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Liberty Global PLC (LBTYK) Q2 2019 Earnings Call Transcript

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Liberty Global PLC (NASDAQ: LBTYK)
Q2 2019 Earnings Call
Aug 8, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

At this time, all participants are in listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for a question-and-answer session.

Page 2 of the slides details the company's Safe Harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of 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 from the Securities and Exchange Commission including its most recently filed Forms 10-K and 10-Q as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

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

Mike Fries -- Chief Executive Officer

Great. Thank you operator and welcome everyone to our Q2 results call. And we always appreciate the opportunity to talk to you about our business, of course, and our broader strategic plans. And today we're sticking to the two-man show. So, Charlie, and I will handle the prepared remarks and then we'll engage the other key leaders as needed in Q&A.

And I'll kick it off on Slide 3, which is entitled delivering 2019 priorities. We thought that, since we're halfway through the year it would be a good idea to revisit the key goals we laid out for you, nearly six months ago. These were the big needle movers in our minds and by all accounts, we're making or have made substantial progress. Number one of course, was completing the announced M&A transactions with Vodafone and Sunrise. As expected, the deal with Vodafone closed eight days ago with net proceeds of $11.3 billion and the Swiss deals in the midst of a Phase II regulatory review and we think is on track to close in the fourth quarter. Might be worth reminding everyone that these deals are a result of purposeful rebalancing, which saw a capitalize on the strategic and financial value of our fixed broadband and video networks in what is a converging marketplace in Europe and in each case generating double-digit OCF transaction multiples.

Now secondly, earlier this year, we also talked about resetting our operating model and cost structure and that was in an attempt to reflect the reduced the size of our European platform and to unleash the efficiencies, which resulted in flat OpEx for three straight years.

Charlie has a slide on this in his section but we are right on track if not a bit ahead of plan here on reducing our corporate costs and radically restructuring our technology services delivery platform, both of which will benefit OCF growth as we confirm our OCF guidance for the full year.

The third major priority was reducing our capital intensity. As we look to optimize our recent investments in networks and products. Here, we are ahead of plan with P&E Additions through June down 25% year-over-year. And reflecting a number of factors including more efficient Lightning build cost in the U.K., the completion of Fixed & Mobile upgrades in Belgium. And more focused product development and the decision to slowdown CB swaps in the UK. While, we didn't provide guidance on operating free cash flow. I did mention on the call that we were looking at about 50% growth for the year excluding Switzerland and through six months, operating free cash flow was up nearly 75%. And as Charlie will show all of our opcos are generating significant operating free cash flow margins and growth and we are reconfirming our free cash flow guidance for the year.

And then lastly, we highlighted of the importance of developing plans for allocating our excess capital. And our [Phonetic] realized that we've been relatively quiet about that. Mostly in anticipation of these transactions closing. As you would have seen yesterday we announced our first step with the $2.5 billion modified Dutch auction tender. This represents about 24% of our cash before completion of the Swiss transaction and roughly 30% of our outstanding shares. It would also bring total buyback to $3 billion for 2019 when you include the $500 million purchase during the first six months.

Now the next slide on capital allocation tries to put this decision into context, a bit. Starting with the cash walk that illustrates how we get from the total transaction value for the Vodafone and Sunrise deals to our pro forma cash balance. I'll leave it to you to review if needed, but it shows pro forma cash of $14.4 billion or around $12 billion today before completion of the Swiss transaction. On the right hand side of the slide we lay out our capital allocation strategy for that cash with five areas of focus and beginning not surprisingly with buybacks. Now it should be clear that we fundamentally believe in the strategy having now bought back $21 billion of our shares over the last 15 years. But we will continue to be prudent and opportunistic and how and when we repurchased stock. And as we have done in the past, we'll continue to balance that against investments that create long-term value.

Now we've used Dutch auction tenders effectively on several occasions in the past, some of you may remember. We like this approach. It gives us significant flexibility in how we size and price repurchases and it's easy and efficient to execute. The plan is a launch formally on Monday next week and to close in 20 business days thereafter. The current expected price range we set off of yesterday's close and is expected to be $25.25 to $29 for up to $625 million of Class A shares and $24.75 to $28.50 for up to $1.87 billion worth of Class C shares.

And of course, we may consider additional tender offers down the road. We may return open market purchases, we may do neither we. We will make those decisions based on a number of factors, both internal and external at that time. And moving down the slide, it won't be a surprise to you that we continue to believe 4 times to 5 times leverage is the right capital structure for us. Of course, our net leverage today is something like 3 times, adjusting for the Vodafone proceeds. But on a gross basis, we expect to be at or below 5 times in all of our credit groups by the end of the year. Going forward, we may consider using cash to maintain these target leverage levels, but again we'll make those decisions at the time based upon financial performance, market conditions and things of that sort.

Now, when it comes to deploying capital externally, we are first and foremost focused on our core operating markets. Remember, we still have considerable operating assets in Europe, totaling $31 million fixed and mobile subscribers and nearly $5 billion of operating cash flow and an additional $15 million Fixed & Mobile Subs and nearly $2 billion of operating cash flow coming out of our 50-50 JV in Holland. We are invested in these markets, we have confidence in their prospects and we will look to fortify or capitalize on our positions. If and only if, attractive and compelling opportunities arise. This is in our wheelhouse as they say, it shouldn't be a surprise to you.

Now beyond our existing operations, we will be highly selective. I'll just say a few words here because this topic seems to generate quite a bit of commentary. One, we are more interested in buying, building and operating scale businesses in geographies and sectors we understand than spreading capital around. You know looking at the deals we've done over the last 15 years, they all had a few things in common, typically they represented long term scale-driven investments that leverage our deep technical and operational expertise, in most instances create synergies with existing businesses we own. They also allowed us to optimize the use of leverage, tax strategies and free cash flow. We can't find anything meet these -- have meet these criteria. We are likely to go back to the top of the page. It shouldn't be surprising and look at our stock and in our core markets, but again we're going to be disciplined and patient here.

And then finally, we have a pretty successful ventures platform with investments that we conservatively value at about $1 billion today. These are generally smaller typically, minority interest or financial positions that we believe benefit our core operations will provide strategic value or insight or can lead to outsize financial returns. You may see us add to or subtract from that portfolio using relatively modest amounts of capital. I just want to be sure you understand that. And we will call out these investments should they ever happen as deals for the Ventures portfolio.

Now moving to some operational updates. Beginning on Slide 5. We had a disappointing quarter on the subscriber front, there is no other way to describe it. But that's not the entire story, especially at Virgin and where the team has been focused on so many new strategies, mostly intended to drive ARPU and profitable growth. In the top left you'll see quarterly net adds for our base of 23 million fixed Broadband, Voice and Video RGUs excluding Switzerland. We've been averaging around 60,000 [Phonetic] net adds, per quarter over this period, reflecting good growth in Broadband and Voice and net losses in Video.

In the second quarter of this year we saw steady Video losses but slower growth in Broadband and Voice, driven primarily by competitive market dynamics in the U.K. We're going to dig into Virgin results on the next slide and Lutz will comment during Q&A. But there are a few factors at work here. The U.K. market has definitely slowed down a bit with sales volumes off from prior period. At the same time competition has ratcheted up especially at the lower end of both Broadband and TV. In the midst of that Virgin is maintaining a disciplined and balanced approach to customer acquisition and the capital expenditure, focused on higher value customers and not chasing after growth at the aggressive priced entry level of the market.

Meanwhile, on the bottom left of the slide, you can see that we continue to grow our 5.9 million mobile subs in Europe with a strong postpaid quarter driven by new FMC bundles in the U.K., which is where we'd actually doubled the mobile attach rate and our new WIGO bundles in Belgium which doubled postpay adds compared to a year ago. The mobile business doing well.

So the next few slides, provide a more detailed update on Virgin Media. Just a couple of key points here on Slide 6. The first is that we returned to modest ARPU growth in the second quarter despite continued headwinds in pay-per-view and phone usage revenues. In fact rental ARPU, a better indicator of our subscription business was up 1.2% in the quarter. We have reason to be encouraged about ARPU growth in the second half of the year. With the announcement of a 4.9% average consumer price increase effective in September and October. We've nearly -- 75% of customers who've been notified of the price rise and so far reaction has been consistent with expectations. In fact call volumes discounts have been lower than they were last year at this stage.

And this year, the price rise is underpinned by substantial product innovation, like the launch of Intelligent WiFi and the new Virgin TV Go app. And we continue to push our speed leadership with 500 megabits available across our footprint and faster download and upload speeds offered to millions of customers without charge. Just as importantly, yeah, we remain committed to offering a best-in-class video experience and we were the first to launch Netflix on our box in the U.K. You know that. We've now added Amazon Prime, BT's 4K ultra high-def channel and a whole lot more content from Sky following the new multi-year agreement we signed last month. And absolutely all of the football available in the marketplace. Virgin is still the only super aggregator of content and sports in the U.K.

And I've already addressed the lower volume figures at Virgin shown on the right hand side here. And while the broadband market share of net adds was steady and churn was in-line, gross adds were disappointing. Again a combination of a slower market and more promotional activity at the low end. And in Video, the focus was on higher value pay TV subscriptions versus a year ago, when Virgin triple-play price was nearly at parity with the double play product. Lutz and his team have their work cut out for them. There is no question about that, but there is good reason to be confident in their plans and the new product bundle called Oomph has seen sales accelerate modestly month-on-month since launch in early June and the majority of these sales were at the higher end ultimate package of 500 megabits, which includes Premium TV with sports and movies, unlimited data on a SIM card, priced at GBP99 per month. And this will be good for ARPU obviously.

And as I mentioned the FMC strategy has doubled the mobile attachment rates and resulted in more postpaid net adds. And Virgin remains the broadband speed leader in a market where all any we can talk about these days from politicians to pundits is superfast broadband, which is a good segue to the next slide on Project Lightning.

And I have three key points here. First, while it's an increasingly noisy marketplace when it comes to next generation networks and broadband rollouts. The Virgin is miles ahead of everyone else. We already have 15 million homes capable of 100 megabit speeds, while the rest of the market relies on a copper network that delivers top speeds of around 70 megabits per second. And we've already built out more new homes, then all of the competition combined. The second Lightning is absolutely working on an operational, consumer and financial level. We've built over 1.8 million premises as part of our U.K. network extension, including 232,000 in the first half of this year and with build costs coming down.

Importantly with nearly 400,000 customers and almost 1 million RGUs have been added so far on the Lightning network with our earliest cohorts achieving penetrations of 35% after just four years. And ARPUs of over GBP45 are right in line with the rest of the business after discounts. Together this means that Lightning has delivered strong growth in revenue and operating cash flow both up something like 50% year-over-year and Charlie will break these numbers down even further in just a moment to show you how we're progressing.

And lastly, there is no operator better positioned than Virgin to determine how this next wave of fixed infrastructure investment unfolds in the U.K. Listen, we absolutely applaud the government's ambitious broadband plans and which call for superfast broadband access for every U.K. home and business by 2025. On the flip side, we also agree with BT and others that this will be increasingly difficult and expensive for Openreach and under-capitalized fiber openness to achieve at least without substantial regulatory relief, which puts Virgin in an enviable position. We'll be at 1 gig across 15 million homes in about 24 months. That's four years ahead of Boris Johnson's schedule and we will be by far be the most important partner or platform for the remaining 10 million homes. You should expect us to be exploring every alternative to creatively finance and participate in this expansion of broadband connectivity in the U.K while preserving capital and optimizing free cash flow, so stay tuned.

Now finally I'll close to the couple of quick slides in our Swiss business, which as you all know is in the midst of a turnaround plan that's hitting on all cylinders. Just to remind you, there are four key drivers of the plan beginning with transforming our TV proposition with our EOS and Horizon 4 video platform by far the markets most sophisticated cutting-edge service, which includes 4K, a voice remote, a Sleek user interface and cloud-based storage. This rollout is right on track for 50% penetration by year-end with 190,000 boxes already deployed and the product is working as well that's the most important thing and with NPS higher and churn and calls in truck rolls lower. That's what we want to see. The second driver of the turnaround plan is to continue to push the convergence agenda. So we know from Belgium and Holland that a good fixed mobile converged proposition improves NPS and reduce its churn and that's happening in Switzerland too. The mobile base already at 170,000 represents represents about 15% of broadband subs. And that's a good outcome.

The third driver is all about broadband in future-proofing the network. The UPC customers already average 250 megabits per second, average speed delivered by far the highest in the marketplace, but the plan is to rollout one gig capabilities here in the fourth quarter of this year to further cement our position.

And then finally, we are investing real OpEx and real CapEx into our simply digital initiative and this will be a multi-year process, but we're already well advanced in the journey, which by the way is very similar to how Sunrise has attacked these challenges and opportunities. So those are the drivers. And on Slide 9, we show some results. I know we talk about being right on plan and right on track. But we think it's important for our shareholders and Sunrise shareholders to see what that plan is and has been. So we've actually provided here our quarterly forecast on several metrics both historical and the remaining part of this year. So, let the numbers speak for themselves. And feel free review this at your leisure. But I'm guessing they'll get some attention in Switzerland, which is great. The punch line is that fixed RGU losses were better than plan in Q2. Mobile postpaid adds have been consistently higher than planned, underpinned by our unlimited offerings. We've exceeded absolute revenue forecast, supported by continued ARPU growth, BCS price increases in positive tier mixed results. And finally, we're ahead of plan on operating cash flow, which is a reminder includes our investment in simplification and digitalization and looks a little lumpy in Q1 and Q4 due to the timing of our investment in sports content.

So all in all the Swiss plan is tracking to our internal forecast. The same numbers we shared with Sunrise and we couldn't be prouder -- I couldn't be prouder of the jobs, Severina and her team have done in Switzerland, it's a lot of information. I'll turn it over to Charlie now to go through the financial update and then we'll get right to your questions. Charlie?

Charlie Bracken -- Executive Vice President and Chief Financial Officer

Thank you Mike. I'm on the slide entitled Revenue & OCF Growth. This is a summary of our key financial results and the group as a whole recorded negative revenue growth in the quarter of 0.9% and then OCF decline of 4.3%. Now, there were a number of one-offs impacting the OCF figures including around $12 million of severance from one-off retention payments. Some of these impacts of the U.K and Ireland, which reported negative OCF growth of 2.5%, a positive revenue growth of 0.4%. Belgium was also impacted with the loss of the media land contract, which resulted in a negative revenue and OCF growth of 1.5% and 3.6% respectively. Without this impact Belgium OCF growth would be broadly stable. Mike has discussed Switzerland in the Q2 performance remains in line with our financial expectations for the year despite reporting negative revenue growth of 3.9%, a negative OCF growth of 8.7% in the quarter.

CEE had good revenue growth of 2.9% supported by new builds and B2B efforts in Poland with a slight decline in OCF due to programing cost increases. Central & Other reported TSA revenues of $60 million for the quarter and the net OCF cost of $90 million, which I will now address in more detail in the following slide, which we called Descaling Central. We think of central spend in two separate buckets, the first is more classical corporate spend, including the group functions for finance, legal, HR and development.

We spent $260 million on these functions in 2018 and are on track to reduce this by 20% by 2020 as we support a smaller group post the disposals. The second category is our centralized spend in technology and innovation and probably this is the spend that we've taken out of our country operations and centralized in order to realize scale efficiencies.

In 2018, this was around $800 million and we expect that to reduce to around $700 million this year and then around $600 million in 2020. A large amount of this spend is recharge to the companies we have sold including VodafoneZiggo and a formal [Phonetic] Austrian business, and we estimate that in 2019 if the disposals, to Vodafone and Sunrise that occurred on January 1st, this would have resulted in a net allocation to [Technical Issues] and our CEE businesses of around $250 million. Global revenues from the TSAs and projected to fall over the next four to five years. We intend to keep the net allocation to Virgin and CEE broadly flat during that period, as we're able to flex down the costs of the centralized activities.

Moving to the next slide titled P&E Additions. For Q2, we reported P&E Additions excluding Switzerland at around $600 million or 24% of revenue, representing a 25% year-on-year reduction. Including Switzerland we still reduced our CapEx spend by 21% year-over-year and continue to target a reduction of approximately 20% for the full year. The decrease was largely driven by the U.K. as the prior-year run into the V6 set-top box has now been largely concluded, and there has been a reduced cost per Lightning premise.

In Belgium, we completed the Fixed & Mobile Network upgrades as well as some significant IT project spend. So the only operation to report an increase with Switzerland, which relates to the growth investments into the UPC TV rollout, the one-gig upgrade and the digitization program.

On Slide 14, we said at the OCF in CapEx for our key divisions and how this translates into OFCF, operating free cash flow for the first half. Now we split Virgin into lightening and our core cable businesses as they are very different OFCF characteristics. And we will also allocate at the central T&I cost through our retained assets, using the same methodology as we use for the TSA agreements. Now as the revenue growth in the call cable business is slow. We are seeing significant OFCF generation and in the first half of this year. It's up nearly 40% to $993 million. Now if you are up at the investment in Lightning, the figure for the first half of the year would be $1.15 billion . Lightening continues to be a major investment for us and we spent $235 million of CapEx year-to-date, resulting in an OFCF cash outflow of $157 million.

However, OCF growth is very strong with half one estimated OCF up over 50%, $78 million. Now as you can see from the slide, Belgium is converting $0.29 and every dollar into OFCF and if you include the recharges the U.K ex-lightning and Holland have slightly lower margins and come about $0.23 and $0.25 of a dollar respectively. Now, the lower margin in the U.K. is largely because they rent a mobile network so the MVNO rather than one.

First, in Holland, we expect the margin to rise as they continue to realize the synergies after they merged with Vodafone which has largely been achieved in the comparable merger and in Telenet. Now remember because of the tax attributes in both the U.K. and Holland unlike Belgium, there is no cash tax payment in other market making them very efficient free cash flow generating assets.

Finally, despite the investment in the turnaround plan Switzerland remains a very cash generative asset with an OFCF margin of 24% including recharges despite increased CapEx spend. Turning to the next slide, we summarize the result in free cash flow conversion. We've broken down the free cash flow to show before and after working capital and operational finance. In Q2, the free cash flow before these items was $511 million for the quarter. In contrast to Q1, there were no cash interest payments and you'll see a similar picture in the second half with significant interest payments in Q3 and then in Q4. Tax paid in the quarter was the payment of our 2018 accruals for Poland and the United States, which are only current taxpayers other than Telenet. In terms of preference [Phonetic] the company has reconfirmed its guidance for shareholder distributions of EUR400 million to EUR600 million for the full year. However, year-to-date, the JV is only disbursed $25 billion and we expect the balance during the second half of the year. You should note that our share of the EUR400 million to EUR600 million include shareholder loan repayments to us of around EUR100 million, which we do not include within our adjusted free cash flow definition.

Our working capital and operational finance line was positive in Q2 at $35 million, resulting in adjusted free cash flow for the quarter of $546 million. For the full year, we expect this category to be slightly positive and a source of cash flow. We remain on track for our full-year free cash flow guidance of $550 million to $600 million and that includes our estimated $400 million to $500 million negative free cash flow from the Project Lightning.

On the next slide entitled Balance Sheet. We set out our current leverage debts. Pro forma for the Vodafone transaction Q2 gross leverage is 5.2 times. But net of the deal proceeds, it' is 3 times. We remain committed to the 4 times to 5 times leverage ratio for the group. And we'll continue our policy of long tenure-debt maturities and fully hedging FX and interest rate exposures. As of Q2, our average life is around seven years and a weighted average cost of debt is around 4.1%.

As a result of the disposal of certain CEE countries, as part of the Vodafone transaction, we repaid the $1.6 billion UPC term loan resulting in a leverage ratio at UPC of 4.6 times. Upon the sale of UPC Switzerland, we will transfer the remaining UPC bonds to Sunrise and we pay the rest of the facility marking the end of a 20-year history of borrowing under the UPC Group. We proposed to relever the Eastern European assets of Poland and Slovakia to around 4 times. Following the completion of the Swiss disposal, representing additional debt of approximately $900 million.

So moving to the conclusion slide. The sale of UPC Switzerland remains on track and the business fundamentals continue to improve. In the U.K, the annual price rise has been announced and our Sky content negotiation has been completed in line with our budget is assumptions. We continue to see strong OFCF and free cash flow generation in our core cable assets and we are reconfirming our 2019 guidance target.

With that, over to you operator for questions.

Questions and Answers:

Operator

The question-and-answer session will be conducted electronically. [Operator Instructions] We'll go first to Maurice Patrick with Barclays.

Maurice Patrick -- Barclays Capital -- Analyst

Good morning, guys. I'm with Maurice [Phonetic], [Indecipherable]. Just a couple of questions, please on the U.K. And it's really might touch in your comments about pushing on investments in some of the comments and Johnson around investments in next generation access. There has been some press reports about you are looking at investing beyond project lightning and I'll let hear your thoughts around sort of long-term investment once Lightning is done? And the answer could also touched upon -- entertain the idea of offering wholesale access to your network all thoughts on wholesale access in that you can have changed. Thank you so much.

Mike Fries -- Chief Executive Officer

Hi, Maurice, this is not -- but there's a lot of questions there. On wholesale access our position has been pretty consistent across Europe, which is we don't think it's a particularly good idea and it discourages investment in infrastructure by cable, which is the only competitive platform out there to the phone operators. On the other hand, we have had to utilize it in Belgium where was acquired. And in some instances we have in the past, looked at a voluntary or I would say private negotiation, so we're opportunistic. And I think we're creative in how we approach it. But I was certainly our position has always been from a regulatory point of view, it should not be mandated. And in some instances we have in the past, looked at whether we would partner with companies who might be interested in utilizing the network, but that is a private transaction not one determined or priced by the government, big differences there. That's what I'd say.

In terms of building beyond Lightning, we think the Lightning footprint that we originally estimated a 4 million homes, and we talked about half of those or most is is still attractive to us and we're evaluating certainly market-by-market and city-by-city, how to do that in the most effective and efficient manner. On the other hand, as I mentioned in my remarks. There is quite a bit of activity occurring across the marketplace and there is at least another 10 million homes that somebody is going to build. I don't see us doing that on balance sheet as a lightening like project, where we're funding it out of our operating free cash flow. But Virgin is by far the best partner, if somebody is looking to build those homes, because we have bring obviously a great brand ability to penetrate quickly and potentially outside capital to do something off balance sheet.

So let's just say that we are in the mix as we should be in any discussions about building the next wave of networks outside of where we already have built superfast broadband. We feel like our 50 million homes at 1 gig ready going to 10-Gig is it for that footprint, but beyond that footprint, we're going to be opportunistic, to see if we can put capital to work off balance sheet, without consolidating losses and activities potentially with partners just to get Virgin possibly in the Virgin brand to a national scale, wouldn't that be great if Virgin was a national brand, not a regional brands in half the marketplace. We know on footprint, we generate 50% market share. We beat BT, we beat Sky on footprint and in Video and Broadband, we know that.

If we could extend our footprint potentially using other people's networks who are participating in our balance sheet -- type network construction that can be pretty interesting. So it's all very preliminary and it's work, you would expect us to do. But abiding by the points I made in my remarks, which we're looking at opportunities that are capital efficient, optimize free cash flow and largely off balance sheet. That's a longer answer than you probably wanted, but hopefully that's clear.

Maurice Patrick -- Barclays Capital -- Analyst

No, it's great, thanks so much indeed.

Operator

We'll move now to Ben Swinburne with Morgan Stanley.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Good morning, guys. Hello, hey, good morning. Can you hear me?

Mike Fries -- Chief Executive Officer

Hi, Ben. Yeah, we got you.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Okay. Hey, Mike. I know you made some comments earlier Mike about sort of the rationale behind the tender, but I just want to come back and ask my sense of maybe I just misinterpreted, I sense over the last couple of calls as you guys were sort of suggesting that the cash was not going to burn a hole in your pocket. You're going to take your time etc. etc. And obviously you still have a lot of capacity, so I'm not. I get the numbers, but I just was wondering if anything change between May and now to lead you to launch the tender for $2.5 billion . And if there is any sort of change in how you're thinking about allocating that capital that we should be aware of?

And then secondly on the subscriber trends in the U.K, you mentioned competitive environment, I'm just wondering as you look out through the back half of this year, do you see that getting any better? Any initiatives you guys have on either churn management is probably for Lutz? Or new bundles to help try to drive that? Or maybe you're just focus more on EBITDA and ARPU and you're not going to chase subs. So I just love an update there?

Mike Fries -- Chief Executive Officer

Sure. Lutz, why don't you work up and answer to the U.K. question. On the tender, I don't think our position has changed materially, I mean if we had announced this morning, a $2.5 billion buyback program that would have taken us based as you know on rules and restrictions pretty long time to get that money put that money to work. So, it's our view that these Dutch auction tenders are efficient. You can launch them and be done in 20 business days. We're not suggesting, this is the only one. We'll see what happens to the market or our alternative uses of capital. What I meant to say on patients was really about and discipline was really related to transactions outside our core markets and let's say in new markets or new opportunities. There seems to be a fair amount of concern at least I hear it and our IR guys here it that we're going to turnaround and buy something nonsensical -- in a sector or a market where we have no expertise or no capabilities and that's not what we're going to do and the patients in the discipline comment was really related to opportunities outside of our core markets where our core capital structure.

And I'm not, --- I'm certain we have those capabilities to do interesting things. We're just going to be very, very selective about those. In the meantime, we will look at where the stock trades and we'll look at what other opportunities we have to be to solidify and grow the businesses that we already own and operate, which we think are substantial great free cash flow generators and have the ability to be revalued in this environment. So no, question that our stock today has zero value, Virgin Media, which is incredible to me. So we know there is huge opportunity to create value and demonstrate value in the U.K. based on our cash flow characteristics. On our market position, our strategic opportunities and you don't have to be heroic in your assumptions about what that value might be on any metric to know this stock is undervalued. So we're going to look at that, I would say quarter to quarter. Every six months, we are going to be thoughtful about what the best allocation of capital is, but the patience and the discipline comment [Phonetic] was really more geared toward doing things outside of our core business today.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Got it.

Mike Fries -- Chief Executive Officer

Lutz, you want to address the U.K. point?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yeah. Yeah. Hi, Ben. And so before I give you a bit of an outlook. Just maybe one number to compare a bit the market size right. Broadband market Q2 2018, 171,000 net adds on openreach in our network. I neglect the ordinance, this year 14,000 right. So the market is materially down and our churn like-for-like, has been stay the 50%. So this about gross adds in that market. And I think we, if you compare our number. We've got almost close to 50% of the entire market or 80% onto our coverage. Right. What we are not doing is changing for the low end of the market and right, I mean, there is Vodafone, there is now broadband from Sky, GBP17-GBP20 [Phonetic], we are not fishing in that segment. So therefore you won't see us changing our strategy in that direction. What will help us in the future I think is four things. So we have launched Fix Mobile convergence, and mid of June with our campaign that has already helped you see that in the mobile subscriber although it's only, less than one month of mass market launch in Q2 and that is you see a steady growth that leads to a lower churn and higher ARPU. So this is really a momentum. We will be using going forward more and more. Number two and as Mike has said earlier on right we have all soccer available, we've very strong sport package, so Q3 is about that. In general, Q3 and Q4 are the strongest quarters in terms of sales, so therefore we are prepared for that and we are leveraging more and more digital in that, so our digital share of channel is increasing.

So therefore, already in July, we've seen materially higher sales numbers. But however, having said that, don't forget that we have put our price rise forward by two months.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Yeah.

Lutz Schuler -- Chief Executive Officer, Virgin Media

So compared to last year. So therefore, you will, we will eat up some of these additional sales, we are already generating by some churn; however, that was planned. And as Mike said earlier on 75% of letters and emails have been sent out and reaction is better than last year, but last year we had also a bit the UKTV struggle going on. So that's why it is as expected.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Okay, that's great color. Thank you.

Operator

And we'll move now to Christian Fangmann with HSBC.

Christian Fangmann -- HSBC -- Analyst

Yeah, good morning. I was just following up on the buybacks, I think the plan is a bit below what the Street was expecting. I mean for H2 definitely a big number, but beyond that, so I was curious, are you updating us then on a quarterly basis or it can also be in between quarters? If you think you may do more tenders because you just mentioned. It may not be the last one you do so and interested in your view on that one. And then, so maybe on the U.K. I mean, you signed a new deal with Sky, a content deal and I think for the full year, you had to content cost going up to GBP60 million to GBP80 million, I think. What's the guidance for the year? And can you maybe give some color if you are more toward the higher end, the mid-end or the lower end? So that would be -- interested in that one and yeah, [Speech Overlap].

Mike Fries -- Chief Executive Officer

I think the Sky deal, Lutz, you correct me. I think the Sky deal is where we thought it would be. So, but you can provide some color on that later, if I missed it, but a pretty shared we're right on where we thought we would be in terms of what we might have forecast you on the guidance in terms of the buybacks, I think what I said in my remarks, I'll repeat which is could do more of these. We could launch the tender buyback programs, as we've done in the best or we could do neither. It doesn't, it's not a good idea for me to signal to you. Well, we're going to do these every quarter and people will be interested in selling shares and won't be tendering and we're interested in owning more share.

So my goal here for shareholders who are going to be long-term shareholders is to acquire shares at the most efficient price that we can acquire them. At this point this is all we've got going on. And so I don't anticipate quarterly updates on our "tender offer" activities, but if we are to launch additional tenders down the road, you're likely not to know about that until we do it, I mean that's kind of how it works.

So, I don't believe this is something that we are going to discuss on a quarterly basis. I think we're going to look at how this particular transaction performs and our ability to efficiently acquire more of a company we believe in and then we'll make decisions and we will be looking at it of course quarterly and making decisions about how best to utilize capital on a quarterly basis, but I don't know that we will be signaling to you in our earnings call, every quarter exactly what we may or may not do. Just as we didn't signal to you, up until this particular tender what we were going to do, because we're still evaluating those options real time.

Lutz on the Sky deal, you want to just confirm what I said, pretty sure that's [Speech Overlap]?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yeah, put it, of course, we cannot really disclose any details. I think what I can say is the general idea was between Sky and us to create win-win potential when we close the deals of future growth of revenue jointly and I can say we have managed to do so. Right. So we can now jointly monetize UHD together, we got much more boxes. So we are able to monetize that, sell that our customers we are able now to really integrate Sky movie into our Liberty Go apps to increase usage here and we've got a lot of additional benefits. So therefore, right. It's both. Is it in the range we have expected as Mike said, it is -- but I think more importantly, we found a way to make up for the cost in increased business both on price increases, but also simply saying selling higher value packages to the customers and this is exactly what we are doing.

Christian Fangmann -- HSBC -- Analyst

Okay. And maybe one follow-up if I may. And also on Virgin, I think there was some news yesterday from Virgin and the Virgin is addressing of comes -- ongoing review of the broadband pricing and related efforts to protect customers running out of the minimum contract period. So it looks like Virgin may address 100,000 customers that are vulnerable. I would call is kind of disable pensioners, unemployed people. So can you maybe quantify the effect or the cost embedded to that kind of approach that Virgin is taking for 2020 maybe? [Speech Overlap].

Mike Fries -- Chief Executive Officer

I think it's very small, Christian. So it's a smaller attempt and at the end -- right. If you do that and you are customer-centric, you come to much lower churn and with these customers. Right. So therefore, I think the impact on 2020 is neglectable.

Christian Fangmann -- HSBC -- Analyst

Okay, great Thank you.

Operator

We'll move now to James Ratzer with New Street Research.

James Ratzer -- New Street Research -- Analyst

Yes, good morning. Thank you very much indeed. I had two questions please. The first one, just going back to the topic of use of proceeds please. Here what you said so far, but it was just wondering if you could talk us through how you see some of the relative merits of some of the deals that are kind of being discussed. I mean mobile in the U.K. is one area, but I think in the past you've been nervous about mobile performance. I mean you now feeling more comfortable with that. There's also been some speculation, you might look in Latin America, I mean given your comments about geographical focus. Are you able to rule out categorically doing any deal in Latin America with the capital you have, I mean, thoughts around kind of deals in the Benelux area as well, interesting that you're kind of preference, order and thinking around those kind of options and then follow-up question I had is just going back to the price rise in the U.K. I mean how do you weigh that up against what your market share tolerance is? I mean I'm looking at BT, who has been taking price for a while, and it seems like they've now had to reverse engines a bit and say, they are no longer willing to cede share because their pricing approach led to customer losses. How do you think about that computational trade off going forward? Thank you.

Mike Fries -- Chief Executive Officer

James, on the use of proceeds. I'm not going to get into that here on this call. I can just repeat what I said, which is, we'll look at things in our core markets first, as we should. And then possibly consider things outside our core markets if they make sense and fit pretty -- a pretty tight group of criteria for us. So I hear what you're asking. And I'm sure it would be, great info, but it's not prudent of me to get into the relative merits. So any one transaction or any one opportunity as things unfold and become real we'll certainly comment on them. You want to talk about the price increase?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yeah. -- I mean, Yes, I do. Thanks, Mike. So we are growing still market share. Right. I mean, although it was not the strongest quarter in general. This quarter we have flat, but in general we are growing market share. According to our information, our churn is substantially lower than from the competitor you mentioned. And so far customer reaction is in line, I mean, don't forget we are targeting the high-value segment of the market. And we spend a lot of money for increased speed, now intelligent WiFi, better content, higher upload speed, step-top boxes, and also a lot of money in better service.

So, and I think we are not in the position to say, do we really shrink as a business or not. And I think when you look at the U.K. market you see higher competition on sales. Gross debt market, but you see still a pretty rational approach in the customer base. Right. Sky has taken price rise, Netflix has taken price rise, TalkTalk has taken price rise, even BT has taking price rise on the BT Sports packages. So I think we have not a reason to change our approach here.

Mike Fries -- Chief Executive Officer

Yeah, I mean, Sky took a 5% price rise in April, as you guys would have seen. Which by the way, we did not pass through to our customers. So our price rise will, to some extent compensate us for not having pass through this Sky price rise to our customers. So I think that's noteworthy. That helps James.

James Ratzer -- New Street Research -- Analyst

Got it. Mike just thank you for that, just -- yeah and that's great. Thank you. Just going back to the point out, I mean what outside your core markets might look more attractive than doing a deal within your existing core markets today?

Mike Fries -- Chief Executive Officer

But I mean, again, I'm not going to get into that with you. I think that would be smart for us to start -- either divulging or if we have things pre-empting those kinds of opportunities. It's just not a good idea. It would be a generic conversation and I don't think it would be particularly useful for you. I did describe that we like businesses and have always benefited. I think from owning and operating businesses that have scale capability that are in our wheelhouse around technology and in subscription and businesses that we understand well. We know who we are, we know who were not. So you can look backwards perhaps to look forward.

And at one point, we were operating at 40 different countries around the world. So there's very few places we haven't done business. It doesn't mean we're interested in doing business in most places today, I'm simply saying that we have a pretty long history of I think in investing in the types of opportunities that we think fit our profile. But to be specific about a territory or market or an opportunity would be good at this point.

James Ratzer -- New Street Research -- Analyst

All right. Thank you, Mike.

Mike Fries -- Chief Executive Officer

You got it.

Operator

And Evercore's, Vijay Jayant has our next question.

James Ratcliffe -- Evercore ISI -- Analyst

James Ratcliffe.

Mike Fries -- Chief Executive Officer

Hi, Vijay, sorry.

James Ratcliffe -- Evercore ISI -- Analyst

Hi, it's James Ratcliffe. Just on the -- now that you the Vodafone check is cleared and you've got the cash on the balance sheet. I'm wondering if you can talk about the trade-offs between having a lot of liquidity available for opportunities and I think Liberty had generally done well by having liquidity when others didn't historically versus the negative arbitrage associated with account. Because it would -- back-of-the-envelope be $100 million bucks a quarter or so. And do you have flexibility to essentially reduce that negative arbitrage, while still keeping a lot of liquidity readily available, should opportunities arise? Thanks.

Mike Fries -- Chief Executive Officer

You mean the negative arbitrage on our debt basically?

James Ratcliffe -- Evercore ISI -- Analyst

Yeah. Not just having cash versus having [Speech Overlap].

Mike Fries -- Chief Executive Officer

Yeah, I got you, I got you. So I think it's -- I -- just a couple of answers to that. One, I think having the liquidity as you point out, is a huge advantage. One thing, John and I have seen, and many of you have seen is market volatility comes and goes. And there are many -- there's, it is always good to be in a cash position when you don't know what the future brings. And that's more opportunistic than anything. And so there isn't, while there is a cost of carry, there is certainly an opportunity cost, and I'm not having liquidity. So, as you say right rightly we balance that off and we balance it off dynamically. I'm actually generating cash Charlie and the team are charged with one of the reasons we put all the money into dollars is we believe we can generate a better return on that capital than we could in euros or any other currency.

And so Charlie and the treasury team are going to do their best to generate a maximum amount of return that can be prudently achieve on that capital. And so that will certainly help a little bit. And then if necessary and on occasion, as we talked about around leverage -- we'll trim here or there, so if needed. So I think it's going to be a combination of things as you rightly say, a little tension between liquidity and opportunity and cost of carry. But if we can get the treasury guys to work their magic, hopefully we can shrink that a little bit. Charlie, you want to add anything?

Charlie Bracken -- Executive Vice President and Chief Financial Officer

Yeah, the one -- just, I don't think is 100 in a quarter. I think it's the cost of debts for if in U.S. dollars, you're getting something north of 2. So it's roughly a 2% negative carry and pro forma for the buyback. We got about $12 billion . So it's more like $240 million is the bid offer in terms of the cost of the option. And as Mike said, you know, we'll continue to evaluate the best way to run that negative carry, but it's no -- it's not a $100 million a quarter that thing.

James Ratcliffe -- Evercore ISI -- Analyst

Great, thank you.

Mike Fries -- Chief Executive Officer

Yeah, few clarification. Okay. James.

Operator

. We'll move now to Matthew Harrigan with Benchmark.

Matt Harrigan -- Benchmark Capital -- Analyst

Thank you. You have to feel fairly vindicated on VodafoneZiggo given the turnaround there, the fastest growth business in Q2. How do you feel about the fixed mobile convergence benefits? I mean, did they come in line with what you expected where that you've been higher? Is there anything, any runway still on getting that? And then clearly, if you get a little more expansive on the VodafoneZiggo valuation your stock gets even more ridiculously inexpensive. And when you look. -- I know you're not going to comment too specifically on any search transaction on unwinding the JV, but it logically traded at somewhat lower multiple and those those synergies are pretty much been realized at this point. I think it's an asset that maybe the Street maybe including myself is neglecting a little bit. Thanks.

Mike Fries -- Chief Executive Officer

Yeah, good question. First of all the synergies, haven't all been realized. I believe we're only about halfway through the synergies. They may or may not of address that. So that new American probably [Phonetic], but my understanding is that we're only about halfway through the synergies originally projecting $210 million. And I think as we've indicated likely to exceed that just because we always do in these types of businesses. And I do agree with you. It's been terrific to see the business return to revenue growth and good OCF growth and raise their expectations around that. And it is a function of both the natural synergies that occurred fixed mobile and mergers, there is a reason why we repaid 12 times for Germany, because the synergies are massive and they are real and they work for a mobile and fixed platforms. And we have proven this out now and how many transactions, I can even keep count in Europe so far.

And as you striving all positive indicators there and we're pretty excited about how they are performing as a team. What is worth is you can come up come to that value math in a bunch of different ways. Whether it's a levered free cash flow yield or operating free cash flow multiple even an EBITDA multiple. I would suggest we would think there's very little value against if I stop [Phonetic] for that business today, but we continue to be supportive of it. We think the team has done a great job. We think it's been a terrific partnership with Vodafone and we're both really pleased with the business as it sits today.

Matt Harrigan -- Benchmark Capital -- Analyst

Thanks, Mike.

Mike Fries -- Chief Executive Officer

Anybody want to add to that? Charlie on the board anyone add to that?

Charlie Bracken -- Executive Vice President and Chief Financial Officer

I think it's going very well. In fact, I think in some respects, it could be even more successful in Telenet, which is obviously one comparable, you could look at the free cash flow conversion, as they are growing all the synergies should drive toward the similar type of margins that Telenet's get. So I think I agree with Mike. It's a very attractive asset but the larger it has performed [Phonetic].

Matt Harrigan -- Benchmark Capital -- Analyst

Thank you.

Operator

We'll go next to Pivotal Research Group's, Jeff Wlodarczak.

Jeff Wlodarczak . -- Pivotal Research -- Analyst

Hi, guys. Hey, guys. One of the U.K. and one on Belgium. U.K. you've had a number of one-offs, hitting EBITDA mainly of higher network taxes but as far as I know, are not going higher after 2020 and you've obviously got a large program price increase this year. Do you feel comfortable that the core U.K. business is going to be able to sustainably grow EBITDA, once you get past these overhangs? And then on Telenet, Mike, I wanted to get your thoughts on this wholesale situation. It just seems like a regulator just wants the wholesale price to go down and is continually trying to push it down and trying to force you guys to do a single play. How do you push back against that?

Mike Fries -- Chief Executive Officer

Well, let Lutz cook up his views on the U.K. question. I think the Belgium wholesale question remains a thorn in our side and as I've said many times, and John Porter has said many times, it's a highly political marketplace and we do the best we can to address those politics and to point out the absurdity in some cases of what they're proposing. We fight them in court, we appeal in the EU. We do all the things were supposed to do. We're askable and opinion there but at the end of the day, we know that the way in which they're trying to regulate this market is wrong -- fundamentally wrong.

Now the flip side of that is we're doing pretty well either way. If you look at Orange Belgium, their subscriber base on our platform is not that material. I think it's roughly 130,000 subs-140,000 subs. So the amount of revenue "at risk" in a wholesale change of pricing is not that material either. So I don't want to overstate the impact of what may or may not occur in the regulatory side. On the other hand, I do want to, -- I don't want to understate and I want to be sure, it's clear that we don't agree with the way in which they are approaching this market. And in Holland where we have similar conversations, it's much more reasonable and rational. We also don't agree with what they -- how they're approaching it, but on the other hand it looks to be they're coming at it from a certainly more healthier point of view.

So we fight the good fight. I mean I think the good news is it's not a material impact, at least based on current wholesale revenues. We can't be certain how it will unfold. All I can tell you is we keep fighting the good fight and we're as focused on this as anything. And it is -- it does really feel to us to the extent you're concerned about contagion or anything else, it does really feel focused in the Benelux, partially because of the success cable has had in those markets for decades, not just recently Telenet's market share is quite substantial relative to Proximus and others and -- and VodafoneZiggo is a market leader. So I think it's partly a reaction to that and partly reaction to politics, part of which we control and obviously the rest of it, we just, we can't. So I hope that's helpful. Was there another question, Jeff?

Jeff Wlodarczak . -- Pivotal Research -- Analyst

Yeah, that's the on U.K.

Mike Fries -- Chief Executive Officer

Yeah, go ahead. Yeah, go ahead, Lutz.

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yeah. So I mean we have -- we did a consumer strategy right, which is 80% of the business in Virgin Media, last autumn and we came up with four growth drivers. Right. One is fixed mobile convergence. This is launched now. Early signs are positive, but that takes a while. We have 20% fixed mobile converged customers, when you look at VodafoneZiggo or a Telenet, they have more than double of that. Right. So huge opportunity for lower churn and higher ARPU. And for us here. Early stage, but positive signs. Second one is base management. I mean we have higher speed. We have now intelligent WiFi leads to higher customer satisfaction. We are going to launch Horizon 4, our new video platform, which has been launched in Belgium and Switzerland so far. So the idea is simply to leverage that and to get to a lower churn.

Then, we run a digital transformation program. The impact this huge. It's a big change for the company, but others have done that successfully. Why wouldn't we do it and then more segmented sales. And the more the market is mature, the more the go-to-market has been segmented so MDUs, the so SOHO machine leveraged closer, as the consumer machine. So therefore, we believe that when all these growth drivers are in place, of course, we will come to grow again. I'm not in a position to give any guidance, also headwinds from network taxes and also content costs are getting down a bit in the future. So both should help to get back to growth.

Mike Fries -- Chief Executive Officer

But we do have headwinds. I mean just to your point, Jeff. Next year there are, we do still have increases in both year-over-year in network taxes and program. So we'll provide more visibility on that as we get obviously into our guidance for the following year. But there still is some, there are headwinds there. Having said that I think Lutz is on, is actually absolutely right. We're doing all the things that we think we need to do in that market to grow the base and to grow profitably, and to drive cash flow in particular, free cash flow. I think that brings us to the top of the hour, so I'll just close it out.

First of all, appreciate everyone joining, second, I'll just repeat that we feel like we're doing what we told you we would do at the beginning of the year. Number one, we get these deals closed like people didn't think we would, we always felt we would and we got them closed on original terms and that's important to us. We're driving cost down in the corporate, in T&I space in our company. That's critical, as we descale, we need to descale of what we do and how we do it and a lot of good work happening there, which I think will benefit both the operating cash flow and operating free cash flow. We're driving CapEx down actually not 20% to 25% through the first half of the year and that hasn't been difficult and it hasn't had an impact material impact at all on our abilities to create growth. And we're delivering on the promise to put capital to work. We didn't waste any time -- it's only been a few days since we closed that deal, and we're out and about. We're excited about getting the tender launched formerly on Monday, stay tuned for for that paperwork and those details.

Thanks for joining us and well, we'll speak to you soon. Thanks everybody.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Mike Fries -- Chief Executive Officer

Charlie Bracken -- Executive Vice President and Chief Financial Officer

Lutz Schuler -- Chief Executive Officer, Virgin Media

Maurice Patrick -- Barclays Capital -- Analyst

Benjamin Swinburne -- Morgan Stanley -- Analyst

Christian Fangmann -- HSBC -- Analyst

James Ratzer -- New Street Research -- Analyst

James Ratcliffe -- Evercore ISI -- Analyst

Matt Harrigan -- Benchmark Capital -- Analyst

Jeff Wlodarczak . -- Pivotal Research -- Analyst

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