Liberty Global Ltd (LBTYA) 2014 Q1 法說會逐字稿

Welcome to Liberty Global's first quarter 2014 results conference call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission, or rebroadcast of this call or webcast, and any form without the expressed written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode.

Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.libertyglobal.com. Following today's formal presentation, instructions will be given for our question-and-answer session. As a reminder, this conference call is being recorded on this date, May 7, 2014. I would now like to turn the conference call over to Mr. Mike Fries, CEO of Liberty Global. Please go ahead, sir.

Hello, everybody, and as always, thanks for joining us. I want to make sure I introduce the folks on the phone this morning. We've got Bernie Dvorak and Charlie Bracken, co-CFOs in Denver and London; Balan Nair, Chief Technology Officer; Diederik Karsten, Broadband Operations in Europe, and several other folks who we may call upon depending upon your questions. I'm going to hand it back over to the operator and then we'll kick it off.

Thank you. Page 2 of the slides details the Company's Safe Harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company's expectations with respect with 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 from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed forms 10K/A and 10-Q.

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 back over to Mr. Mike Fries.

Great. Thank you. On our agenda will be, as it usually is, I will do some overview remarks about the quarter and than hand it to Bernie. He'll run through the numbers and then we'll get to your questions. We are talking from slides today.

I'm going to begin on slide 4 with some operating financial highlights. We know there's a lot of anticipation for this call. In the first quarter, it sets the tone for the balance of the year. So I'm pleased to report that we had a strong start, really, across almost all fronts.

On subscriber growth, we had a 345,000 new RGUs, driven by our second highest first quarter in broadband adds ever and our lowest video sub loss for this period in seven years. Clearly, our one-two punch of superior broadband speeds and unrivaled video platform is working.

Financially, we achieved 2% rebased revenue and 8% rebased OCF growth in operating cash flow growth in the first quarter, our best operating cash flow result in nearly three years. Bernie will walk through the details, but it's important to point out that our underlying subscription revenue growth was actually 4% and was negatively impacted by interconnect, install and B2B revenue.

In our adjusted free cash flow, a key measure for us and we know for many of you, surged 27% to $350 million in the first quarter, largely driven by operating cash flow growth and a modest improvement in our capital intensity.

Quick update on financing activity are on track. The closer acquisition of Ziggo in the second half of the area in part -- is part of our expectation of receiving some news on the regulatory front here. Although no decision has been taken, we understand that the European Commission has nearly completed its Phase 1 review of the deal and that the case is likely to move to a second and final phase at the EU level. Obviously, this would be a good outcome for us.

Like our peers in outside of the cable industry, our innovation engine never shuts down. As you would expect, much of our focus and attention remains on our Horizon platform, which now reaches over 550,000 subs across four markets and continues to ramp, and more on that in a moment.

We've also made material progress on our mobility roadmap. We're launching a full [mobility game] service in Switzerland, our eighth mobile market, and the an extension of our WiFi coverage across Europe. I'll go into more detail on the mobility game plan in a few slides as well.

And then finally, our balance sheet, it continues to support our growth and drive equity returns. At the end of March, we had $6.7 billion of consolidated liquidity, including over $3 billion of cash and our leverage was in line with our target range of 4 to 5 times. We've been active in capital markets this year, refinancing debt at Virgin Media and Telenet and creating new credit pools for VTR. As a result, over 80% of our debt is now due 2019 and beyond.

Lastly, we remain committed to our buyback program. The $400 million of stock acquired through March 31 in addition to $3.1 billion planned between now and the end of 2015.

Turning to our sub results on slide 5, we said many times that our growth in Europe is fueled by several unique opportunities. For example, driving triple play penetration, which is at 40% today, and with superior broadband speeds of up to 500 Megabits.

Ramping digital penetration, which at 65% today, the most advanced digital video platform in Europe; and steady growth in ARPU per customer at 4% to 5% a year from a very low base of below $50 today. You can see these factors at work in our first quarter subscriber results by products.

Beginning at the top left, with 240,000 broadband adds, up slightly from last year, but as I said, our second best Q1 and driven by core markets like Germany, the UK, and even Holland. Telephony net adds in the top right were seasonally lower across most markets at 178,000 but are still benefiting from our bundled offers.

On the bottom left, you'll see an improving picture of video losses, which totaled 71,000, our best Q1 in seven years. In fact, we added customers or new households in half of our countries. There's no question that some of this result was attributable to the excitement and the reduced term levels that we see in our Horizon and TiVo households.

I've been quotes a few times now saying that Netflix and other ATV platforms expose the functionality gap in cable around the user interface and that, not unlike the DVR, operators like us and Comcast are quickly bridging that gap with platforms like Horizon and [Next One]. On average, 10% of our entitled customers and up to 30% in certain markets are actively watching over 100 million channels and thousands of hours of VOD content on their laptops, tablets, and smartphones.

In the next few slides, you'll see how each of our broadband and video strategies are positively impacting results in our core markets. Starting with Germany on slide 6, as you know, continues to be our strongest growth market, generating 127,000 net adds and 15% rebased operating cash flow growth.

A combination of strong typical offers and the success of Horizon helped reduce video attrition to just 17,000 subs. That's 25% below our quarterly average last year, and and helped us grow customers by 11,000, our best result in five quarters.

We know that speed matters in Germany. Demand for our newest premium bundles, featuring Horizon in 150 Mb broadband service has been very strong. We are 6 times faster than DSL and 3 times faster than VDSL and consumers know that. Today, 45% of our 2.7 million broadband subs are taking at least 50 Mb and 55% of the mid-broadband customers are subscribing to 100 Mb or faster.

Horizon is taking hold in Germany as well, with 40,000 net adds in the first quarter, bringing the current base to over 100,000. 80% of these customers are taking the high end box with DVR functionality and half are choosing the premium service with 150 Mb services.

To support this growth, we launch our first national TV campaign, focus on network superiority and highlighting our compelling value propositions and to get that message out, we partnered with last year's Champion League finalist and one of the best teams in british League, Borussia Dortmund. With that ahead, we see plenty of untapped opportunity.

While we're excited about the fundamental demand in for our bundles, over 67% of our homes are still only taking one service from us. So the growth opportunity in Germany remain substantial, and we have plans to increase the top speed in our bundles of 200 megabits per second and we expect to take some modest price increases in the second half of the year.

It was also a very good start to the year for Virgin Media. Tom Mockridge and team delivered a strong quarter of subscriber and operating growth, nearly doubling customer adds from last year, increasing our RGU net additions by 42% to 35,000 and generating 6% operating cash flow growth, which is well above Virgin Media's full-year 2013 results.

Several factors contributed to these results including Virgin's continued commitment to product enhancements, like BT Sport, Netflix and new ad campaign with Usain Bolt, and record customer satisfaction, all achieved by the way, in the midst of the 6.7% price increase rolled out in February.

Virgin Media's operating cash flow growth was 6% and was bolstered by Hulu results from our value creation and integration initiatives post-acquisition, which included headcount reductions, reducing the net costs and process efficiencies and will still remain -- and we still remain confident of hitting the $350 million synergy target in 2016.

On the global front, our remained focus in the UK on high-valued post-paid subscribers and had a great quarter, with 79,000 postpaid additions, our highest quarter of postpaid acquisitions yet. Growth through the balance of the year will be driven by revamp bundles, launched earlier this week, which are anchored by 152 megabit broadband speeds, twice as fast as anything available in the UK and great mobile are quickly offered, built around top teer video services and attractive similar plans that offer choice and flexibility across all products.

Lastly, on our top line B2B growth in the UK was still challenged. We did see a second consecutive quarter of sequential growth of GBP252 million and we remain confident that we will see a return to stronger revenue growth in B2B during the second half of the year.

Turning to slide 7, Telenet kicked off the year with 29,000 new RGUs in its best performance Q1 triple play performance since 2009. ARPU per customer increased 5% year over year and rebased OCF growth was 17% in the quarter. Two contributors were, of course, our typical rate take-up and the February price increase of 2%, which did not have a material impact on the overall low turn though at Telenet.

And mobile continues to be a big part of Telenet's story, especially after shifting about a year ago to a more value-driven mobile strategy. With lower handset subsidies and an increased focus on SIM-only plans, our OCF growth profile improved, and we still added over 150,000 subs in the last 12 months.

Lastly, John Porter and team are always looking for ways to keep Telenet customers on the forefront of great content and services. The recent cooperation agreement with VRT, the largest public broadcaster in Flanders, and the commercial agreement with Media Room, the largest commercial broadcaster in Flanders will ensure that we offer the best TV experience in the market across all screens. When we measure, our Swiss operation, also had a good quarter, with 21,000 net adds and 8% operating cash flow growth, their best Q1 since 2008 by the way.

ARPU growth was supported by a 2% video price increase at the start of 2014 and our new bundles are featuring faster speeds. We also took selective price increases across broadband. We're putting out that we had our strongest video result in six years with the video being at 5,000 subs. And Switzerland is our most successful Horizon market, with 160,000 regular TV subs, or 24% penetration were DTV-based, paying us an incremental CHF10 Swiss per month.

We recently launched our full mobile service in Switzerland, targeting our own customers with simple, transparent, and field offers, featuring generous data allowances and similar new plans. The first reactions are very positive from customers and the press and the market will serve as a model for other global markets on this continent.

Now turning to slide 8, now many of you been watching the Dutch market closely; obviously, it is front and center for us, given the competitive environment and our pending acquisition of Ziggo, which will allow us to reach over 90% of households in what will become our second-largest operation. The good news is that we continue to see steady progress, with three straight quarters of improving broadband additions, declining video losses and positive total net adds at UPC.

Given the fiber-to-the-home competition across roughly 30% of our footprint, Ziggo will continue to outpace KPN and broadband. This is important. Over the last 12 months, we and Ziggo have together added over 5 times as many new broadband subs as KPN, and they actually went backwards in the last quarter whereas the two of us added 56,000 broadband subs.

As in other markets, we expect to continue these trends, with the launch of new triple play bundles, back in April 1, which put Horizon at center stage and offers 120 Mb per second starting at EUR55. In addition for the mid and premium tiers, we now include our own multi (inaudible) service for free, which provides unlimited access to 1,000 movies and 1,000 series on all screens and devices.

We're also offering free access to our WiFi hot spots, which are now number more than 500,000. I already touched on the Ziggo acquisition but just to repeat, no decision has been made. We do hear to hear very shortly of the case, the likelihood of a Phase 2 review at the EU level in Brussels.

And you should know we have been in remaining in a constructive dialogue with the Commission and currently, we feel confident we can address any competition issues they may raise. And then lastly, offer memorandum is currently being finalized and we expect to launch within the next few weeks.

I'll wrap this section with a few words on Latin America. With both our Chilean and Puerto Rican operations are coming along and generated together 49,000 net adds and 16% operating cash flow growth. Following the migration to MVNO late last year in Chile, we're back on track with our quad play offers and added 12,000 new mobile subs in the quarter to complement our steady growth in broadband and video.

In Puerto Rico, we're beginning to see synergy benefits kicking in on the operating cash flow line as we work through the integration of the OneLink acquisition. For developments, we did buy out a 20% partner in [shed], on favorable terms in March and just prior to that, created a new Chilean Credit Group, with an initial $1.4 billion in debt at the VTR level.

Finally, we continue to evaluate our strategic options in the region, which are likely to include either a creating through active stock or spinning off Latin America and we should have greater clarity on either of those options by the third quarter, if not sooner. As I said in the past, there are some interesting opportunities in the region and these approaches, either approach, could allow us to capitalize on them and increase shareholder value in the, we think, most efficient way.

And then finally, on slide 9. As I usually do, I'm going to end with a quick update of a few strategic initiatives that will be priorities for us to the balance of the year. I'll start with mobile on the top left of slide 9.

And just to remind everyone, that we already have a relatively substantial mobile business today in Europe, with 4 million subscribers and $1.2 billion of annualized revenue. But nearly all those customers are in the UK and Belgium, which means we have great work opportunities in the rest of the continent.

As I mentioned, we have just launched our first full MVNO in Switzerland last week, with the best data plans available in the market and next up is Holland. Virgin and Telenet have demonstrated that quad play is a proving churn reducer and our marketing strategies will be very similar country by country.

it's all about selling postpaid mobile data and bridge plans, primarily to our own customer base with a focus on seen only offers as part of the bundle. Of course, we also sell handsets at reasonable price points. We're confident that mobile will continue to greatly increase customer loyalty and drive returns.

The second point of our strategies is the creation of a pan-European WiFi network, part of our broadband everywhere experience. We already have over 1.5 million WiFi hot spots today. That number should be 4 million but the end of the year and growing rapidly after that. The combination of MVNOs and WiFi hot spots are just tremendous optionality at a very low cost.

Our broadband strategy is transparent and well-known by you. We continue to push the speed envelope across our footprint today. Our average customer speed is over 50 Mb per second. Our best-selling tiers are 100 to 150 Mb, and our top speeds max out at 200 to 500 Mb. And with EuroDOCSIS 3.1, now known as Gigasphere, around the corner, we will cost effectively be able to provide downstream speeds at 1 Gig and higher.

I'm more and more excited about Horizon as time goes by, and more and more convinced that we are on the right track. I'm thankful that we pushed for such an important sophisticated user experience and with cable operator will get here at some point. Just feels good to have already arrived. I mentioned the $0.5 billion to install across four countries, and the steady improvements we've made to the stability and functionality of the platform.

Every code job includes cooler apps, better functionality and greater performance. The next launch in Poland will be based on the already paid platform that we and Time Warner Cable, and Comcast support, featuring a cloud-based version of the Horizon UI which is cheaper, faster, and smarter.

Now to finish, with a quick to update on our content strategy in Europe. I'll just focus on four key areas of strategic interest to us. Beginning with an obvious one, and that's expanding our reach in depth of best broad content to either compete with or support our own OTT services.

We get plenty of questions about Netflix, friend or foe, and that might be the wrong question. Where we have been launched, we see increases in consumption but that triggers greater demand for speed, a good thing for us and so far, there has been there zero impact on our video subbase. In fact, we're doing better and better in video retention.

And our approach will vary by market given the fragmentation that exists in Europe. With part of the Netflix in the UK, we are competing in Holland with our own platform called MyPrime and the decision in other markets to buy, hold, or partner is pending and will differ by country.

The other three elements of the content strategy area sports rights, broadcast networks and production assets. The sports is easy. We already own football rights Denmark, for example, and stronger relationships with a few broadcasters can increase our reach in a market where our own access to key programming rights and generate synergies along local lines of business, we've been seeing in Belgium, we're taking that approach. In content production is simply one step further up the vertical integration matter, it could nicely fit into a broader portfolio of strategic content investments.

I won't dive into this much more except to say that whatever you do, we're always disciplined and focused on financial returns, create funding in ownership structures and strategic benefits to our core distribution platform. So stay tuned for further development on that and stay tuned for Bernie Dvorak because he's coming right now with our financial results. Bernie.

Great. Thanks, Mike, and before I dive into the slides, just a few housekeeping items. First, when we refer to our Q1 2013 combined results in this presentation, it includes Virgin Media for the full quarter, although we did not own Virgin during the quarter. And second, the Chellomedia assets that we sold in January are treated as a discontinued operations so our operating results exclude the impact of these assets for all periods.

On slide 11, we provide a snapshot of our rebased performance which adjusts the neutralized impact of acquisitions and currencies. The solid bar represents our overall rebased growth performance and the dotted line represents our total subscription revenue growth, which includes our triple play and mobile subscription revenue. The grey bar shows our results excluding Virgin Media, with 3% revenue and 9% OCF growth, in particular our Belgium, German, and Chilean operations were key markets for us in the quarter as each posted double-digit year-over-year increases in rebased OCF growth.

The green bar depicts Virgin Media standalone performance. For Q1, Virgin contributed 35% to 40% of our consolidated revenue and OCF and posted 1% revenue growth and 6% OCF growth. In terms of revenue, Virgin Media delivered solid rebased subscription revenue growth of 4%, with cable at 4% and mobile at 5%. Our steadiness performance were year-over-year declines in such revenue items as interconnect, off-net and handset sales and finally the lead bar highlights our consolidated growth rates.

On a total Company basis, we generated 2% rebased growth in revenue and 8% gross OCF, which Mike has briefly discussed. It should be noted that our Q1 results were supported by a few nonrecurring items, the three most significant of which involve the revenue settlement in Germany and copyright fee settlements in Belgium and Poland that resulted in an aggregate $35 million improvement in OCF during the quarter.

Slide 12 looks at both our European and Latin American Q1 results. Our European operations generated $4.2 billion in revenue and just over $2 billion of OCF resulting in rebased growth of 2% in revenue and 8% in OCF as well as an OCF margin of 49%.

Western Europe accounts for over 90% of our total European business and that region delivered $3.9 billion in revenue and nearly $2 billion in OCF, while Central and Eastern Europe added almost $300 million in revenue and roughly $150 million in OCF. Rebased revenue was 2% and OCF growth was 8% in Western Europe while CEE posted a rebased decline of roughly 1% in revenue and a gain of 4% in OCF.

Moving to Latin America. In our Chilean and Puerto Rican businesses combined for $300 million of revenue and $112 million of OCF, reflecting an OCF margin of 37%. Together, these two businesses generated rebased revenue growth of 4% and OCF growth of 16%.

VTR in Chile delivered 5% topline growth and 14% OCF growth while Puerto Rico accounted for 2% revenue growth and over 20% rebased growth in OCF. VTR's rebased revenue and OCF growth was driven by volume and ARPU per customer growth of 3%, with the OCF growth also benefiting from a lower OCF deficit from their mobile business, following the transition to a new MVNO contract. Puerto Rico's rebased OCF growth was driven by synergies resulting from the continued integration of the OneLink acquisition.

If you turn to slide 13, this highlights our five target markets in terms of quarterly rebased OCF growth. These markets accounted for approximately $1.9 billion or nearly 90% of our total operating cash flow in Q1. Compared to our Q4 results, each of these five markets delivered better quarterly rebased performance, with our German and Belgium businesses posting double-digit growth.

Starting with Unitymedia in Germany, our Q1 OCF performance of 15% resulted from 8% revenue growth, which was driven primarily by volume growth as we have added over 0.5 million RGUs in the last 12 months, higher ARPU from [diesel] TV and broadband and a nonrecurring item I mentioned earlier. We also lapped the elimination of the public carriage fees so those are no longer a headwind or us.

In moving to Telenet in Belgium, our Q1 OCF performance of 17% was held by the previously mentioned copyright fee benefit and strong growth in our cable and mobile business, driven primarily by volume growth and price increases on the top line with lower handset subsidies also benefiting OCF growth.

Next we look at UPC Cablecom in Switzerland, which posted 8% rebased OCF growth in Q1, slightly above Q4, and 130 basis points higher than 2013's full-year growth rate of 7%. Our Swiss management team has been executing well on a number of new product introductions. They delivered 4% rebased revenue growth in Q1, remaining disciplined on operating costs.

Virgin Media showed notable improvement and posted its best quarter since we acquired the business, with 6% rebased OCF growth compared to negative growth in Q4, which was weighed down by a difficult comparison. With 1% revenue growth, our OCF growth was due largely to cost savings and synergies arising from integration activities.

In addition, our OCF performance was helped by the February price increase and lower interconnect and mobile handset costs. It is worth mentioning that there was a change in legislation on March 2014 in the UK with respect to the charging of VAT in connection with prompt payment discounts.

The change took effect on May 1 and we estimate that it will result in reduction of Virgin Media's revenue and OCF of $47 million to $50 million from May 1 to the end of the year. Despite the new unexpected headwind, we remain comfortable that we can see a single digit rebased OCF growth in Virgin Media in 2014.

Finally, our Dutch operation is showing some signs of progress. As discussed earlier, we had positive subscriber growth in the quarter, helped by a reduction in video attrition and solid broadband adds. Our year-over-year rebased OCF decline of 4% was modestly better than both our Q3 and Q4 results from last year. While we expect the remainder of 2014 will be financially challenging, we feel good about the new product bundles that we launched in April and believe that ultimately, market conditions will rationalize.

Slide 14 summarizes our P&E additions and adjusted free cash flow results. On the left hand chart, our total P&E adds showed a downward trajectory over the last four quarters as a percentage of revenue, with both Q1 and Q2 last year including a combination of our results and Virgin Media's reported results for both pre-acquisition periods.

And then Q1, we had P&E additions of $910 million, or 20.1% of revenue. This represents a 30 basis point decline from Q1 of 2013. If we break down our total spend in Q1, 56% was on CPE and scalable infrastructure; 27% was on line extensions and upgrading rebuild; and the remaining 17% on support capital. So over 80% of our spend was revenue focused, which is typically the case.

Moving to adjusted free cash flow. We delivered $350 million in Q1 2014. This compares to reported $66 million in Q1 of last year into a combined $238 million, if we add Virgin Media into last year's first quarter. The latter comparison reflects growth of more than 45% year over year.

This growth was driven by a combination of solid free cash flow performance at Virgin, Telenet and VTR as well as favorable FX movements, which more than offset the decline associated with the net impact of our vendor financing and capital lease arrangements.

It's also worth mentioning that we remain on track to deliver approximately $2 billion of adjusted free cash flow for 2014. Similar to prior years, we would expect our free cash flow for the remainder of the year to be weighted towards Q4.

If you move to slide 15, the left-hand chart summarizes our leverage position. We finished Q1 with 5.1 times leverage on a gross basis, which declined from 5.3 times at December 31, 2013. This decrease primarily reflects our underlying OCF growth and debt repayment activity. We've also been active capital markets year to date with new issuances and refinancings at several of our credit pools.

Our overall leverage in absolute terms was $44.5 billion at Q1, down modestly from Q4. Our debt and cash positions at quarter end included $1.5 billion from the March issuance of bonds at Virgin. We used substantially all of these proceeds in April to redeem VMED's 2018 sterling bonds. Adjusting for this transaction, our gross leverage would have actually fell below 5 times.

In terms of net leverage, we ended Q1 with a leverage at 4.8 times, which was similar to the 4.9 we reported at Q4. Our quarter-end cash position of -- was $3.1 billion, reflecting a total consolidated liquidity of $6.7 billion at March 31, when including the $3.6 billion of maximum borrowing capacity under revolving lines at the end of Q1.

If you look at the right-hand chart, we repurchased nearly $400 million of equity in Q1. This brings our cumulative total to about $1.4 billion of our $4.5 billion program. So we are targeting to spend $3.1 billion over the next 21 months. As most of you know, we expect to be out of the market when we launch the offer for Ziggo, up until we close that transaction but we expect to remain active over the coming weeks.

If you turn to slide 16 and in conclusion, we are leveraging our network advantage with a focus on improving the customer experience and differentiating our products and services. With nearly 350,000 RGUs added in Q1, lower video churn overall and a sustainable broadband speed advantage, we believe that we are well-positioned to drive solid subscriber gains for a very long time.

Financially, our Q1 cash flow results were strong, putting us in a good position to deliver on our full-year targets. Finally, we look forward to our -- to the next steps in the regulatory process for the Ziggo acquisition and expect to complete the transaction in the second half. With that, operator, please open the lines for questions.

The question-and-answer session will be conducted electronically.

(Operator Instructions)

We'll pause for just a moment to give everyone an opportunity to signal for questions.

Tim Boddy, Goldman Sachs.

Thanks for the question. I want to talk, Mike, a bit about the commentary on content production, and how that would fit into your broader portfolio. You seem to be, I guess, calling it out more clearly than previously and I wondered what you had in mind and if there's anything more you could share on that front? I guess particularly in terms of scale, whether you'd be willing to make a material content acquisition.

And then shifting just as more of a follow-up, I just wanted to confirm that the $50 million headwind in the UK for the remainder of the year, that presumably just rolls off and goes away in 2015 because the customers who had bought those kind of prepaid line rental products, presumably all of those things have come to an end. So that $50 million drag should go away medium-term. Thanks very much.

Hi, Tim. I'll hit the content question and then Tom or Bernie or Charlie can address the headwind question. Yea, I think -- I don't -- there's nothing to announce today, of course, or we would have. But as we look at the broader opportunities in content, as I mentioned, production could be one of those. The opportunity to really get closer to the creation and origination of important content is something that we've talked about for a long time.

I don't have any specific to add to the general strategic point, except to say that for us to do that, we would have to be convinced that there's a financial return in whatever asset we were looking at, that we were doing it probably with a partner or somebody who understood the business better than we do, and probably and most importantly, on a marginal or relatively small basis. So I wouldn't -- I don't really expect that we're going to go out and acquire a studio or things of that nature.

Obviously, these are more tactical and incremental steps to build that four-pronged content portfolio, if you will, that we know could be more strategically beneficial for the core distribution business. So I know I'm being vague because there's not much more to be specific about, but the key message is, anything like that would have to have a strong financial return, would ideally be done with a partner who understood it better, and is probably going to require relatively small amounts of capital in the context of our balance sheet because we're not in a position to put large amounts of capital in those types of assets that are not in our wheelhouse operationally. On the headwind point, Bernie, do you want to take that, or Tom?

Yes. I will. The costs don't go away next year. It's a prospective change that we'll continue to incur that. But from a growth perspective, we'll lap those Q2 next year. So that's the way you ought to think about it.

Okay. Thanks for the clarification.

Vijay Jayant, International Strategy and Investment.

Hi, I just want to focus on the wireless strategy a little more, if you could. Is that going to be -- take MVNO with complete flexibility on pricing and how you sort of sell the product. What sort of margins, is it like a 30% margin business? And given it's sort of a rollout in 2014, is there any sort of drag we can expect from that? And since Balan is on the phone, I was hoping, really from a technological perspective, really talk about how we could mesh WiFi and wireless and is that a seamless product that consumers can have going forward? Thank you.

Thank you, Vijay. Well, I'll kick it off and then I'll hand it ed over to some folks. I think the important point that we've tried to make in the past about our MVNO contracts is that they essentially give us control of pretty much everything having to do with marketing, managing and operating and billing a mobile customer, with the exception of ownership and control of the actual physical radio network.

By that, I mean, that we do in our full MVNOs, we do have control over HLR, customer data, BSS, OSS, and for all intensive purposes they are our customer integrated into our systems and our bundles and our billing. We're renting essentially the physical network from the MNO. Hope that clarifies.

In terms of margins, the margins vary but you will be able to determine this just from looking at other operators. Where we think margins in the mid-30%s, gross margins in the mid-30%s are achievable, that has a lot to do with your strategy and how you go about marketing handsets versus SIMs and that's information we'll clearly give you more clarity and transparency around as we move on down the road.

But in our -- from our point of view, the revenue uplift is positive, the margin benefit is constructive, and the ultimate value that we gain in terms of retaining customers and improving customer experience is the real reason to be in it. Balan, do you want to hit the technology point?

Sure. We are quite lucky to have these MVNOs because they're really good MVNOs that we have across Europe. We really see a future where the combination of WiFi and have MVNO outside the four walls make a lot of sense.

We currently are working on something along those lines where we may have a trial by the end of this year in one country where you optimize for WiFi in the home, in your office, and public transportation areas. But while you're in the car, you would revert back to 4G voice, but it's something in our future for sure.

Great. Thank you so much.

Jeff Wlodarzack, Pivotal Research.

Good morning guys. In the UK, you all had a nice first quarter acceleration in EBITDA, certainly earlier than I expected on 1% revenue growth. Where are the prospects for material acceleration, UK revenue growth offset that 1% level for the balance of the year? You've got the price increase. You're returning to RGU growth in the rebound in SMB and now on the VAT tax, is there a possibility of any kind of retroactive payment associated with that? Or does that just affect forward results? And I have one follow-up.

I'll kick it off and then, Tom, I'll hand it over to you. I think the -- I don't know whether we forecasted it clearly or not, but revenue growth is a huge focus for us in the UK and it's clear though that this is a large machine. Accelerating a large machine takes a lot of horsepower.

And that, we're now in the process of revving up that engine, if you will, and are mostly excited about a few things: one, the great success we've had in the first quarter with mobile, in particular the SIM-only mobile strategies and iPhone. Secondly, the -- our return to net add growth in the key products. Third, though the brand-new bundles we rolled out like this week, which are cleverly branded and are going to simplify for our UK customers, and I think make very clear to them that we are the one-stop shop for broadband, video and other services.

The big kahuna is our biggest -- best bundle and has pretty much everything in it. 150Mb and video, and from our perspective, I like the way Tom and Dana and the team are crafting these bundles to reinvigorate energy for our Virgin and our products and services and I feel we've got the horsepower behind them to really make a difference in the latter part of the year. Of course, the other piece is B2B, which as indicated in my comments, we think has had some tailwind if we keep doing what we're doing, which is focusing with this new management team on the right stuff. So, Tom, do want to address anything else there?

Thank you. To add to Mike's remarks, in particular about the new bundles which we are very positive about. They were rolled out to the base just in these last few days. And already we're getting positive interest from existing customers and they will be rolled out to new customers at the end of this month.

And another area, which I would mention, is B2B, we have -- we are in our turnaround story and we do see the commercial sector is having growth prospects going forward. So as Mike mentioned, it's a big business to turn around the momentum. So I wouldn't overstate the pace of what we do going forward but unquestionably, we will be better than this 1% number this quarter.

In terms of the tax decision, it's worth noting that the government changed the law in order to change the tax treatment. So the fact that the law was changed would lead us to believe that what we're doing in the past was consistent with the law, so therefore we would assure you this will not be an issue for us going forward in terms of retrospective adjustment.

Thank you. Mike, big picture, do you feel like OGI is starting to get more pricing power in markets besides the UK, especially given your distance that you're creating between yourself and your peers in regards to your data service?

Yes. I think, Jeff, a few things have happened. One, I just -- organizationally and philosophically, we have committed ourselves to maintaining discipline and taking advantage of opportunities to enforce pricing power. And that's a lot of words.

What I mean is, there's dozens of opportunities across products and services in all markets to ensure your pricing is right. So you'll find is talking more and more about small price increases here, price stability there, and to answer that first question around pricing power, I think is yes, philosophically, we're committed to.

And then secondly, there is no question in my mind that the strength of Horizon and 150 Mb bundles are putting farther and farther distance between us and our next best competitor. And that over time, our ability to command a premium for that value will solidify. So we feel good about it. Our ARPU per customer continues to grow. We're actually adding customers in many markets. So the days of negative ARPU and massive customer erosion, I think, are behind us.

Thanks, Mike.

James Ratcliffe, Buckingham Research Group.

Good morning. Thanks for taking the question. Two, if I could. First of all, following up on the UK, what inning are we in, in terms of capturing the synergies in that market, because it sounds like they would be flowing more towards the back half of the year, but have we turned the corner where this synergy starts significantly outstripping integration costs at this point? Secondly, with the Horizon footprint and also the TiVo footprint continue to expand, have you looked at electronic sell-through as an opportunity? And can you talk about what the potential might be on that front? Thanks.

Do want to start, Tom, on the synergy?

Sure. Our synergies and cost savings are clearly this number are significant benefits on the cost line. That's how the greater part of the OCF guidance is being delivered. But there is ongoing benefit going through the year. Already the business is operating with approximately 2,000 fewer people than was this time last year, across both inside the [businesses and outsourced].

We continue to drive efficiencies across the serve area, [truck long] to hold a range of things across the business. And then continued synergies with the rest of the Liberty Group. So we'll continue to draw that line and build margin. It's a very strong focus for the business.

Remember, we didn't expect to be at our full level of synergy realization until 2016. So still got a couple of years or more to develop the rest of them down. But I can tell you from my perspective, I'm impressed, and am extremely pleased with the pace of the integration work, the quality of the organizational approach to that integration work, and the general support that it's getting, not just at the senior levels of Virgin but throughout the organization.

So I'm encouraged by everything that's happened to date. As I look out at sell-through, we don't have a lot of activity on that front, but we do understand the sizzle and the excitement around that opportunity. I can tell you that it's something that currently looking at but today, has been a rather small piece of the puzzle, but could be exciting.

Thanks.

Matthew Harrigan, Wunderlich Securities.

Thank you. I guess also, maybe even further out there than EST, Comcast and EA are supposedly doing something for console level gaming through X1. I'm curious if you have the same capability on Horizon? I assume that you do; it seems like it's something that could be a decent ancillary business at some point.

I don't think this probably affects you all that much, but some of the discussion on what's happened on Facebook doing an outright voice service. I think you're very favorably positioned relative to some of your peers on that, and I suspect is just incidental, but I had questions about it and I'd love to get your thoughts on that.

Balan, do you want to address those two?

Sure. On the gaming part, we have a bunch of parlor games already but intense gaming, I think Comcast did that work with EA and X1 and you can look at the numbers there, but the numbers that we look at, we're not too terribly sure that, that is the right place to put intense gaming, multiplayer gaming on a set-top box. The way it's moving on gaming right now towards other devices, but we will continue to look at that area.

On voice service, our sense is that the impact there is actually quite minimal compared to what's happening to the mobile operators in all of these different applications. The smartphone has really turned it upside down for them in some of the core revenue streams that really don't impact us at this point.

Thank you.

Ben Swinburne, Morgan Stanley.

Thank you. Just sticking on the Virgin theme. Tom, yourselves and Sky both had good quarters on the subscriber front. And I'm just curious if you have any reaction to that, if that is a reflection of a strengthening UK economy, consumer, or just two companies sort of successfully executing.

And I just wanted to confirm, I think you answered this in James' question, but it sounds like you expect the synergies to continue to grow as in the actual cost savings are going to grow from the Q1 level through the rest of the year. I just wanted to confirm that, that was what you were indicating.

For the first question, we certainly noticed the Sky results being up, but I think the -- as has been observed before, I think cost is competition in this marketplace for the consumer and in -- I think that's generally a positive thing for growth, that all major operators are out there stimulating the market.

I think to take Sky back to its roots a little bit and really focus on its programming side, just as maybe we had gone back to our roots and really focused on being the broadband leader. Of course, we already rolled out the 152 Mb, twice what you can get off BT. So I think the competition and the bubbling in this market is a positive thing for growth.

Remember, there's still more than 25% of homes in the UK that don't have broadband. So there's upside for us. Just in getting new people on besides the competitive market. We gain people off TalkTalk and other operators as well. So the market can (technical difficulty).

On the cost side, I think your point is correct. We -- of course in the very, very early period with some very substantial one-off reductions in headcount took some very significant gains. But the objective is to increase sufficiency going forward. And I think there's some very good projects underway inside Virgin when Liberty acquired it. And in addition with the knowledge of Liberty, we've got more synergies going. And I think you'll see progressive synergy and efficiency running through the business, which will be very helpful to our margin.

Terrific. Thank you very much.

Frank Knowles, New Street Research.

I had one question just on some markets that are small and don't get that much attention. So there seems to be a bit of a slowdown in Ireland and maybe Austria. I just wondered if you could comment a little bit on those two territories, notably as Sky's launch of broadband in Ireland in sort of second half of last year had much of an impact on your business. And I did have just -- wondered if Bernie, if you could just clarify, you talked about the one-offs of $35 million? Could you break those down by country, possibly? Thank you.

Diederik, do you want to take the first one on Ireland and Austria?

Yes. I'd say starting with Ireland, Sky reacted to our strong position in the triple play with our first triple play of last year, where I think our retaliation with higher speeds and Horizon was a success. There is indeed a somewhat flattening of -- if you talk about the ease of just fishing in the bigger pond. But that was said, that was anticipated. And particularly Horizon is a huge success, which is the next step, also, still for this year. That is -- and we are now trying also the WiFi and piloting the WiFi, which means that although we don't expect any further negative trend or so whatsoever.

Austria, there's for Austria, we also have next steps for seeing (inaudible) the innovation and possibly an MVNO move also before the end of the year. So from that point of view, I'd say where Austria also has been a stable performer for most of the year as we don't see a change in the trend there.

I would simply say in both cases, they're adding steady net adds, if that's your focus. But in the case of Ireland, the 24,000 net adds in the quarter, that's one of our best in two years. So that country continues to amaze and astound us, really, in the last six or seven years and I feel -- I think we all feel really good about the launch of Horizon there, and its ability to an impact and effect the Sky competitive position and I wouldn't be -- I'm not worried about it at all. (multiple speakers)

I had one more comment on Austria, if I may, just to say -- this is Charlie here. But in Austria, there's [two businesses and the other business] we bought many years ago, which is DSL reseller and that has been a major drag on the business. If you look to the underlying cable assets, there's actually growing really, really nicely, 3%, 4% numbers.

So I think the particularly as the role of our [perfective] DSL business starts to reduce, I think you'll see underlying growth coming through there, perhaps not this year but certainly going forward, I would be more optimistic about Austria, which has performed reasonably well, if you take out the effect of this drag.

(multiple speakers) On the one-off side, three countries essentially; Germany was $11 million; Belgium, $17 million; and Poland, $7 million.

Very helpful. Thank you very much.

Carl Murdock-Smith, JPMorgan.

Thank you. Going back to the theme of Virgin Media. I was just wanting to ask on the television revenues. The pace has slowed from plus 9% in Q3 to plus 7% in Q4, now plus 0.4% from Q1. I started looking at the price increases year on year, the M+ and XL packages both had price increases in February but were higher than last year. In the L package was only slightly less. As such, what is the main driver of the revenue slowdown in that particular revenue line?

And then I'd also like to just ask about your quad play ambitions in the medium term. In the UK, we do appear to have hit some kind of level that's around 16% quad play penetration. Do you think the new packages you've just launched could help push that penetration upwards and what would be your medium-term ambition for quad play penetration, both in the UK and across the group more broadly? Thanks.

Do you want to take that up, Tom?

Thanks, Mike. Regarding the quad play question, it's absolutely. The whole point of the new packages is to really drive quad play. And to qualify for the SIM-only at GBP5 a month, which is obviously a very competitive price, you've got to be a triple play customer on the rest of the cable business. That's a true quad play offer. There are very, very early indications that our existing customers is proving attractive and of course, will be providing it highly on that basis. So we unquestionably will build that quad play ratio.

I won't mention today about where it will go. But I think the point being is that our mobile business, Virgin Mobile, which we found in entering the company is maybe a little bit distant from the core cable business. The whole point is integrate it and make it entirely supportive of the cable business and really, our whole point in taking the mobile business now is to focus on quad play customers and are not trying to build this independent (inaudible) much larger operators.

(multiple speakers) Just to the revenue point on rest of Europe, is the goal is to duplicate that strategy for the most part, mid-teens quad play penetration is good. We think it can be better. Of course, we're starting from a very low base in the rest of Europe. So any movement, say, 15% which I think we've exceeded a bit in Belgium but nowhere else, because we're just getting going, would be very positive for our revenue in that market.

I will tell you just anecdotally, that when and where we are selling quad play, the vast majority of our mobile sales, 90%-plus are to existing customers. So it is, as Tom said, the main focus to support and attract our current customers to our mobile products.

On the television revenue side, I think it's just worth noting that we put our price rise through in February but it has -- its mid-February on average. So you really won't see the full benefit of that until you get to the Q2.

I feel like a lot of people in this marketplace we are farming selling premium channels or more channels than it used to be in the past. A lot of that is to be here in this country is the price of football, which of course, has gotten very expensive. Still an essential product as far as we are concerned, but we've got to price it at a level where we are recovering the investment that we made in it. We are conscious of that and our new bundling tool. We will, as we would move forward with these new bundles, we think we can make the TV programming more accessible to customers and fundamentally work on the volume of it in terms of the way we package it. So I think we'll -- it's another issue that we will be addressing going forward.

That's great. Thank you.

Bryan Kraft, Evercore. Good morning.

Good morning. A couple questions. One, just wanted to see if you could quantify a couple of things related to business services. Specifically, can you talk about the capital investment you expect this year for it? How that compares to last year and also how much revenue outside of the UK you're generating from business services?

And then separately, I wanted to see if you could talk about the roadmap for Horizon on the hardware side. I know you mentioned the rollout in Poland is going to use the RDK version; just wanted to see if you could elaborate on that a bit. Thank you.

Sure. I'll take a crack at the beginning number but somebody please check the math. I think our aggregate [fees] would be revenue on an annualized basis is somewhere in the order of $1.7 billion, $1.8 billion. So Virgin would be our largest market; I think you're the about GBP600 million, so growth for that, so over half our B2B revenue is coming out of the UK. The rest of it would be coming out of Belgium, Holland, Austria, and other -- Switzerland and hopefully, increasingly over time Germany as well.

But the B2B picture outside of the UK looks a bit different than it does in the UK. In the UK it's about growing the main enterprise business and tangentially, driving a SoHo strategy whereas in the Continent, SoHo is the fastest-growing revenue stream. It's little less CapEx intensive, and there's a lot of low hanging fruit. So I know I'm not going to disclose the specific CapEx numbers. Rik, somebody tell me on B2B? I doubt we are. But that's the general revenue breakdown.

On the CapEx numbers, the percentage to revenue is much higher in the UK, given the fact that we are targeting the large enterprises, so you can imagine the number is slightly in the upper 30%; the rest of Continental Europe and one that's much lower as we target SoHo and now looking at small and medium enterprise.

We don't give guidance, but I would disclose this, that only UK, to be fair, a lot of the CapEx is prepaid for those of you who don't recognize that comes the cash point of view, the coverage ratio is more around that sort of central barrier.

So I think -- we think it's hardly [allocated in the periphery], but I think we feel with the business that we're focusing on, and really, in particular, focus on SME and Soho is very good growth and pretty good returns and pretty effective margins. And we are very comfortable with double-digit targets we've been giving out on that.

Balan, do you want to finish up with the Horizon question?

Yes, on Horizon, so started Horizon with a middleware from MDS and we've now evolved that and it's clearly migrating off after the R DK stack that we filed. we're working with Comcast and Time Warner Cable, as Mike indicated earlier, we will launch in Poland and then that version called [1DOC2] and then there will be another version of RDK that we're looking at for next year that even brings more functionality to the device and -- but that's -- it's a good path and it's a good cooperation between the cable entities.

The platforms like Horizon are [Index1]; they are the answer to the question, what is -- what are they going to do with online video and over-the-top services. Over time, with that UI and cloud, the ability to migrate it and evolve the UI and adopt and integrate new services, and applications is -- it gives me great confidence that we're going to -- we have bridged that gap that has been exposed by OTT.

And as with the DVR, when we adopt, even if we're second to the market with some great idea when we adopt it well and execute it well and reinvent ourselves with it, it's a very positive moment. I think we're wrapped here, guys.

So I'm going to close it off and say, one, we appreciate your support again, as always. We feel really good about the start to our year and I think you can sense that, 8% OCF growth is -- it bodes well for our guidance and I think you would appreciate it. I feel like we're in a great strategic position with the broadband speeds in Horizon and our mobile launches and our content strategies. I really feel confident that our competitive position, especially B2B telco as our primary competitors, is great.

Because innovation is going to continue and our speed will continue to ramp and our mobile products will hit them where it hurts, I've actually never felt more confident about our competitive posture. So appreciate your support again and look forward to talking to you at our second quarter. Thanks for joining us.

Ladies and gentlemen, this concludes Liberty Global's first quarter 2014 results conference call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.libertyglobal.com. There you can also find a copy of today's presentation materials. You may now disconnect.