone MVNO deal in the U.K., both parties had an incentive to enter into that arrangement. On their part, clearly, they saw an opportunity to drive revenue to their network. And it's all incremental revenue to their network, and that's a positive for them. And so they were very aggressive and willing to be aggressive with us on great pricing, access to 5G. We think it saves us, I don't know, Lutz, I think we said hundreds of millions in OCF over time.

And so that was their motivation, I believe. And I'm sure they're trying, to some extent, to make us happy in the mobile space. And maybe we don't do something with somebody else. We'll see. I mean they weren't clear, and we weren't discussing it with them on that basis.

From our point of view, it was purely an economic decision that if we're going to push fixed-mobile convergence as an MVNO, in the absence of any broader transaction, as you've been implying, why wouldn't we do it with someone who's willing to give us access to 5G and great pricing? So there was a, I would say, mutual interest on both parties' parts to do this deal. And it's going to benefit us, obviously, materially going forward beyond 2020 when we really roll it out.

In terms of what we're "leaving on the table," you would have read, I'm sure, multiple analysts have estimated what the synergies might be if we were to acquire or be acquired by a mobile operator in the U.K. And the numbers I think range from GBP 5 billion to GBP 6 billion NPV of synergy. And that number does not surprise me in the least since we've already been part of either as a seller, a buyer or a merger partner in something like 7 fixed-mobile deals. It's one of the reasons we keep saying that this fixed-mobile convergence is not just a fad. It is the direction for all of the players, we believe, in these markets. And certainly, if you look at the numbers that Vodafone publicized or the numbers we publicized in Belgium or we publicized in Holland, those are not unrealistic merger synergies.

Would we be creative on structures and outcomes in the event of somebody who was interested in either Switzerland or the U.K. or Poland or really any market or Ireland willing to do something with us? Of course, why wouldn't we be creative and flexible? The goal is to create value, close the value gap, recognize the -- we know the value -- recognize the value we know exists in our business. We respect the fact that for many shareholders and as one analyst said, this is a show-me moment, and we're cool with that. Those are the kind of situations we thrive in.

And so yes, I think we would be flexible. Why wouldn't we be because I'm not being specific about any particular transaction or market? The goal is to create value. And I think, as we have been in the past, we have been buyers. We have been sellers. We have been 50-50 partners. Yet, we have done all 3 models or executed on all 3 models in different European markets. Clearly, we are capable of being flexible. That would be obvious.

What exactly could or might happen in any of these markets? I can't predict, and I'm not going to predict for you. I'll simply say, as I said in my remarks, it's here to stay, fixed-mobile convergence, whether it's through an MVNO or an MNO relationship. And that's a good thing for cable networks.

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Operator [30]

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And our next caller is coming from the line of Sam McHugh from Exane.

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Samuel McHugh, Exane BNP Paribas, Research Division - Analyst of Telecom Operators [31]

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Just a quick one on the U.K. and TV. I guess you called out Sky's losses and yours as well. Do you think we've passed a bit of a tipping point in the U.K. in terms of traditional TV? Or do you think you can stabilize your subscriber base again? And then maybe if you could just remind us how much gross profit you make on TV in the U.K. And with the broadband market being so competitive at the moment, do you think you can offset those TV losses with broadband prices?

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

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Well, I'll let Lutz chime in here a little bit. I'll just simply say that I don't -- there are very few pay TV markets in the first world, if you will, that aren't experiencing, obviously, the impact of direct-to-consumer streaming subscriptions as well as, I would say, general cord cutting and cord shaving. You won't be able to find one, and they don't exist. And that's okay, certainly has an impact at Charter or Comcast in their ability to drive valuation and growth.

I would say, as they have said, broadband is the business. It's the one that generates essentially meaningful gross margin and is a product that you would need, whether you're subscribing to our video product or any video product. Having said that, we generate gross margin, and I would say good gross margin on our video business in the U.K., arguably better gross margin than the U.S. guys. And so it's worth protecting. And we are doing all the things we think are necessary to protect it, including rolling out our advanced user interface very shortly here called Horizon 4 to replace TiVo and be available on the V6 box. That's going to, we think, be transformational to the consumer experience in the same way X1 was for Comcast. And this is our basic -- our version of RDK-based X1.

And so we are investing in the user experience. We are rapidly integrating apps into the box wherever we can. We've got Amazon, we've got YouTube, we've got Netflix. We are open for business when it comes to ad -- app integration. And that is going to make our platform, we think, sustainable and viable and even necessary for consumers who want to lean back, watch television and get access to whatever they're interested in by simply saying to the remote control, Play Netflix.

And so that's the play. And we think it will be -- will allow our customers to be sticky. On the other hand, as Lutz just said many times and as we said, we're not going to chase low-end customers, and we're not going to spend capital to retain low-end customers. We're going to be smart about profitable growth. And we know that a video product combined with a broadband product and a mobile and a voice product is a much more compelling service for customers. And so the bundle matters, and video is a big part of the bundle.

So I don't see it going away. I think it's critical to us. There is gross margin. We think it can be stickier as we continue to innovate with Horizon, which we'll do this year. And as we integrate apps and become friends -- even greater friends with the streamers, consumers, we think, will see the benefit of leaning back, speaking into the remote, play Amazon, play BBC, play ITV, and being sort of the aggregator of that content experience. To us, that's a powerful proposition which we really haven't exploited yet in the U.K. market. So long answer. Lutz, have I missed anything or anything you want to add to that on the video side?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [33]

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No. I mean I can -- I only tune it, right? I mean only a couple of numbers to support what you said, Mike, right? We are focusing really much more on the customer than on the single RGUs. Broadly, we kept our customer base flat. And we have had the highest ARPU increase in the market, right, in Q4. So therefore, our high-value customer strategy, we think, pays off.

Yes, we lost video RGUs as you said, but this is on the low end. And simply, we are paying a lot of CapEx for the boxes. And the customer didn't use to pay for the free TV video money to us. And so we are not focusing on that anymore. And you see certain operating free cash flow contribution out of that. And at the same time, we ensure that we participate in the OTT growth, as Mike said. And the OTT growth onto our platform is even higher than the video RGU loss. So therefore, I think these numbers are supporting exactly our strategy.

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Operator [34]

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And our next question comes from the line of Andrew Beale from Arete Research.

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Andrew Charles Robert Beale, Arete Research Services LLP - Senior Analyst [35]

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I guess you've got $8 billion in cash, and it's a pretty high proportion of your market cap and probably says that there's pretty limited equity value implied for Virgin Media after you've sort of taken out the other assets and liabilities. So just wondering if you can weigh out your current thinking about the relative merits of various possible approaches to realizing value, which could be spin-offs, could be the Liberty network's infrastructure transactions that you've been mentioning earlier, your traditional approach of buybacks or M&A or anything else.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [36]

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Yes. Well, I'd say look it; as a base case -- I mean you're correct, by the way: We believe that there's -- you can get to our stock price by pretty much ignoring Switzerland and the U.K., which is highly questionable in our minds, of course, but there are several ways to get there. And I would say we begin, first and foremost, with the base case business. So -- and as Charlie has said many times, as we've all repeated many times, we believe we can generate good free cash flow and free cash flow per share out of these businesses, including Virgin. And sustainable free cash flow is, in our minds, the metric that matters.

So as a first instance, we hope to be able to convince you and others that simply the free cash flow yield on a market like the U.K. is worthy of a meaningful valuation, especially if you consider Sunrise, Swisscom, even our own business, Telenet, and where those yields and multiples sit. So first and foremost, this is a bit of a transformation in thinking both for us and for investors, that we believe there is sustainable free cash flow in the business without any transactions, without any inorganic moves to close the value gap that we know exists. That's step one. And I think we can achieve that, and that's what we're focused on.

Obviously, there are multiple things we could be doing beyond that around, for example, as you described, monetizing our networks in a more creative way; looking at inorganic combinations, whether with mobile or other operators; public listings; spin-offs. Just clearly, if there's any company out there able and capable of and willing to look at creative ways to shrink the value gap, you're talking to them. So you should assume that is something we are working on every day and trying to be both sensible but also creative and strategic about how we close that value gap. That's how I'd answer that question.

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Andrew Charles Robert Beale, Arete Research Services LLP - Senior Analyst [37]

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Okay. And just a quick follow-up. On the 7 million to 10 million premises that you're talking about for the expanded U.K. infrastructure opportunity, I mean, it's quite a big volume of homes, and it probably means quite a bit of overbuild of others. But just -- can I just clarify that? Is that 7 million to 10 million beyond 2 million Lightning as now or from the 4 million end of Lightning? And is that actually what you think you can...

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

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Yes. In our mind, it's 7 million to 10 million. Yes, good clarification. It's 7 million to 10 million from this point principally.

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Andrew Charles Robert Beale, Arete Research Services LLP - Senior Analyst [39]

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From this point?

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

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Yes. And just to be -- just to add to your earlier question, certainly we could consider maybe Lightning itself is an asset that should be lifted and shifted and be the -- and could -- and become the engine of that growth. So I would say it's incremental to where we are today.

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Andrew Charles Robert Beale, Arete Research Services LLP - Senior Analyst [41]

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Okay. And that is all your build? Or is that a footprint ambition including your build and then third-party wholesale?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [42]

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Well, look, in general terms, we believe the opportunity exists to economically consider expanding our network to 7 million to 10 million homes. The way in which you do it is to be determined, but that's what we think is an economic ambition.

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Operator [43]

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

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [44]

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A question regarding -- just kind of a follow-on, really, from Andrew's. Just around use of capital. I mean it seems like the message from today is that although the kind of final structure of any U.K. network build-out hasn't been finalized, it's clear that more capital is intended to be allocated towards U.K. network build. But I would have thought a lot of that could also be covered from your organic free cash flow. So it still leaves the question really of how the $8 billion of liquidity that you have, could be used. So I mean I'm just wondering if you can give us more thoughts on how M&A might feature in that. I mean it's now 6 months since the Vodafone deal closed, so it would be interesting to understand kind of what situations you've looked at. I mean would -- there have been stories about Univision around in the press. Can you comment on how M&A might play a part in use of capital, if at all?

And then just as a clarification, just regarding the GBP 100 million of headwind in the U.K., which would be around kind of 5% of Virgin's OCF, is that a headwind in addition to the 2019 trend, which was already down 2%? So we should be thinking about Virgin, all else being equal, down 7% OCF for 2020.

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

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I don't believe that's accurate in your -- in the GBP 100 million. But Charlie, you can decide how you want to address that particular point.

With respect to capital allocation, I think your first point is accurate. We do not intend to allocate significant balance sheet capital to do a build in the U.K. and don't believe it's necessary. So a combination of free cash flow and potentially third-party financing sources would be the primary source of capital for that. It's an important clarification. While we think the opportunity is exciting and we think the need and the ability to drive Virgin to the rest of the marketplace is exciting, I don't believe we intend to allocate significant amounts of balance sheet cash to that and don't believe we need to.

It doesn't mean we won't put some cash into it. It's simply to say that you shouldn't assume we're opening up the spigot and pouring all that capital in the U.K. network build. That is not the intention, that wouldn't be consistent with our free cash flow objectives, and it's not consistent with how we would consider allocating capital. It doesn't mean we wouldn't put some to work, but it's not a principal source of that. So that's a good clarification.

I would say, in the -- a few calls ago or maybe 2 calls ago, we went through the buckets of capital allocation. And we identified those as being, first and foremost, capital structure. We're meeting buybacks, while we took -- we put $3.2 billion of our capital to work in that category last year. Certainly can't be accused of not paying attention to that category or we're being serious about our investment in that category.

We took another $1.6 billion and delevered. That was the second category. We did delever in the Central Europe area, about $1.6 billion as part of the closing of the Vodafone transaction. So we certainly trimmed leverage a bit and that we thought was smart in that particular moment.

The third category was core markets. That's what we've been talking about today; core markets, meaning U.K., Switzerland, Ireland, Belgium, Holland. And that is where we think the first and best use of cash, if it were necessary to be used, would be spent. And I think that is smart for us because that's where the biggest value gap exists today, both in terms of, apparently, shareholders' minds. And so we want to be sure we're looking at creative and smart ways of allocating capital or perhaps even generating capital in the core markets.

Now we did also say quite clearly in prior calls that we have an existing ventures portfolio. It's got a $1 billion of value; plus, we think, $2 billion unhedged. We have put money to work in various strategic opportunities, small amounts of capital generally. And when $8 billion of cash is earning 2%, we should certainly be looking at capital solutions and ways of putting small amounts of money to work that could create interesting opportunities.

I would say that is not the main goal. It's not something that should get people nervous. The reports about us "buying Univision for $9 billion" were not accurate. But we will look creatively at deploying capital in small venture-like ways in order to drive potentially future strategic opportunity. But that is the last category on the list. It begins with capital structure, followed by leverage, followed by our core markets, followed by, let's say, new markets and/or ventures. And that is the order in which we're looking at it. That is the order in which we've been spending our time and effort. And that's where you should want us to be spending time and effort because, clearly, that's where the greatest opportunity is.

Do you want to -- was there -- you want to comment on GBP 100 million, Charlie or Lutz?

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [46]

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Yes. You're trying to get me to give you guidance. Look, it's not 7%. That's far too high. Look, if you take GBP 100 million, it's broadly minus 4%. I would actually say, look, plus or minus, is holding, I think, flat excluding those one-offs. And at some point, hopefully the British government takes his foot off his throat, and we can get back to growth. I think that's true of the industry as a whole.

I think there's some myths about Virgin. Virgin actually from a revenue growth, yes, you take out lending, it's slightly down and maybe slight down this year with the end of contract life thing. But actually, it's performing broadly in line with many of the other markets. And if you think of the revenue decline has largely to do with the video business, which is not a cash flow generator. I keep going back to this point about free cash flow. It will be lost on you that the capital intensity in Virgin of the video product is nothing like the capital intensity of the broadband product. I think Virgin is in much better shape than people realize.

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Operator [47]

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We have -- our last question comes from the line of Robert Grindle from Deutsche Bank.

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Robert James Grindle, Deutsche Bank AG, Research Division - Research Analyst [48]

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Just slipped in there. May I ask about the distribution from VodafoneZiggo in full year '20? Do you still expect shareholder loan repayments? Or can the bulk of this be in dividends? And then if I may, just a follow-up on the Project Lightning build cost. I think you flagged it went down 20% on a per-home basis, but it's still over GBP 600. Now regardless of any new balance sheet -- off-balance-sheet vehicle to roll out more fiber, can you get the existing Project Lightning build cost much closer to the CityFibre level using PIA?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [49]

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The answer to the second question is yes. I'll let Lutz prepare a quick response to that. Charlie, you want to talk about VodafoneZiggo distributions?

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [50]

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Yes. I mean I think you're quite right to point out that the distributions are understated in our free cash flow number. If you added back the EUR 100 million shareholder loan payment to us and the EUR 100 million that obviously went to Vodafone. In fact, our free cash flow in 2019 would actually be much higher than the 770-odd number, more like 900. So it's a fair point.

I think at this stage, they're planning not to repay the shareholder loan, that may change. It would be lost to me, but that's helpful from a top planning point of view, but we will see. But I think, certainly, in our guidance, we factored that in. And I think we're taking a relatively conservative view on distributions from VodafoneZiggo.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [51]

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I mean on the Lightning build cost, right, only to make sure that we compare apples with apples. The current Lightning costs are $618 million. And this is fiber-to-the-home, right? A lot of costs, which are disclosed by our competitors is actually fiber-to-the-cabinet and not really the last mile to the home is included there. That's number one.

Number two is, as you said, PIA is substantially cheaper. Now be assured that if we are in a position to roll out additional 7 million to 10 million homes, we would absolutely leverage PIA. And why would we run it at a higher cost than our competitors? So therefore, you can expect us to get the CPP further down leveraging PIA.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [52]

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Okay. Thanks, Robert. Yes, I think that -- I'm guessing that's it, operator. So we appreciate everybody jumping on the call.

I'll just repeat what I said at the end of my remarks. We're focused on 3 primary things: sustainable free cash flow. We think the free cash flow story here is the most significant story and one that we will demonstrate over time is hopefully important to shareholders as well. Secondly, closing the value gap. I think you know what that means, and you should expect that we're focused very seriously on opportunities to do that in core markets. And then thirdly, being disciplined about capital allocation. And I think the $1 billion we've allocated today to shareholder buybacks is the beginning of that. But we will and we do intend to stay very disciplined about how we allocate that capital. I think that creates a lot of opportunity for us today and down the road.

So thanks for joining, and we'll speak to you soon. Take care.

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Operator [53]

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Ladies and gentlemen, this concludes Liberty Global's Fourth Quarter 2019 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.