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Edited Transcript of LBTYA.OQ earnings conference call or presentation 7-May-20 1:00pm GMT

·65 mins read

Q1 2020 Liberty Global PLC Earnings Call LONDON Oct 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Liberty Global PLC earnings conference call or presentation Thursday, May 7, 2020 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Baptiest Coopmans Liberty Global plc - CEO of UPC Switzerland * 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 ================================================================================ Conference Call Participants ================================================================================ * Benjamin Daniel Swinburne Morgan Stanley, Research Division - MD * Christian Fangmann HSBC, Research Division - Analyst of Telecoms * 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 * Jeffrey Duncan Wlodarczak Pivotal Research Group LLC - Principal & Senior Analyst of Entertainment, Interactive Subscription * Matthew Joseph Harrigan The Benchmark Company, LLC, Research Division - Senior Equity Analyst * Michael Bishop Goldman Sachs Group, Inc., Research Division - 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 * Stephen Paul Malcolm Redburn (Europe) Limited, Research Division - Research Analyst * Ulrich Rathe Jefferies LLC, Research Division - Senior European Telecommunications Analyst * Vijay A. Jayant Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Media, Entertainment, Cable, Satellite & Telecommunication ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2020 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. After today's formal presentation, instructions will be given for a question-and-answer session. Page 2 of the slide 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 facts. 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 in the conditions on which any such statement is made. I would now like to turn the call over to Mr. Mike Fries. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [2] -------------------------------------------------------------------------------- Okay. Thank you, operator, and hello, everyone. I appreciate you joining us on the call today. Clearly, we have a lot to talk about, so I'm not going to waste too much time with formalities and jump right into are to be the most important topic, which is how we're managing through the COVID-19 pandemic. First of all, our hearts and prayers go out to everyone who has suffered through this crisis. These are clearly unprecedented times. And I am particularly proud of our 27,000 employees across 8 countries who have dedicated themselves to keeping our customers connected, entertained and informed. As you can imagine, our primary focus has been on their safety and well-being. And all the policies and the requirements vary by country. Nearly 90% of our team has been working from home, and we are in deep preparation for their return to the office and the field on a gradual basis. And we appreciate that this is an extraordinary time for our customers as well. So in addition to providing them with the same reliable and robust connectivity services we're known for, we've been improving their experience in a multitude of ways. We're boosting speed and increasing data caps. We're offering additional entertainment services, especially for kids. And we're aware that our customers are experiencing economic challenges as well. So we're very careful to keep folks connected and help them manage through the crisis, even offering lifeline services where it's necessary. And we're paying special attention to our B2B customers, increasing capacity and providing emergency mobile coverage to hospitals and ensuring quick turnaround on product changes. As an essential service, we have crews and trucks in the field every day, maintaining our networks, installing new customers and building plants. Our Lightning construction crews, for example, are working as we speak. Of course, with additional precautionary measures, but we're on pace to light up at least 350,000 new homes this year. By the way, we've included a slide on Project Lightning in the appendix as we have those details for the quarter. Now at the outset of the crisis, many wondered whether any network could withstand the increase in usage that would inevitably occur under these circumstances. And the answer for us is a clear yes. Our fixed broadband networks have seamlessly absorbed 20-plus percent increases in the downstream and 50%-plus increases in the upstream bandwidth with no problem at all. So recent investments in infrastructure and speed and connectivity products have really proved invaluable for all of us. From a trading point of view, sales have been largely stable but down from pre-crisis levels. And at the same time, as many of our peers have reported, we've seen a considerable drop-off in churn. We're also experiencing softness in some of our premium sports products. That's not surprising. But in markets like the U.K. and Ireland, these are 0 margin packages for us. We don't make much money and not impacting cash flow. On the mobile front, store closures are impacting handset sales, and usage has dropped off a bit as folks offload to Wi-Fi. But in many markets, we're on our way to reopening and recovering. For example, 2/3 of the shops in Holland are now open and back in business. And for us, it's just a matter of time, we believe. Charlie is going to address what all this means to our financial guidance for the year. On one hand, we're fortunate that we have very little exposure to things like advertising or other sectors that are experiencing disruption right now. As a group, our services have proven to be even more vital for consumers during this crisis. On the other hand, we're realistic about the impact this may have on bad debt and potential price increases and mobile roaming revenue and overall customer activity. Like our peers, we're assessing the medium-term impact of the pandemic on our business, and we expect to have a more thorough update for you in the second quarter earnings call. There were lots of uncertainties in the road ahead, from the lifting of lockdowns to testing the vaccines, but we feel well positioned to power through this. And in the meantime, we are not suspending or changing guidance. We're actually pretty encouraged by our operating and financial prospects for the balance of the year. Let me reset the agenda here a bit just for a minute and hit a couple of additional highlights on Slide 5. By the way, we're talking from slides. If you can get a hold of those, it would be very helpful for you. Now despite the impact of the COVID-19 crisis, we delivered a solid first quarter operationally and financially. In fact, the quarter was largely in line or ahead of our internal expectations. I'll talk about this more when we dig into the Virgin Media results. But we remain focused on a handful of key performance drivers in our European markets, in particular, customer growth, customer ARPU and fixed-mobile convergence. And we did well on all 3 of these with largely stable customers versus the prior quarter, solid ARPU growth versus the prior quarter and year-over-year and good mobile additions. And the point is that these operating strategies are working, right? We have over 32 million gigabit-ready homes across our European footprint, with 1 gig services launched to nearly 12 million of those homes. We're widening the distance between us and our competitors when it comes to broadband speeds. We added 22,000 broadband subs in the quarter as a result. And our fixed-mobile convergence bundles drove nearly 115,000 postpaid mobile additions. Now finally, a quick update on capital allocation. At the end of February, we authorized a $1 billion share buyback. And through the end of April, so in about 2 months, we've repurchased $500 million of stock at an average price in the mid-$16 range. So we're generally buying through 10b5-1 plans according to preset grids. So our pace accelerated as the stock declined. It shouldn't be a surprise to most of you. Now let me move to the most important announcement today. That is, of course, our agreement with Telefonica to combine our U.K. operations, Virgin Media and O2. We are really, really excited about this transaction and the partnership with Telefonica. Over the last several years, we've been successfully executing a very clear plan to create national fixed-mobile convergence championship -- champions in all of our markets. Now in some cases, we've sold our broadband operations to mobile operators like Deutsche Telekom and Vodafone, who share that exact same belief in convergence by the way. And we've closed those transactions at premium multiples, highlighting the big disconnect between public and private valuations. In markets like Belgium, we acquired an MNO and are thriving with fixed-mobile convergence in that country. And in Holland, we joined forces with Vodafone in a 50-50 joint venture to create what is now the fastest-growing and most important mobile broadband and entertainment provider in the market. This deal follows that path. By combining O2, the largest and most reliable and admired mobile operator, together with Virgin Media, the country's fastest broadband network and most complete and innovative video platform, is a powerhouse combination. First, it gives us the scale to invest confidently in gigabit broadband and 5G right when it matters most, that's now. And second, with the best network infrastructure, market-leading positions and world-class brands, we'll have the strength to compete aggressively for customers. And third, of course, the combination delivers significant synergies that will accelerate operating cash flow and free cash flow. Now we know the playbook well, and we've executed on it many times. It's also a strong statement by both Liberty and Telefonica that we believe in the U.K. and are right behind the government's desire to bring next-generation connectivity to consumers and businesses as fast as possible. So let's dig in a bit on the transaction itself on Slide 6. There's plenty of detail here, so I'll try to hit the key points. The main deal points are on the left-hand side of the slide. This will be a 50-50 JV in all respects. Obviously, we have experience with this structure in Holland, and we know it can work well. It feels like a very good fit with Telefonica. We have similar values, comparable operating goals and strong leadership on the ground. The economics of the deal are derived from relative valuations at the formation of the JV. You've all seen this equation before. In this case, we value Virgin at a total enterprise value of GBP 18.7 billion, resulting in an equity value of GBP 7.4 billion. That's assuming, of course, GBP 11.3 billion of debt is transferred into the JV. O2 is valued at GBP 12.7 billion and will be transferred in debt-free but with some working capital debt-like items. So to equalize the ownership, Telefonica needs to receive a payment from us of about GBP 2.5 billion, and that's based on 12/31 numbers. That's just math. And the math could change as debt and debt-like items evolve between now and closing, but we expect it to be largely the same, perhaps maybe even the payment could be a bit lower. Since the O2 business is largely unlevered, we do intend to recapitalize the JV with about GBP 18 billion of total debt, which means each partner will receive recap proceeds on or before closing of approximately GBP 3 billion. That covers more than our portion of the equalization payment. And after recapping Virgin Media Ireland, which will stay outside of the JV, we should end up with net cash proceeds of about GBP 1.4 billion or $1.75 billion. It's worth pointing out that this is also a delevering event for our business, which will go from 5.5 to 5x leverage in the U.K. The transaction is obviously subject to regulatory approval, which we anticipate will be reviewed at the CMA and should be closed hopefully by the middle of next year, if not sooner. And moving to the right-hand side of the chart. The rationale for this combination from our perspective is very compelling. I've covered some of those points already. We're creating a clear convergence champion in our largest market and one of Europe's most attractive. But the transaction also creates real value for shareholders. We've argued for quite some time that our stock doesn't reflect any equity value for Virgin Media. Clearly, this deal changes that debate. And with an implied multiple of 9.3x 2019 OCF, with 25x 2019 operating free cash flow, there is substantial equity value in our U.K. business, even before net cash proceeds or synergies. Now as you've read, the synergies are currently valued at an NPV of GBP 6.2 billion. That's reflecting run rate benefits of around GBP 540 million per year. It's worth pointing out that, that compares really favorably to other fixed-mobile convergence deals we've been associated with. In fact, it's on the lower end as a percent of the combined costs. So of course, we have a very strong track record of executing and over-delivering on synergies. So hopefully, that number should be good. On the bottom right, we present some financial metrics. You can see that the 2 businesses together generated GBP 11 billion of revenue in 2019 and GBP 3.7 billion of OCF or EBITDA. That's before intercompany service charges in the JV structure. And like our Dutch operation, we expect the JV to generate significant distributable free cash flow. And then we should benefit from recap and through dividends down the road. This is, of course, one of many, but a significant driver of the deal for us. Slide 7 just provides some additional background on the combined group. I've already referenced the JV's best-in-class fixed and broadband mobile infrastructure. I think the key point here is that this deal will undoubtedly enhance our confidence and strategic positioning when it comes to expanding our network leadership in the market. O2 has already rolled out 5G to 30 communities, and Virgin has already rolled out gigabit speeds, 2 million homes, with the rest of our footprint ready to roll. We know that when the power of 5G meets 1 gig broadband, there is no looking back. And both we and Telefonica see eye-to-eye on the infrastructure and network opportunity here. On a whole host of levels, O2 is an ideal partner for Virgin Media. They are extremely well placed in the mobile market with the lowest back-book, front-book exposure, the lowest market churn and very high NPS. We've done some of our own research, which confirmed what we knew that both brands have strong customer appeal. What we didn't realize was that the appeal grows even stronger when the brands are considered together, and that's a great starting point for fixed-mobile convergence, as are these other data points. 8 out of 10 Virgin customers use someone else's mobile service today, which provides a huge pool for cross-selling O2 to mobile service. Even more compelling research showed that 50% of O2 customers that don't have Virgin broadband are more interested in adopting a converged product, an O2 or Virgin, than they would be from another broadband provider. So the fundamentals are here. We're a very prosperous partnership, and we're excited to get started. And after a big transaction like this, it's always good to step back and reflect on the composition of our business and assets and the value creation strategy we focused on. You'll see that on Slide 8, which shows our major operating businesses laid out along with other assets. And I'll provide just a few quick observations here. Number one, we have significant scale across Europe. These operations together will serve 80 million fixed and mobile subs in what we believe are the best European markets. Together, they represent over $24 billion of revenue. That's taking the JV revenue plus our consolidated revenue. And over $8 billion of operating cash flow calculated on this new basis with significant levered free cash flow generation. The second big takeaway is that our 3 largest assets are or will be less than 100% owned. As much as anything, that's a function of the European market today, which is rapidly consolidating. To drive scale and generate the synergies, sometimes you need partners, and we're certainly willing to join forces to create that value. Sometimes it's public shareholders partnering with. Sometimes it's a strategic operator. So long as there's scope for liquidity and transparency on value, we're satisfied. The third point is that the value creation strategy is largely the same across the footprint. We're building national FMC champions, partially because many incumbents are vulnerable, under-invested or late to the game, but also because governments and regulators want scale-driven challengers. They know that consumers and businesses win when there is infrastructure-based competition. And that's been our mantra for decades, and it's as true today as it ever was. Going forward, the focus is on free cash flow. It has always been one of the most, if not the most, important metric of our business. Now with revenue and OCF growth flattening in a more mature telecom landscape, it becomes even more important. And it's particularly coveted among European investors. Just look at where Telenet trades today, for example. So not surprisingly, we will examine the potential for public market listings where and when that may make sense. At the group level, we continue to have significant liquidity, in excess of $10 billion even before this transaction closes. And of course, none of us predicted this crisis, but what we certainly feel now is fortunate to have the capital to both pursue these types of deals and fundamental FMC strategies in core markets and to be opportunistic, which we will be. That includes our time-honored strategy of driving a levered equity capital structure and, of course, share buybacks as and when appropriate. I'm using this chart as a reference point. There are many ways to look at the valuation of our group. We're not trying to be prescriptive here, but more than a few investors have asked us to put forward a simple sum of the parts analysis that shows the value gap we talk about. This is always a debate with the lawyers and the IR folks, but we've tried to provide a reasonably complete and hopefully simple version of that on Slide 9. I'll try to break this down, and of course, we're happy to take questions. The first 2 building blocks of value are our cash balance at Q1 and the value of our publicly traded shares in Telenet. Together, those 2 numbers add up to about $16 per share. Again, that's just an objective number. We don't assign a specific value to our interest in Holland and Switzerland on this page, but we do provide the necessary metrics for others to do that pretty easily. You can choose your methodology. There are plenty of comparables to measure against. But we think you can get the $5 to $7 per share pretty easily for our interest in these 2 markets. That's supported by a 14 multiple on OFCF at the low end and a 10% free cash flow yield on the high end. And if you were to use Telenet's multiple of OCF, you'd get somewhere in the middle. So again, many will find their own numbers here. What our -- the point, though, is that our current trading levels, around $21, plus my analysts have pointed out that you could arrive at that price on these 3 numbers alone, cash plus Telenet stock plus our interest in Holland and Switzerland. In other words, the U.K. was and perhaps still is being assigned 0 equity value in our share price. The left-hand side of this chart, we addressed that point by showing just one way to look at the implied value of the transaction that we just announced. There are 3 simple elements here. Number one is the expected net proceeds of $1.75 billion, which equates to roughly $3 per share. Then you have our 50% of the estimated synergies, which adds up to about $6 per share. And finally, there is the implied transaction value for the underlying Virgin Media business when we combine. And we and O2 agreed, as I just mentioned, GBP 18.7 billion, which, after debt, represents an implied value for the equity today of around $14 per share of Liberty Global. If you add all that up, you get to about $23 per share, and that's just on the U.K. business. Now we understand that, that everyone will have a different view, a different valuation approach. In particular, some might argue that the implied value of Virgin in the deal and then the combination is a challenging one or not acceptable. We don't agree with that, of course. But if you want to haircut the deal multiple by 20% and put it -- put us in the mid-7s, you still get the $16 per share for the entire transaction. It's hard to argue that we don't have a considerable value gap here, and I think you're all capable of doing the math on your own. We just wanted to give you those components and hopefully clarify what we've been talking about for some time. Now I've got one more slide here on Virgin Media to help round out the Operating Update, and I'll pass it to Charlie. And as you'll see, there are more Operating Updates slides like this in the back or in other assets. But you see that we try to focus here on the data that we believe is most important for tracking progress in our core market, namely winning and retaining customers across our fixed mobile and B2B business; secondly, growing ARPU via upsell and cross-sell; and third, driving fixed-mobile convergence. We're also focused, of course, on extending our network reach and speed leadership and driving cost efficiencies. In fact, on the cost efficiency side, we've been forced to accelerate some of the transformation in our care and sales capabilities to be more digital, to operate more efficiently, and that's going to pay dividends on the other side. But there are a few good visuals in the middle 2 columns here. You'll see firstly that Virgin Media's customer base has been largely stable at just under 6 million. In fact, the number has only moved about 20,000 customers in 5 quarters. And yes, as we show the customer gains, we pick up in Lightning or often offset by the customer losses in the BAU footprint, but the numbers are not significant in other direction. You can also see a strong customer ARPU trend for the last 5 quarters, with 1.2% growth year-over-year in the first quarter. And this is driven largely by price increases and, again, cross-sell and upsell, but also underpinned by product innovation and improved base management. We are continually seeking to enhance the value-for-money proposition for customers in this market with things like our next-gen V6 set-top box and broadband speeds. In fact, in the past quarter, we boosted over 1 million customers to 100-megabit broadband speeds, bringing our average speed across our base, average speed, to 140 megabits. Just by reference -- or for reference purposes, the rest of the U.K. market is averaging consumer speeds of 30 megabits a second. So we are -- our average Virgin customer is getting broadband speeds 4 to 5x faster than the rest of the market. And as we point out often, 95% of that U.K. network is already 1 gig ready, and we've launched those speeds across major towns in the 13% of the footprint. That puts us on track for network-wide coverage of 1 gig in 2021, delivering 50% of the government's national gigabit ambition 4 years early. I think there's enough said there. Now Lutz and the team have also been already focusing on cross-selling to -- mobile into the fixed base following the launch of convergence bundles about a year ago. And the Q1 postpaid net adds were good at 72,000. So fixed-mobile convergence is already working at Virgin. We're at 22% fixed-mobile convergence ratio with plenty of runway. Remember, Telenet and VodafoneZiggo are in the mid-40s. So as we all know, fixed-mobile convergence drives higher NPS and lower churn and is the fundamental rationale for the deal we announced today. So all in all, it's a good start to the year for Virgin Media, even in light of the pandemic. OFCF margins are strong at 23% before Lightning and 17% after. Our SoHo customer base grew 7%, and the team is managing through the headwinds we identified at the beginning of the year, the increase in network taxes and the contract notification programming costs, we've been managing through those very, very well. In fact, NPS is up, and as noted, churn is down. I think the group is really well positioned to come out of this COVID period very, very strong. So enough from me. I'll pass it over to Charlie, and then we look forward to getting your questions. Charlie? -------------------------------------------------------------------------------- Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [3] -------------------------------------------------------------------------------- Thanks, Mike, and now I'm on Page 12, Divisional Overview. Mike has given you the key operational highlights for Virgin Media. And in the appendix, we've included similar pages showing the key operational drivers for our other major fixed-mobile convergence businesses. In the interest of time, we're not going to review these pages in our remarks today, but please do contact the IR team if you want to discuss them further. On this page, we've set out the key financial metrics which we are using to assess the performance of these national FMC champions. Our focus continues to be to drive OFCF, or OCF minus accrued CapEx, and free cash flow as these markets mature in terms of broadband penetration. Now for reference, we've also included a page in the appendix setting out our view of 2019 free cash flow for each of our divisions after the allocation of interest and the central technology and innovation CapEx. But for the quarter on this slide, I will focus on the underlying OFCF trends year-on-year. Revenue in the U.K. and Ireland was slightly down 0.6%. But whilst OCF declined 3.5%, OFCF, before Lightning construction CapEx, increased $18 million to $372 million for the quarter. We increased our investments in Lightning compared to 2019 Q1 and spent $99 million, with 93,000 homes released during the quarter. Revenue growth in Belgium was slightly down at 0.4%, with OCF up 0.6% and year-on-year OFCF down $10 million to $187 million. And as John already explained on the Telenet earnings call, there was an acceleration of prepaid sports rights costs and some front-loading of CapEx in Q1, which contributed to this year-on-year OFCF decline. But for the full year, confirmed that excluding the effects of any lockdowns in the second half of the year, that they expect to deliver full year rebased OFCF growth of 1% to 2% on an IFRS basis and adjusted free cash flow at the lower end of the previous EUR 415 million to EUR 430 million guidance range. This assumes that they will gradually exit the lockdown starting in May with a gradual economic recovery thereafter. In Switzerland, Liberty was caught up in the continuing price competition in that market, which resulted in an accelerated decline in consumer and SoHo customer ARPU. This contributed to a 2.7% decline in revenue. They also had an acceleration of prepaid sports rights costs in the quarter as well as accelerated spend in CapEx contributing to a lower OFCF of $55 million. However, based on current expectations around the impact of COVID, we expect cash generation to improve, and the company remains on track to produce around $170 million of free cash flow for the full year, which includes central OpEx and CapEx allocations. In Holland, VodafoneZiggo had a very strong quarter with revenue growth of 3.3%, OCF growth of 4.9% and OFCF of $258 million as they outperformed our expectations in virtually every operating metric, showing the strength of these converged national FMC champions. They are now expecting stable to modest rebased OCF growth for the full year and have maintained their original free cash flow guidance of EUR 400 million to EUR 500 million with potential cash for shareholder distributions. Now again, this assumes no further deterioration as a result of COVID. On the page entitled Group Overview, we set out the key financial metrics for the group as a whole. Revenue declined 0.3% for the quarter, an improvement over the decline to the previous 4 quarters despite the impact of COVID-19. OCF growth also improved compared to the last 3 quarters of 2019 of minus 3.6%, in line with our pre-COVID expectations. OFCF continued to improve, and excluding Lightning construction CapEx, was $593 million for the quarter, up from $569 million a year ago. The continuing reduction in CapEx intensity contributed to this, with CapEx as a percentage of sales prior to Lightning construction CapEx at 19.4%, lower than the previous 4 quarters. Liquidity remains extremely strong. Cash, including our $2 billion investment in separately managed accounts, was $7.4 billion. Now as many of you know, our SMAs are invested in low-risk liquid investments. Both our SMAs and money market accounts are now largely invested in government securities as opposed to AAA funds, which will lead to a reduction in interest income going forward but ensure maximum security for the cash. With the available revolving credit facilities in our operating companies, the group as a whole has $10.3 billion of liquidity. While leverage at the end of the quarter was 5.2x gross and 3.7x net EBITDA, the cost of debt continues to decline as we continued our refinancing program during Q1 and now stands at 4.1% with an average life in excess of 7 years. On the page titled Adjusted Free Cash Flow, we lay out the key components of free cash flow. Q1 OFCF before Lightning construction CapEx was $595 million, and our net interest for the quarter was $579 million. We make virtually all our interest payments in Q1 and Q3, so this phasing is in line with our expectations. Cash tax was positive for the quarter at $5 million, and we expect the full year 2020 figure to be lower than the full year 2019 figure of $358 million partly due to reduced U.S. tax payments. The distributions from the JV in Holland were $11 million for the quarter, but we continue to expect full year distributions of EUR 200 million to EUR 250 million, in line with VodafoneZiggo's recent guidance. And as is typically the case in Q1, working capital was negative at $250 million largely due to the phasing of our vendor financing program. And as for 2019, we continue to target broadly flat net working capital flows for the year. Adjusted free cash flow before Lightning construction CapEx was negative $218 million for the quarter and negative $317 million after construction CapEx, which, again, was in line with our expectations. Turning to the outlook for the full year. We're still assessing the medium-term impact from COVID-19 and will give investors a further update in Q2. Despite the impact of COVID, we continue to be encouraged by our operating prospects. And unless there's another step change in the macroeconomic environment, we don't see a need to change or suspend our original full year guidance as detailed on the slide. And note that our current assumption is that lockdowns are lifted from Q2, followed by a gradual economic recovery, and also that our original $1 billion free cash flow guidance was based on exchange rates of EUR 1.13 to dollar and $1.33 to pound. Although we don't guide on rebased revenue growth, we do expect negative impacts to revenue from reduced handset sales and premium video, particularly sports. But both of these are relatively low margin and have a limited impact on cash flow. We will continue to monitor the impact of the crisis on these forecasts and update you further in Q2. And so with that, I'll turn it back to the operator. (Operator Instructions) ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And we'll go to our first caller. -------------------------------------------------------------------------------- Robert James Grindle, Deutsche Bank AG, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Robert Grindle, Robert from Deutsche Bank. So one question, so I'd like to ask about the JV structure and why you chose that rather than, say, a majority stake. Was this the only game in town? Or was it as you mentioned about confirming a positive equity value for VMED? Was the JV structure also interesting given your thinking about an extended fiber build program? Obviously, TEF's got a lot of fiber experience. Is that something you are aligned on? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [3] -------------------------------------------------------------------------------- Okay. That's 3 questions. Let me see if I can jump into those. There's always multiple ways to approach a transaction like this or a strategic move like this. But this felt to us like the best outcome and the best partner for all kinds of reasons, and I've talked about those in the remarks I just made. So you've heard that. And we're comfortable, as I mentioned, with these structures. We have experience with them. It's worked exceedingly well in Holland with Vodafone. It's been a great partner. And so this was the transaction that was presented to us or that we also went out and sought and the one we think will be most accretive and most advantageous. So sure, there's always different ways to do it. It had nothing to do with what you're describing. And the value is the value. Once you decide how you're going to approach a partnership, then you agree on value. It's not the other way around. I don't think it was driven by value. It wasn't driven by anything other than that. It wasn't obviously the only game in town. There are multiple mobile operators in this market without fixed infrastructure. So clearly, there were other options. But again, as I said, we felt this was the best option. And credit to Telefonica for also being quite interested and focused on this. And we think it's the best fit. It doesn't change anything with respect to our -- the level of excitement we have around project Lightning or network extension in the market. It takes nothing off the table. In fact, I would argue, and I think Telefonica would agree, this increases our confidence level in looking at a national scope or extending Virgin's best-in-class network. How you achieve that and how we finance that and how we -- how aggressive we are at that is all to be determined. But I think the main takeaway is it doesn't change our level of excitement. It takes nothing off the table. I would say it only enhances our ability to be strategic and financially aggressive, and it makes sense in terms of looking at our network and the opportunities that we've discussed historically. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- We'll go next to Jeff Wlodarczak with Pivotal Research. -------------------------------------------------------------------------------- Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - Principal & Senior Analyst of Entertainment, Interactive Subscription [5] -------------------------------------------------------------------------------- How reasonable a comp is your operating strategy, synergy upside? I mean, I think, obviously, leverage levels at VodafoneZiggo, that JV. So what you sort of expect from this deal. And then if I could sneak one in about the back book repricing in the U.K. and how that's going relative to expectations. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [6] -------------------------------------------------------------------------------- Lutz, you can prepare for the back book repricing issue. Punchline is in line. But the -- there are lots of things that were similar in this transaction to the VodafoneZiggo transaction, obviously, the structure itself. There are often many big differences, too, of course, in terms of the size of the market and the competitive landscape that we find ourselves in. On the other hand, it is a similar playbook for us, and it's one we're quite familiar with. So our approach to synergies, our approach to integration, our approach to strategies to drive revenue and convergence are quite similar. And it wouldn't surprise us if down the road, these 2 companies together are achieving similar outcomes. It's possible here we might even exceed the convergence levels that we see today in Holland, which are mid-40s. It could be even higher in this market. A lot of it has to do with what -- how the market evolves generally and how competitors react over time. I don't believe there will be any reaction that's worthy of discussion in the short term or even in the medium term perhaps. But how the market evolves over the longer term is what's critical. I'd simply say, we're -- when we put the business plan together, at least from our perspective, we were very conservative about the stand-alone mobile business and the challenges that it might face. And we think we were very appropriately conservative about our own business, just to be thoughtful and not too ambitious. And I think when you put those 2 businesses together, you drive the synergies through that business plan, it is very accretive and quite attractive. And that obviously drove the transaction. So I think with very conservative assumptions on either business with the synergies, which I think, as you point out, are probably conservative, certainly, it's a low -- one of the lowest, if not the lowest, percentage we've seen in the 8 countries or 7 countries we've been involved in FMC transactions now. But there's a good reason for that. This transaction came rather relatively quickly. We wanted to be thoughtful and not overpromise. We've never missed a synergy budget, you would know that, Jeff, or a synergy target. In fact, I think almost in every case, we've exceeded our synergy budget and target. So this should be the same. -------------------------------------------------------------------------------- Lutz Schüler, Liberty Global plc - CEO of Virgin Media [7] -------------------------------------------------------------------------------- On end-of-contract notification, so we have it out in the market since February 10. And the churn level is exactly what we have planned for, how many customers are calling in and how many customers decide to leave us. And then the second lever is how much discount do you offer to keep the customer connected. And the discount we have offered so far is only 1/3 of what we have planned for. So therefore, it is altogether slightly better than we have expected. But the caveat to that is, right, we are only 6 weeks into it and in that quarter and also that was precluded, and so that might change. So therefore, we stay cautious. But I have to say, although the market was pretty competitive in March and in February, we are doing slightly better than expected. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Next to David Wright with Bank of America. -------------------------------------------------------------------------------- David Antony Wright, BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director [9] -------------------------------------------------------------------------------- Mike, if I could maybe express some gratitude, I guess, more generally for the salary sacrifices, et cetera, in light of COVID. My question is just on the U.K. joint venture and spectrum costs. There is a U.K. spectrum auction forecast, which probably should be this year. It could be next year. Should we expect in the event of any delays that, that is cost that Telefonica will bear? Or is there a risk that, that could drop into the JV? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [10] -------------------------------------------------------------------------------- Thanks very much, David. The -- I believe the press release referenced this, but it might not have -- you might not have had a chance to read -- get to read it or have seen it. But the basic deal is that Telefonica will bring to the JV the spectrum that we both believe is necessary to achieve the plan at their cost. So that was an arrangement that we reached early on, and so they'll deliver to the JV at their cost the spectrum when that auction occurs. Obviously, we have not been able to discuss spectrum with them in any detail. It's very complicated and have to be quite careful. So we don't know what they're doing. We don't have any real understanding of what they may do, but whatever they end up with, it will be at their cost. -------------------------------------------------------------------------------- David Antony Wright, BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director [11] -------------------------------------------------------------------------------- Mike, just maybe extending on your comment on Lightning. You've been very vocal with the perceived undervaluation of Lightning, and you've stripped it out, et cetera. It's kind of dropping in at 10x EBITDA into this deal. How did you kind of think about valuing Lightning independently of the kind of steady-state VMED cable infrastructure? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [12] -------------------------------------------------------------------------------- Yes. Good question. Look, I think we each had some assets on each side of the deal that we could have argued for different values. But they have, of course, their tower interests in the U.K., which they thought at one point maybe would be better outside the JV. We had the Lightning transaction. But we both agreed that this is going to be a long-term partnership that we should be doing things inside the partnership. It makes perfect strategic sense and operational sense and financial sense. So let's just say that the valuation was considered, but we didn't get into that kind of granularity when it came to -- this is always a negotiation in terms of identifying exactly what Lightning reference includes or doesn't include. And we did do this -- and probably approached it similarly on their tower footprint. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- We'll go next to Michael Bishop with Goldman Sachs. -------------------------------------------------------------------------------- Michael Bishop, Goldman Sachs Group, Inc., Research Division - Equity Analyst [14] -------------------------------------------------------------------------------- Just got 2 very quick questions. Firstly, you're now effectively sitting on a large cash balance, given this deal, I guess, isn't consuming any of your cash. So I'd just love to hear your latest thoughts on how you think about managing that cash balance effectively with this transaction not consuming cash. And then super quickly, could I just follow up on the last question? Clearly, you've been clear that Lightning is going into the JV. But I was just going to ask a follow-up on the other fiber company that you've set up. Just -- I noticed that the $10 billion of CapEx over the next 5 years commitment doesn't really implicitly assume, at least on my numbers, that you're necessarily announcing anything with regards to the 7 million extra homes you've identified and also the fiber joint venture and those discussions. So any update there would be great. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [15] -------------------------------------------------------------------------------- Sure. Well, on the second point, yes, anything we pursue or anything they pursue that would normally be considered a JV activity is likely going to be a JV activity. So Liberty fiber, as you described, is certainly something we would pursue through the joint venture. And I think as Jose Maria said on his call, these are the issues we'll address together in terms of pace and speed and financing structure and opportunity. In the meantime, we'll continue with Lightning. In fact, we think we might exceed our budget on Lightning. We can, of course, choose to spend more or less between now and closing. It just works out in working capital. But I think for the most part, you should assume that the JV will jointly address the strategic opportunities, and capital will come from both parties as a result of that. On the cash balance, I think we'll remain disciplined as we have remained disciplined. As I said, nobody anticipated this environment. We always said you never know what the future is going to bring, and this was not something any of us hoped for. And on the other hand, we're thankful to be liquid, and we're thankful to have cash, and we'll remain disciplined on how we deploy the cash. As I said and have said, the first order of business is our core markets and where we know and already operate, that will remain case. Secondly, we'll look within the region we operate in to be -- look for opportunities for consolidation or other similar convergent strategies, I would say. We have, as we talked many times, this ventures portfolio. It's not big, maybe $1 billion of interest in existing assets that we own in tech and content. And so we'll be careful and thoughtful about opportunities to build new revenue streams and new investment portfolios and new business opportunities. But I think we'll do that carefully and with great transparency and it probably wouldn't require the kind of capital that we have. So this is a good problem to have. It's a good question to be focused on for us, but it's not something we can give you any more clarity on, on that as we sit here today, Michael, but stay tuned. Now of course, I didn't mention in that what we have used historically our excess capital for, and that is these buybacks. I did mention in my remarks that, that is always on the list for our levered equity growth strategy. And as we start to drive free cash flow and free cash flow per share, clearly, that's an accelerator of free cash flow per share. But again, we're not being -- on this call, we're not going to be -- I could clearly give you any details about that. Obviously, when we know, we'll let you know. By the way, I know we've probably got a lot of questions. So just for everybody's benefit, and our remarks went a bit longer, we're going to keep the line open. I'm sure you've got plenty of calls to get on to and -- but I think we'll probably try to keep the line open for 10 or 15 minutes to be sure we get to a few more questions since we were a bit longer in our remarks today. So go ahead, operator. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- We'll go next to Benjamin Swinburne with Morgan Stanley. -------------------------------------------------------------------------------- Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [17] -------------------------------------------------------------------------------- I wanted to -- assuming you are somewhere where it's morning, okay, it may not be the case. But wanted to ask about tax implications of all this. I think you guys announced you're moving effectively all the U.K. tax allowances, et cetera, into the JV. You guys, I think, originally reincorporated over in the U.K., at least partly for the tax benefit. I'm just wondering how that -- what the tax structure and tax leakage, if anything, of the JV will look like. I'm assuming there'll be not much anytime soon. And then implications, if any, for the consolidated operations, Switzerland, Benelux, et cetera, in terms of cash taxes as a result of this deal. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [18] -------------------------------------------------------------------------------- Okay. There's no implications to other assets. The U.K. tax losses have always been largely ring-fenced within the U.K. and only usable on U.K. -- by a U.K. entity. So it's no implications at all for the other operations. I'll simply say, on the tax structure won't be surprising to you. I think it's quite efficient that we don't -- without getting into great detail, there shouldn't be any tax implications on formation of the joint venture. The losses that exist will be transferred and, to the best of our ability, used by the JV. There are some -- as ever, some nuances there. But for the most part, it's a very tax-efficient transaction really for both parties and certainly for us, and we're not -- we don't see any leakage of the kind you described. -------------------------------------------------------------------------------- Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [19] -------------------------------------------------------------------------------- Okay. And then just a quick follow-up on Virgin, maybe for Lutz if he's on. What's the pricing environment look like at this point? Obviously, you've got a lot of stress in the economy. Just wondering from a competition point of view here if things have continued to be as tough as they've been or if we've seen -- if you've seen any of your -- of the operators you compete with get a little more rational, so to speak, given just the focus on the macro and pressures on things like liquidity, et cetera. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [20] -------------------------------------------------------------------------------- Lutz, go ahead. -------------------------------------------------------------------------------- Lutz Schüler, Liberty Global plc - CEO of Virgin Media [21] -------------------------------------------------------------------------------- So -- yes. So I think in February and March and maybe because of the start of end-of-contract notification, I would say that the market was even a bit more competitive. So when you compare the deepness of discounts to a year ago, discounts were 5% to 10% deeper. And then now after COVID, obviously, it's -- right, sales are down. I mean, for us, not so much, so we are still operating on 80% sales level, and churn went down dramatically. But in this environment, obviously, you are less aggressive in terms of promotions. So I would say it was a bit more aggressive. And we kept our strategy, right? So you see that we kept our customers flat. We are looking to create really customer relationship with high-value customers. We were not looking for the low-end in the broadband. We were not looking for the low-end in the video. And so therefore, the service revenue out of that was -- [dropped] 8% and the ARPU grew 1.2%. And this is exactly on our strategy. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- We'll go next to Vijay Jayant with Evercore. -------------------------------------------------------------------------------- Vijay A. Jayant, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Media, Entertainment, Cable, Satellite & Telecommunication [23] -------------------------------------------------------------------------------- Just wanted to understand obviously the structure now that most of your values are in JVs in the U.K. and Holland pro forma for this transaction and about $1 billion of EBITDA on the remaining consolidated assets. How -- in terms of transparency and value recognition, obviously, you make a case for that in today's presentation. How are we going to sort of track the performance of those JVs? And are you -- have you run in the risk of getting sort of a discount because most values are in equity stakes? And have you thought about tracking stock or any structures that can show the value of those assets that we don't sort of see on a consolidated basis? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [24] -------------------------------------------------------------------------------- Yes. Good question. We did try to address it a bit in the remarks, but it's worth repeating that this does change. It takes our largest consolidated business and puts it into a JV. And so that does obviously have accounting and consolidation implications. However, because it's our largest business, we will report quite extensively on the business. And so I don't see any reduction in transparency around the core operating companies. So firstly, I would say, you get -- you should be able to see through the structures, and we will endeavor to report on the businesses in much the same way with arguably as much or more detail. So I think we'll be focused on transparency for investors on the actual operating businesses, how they're performing. And we're quite engaged, of course, in all of these and how they do. So that's point one. Point two, Virgin wasn't a public company when it was 100% owned. Virgin O2, whatever name it may be, is -- won't be a public company when we start the JV. But down the road, there could be opportunities, as I said, to create public listings or structures that identify and isolate value and I think show value more creatively and more effectively. Nothing is off the table. I mean we retained -- as you would expect, we did retain the ability to perhaps create trackers or things of that nature. So in the Liberty tradition, all options are available to us to ensure we're getting transparent value. But we'll be thoughtful about that over time. It is the right point, which is why we spend a few more minutes than we normally would on structure and value creation. And holding company discounts, that's your expertise, I don't think so. I would argue for it, obviously. But we certainly can't -- at this point in time, we would take a holding company discount if somebody valued the stock correctly. So I think it's all relative, and we'll have to see how we go. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- We'll go next to Polo Tang with UBS. -------------------------------------------------------------------------------- Polo Tang, UBS Investment Bank, Research Division - MD & Head of Telecom Research [26] -------------------------------------------------------------------------------- I just had one question, and that is, does the deal with O2 preclude doing a cable wholesale deal or a fiber JV with Sky? Or is this just not a priority at the moment? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [27] -------------------------------------------------------------------------------- Well, as I -- thanks, Polo. As I tried to say at the beginning of the Q&A, nothing is off the table. So I think the direct answer is no. We don't believe that this transaction, either as it's pending or when closed, creates any obstacles to smart opportunity. I'm not going to comment on that one specifically. I'll simply say that it doesn't take anything off the table legally, structurally, we don't believe, from a regulatory point of view. So we'll be -- all the conversations that we were having and all the ideas that we were discussing, I think, remain and can be executed on if they make sense. So that goes for the [privately-owned business,] the Lightning buildout. That goes for strategic partnerships with other operators if they make sense. It goes for all the kind of things that we know can be accretive and strategically valuable for the group, we still believe can be evaluated and considered. -------------------------------------------------------------------------------- Polo Tang, UBS Investment Bank, Research Division - MD & Head of Telecom Research [28] -------------------------------------------------------------------------------- And I'll just clarify that on the timing for the deal -- can I just clarify the timing of the deal, why now then just given the COVID-19 situation? Did something change on your part in terms of what spurred the move now to announce the deal? Or was there a change on Telefonica's part? Can you maybe give some color? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [29] -------------------------------------------------------------------------------- No. Yes, you would imagine, this didn't come -- I mean the crisis that we're all facing now and with the pandemic, obviously, is somewhat recent. This is -- these are conversations that go back some time. So as discussions and negotiations have momentum, you keep the momentum. I would say, definitely, we didn't see anything in the current environment that suggested we shouldn't continue with this opportunity as opposed to the environment stimulating the opportunity. It's the other way around. It's an opportunity that was always there. And we didn't see anything that created an obstacle or that should slow it down. So it's really nothing to do with the current environment. It's just the timing is coincidental. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- We'll go next to Nick Lyall with SocGen. -------------------------------------------------------------------------------- Nick Lyall, Societe Generale Cross Asset Research - Equity Analyst [31] -------------------------------------------------------------------------------- Mike, Charlie, and it's just a very quick one maybe on Swiss prices, please. They seem pretty -- the ARPU seemed pretty weak this quarter. Is that just a COVID impact, maybe with some sports and pay TV items, too? Or is that something we should expect sort of for the rest of the year with some pretty structural pricing pressure, please? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [32] -------------------------------------------------------------------------------- I don't know if Baptiest is on the call. -------------------------------------------------------------------------------- Baptiest Coopmans, Liberty Global plc - CEO of UPC Switzerland [33] -------------------------------------------------------------------------------- Yes, I'm in. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [34] -------------------------------------------------------------------------------- I don't know if you want to address that quickly. Baptiest Coopmans is the current CEO of Swiss business. Do you want to address that? -------------------------------------------------------------------------------- Baptiest Coopmans, Liberty Global plc - CEO of UPC Switzerland [35] -------------------------------------------------------------------------------- Yes. I'm in Switzerland since February 1. So the market stays competitive, and we try to find the right balance between volume and value there. And that's the answer. And I think Charlie was very clear. We think we will have $170 million cash flow out of this business this year. And the underlying trends are all improving. We have all-time high customer satisfaction now. Company is doing very well through COVID. So in that sense, the next quarters, you will see that. And on top of that, we had a major simplification program launch that will kick in, in the coming quarters. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- We'll go next to Christian Fangmann with HSBC. -------------------------------------------------------------------------------- Christian Fangmann, HSBC, Research Division - Analyst of Telecoms [37] -------------------------------------------------------------------------------- Yes, a quick one. I was not reading anything in the press release on this. Is there actually break fee agreed? And then how about the brands? What are you planning to use in terms of -- are we seeing something similar like at VodafoneZiggo? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [38] -------------------------------------------------------------------------------- No. No disclosure on the brands. This is -- it's too early to have any discussions about that or even any agreements about that. So the brands will be determined down the road when companies actually do come together and there's a management team and we can have a thoughtful conversation about it. So business as usual for now and no update on brands. I'll simply say, we think both brands are really strong and complementary, and that's a good thing going into it. No break fee disclosed and no break fee agreed. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- We'll go next to Steve Malcolm with Redburn. -------------------------------------------------------------------------------- Stephen Paul Malcolm, Redburn (Europe) Limited, Research Division - Research Analyst [40] -------------------------------------------------------------------------------- I've got 2 but if you only give me answers to 1, that's fine. Just going back to the contractual situation. Can you just sort of shed any light on any MAC clauses in there? I mean, obviously, you're talking about backward-looking leverage and tends to expect U.K. [as being] down this year. If combined EBITDA were 10%, 20% lower and leverage is in the mid-5.5, do you have like [still space] to go back and look at the overall debt in the JV when it closes? And maybe just a quick one on the contractual position of your major content providers in the U.K., BT and Sky. I take the point that your sports revenues are 0 margin, but that doesn't mean that couldn't be negative margin if you're not collecting revenues, you're having to pay for them. So are you able to get relief on those sports rights while you're not filling your customers? Maybe any help on that would be helpful, would be great. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [41] -------------------------------------------------------------------------------- Okay. Yes, Lutz can address the sports issues, the answer is yes. I think the agreement -- the release, I think, was clear. The expectation is that we'll have leverage in the 4 to 5x range, which will be closer to the high end of that range when we close. And we expect that to be the case. The market today is not necessarily the ideal moment to get all of the financing lined up. Normally, we would announce and conclude all the financing before even signing a transaction, but we felt like to be -- to optimize cost of capital and to optimize structure, there's no reason to do it all right now. But the gap of what remains is quite small. I think, Charlie, it's only a couple billion pounds really that isn't yet raised or ready to be transferred over. I think that's the number more or less. So there's not -- the financing condition is not a particularly important one, in my book, at this stage. Lutz do you want to address the sports issue? -------------------------------------------------------------------------------- Lutz Schüler, Liberty Global plc - CEO of Virgin Media [42] -------------------------------------------------------------------------------- Yes, on the sports issue, so we have been following exactly what Sky and BT has offered their customers, so to simply pause the sport contract packages if the customer wanted to. And therefore, we are also in a position with those not to pay for those customers who have decided to pause their packages with us. And therefore, that is not -- margin-neutral to us. -------------------------------------------------------------------------------- Stephen Paul Malcolm, Redburn (Europe) Limited, Research Division - Research Analyst [43] -------------------------------------------------------------------------------- Okay. So you are able to -- BT and Sky have agreed for you not to pay the wholesale costs for that period of time? -------------------------------------------------------------------------------- Lutz Schüler, Liberty Global plc - CEO of Virgin Media [44] -------------------------------------------------------------------------------- Exactly. I mean we -- obviously, you have to come to an agreement, and we are in the middle of that. But that is the understanding, we've got the [4%]. And also when you read our contract, it's pretty much like that. -------------------------------------------------------------------------------- Stephen Paul Malcolm, Redburn (Europe) Limited, Research Division - Research Analyst [45] -------------------------------------------------------------------------------- Okay. And sorry, Mike, to just come back to the first question. And if EBITDA were significantly lower, is that GBP 18 billion of debt set in stone or would you review it at that point? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [46] -------------------------------------------------------------------------------- Well, I think the partners can always agree to review it. Obviously, we reserve that option. But I think -- I don't believe -- and, Charlie, jump in here. We don't see any impediments to achieving that level of debt between now and closing, which is when it would likely occur. It's probably on the shorter end of that. Charlie, do you want to address that? -------------------------------------------------------------------------------- Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [47] -------------------------------------------------------------------------------- Yes. And Steve, we've gone through -- we've sort of resurrected the [relationship with this] team and Telefonica. So we're pretty comfortable with that [content] that we have built into the forecast for various scenarios. Actually, with that, [we're] very attractive. We pursue very kind of resilient businesses, a bit [of a trade-in though and not what we] have done, it's still trading on pretty well. So I'm very, very confident that we get the remaining couple of billion done. Remember, the debt we have today are [not even] on assets. We've come across [11-plus million]. So it's already [on plan], and there's [4 billion] [just from it]. -------------------------------------------------------------------------------- Stephen Paul Malcolm, Redburn (Europe) Limited, Research Division - Research Analyst [48] -------------------------------------------------------------------------------- Right. I'm not questioning that you can get the debt. I'm just questioning whether it's the right level of debt as EBITDA was a lot lower. -------------------------------------------------------------------------------- Charles H. R. Bracken, Liberty Global plc - Executive VP & CFO [49] -------------------------------------------------------------------------------- Steve, the one thing I would say that synergies are very, very -- these costs, which is I think as Mike indicated, they might be a little conservative. That gives a lot more creditworthiness to work as combined companies than just 2 stand-alone companies. So we'll see. But I think none of us [anticipated] COVID, and we'll have to find that. But based on what we know today, I think (technical difficulty) -------------------------------------------------------------------------------- Operator [50] -------------------------------------------------------------------------------- We'll go next to James Ratzer with New Street Research. -------------------------------------------------------------------------------- James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [51] -------------------------------------------------------------------------------- Mike and team, congrats on the deal. I think the question I had today probably more for Lutz, actually, just on the U.K. performance, which looked pretty encouraging this quarter. I was just interested in kind of 2 specific areas. I mean, one, with all the extra home-working going on, are you seeing signs that customers are actually upgrading their broadband packages as a result? And how supportive is that to your ARPU trend? And secondly, I mean, to what extent have you been benefiting recently from being able to do extra customer installs? Because as I understand, Openreach has been more limited in being able to do that. How much of a boost is that providing to the current numbers? -------------------------------------------------------------------------------- Lutz Schüler, Liberty Global plc - CEO of Virgin Media [52] -------------------------------------------------------------------------------- Yes. So on home-working, I mean, in general, 95% of our customers have 100 [ended] speed or more, right? And as Mike said earlier on, our average speed is 140 meg. So therefore, our customers do operate already on a very -- our consumer customers do operate on that -- already on a very high speed. And so therefore, we don't see additional demand on top of that currently in the consumer space. On the B2B space, we see that we have further demand, higher speed packages, working-from-home packages for some of our customers. So that is encouraging. And in terms of net adds, you're right. I would say, currently, we are a net benefiter. So what do I mean? That our sales are still at 80%, and it's only online but it's remarkable. It's obviously a more connectivity focus. So less demand on video, more on broadband, fixed broadband. And also, our churn is at a historic low. And I think this is because of 2 things. One, simply, you don't want to change the system while you are so reliant on it. And second, obviously, in the market, you cannot be assured if it's a manual install with competition that you get actually installed while we keep on doing the manual install as well. So therefore, you're right. Currently, we are growing a bit our customer base because of that. But as you said also, Q1, we kept the customer base flat. So we cannot fund our strategy just on the weakness of a competitor. So you can expect from us further initiatives to keep or grow our customer base. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- We'll go next to Matthew Harrigan with Benchmark. -------------------------------------------------------------------------------- Matthew Joseph Harrigan, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [54] -------------------------------------------------------------------------------- I realized how over the top this question is. I think you did the right thing from the derisking and liquidity enhancement vantage point in this environment. But as an extension of the Robert Grindle question, I mean, you and John Malone really have the opportunity to kind of be the ultimate, I guess, angle, cable cowboys if you had turned around and bought all of O2 and equally have the financial wherewithal to do that GBP 12.7 billion of that sterling enterprise value and now, I guess, GBP 6.7 billion in synergies over a 5-year time. And so really wanted to get Machiavellian as it's developed over time, you really would have had some opportunities for some very accretive stock buybacks for obvious reasons. Is that something you ever would have looked at? I mean you would have less complexity, I guess, in terms of financial engineering, but probably an inordinate amount of risk in this COVID-19 environment. And again, I realize this is a really over-the-top question, but I thought I'd run it by you, nonetheless. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [55] -------------------------------------------------------------------------------- Well, Matt, I mean, you would know, we're looking at all options and all alternatives. And generally, we land on the one we think is the most accretive and creates the most value. And this, we believe, is the one. So every market is different. Every set of opportunities is different. And generally speaking, we're -- we never take anything off the table. We always look at what's in front of us. But in this case, we believe this is the right outcome. That's what I'll say. -------------------------------------------------------------------------------- Matthew Joseph Harrigan, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [56] -------------------------------------------------------------------------------- Yes, I think that's right. Congratulations. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [57] -------------------------------------------------------------------------------- Okay. Thanks. Now we're at 10 after here. So I guess, operator, we'll take 1 or 2 more and then let people get back to their day. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- We'll go next to Ulrich Rathe with Jefferies. -------------------------------------------------------------------------------- Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [59] -------------------------------------------------------------------------------- Mike, you highlighted on footprint expansion, you and Telefonica share the excitement about expanding that. Could you comment on the capacity to pull that off during a period of probably a quite intricate large-scale merger integration, at the same time, embarking on accelerated footprint expansion potentially? I realize [you're going to open that] plant, but how do you look at the capacity to pull off -- do all these things together at the same time? -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [60] -------------------------------------------------------------------------------- Yes. It's a good question, and it will be something that we factor in. We wouldn't ever make huge strategic decisions that impact our ability to execute synergies or integrate the businesses. On the other hand, we're already out there today, every day, building, extending plant in the street. So if we were able to do it or see our way clear to doing it as a stand-alone company, there's nothing about being a larger, more integrated company that should change that materially. But it's the right question. It's a set of making sure you're prioritizing where you spend your time and where you have your resources focused. But as we lay that out on the page, we'll make that determination. But I don't see anything off the top in which you can comment that, that would somehow preclude us from having the wherewithal or the resources or the will to go ahead and continue looking at a broader network expansion if it made sense. And you can always -- there's lots of ways of structuring it and financing it as well. So I think it's the right thing to think about. But on the other hand, there's nothing in my mind that says it's not doable. We'll have to get there when we get there. -------------------------------------------------------------------------------- Lutz Schüler, Liberty Global plc - CEO of Virgin Media [61] -------------------------------------------------------------------------------- I think that to add to that, though -- I can give some more flavor to that. I think what we have done now is we have put really all network expansion, so from consumer, from B2B, from wholesale, into the Lightning units. And they are accelerating the network expansion, right? I mean we have just announced the beginning of the week that we will mobile backhaul 3,000 5G sites from [3]. So therefore, we have secured vendors for an acceleration in rollout. Last year, we also closed a couple of LFSN deals. So therefore, the machine is growing and the machine will run also quite independently. So therefore, it's not so much impacted by the complexity of an integration. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- And we will take our last question from Sam McHugh from Exane. -------------------------------------------------------------------------------- Samuel McHugh, Exane BNP Paribas, Research Division - Analyst of Telecom Operators [63] -------------------------------------------------------------------------------- Just sticking to fiber in the U.K. Following BT's announcement today, do you see any kind of strategic need to move a bit faster on your own market expansion beyond Project Lightning? And I guess linked to that, I think by the end of this year, we need to implement gainer-led switching in the U.K. I'm not sure if that has any kind of positive implications or negative implications here? If any interest, your thoughts? That would be great. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [64] -------------------------------------------------------------------------------- Well, look, I think BT will make the decisions it needs to make in the context of its own financial picture. And I think they will build and we anticipate they will continue to roll out fiber, and they should. So I don't know that their announcements or commentary today changes anything really. It's more or less confirming what they anticipated. And they should be leaning into this element of their business, and I think they'll probably do that. So I don't believe it changes it materially. And Lutz, do you want to tackle the second question? I'm not sure I fully understood or got all the details of it, but maybe you did. -------------------------------------------------------------------------------- Lutz Schüler, Liberty Global plc - CEO of Virgin Media [65] -------------------------------------------------------------------------------- No, I mean what we are accelerating is fixed-mobile convergence, right? The more customers we have locked in with fixed and mobile in a better position we are to protect them from competition, right? So we are doing more speed for our customers now, more fixed-mobile convergence and network expansion at the moment. The pace you know, and we are looking for ways to accelerate that. And with all of that, I think we are operating on our plan. And I agree with Mike. I think we haven't seen anything surprising or any acceleration from BT to our previous announcements. -------------------------------------------------------------------------------- Michael Thomas Fries, Liberty Global plc - Vice Chairman, President & CEO [66] -------------------------------------------------------------------------------- Okay. And with that, we will let you get back to your day. Always appreciate you participating in this call and your support. We're excited about this deal, that goes without saying. We are creating FMC champions, a champion with incredible synergies and means a great vote of confidence for us and for Telefonica in the U.K. So we're excited to get it going. And I would just lastly say stay well. Stay healthy, stay safe, and we'll speak to you soon. -------------------------------------------------------------------------------- Operator [67] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes Liberty Global's First Quarter 2020 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.