Liberty Global Ltd (LBTYB) 2014 Q4 法說會逐字稿

Welcome to Liberty Global's 2014 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 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 a question-and-answer session. As a reminder, this investor call is being recorded on this date, February 13, 2015.

Page 2 of the slides details the Company's Safe Harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements.

These risks include those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-K. 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.

Thanks, operator, and welcome everybody. We appreciate you joining the call today. We have a number of folks from management on here, too many to introduce right now but I will introduce them as they speak.

And as a reminder, we do work from slides and I hope you can grab those from our website. I'm going to kick it off on slide 4 which provides highlights of the quarter and full-year and I'll start with the numbers. Because they support, better than anything, the most important part of our story and that's growth.

We had another very strong year in subscriber additions, 1.3 million new RGUs. And not surprisingly, most of that growth is coming from broadband, but investment in our video and internet platforms are also paying off, with digital penetration, now up to 68% and our lowest level of video offers since 2006.

That volume, together with our pricing initiatives, drove rebased revenue growth up 3% and rebate OCF growth up 5.5% for the full year, Generating $18.2 billion of revenue, $8.5 billion of operating cash flow and adjusted free cash flow of $2.1 billion, that's up 18% and all of those numbers are on or ahead of our guidance.

Hoping by now it's clear that increase scale is really working for us. And we'll continue to generate returns for several years as a result of our consolidation of Holland, and the Ziggo merger, the combination of our Swiss and Austrian operations, and of course, the substantial value creation on the [way] of Virgin Media.

Speaking of urgent, hopefully you all saw the announcement today about Project Lightning, which will grow Virgin Media's footprint by 30% to over to two-thirds of UK households within the next five years. I've got an entire slide dedicated to it, so be patient. I promise we're going to provide plenty of detail.

Bottom line though is that it's an incredible opportunity; one that's financially accretive, strategically smart, and readily financeable. I'll also update you on Horizon in a moment, our next-gen video platform, which just reached one million subscribers and has helped us create happier and stickier customers and also new product innovations like Horizon Go app, which is now available in eight countries.

Our mobile business is healthy and growing. We had 500,000 postpaid subs and grew revenue 8% to $1.3 billion and of course, we announced our plan to create a tracking stock for our Latin American business, which we call LiLAC. As shareholders are meeting to vote on this proposals on Feb. 24 and I'll reiterate the rationality in just a moment for those who haven't yet voted, which is most of you.

As in prior quarters and prior years, our balance sheet is in great shape and geared to drive our levered equity strategy. At year end, we had $5.2 billion of liquid, including $1.2 billion of cash and adjusted leverage of 4.9 times. We continue to derisk the capital structure, with 94% of our debt fixed, all currency exposures hedged, and over 90% of our debt due in 2020 and beyond.

And then finally on slide 4, we announced today a further $2 billion increase in our buyback program, which brings a total current commitment for 2015 and 2016 to around $4 billion. Together with a $1.6 billion purchase last year, and the $10 billion we purchased between 2005 and 2013, when this latest program is done, we will have bought back nearly $16 billion of stock since we formed the Company.

And now let me dive into a bit more detail on our operating results. Starting on slide 5, where we show our broadband and media performance. I'll start with broadband on the left-hand side of the slide which clearly shows how steady our growth has been in this product.

Over the last three years, we've added around 900,000 broadband customers every year and a total of 4.1 million over the last five years. That success is a function of our superior networks and broadband speed, which our competitors simply can't deliver.

Our average European customer today are getting 70 megabits a second and consuming 70 gigabits per month and those numbers are up 40% to 50% year over year. On the bottom left, you'll see our top broadband speeds in each of our five biggest markets in red and how that compared to two years ago. Essentially all of our operations offer 150 megabit to 250 megabit products today and we are actually selling a 500 megabit product in three countries.

In Western Europe, we're currently winning three broadband subs for every one DSL sub the Company is adding on a combined basis, even though we reached less than 100% of the homes. On the video front, we're completely reinventing the entertainment experience for our customers with Horizon on the continent and Tivo in the UK. Today, one in four of our digital TV subs has access to an advanced TV platform and that number is ramping quickly. But particularly happy with our Horizon platform, which has now crossed the one million subscriber mark.

Like X1 here in the States, Horizon is the single best user experience in the market and all of our statistics support that. We launched the Horizon Go app in eight countries and in markets like Holland, 20% of our customers are already watching TV on their smartphones, tablets, or laptops. MyPrime, which we've talked, about is our own OTC product that competes with Netflix but it's actually bundled into our high-end packages for free and subscribers love it.

We're getting nearly 40% usage in the MyPrime app, both on the TV and on other devices in Holland and Switzerland and that app features thousands of movies, hit series, and kids programs. All of this innovation and investment in the best TV experience is paying off. We estimate that an average Horizon customer generates 20% more ARPU and ensures 15% less than a traditional digital customer. And as the slide indicates, total video losses as a percentage of the base have declined from 2.5%, roughly five years ago, to just 1% today.

Two other areas of our business that are, of course, generating faster top line growth today are mobile and B2B, which we talk about a bit on slide 6. As I mentioned a moment ago, with 4.5 million mobile subs today, 80% of which are postpaid, we generated $1.3 billion of revenue last year and grew 8%.

We believe, as I've said before Europe is a quad-play market and we've now launched mobile in nine countries. Telenet and Virgin are already plus or minus 20% quad-play penetration and we see no reason why we can't reach those sorts of levels or higher in other markets. All of our MVNO deals already provide or allow us to get to 4G services, which we know it drives mobile day usage. And with our fixed networks, we're ideally set up to offload that traffic for better economics.

On the B2B front, we finished 2014 with $1.7 billion of revenue, up 7% and growth here was driven by a well-executed turnaround in the UK, disciplined investment in the wholesale and enterprise segments, and revenue growth in our European-wide SOHO business, well over 25%. And the plan looks just as good from here in my opinion. We expect to benefit from scale economics in markets like Holland. And while we're doing well in the SOHO segment, we're still underpenetrated. SOHO market share is going to grow because we focused on the new services like Wi-Fi and cloud. We're focused on typically bundles, top class support and appealing price points.

Now I'm going to turn to slide 7 and I'd like to spend just a couple of minutes on LiLAC, which is our Latin American tracking stock. Of course, we're going to put that to a shareholder vote on February 24. On the British PLC, all classes of stock have a chance to weigh in on what we think will be a good deal for our investors.

You know we operate two of the largest and most advanced cable assets in the region, that together, pass around four million homes, serve 3.2 million people in RGUs, and generated $48 million of operating cash flow, which grew at least 16% last year. So we think there's a significant opportunity to expand in this region where broadband penetration is just 25% and 6 out of 10 homes don't have pay-TV.

We believe the tracking stock is the right way to do it and will benefit shareholders in several ways. First, we'll give investors choice by creating a pure-play stock for Latin America and allowing shareholders to decide where they want to invest. By the way, as most of you know, there are very few listed Latin American pay-TV companies so LiLAC will be a unique asset from that perspective.

In addition to the organic growth we see in Chile and Puerto Rico, we're pretty certain that our M&A experience, in 20-plus years in the region, will create some very interesting consolidation opportunities that make get lost as part of the bigger group. Thirdly, the tracking structure allows us to retain the advantages of scale by sharing management expertise, technology innovation and purchasing power across the broader group.

Why this is something new for British PLCs, many of you would have direct experience in the value creation benefits of attracting stock at Liberty shareholders over the years so it goes without saying that we would appreciate your support in voting for the tracker and we're happy to get on the phone with any of you, and to answer questions that you may have.

Let me spend a few minutes on our announcement today in the UK. After considerable research, field trials, lots of planning, we're going to launch the largest, and we believe, the most attractive broadband investment in the UK in over a decade. Over the next five years, Project Lightning, which is what we call it, will extend the Virgin Media's reach by 30% in nearly 17 million homes, or almost two-thirds of the UK households.

As many of you know, Virgin Media's network has grown through consolidation, mostly of various cable companies over time, which has left a patchwork of unserved homes right around the corner, so to speak. In fact, we've identified four million premises that are within 50 meters of our existing infrastructure, with two-thirds of those actually just 20 meters from the current network.

These close proximity of these premises, combined with lower bill cost today, means that the value creation opportunities here is very, very attractive. Total project will cost around GBP3 million and will be predominantly debt-financed, with minimal equity required since it's largely self-financing and based on the rapid take of the new services that we're planning.

It's also important to point out that investments going to be modular, so it can be stopped if we're not generating the expected levels of demand or if construction costs are higher than we anticipated. Our initial instinct is that Virgin's best-in-class broadband and quad-play bundles will allow us to replicate a 40% penetration and roughly GBP50 ARPU we're currently generating in our footprint. To support that, we will be taking a sales-led approach, which means we will prioritize the bill based on demand.

Why are we so confident? Well, we been running field trials in Glasgow and Teesside that reached 10,000 homes. We've already achieved penetration of 23% and customer ARPUs of GBP48 in the first six months. And that GBP48 number is actually higher than the GBP45 initial ARPU we modeled in the plan.

You don't have to do too much math to conclude that this program will generate highly accretive returns and drive meaningful benefits to our revenue and cash flow beginning in around 2017. We believe we can ultimately generate up to GBP1 billion of incremental revenue, with OCF contribution margins of 60%-plus by 2020 when the project is moving at full speed. And to top it off, we [issue] unlimited take up to B2B which will obviously benefit from the expanded footprint to represent upside to the base case.

Lastly, it's our expectations the project will be predominantly debt-financed in the short term and longer-term using internally generated cash flow. And we'll have essentially no impact whatsoever on committed buyback plans. I'm sure there's going to be a lot of questions on this and we're prepared to answer them. This is a really exciting moment for Virgin Media and for us.

Let me wrap it up with a quick overview of our strategic priorities and our guidance on slide 9. I think this is a good visual. If you don't have it in front of you might grab it, but I'm going to speak to it in very general terms and ask you to think about our consumer business in three layers. It starts by providing our customers with superior and ultimately, ubiquitous connectivity.

Whether you're plugged into our lightning fast broadband networks or roaming on our 4G mobile platform or linked to one of our five million Wi-Fi hotspots, which will actually be 10 million by the end of the year; you are always connected to us and with innovations like DOCSIS 3.1, which will take us to one gigabit speeds and beyond. We will always provide you the fastest and most reliable experience available and that is the foundation of our business.

You then layer on top of that the most powerful and beautiful user experience, which we call it, Horizon, and you make it available on all devices wherever you are. And then you ensure that it's cloud-based software-driven, and ultimately, very, very scalable. Then you populate that platform with all the apps and all the content you could ever want including: national broadcast networks; replay catch-up TV from the best channels; thousands of series and movies available on-demand, most of it free; recommendation and search engines and popular apps, like YouTube and Facebook. With that plug-and-play proposition, which we're implementing right now, we're confident that we can continue to achieve steady subscriber growth, but also importantly, maybe more importantly, pricing power.

In just this year, we've already implemented 3% to 6% price increases across our major markets without disruption, [where] consumers can see the benefits of our network investments, our platform innovations, and our product offerings. Then you add on top of that two other accelerators, first, a B2B business which is growing faster than our consumer business after a new focus on SOHO, and some new opportunities and scale benefits from larger and larger footprints.

And a built-in synergy plan that should result in additional $500 million in annual cash flow benefits over the next few years, on top of what's already been realized from the integration of Virgin Media, and what we're expecting from the consolidation of Ziggo and the combination of our Swiss and Austrian operations. When you put all that together, we are confident of our guidance targets for 2015 just as we were last year. And those targets include mid-single-digit OCF growth and mid-teens adjusted free cash flow growth to $2.5 million.

So good news in all fronts in my view: growth is strong, our product leadership is actually improving over time, synergies are kicking in and even with an exciting new build project in the UK, we remain committed to driving value for you, for shareholders, with our capital structure and $4 billion of pending stock buybacks over the next two years.

With that, I'll turn it to you, Bernie.

Thanks, Mike. A quick note before I start with my presentation. When we refer to our year-to-date 2013 combined results in this presentation, they include Virgin Media for that full period, even though we did not own Virgin Media prior to June 8 of 2013, and our 2014 results include approximately seven weeks of Ziggo.

On slide 11, we present our reported and rebased revenue and OCF results for the 2014 period. For the year ended December 31, 2014, we reported $18.2 billion of revenue that's compared to $17.3 billion of combined revenue for the prior year period. Adjusting for the impacts of FX and acquisitions, we posted 3% rebased revenue growth in 2014.

Our European operations delivered $17 billion of revenue in 2014, with rebased growth of 3%, which is presented in more detail on the next slide. Our Latin American operations reported $1.2 billion in revenue, or 4% rebased revenue growth.

Moving to the right side of the page, we reported $8.5 billion of OCF in 2014, representing 5.5% rebased growth and our best growth rate in three years. Our European operations delivered $8.3 billion of OCF in 2014, or 5% rebased growth, while our Latin American operations posted $480 million, or 16% rebased growth, the latter helped by a lower wireless deficit in Chile and OneLink synergies in Puerto Rico.

Regarding our overall OCF margin, a mixture of cost controls and integration synergies, mainly related to our Virgin Media acquisition, helped drive 110 basis point year-over-year OCF margin improvement to 46.7% in 2014 and with the exception of the Netherlands, our OCF margins expanded in all of our operations in 2014.

On slide 12, we take a deeper dive into the 2014 financial performance of our big five markets that represent over 80% of our total revenue. That figure excludes revenue from Ireland and Austria, which will be integrated into our UK and Swiss operations, respectively.

Unitymedia in Germany delivered rebased revenue growth of 6% and rebased OCF growth of 9% in 2014. Our year-over-year growth was primarily due to continued volume in ARPU growth, adding over 500,000 at RGUs and increasing ARPU per customer by 6% during 2014. Telenet in the top middle of this chart posted rebased revenue and OCF of 4% and 7%, respectively. These results were driven by the success of its Whop and Whoppa and Triple-Play bundles and continued mobile postpaid additions during the year.

Our Swiss operation reported 5% rebased growth for both revenue and OCF. UPC Cablecom delivered its best annual revenue performance of 2008, supported by its strong underlying broadband services and continued ARPU growth. Annual OCF growth in Switzerland kept pace with revenue growth, despite higher costs in Q4 associated with the integration of our Swiss and Austrian operations and office relocation expenses.

Moving to the bottom row, our UK operation reported 3% rebased revenue and the 7% rebased OCF growth for the full year. This was driven by Virgin Media's 4% rebased growth and cable subscription and mobile subscription and B2B rebased growth of 9% and 5%, respectively.

This growth was partially offset by lower interconnect revenue and reductions on our non-cable/DSL reseller business, which we're in the process of disposing. Virgin Media's full-year rebased OCF growth was 7% benefited from a strong Q4 performance, with 11% rebased growth. The full-year results were driven by topline growth and faster than expected synergy realization.

In the Netherlands, the market dynamics continued to be very competitive and has led to 1% declines in both rebased revenue and OCF during 2014. 2014 results were a significant improvement from the declines in rebased revenue and OCF of 2% and 5%, respectively, that we reported in 2013.

Slide 13 focuses on our property and equipment additions and adjusted free cash flow. Our P&E additions, as a percentage of revenue, showed a slight decline in 2014, as compared to our combined results in 2013 and in line with our 2014 guidance. For 2014, we reported P&E additions of $3.9 billion, or 21.4% of revenue, as compared to $3.8 billion of combined P&E additions, or 21.8% of revenue in 2013.

For 2015, we anticipate our capital intensity to range from 21% to 23%, including the initial expenditures associated with Project Lightning in the UK. Assuming the full completion of this four million home buildout plan, our expectation is that we will stay within this range over the five-year life of the project.

Turning to our adjusted free cash flow performance, as Mike highlighted, we exceeded our adjusted free cash flow guidance and delivering $2.1 billion in 2014 without Ziggo and $2.2 billion including Ziggo for the last seven weeks of the year. Excluding Ziggo, this is an 18% increase on a combined basis compared to 2013, supported by strong organic OCF growth and favorable net working capital movements.

As Mike said, we expect to deliver $2.5 billion of free cash flow in 2015, which represents mid-teens growth on an FX neutral basis when compared to our 2014 adjusted free cash flow, as adjusted to include Ziggo and the impacts of its new capital structure for all of 2014.

Slide 14 shows our leverage and the status of our share repurchase program. We finished 2014 with total debt of $46.2 billion, up $5 billion from Q3, primarily as a result of the Ziggo acquisition. When normalizing our OCF to take into account a full quarter of Ziggo, our gross and net leverage ratio stood at 4.9 times and 4.8 times, respectively. We continue to take advantage of attractive capital markets and refinanced $3.5 billion of debt in Q4 2014 at lower rates.

With these transactions, our maturity profile and cost of borrowing continued to improve, as we now have an average 10 or more than seven years, while our fully swapped borrowing costs decreased 60 basis points year over year and now is at 6%. At year end, our consolidated liquidity stood at $5.2 billion, consisting of $1.2 billion of cash and $4 billion of aggregate borrowing capacity under our credit facilities.

Subsequent to December 31, we began reorganizing our credit pools through the extraction of UPC Netherlands and UPC Ireland from our UPC credit pool. In February, transferred UPC Ireland to our Virgin Media credit pool and in March, we expect to combine UPC Netherlands with Ziggo to form a regional credit pool in the Netherlands. We believe these regional credit pools will be attractive for investors and will allow us to operate the combined businesses more efficiently.

In terms of share repurchases, we completed $1.6 billion in share buybacks during the year. This includes $644 million that we repurchased once we were able to resume our repurchase program after our November 11 acquisition of Ziggo.

We look forward to repurchasing the remaining $1.9 billion in equity that's left on our original $4.5 billion repurchase program and our Board approved another $2 billion that we plan to repurchase through 2016, which would bring our total buybacks to $16 billion since the Company was formed in 2005.

In summary, we are very pleased with our 2014 results and subscriber growth was strong, supported by our innovation engine and our superior broadband network. We feel confident about our growth prospects heading into 2015, given our current operating momentum, recent price increases, and the synergies we expect to realize, in particular, from the Ziggo integration, as it begins to hit full stride.

At the same time, we look forward to repurchasing close to $4 billion of incremental equity through 2016 and lastly, we appreciate your support in the upcoming vote on our LiLAC tracker.

And with that, operator, please open it up for questions.

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

(Operator Instructions)

Tim Boddy, Goldman Sachs. Hearing no response, we'll go to Ben Swinburne, Morgan Stanley.

Can you hear me now?

Got you.

Okay. Thanks. Good morning. Mike, can you talk a little bit more about the Project Lightning plans? I guess two big questions. What are you assuming the competitive responses, if any, from BT in your 40% penetration target in three years. That's a pretty impressive ramp; obviously, the trials have gone really well.

And then, I'm curious, can you talk a little bit more about the B2B assumption? Because when I look at the ARPU in the $4 million premises, it would seem like that's an enormous opportunity that I think you're leaving out of the base case at this point but maybe you could shed some more light on that as well?

Yes. Well, I'll address some of those quickly and I think Tom's on the line too. You're right about the B2B, start with that, I think we've taken a conservative approach in planning the business and so we don't have any B2B revenue associated with this plan today. And the GBP50 ARPU and GBP50 growing to GBP50 over time does not include any B2B -- that's all consumer ARPU and consistent with what we're generating elsewhere in the UK. So you're right about that.

That's point one. In terms of the competitive response, we've asked that question and Tom can provide color to it. We do expect, of course, a competitive response but the UK is already a very competitive market and we've achieved in these trials really, breaks that -- we exceeded our own expectations in terms of our ability to satisfy what is a strong demand for broadband speed, meaning we're going to be launching with 150 megabits. We can go higher than that. We'll have 3.1, so it's pretty successful so far in the trials and of course, as I mentioned, it'll be a demand-led build, so we'll have an opportunity to pre-sell and know ahead of time what our competitors' response might be when we enter into certain areas.

So we feel pretty good about it, our ability to offer sort of a promotional opportunities for consumers as we build out and to get build excitement around the extension; we think is quite high. So sure there will be a competitive response and there's lots of moving parts in the UK market which we can talk about but we think the 40% is achievable, especially based on trials. Do you want to add anything to that, Tom? I don't know if you're on or not. I think you are.

Yes, Mike, thank you. I'm here in Birmingham with Charlie Bracken and, in fact, we just had the Prime Minister here meeting our apprentices and some of the other workers to mark this announcement and he's been very supportive. And we're obviously pleased for that, and of course, that does help us with our publicity. We've already had an enormous response today the Cable My Street portal has already opened.

We've had over one million people already view social media references to the project and we're very pleased with what is, admittedly, I mean (inaudible). But the point I'd make is that we consistently beat our combined competitors comprehensively in homes where we have cable today. We generally have a 50% market share, or 40% penetration in the homes where we have cable today.

And we've shown through these trials, which were in two areas, Teesside and Glasgow, which are not particularly prospective for us. Not saying they're bad areas but they certainly were not sweet spots that we can go out -- we've already built that to 23% and we have a high degree of confidence with good effort, good execution, that we can market, sell, and install these customers. And then with this much better improved churn rate, retain those customers.

Thanks for all the color.

Tim Boddy, Goldman Sachs.

Yes. Thanks. Can you hear me now?

Got you.

Great. I was just going to say, it's obviously very exciting that the size of the opportunity in the UK is as large as you laid out and perhaps larger than I thought. I think the -- I guess it would be helpful to understand what the near-term impact from free cash flow could be going into 2016. It sounds like your 2015 guidance fully bakes this in already. But if you have a sense of this is a cadence of cost through the project, you mentioned, I think already 2017 as a point of getting to free cash flow breakeven.

I also wondered, in terms of things that aren't in the base case that should be quite a big benefit to churn across the existing customer base because I know at the moment, as much as half of the churn at Virgin Media, if I recall correctly, is coming from movers who obviously move outside the footprint.

And then just as a brief follow-up, I just wanted to ask a little about Germany, where it looks like you settled the case over KBW. If you could comment on that and if that opens up [scope] for consolidation in that market?

Sure. I'll work backwards and I'll let Tom also chime in on the UK questions. In Germany, we did settle the case. That had been ongoing for quite some time with respect to the KBW acquisition. I think that's really good news for everybody involved. The deal that we had ultimately struck with Deutsche Telekom was a straight gain in essence.

We look at that, honestly, as a very small and marginal increase in the purchase price, around 5%, let's say, for a business that we believe we paid in the sevens, for on a multiple basis, and which has overperformed considerably from the acquisition case. So, while we would have preferred a better outcome through the courts, we realized it would take some time and was not certain and that a resolution of this issue was in the best interest of everybody. So we're quite pleased with that and it's not material for a business that has way overperformed their expectations, seemed like a smart thing for us to do.

I want to make one comment about the project, which may or may not have been clear from either my remarks or the press release, you -- it was embedded in your question though, which is this happens over time, of course, and while we're not giving you year-by-year estimates, certainly there is a little bit built into 2015, no question. I'd say less than 10%. Maybe over the following three years, roughly a third and a lot of it is back-ended, which is conservative on our part.

And that's what you'd expect us to do it but the point I'm making is as these homes roll-on, there will be cash flow generated from those homes. So the GBP3 billion figure is really a headline figure that includes in there, roughly GBP2.4 billion, for the planning and the construction of the network, so approximately GBP625-plus per home and then additional monies for CPE and line drops and all the other things associated with connecting customers, if you will.

So some of that GBP3 billion is variable and the whole project, of course, is both variable and scalable based on demand. So the point is that while it's a GBP3 billion headline price, we expect to generate meaningful cash flows through the course of the project. And we expect to use those cash flows to finance that investment over time.

And so the net investment to us is obviously, smaller than that which is why we're confident in saying that the IRRs on this type of project are considerable, probably unlevered in the mid-30%s, and that this is a really good use of both resources and time for Virgin and for us. The - that's what I'll say about the cash flows and you can do your own math about the impact on free cash, it shouldn't be that difficult to do. Do you want to talk about the churn benefits, Tom?

Yes. I would add the point that in projecting the (inaudible) same case we have, I think quite reasonably assumed a continued improvement in the churn rate. Specifically, because this is a infill program where we are building into these urban centers and towns and cities across the United Kingdom where we have existing network but haven't built out. A classic example is here in Birmingham, where we have roughly 70% coverage today, and as you say, when people move, they generally tend to move across city. And you have a much smaller proportion of people moving further afield and this gives us opportunity to entirely capture that we have an excellent retention rate, well under the 90% for someone moving when they're moving on to our network. Obviously, if they move off that, we have zero. So there's a distinct benefit from that, and in any case, we've had a very good year for churn for 2014. I think there's been a lot of attention on the business, a lot of detail, a lot of macro issues, a lot across the board have improved that number, it's still too high. We'll get that down irrespective.

Thanks for the color. Just a very brief follow-up, Mike. If I've understood you correctly, are you reiterating your mid-teens free cash flow objective over the medium-term despite the projects?

We're certainly projecting that for this year -- it's premature to give you any mid-term guidance on that but we're pretty comfortable with where we are today.

Thanks so much.

I'd like to say just a couple of words. Just to talk about the financing bit. Essentially if you look at the slide on pages of Mike's materials, what you'll see is essentially we get to the kind of more or less our target penetration within the next three years. With our working capital management program, which we've been using very extensively and successfully to the benefit of our sound suppliers.

What it effectively means is I should be able to 100% debt-finance the cash flow with the cost of this through the cash reserves, so we effectively forward buying in two years' time, 5 times multiple cash flow. That's why it's not material to our leverage and won't change our leverage targets. And depending on the phasing, it may affect our free cash flow, but as Mike said, it's a very attractive percent, mid-30%s unlevered IRR, as you can guess from this, but the leverage affects very, very high IRRs.

Just to expand on that, Tim, if we ended up exceeding our expectations of penetration rates in ARPU, we might accelerate the build. If we felt like we needed to do a better job of marketing, et cetera, we might back end the bill. So it's hard to say today exactly what the impact will be except that you can rest assured we'll manage that as you'd expect us to manage that to optimize our results.

Thank you.

(multiple speakers) Our buyback target, it [will] affect our commitment to buying back stock.

James Ratcliffe, Buckingham Research Group.

Thank you for the question. A couple if I could. First of all, do you have a read on what portion of those formulate in incremental homes are virtual mobile customers today and would be presumably a little easier to target? And secondly, one housekeeping. Just to clarify the $2.5 billion adjusted free cash flow for 2015 doesn't include any CapEx related to this project.

And I guess third, are you making assumptions in your free cash flow guide for 2015 on further refinancing of debt and just a general read, I think Charlie said it, if you could refi it all today, bring the rate down below 5%, how much of that is achievable and what's our timeframe? Thanks.

Yes. Well, the easy answer is yes, the $2.5 billion free cash flow estimate does include 2015 expenditures against this project. And we make some modest assumptions about refi year to year but I would say they're not substantial. So every year we end up exceeding our expectations on our ability to refinance, extend, and lower the cost of our debt. So I would say whatever assumptions are in there are modest, if any.

Do want to talk about the Virgin Mobile impact, Tom? I'm pretty sure it's low but go ahead and respond.

Yes. I'm going -- we relatively, I would certainly be less than 20% but say more than 10%. We are just putting in a new IP stack on the crossover next month which will allow us to cross-index the cable customer database and the mobile customer database much more effectively and clearly as these homes are build out and [passed], it gives us some more opportunity to double market to these people. And of course at the moment, we are quad-play marketing as positively as we can and we found the quad-play customer change in the rate 5% annual, so much better customer for us.

Great. Thank you.

Jeff Wlodarczak, Pivotal Research Group. We're having some technical difficulties. It will be just one moment.

(Operator Instructions)

Jeff Wlodarczak, Pivotal Research Group.

Can you hear me?

Got you.

All right. Excellent. For Tom, you had an extremely strong quarter in the UK in regards to RGUs and that11% rebased EBITDA growth. Can you provide more color on what drove that result and the sustainability of the factors that drove that growth? And then I have a follow-up.

Sure. To be direct, it was an across the board performance. In consumer cable, we benefited from what seems to be in the UK, a back-ended market structure where we had a strong Q3 guide and we built on that in Q4. The gains we had in Q3 were at the back-end of the quarter so that gave a full-quarter benefit and we had the lower churn rate, obviously contributing to connect growth.

We had the benefit of that turnaround in business, that Mike referred to earlier, that's been a process building through the year. And in mobile, we continually built that business through the year and there's a back story there just integrating the mobile business better to the cable business, which frankly, Virgin Media hadn't done before.

And behind that, there's been a consistent story of cost savings. We finished the year, total costs are down year on year, 2014 on 2013, and that has involved some headcount reductions. We're running roughly 3,000 people below where we were when Liberty ended the business and that's been about efficiencies across the business. So it was a whole range of factors and very pleased to bring that result in.

Great. And then on the Netherlands, is it fair to say that KPN got more aggressive around the close as the Ziggo deal, taking advantage of the transition period to UPC? Where are you doing to reverse those trends? And if you can shed any light on any dissynergies we should expect in the Netherlands and how long we should expect those dissynergies before the synergies kick in?

Yes. I'll take a crack at that. I don't know if Diederik is on. I'll let him build on that as well. Yes. I think if you listen to the KPN call, you would have heard the CEO say that they remain commercially aggressive in the fourth quarter, and they had not a bad quarter, actually, in terms of their subscribers also but they continue to have relatively dismal financial results. I think he -- it was unclear because we don't know what they are thinking or what they are doing.

It could be that they were intending to take advantage of the fact that we hadn't really closed the deal much or had it really closed the deal at all and it would take us time to get the real merger and the rebranding done. We do expect by April to have the entire country rebranded to harmonize product offers, to get Horizon rolled out and things of that nature.

So we never planned on having this thing start achieving scale benefits we estimated overnight. It takes time to do that. So who knows what they're thinking? But we do expect over the long run, that the market will rationalize. We've said that and generally, we've been right about those things in the past and we feel very good regardless of what KPN does about our ability to roll out the triple-play bundle. We've now gotten mobile launched. We've got superior speeds. We've got the best TV product; MyPrime in Holland is killing it.

So we feel pretty good about the new Ziggo and its ability to scale across Holland as well as in the B2B space which we've been conservative about thus far. In terms of the timing and synergies, we haven't been that specific. I'll let Rick correct me, but I do believe by -- over a three-year time frame, generally, is what we estimate for the EUR240 million of synergies which is up from EUR150 million when we announced the deal.

And of course, there are some dissynergies in the early years but they're not substantial. So I think it's a thing to focus on is the outyears and we think EUR240 million on top of a consolidated cash flow, that's pretty substantial. Is the right number and the timing is probably not that different than what you've seen in other mergers, Jeff, for us.

All right. Great. Thanks, Mike.

VJ Singh, Evercore ISI.

Thank you. This is David Joyce for VJ. We were wondering about the new Premier League rights that BT and BSkyB bought and what was the impact to your business and then secondly, there have been press reports that perhaps Orange is interested in Telenet. I'm just wondering how strategic that asset is? Thank you.

I didn't hear the second question on Telenet clearly. There is an echo. Maybe somebody needs to switch a phone but can you repeat the Telenet question?

There have been press reports that Orange perhaps is interested in Telenet. We were wondering how strategic that asset is? Yes. We had no conversations with anybody at Orange about Telenet and as one of our largest operations, which is continues to perform extremely well and is in a strong market position, it's unlikely we would be exiting that marketplace. So I don't know where that rumor started or what it's based upon. Tom, do you want to address the first question?

Yes. Look, clearly, the football auction result ended up with a 70% increase, a very significant increase. From our point of view, we, by the majority of the football via Sky and our agreement with them is that we're indexed to the retail price so to the extent that Sky contain the increases in its retail price and remember they're valid components in the retail price because we buy these sports package and other sports and for production costs and the like.

So historically, the headline price and the rights cost over a period of time might have been equivalent to half the increase in the retail price over the three-year deal and if Sky, as it said, absorbs some of this within the cost structure, then we will also benefit from that absorption.

So we believe are from a retail point of view, we are reasonably secure but having said that, it's still a big increase. In terms of BT, we have optionality. We don't have any long-term commitment to BT and for the packages they got, we can a discussion with them and make a determination whether we take it or not.

But we do have a deal with BT through mid-2016 on current terms, I believe so we have access to the existing BT product whatever they might do to it in the meantime. Through mid-2016 and beyond that, as Tom says, there's no commitment and no agreement.

Thanks. And if I could just a little bit more on the UK build outs, I saw the chart of your trial and penetration experience. What sort of penetration do you need for the fill-in strategy to be self-funding? And within what kind of timeframe?

Well, I'm not sure we're providing that amount of detail but I think you could run the numbers yourself pretty easily if you just apply an ARPU figure and a contribution margin. You ought to be able to get to that math but I think it's not a good idea for us to start getting into interim period or incremental math for you.

All right. Thank you very much.

Matthew Harrigan, Wunderlich Securities.

Thank you. Since you don't have enough projects going, if you're actually able to get the type of IRRs that Charlie alluded to in the UK, how would you conceptualize the comparable opportunity in Germany. I mean, the plan is probably not quite in the same crazy quilt pattern. I know you're not going to go into areas of Eastern Germany but it seems like there's an opportunity there as well if you can really bootstrap this long.

And then secondly, when people look at these new builds, I think people say well, now it's economic, basically, let's just to fiber or look at wireless drops. I know that because the plant these areas are in, are areas we already have plants, you're probably going to stay with the current topology and not going to do too much in terms of how you vary things.

But is there any change in the network approach or any innovation in the margin or are you quite content to run with DOCSIS 3.1 and the success you're having with your current plan in the new areas? Thank you.

Well, I think the short answer to the second question, Matt, is it is an evolution of the current infrastructure as opposed to a wholesale change in the current infrastructure so fiber will be deeper, in many cases, right to the premise. But we do think that DOCSIS 3.1 and the advantages of that will be substantial across that footprint.

And so, as you can, as I think I mentioned in my remarks, when we model out the build cost, it's certainly less than it was several years ago primarily because of technology development and you should expect that these four million homes will be in less expensive and more effective than had we done-- if we had done this a couple, three years ago.

There won't be any copper built into the networks so remember the current topology or structure of the UK infrastructure is both -- it's an overlay. There will be no copper. It will be largely fiber, utilizing more or less the same technologies we have today and in terms of other markets is a good question.

We as you can imagine are evaluating whether or not there is a Project Lightning opportunity in other countries but we'll be careful about that and will be smart about that and as we have been with this one. If we get to something, will make it clear as to when and how and why and we will hold ourselves to similarly high return expectations.

And the ability to finance and very effectively and accretively use our balance sheet to grow out and build out additional footprint but that is a good question and we may do that in other places but right now we've got our hands full, as you say.

That's great. Thanks, Mike.

Amy Yong, Macquarie.

Thanks. Two questions. One quick housekeeping one. Assuming the LiLAC goes through, can you just talk about the timing around the tracking stack? How quickly can it -- can we expect this transaction to be done? And my second question is just on the Project Lightning. You ended 2014 growing VMed at 3% and 7% revenue OCF; how do we think about the growth rates kind of mid to longer-term heading into 2017? Thanks.

Well, we're not going to give you, unfortunately, as we never have done longer-term growth forecast but I would say and Tom can provide some color, we are encouraged by the performance of Virgin Media. It has, if you look at this year, over the four quarters, they have driven OCF growth from 5% to high 5% to 6%s to 11% in the fourth quarter. Now will that be achievable every quarter? Of course not.

But the trend is one that we feel very strongly about and their ability to realize the synergies that we forecast, in fact, exceed this industry's forecast as well as layer in new projects and new opportunities like this should bode well for growth going forward.

But we're not going to give medium-term growth forecast and the LiLAC tracker, I believe, I hope Bernie is on but I'm pretty sure it's not that far after the vote so second quarter, early second quarter we would expect a (multiple speakers) --

Yes. Hi, Mike. This is Bernie. When approved, it goes effective or the shares distributed on the 1st of April.

That's what I said, early second quarter. So it happens relatively quickly after the vote and we're hopeful that, that gets done. I mean, we understand that it's not that common among British PLCs but it is quite common here and has been quite successful and we encourage you to both look at our documents and compare them to other documents that you've seen on tracking stocks.

They're very comparable and we feel that in this particular case, our history in the region and our ability to create value for you through consolidation opportunities and great operating execution is attractive. And it's beneficial to both the Liberty Global business as well as its potential tracking stock so we're hopeful you'll take a look at those documents and we're hopeful you'll vote in favor of it. We think it's a great opportunity for shareholders.

Great. Thank you.

Michael Bishop, RBC.

Hi. Good afternoon. Just two questions around the UK please. Firstly, the areas where you're looking to infill. Do have a sort of early perception of which operators customers currently use because clearly, of the other three big UK operators, they have quite differing churn rates so I was wondering what your assumptions are in terms of who you might be able to win customers from and whether the areas you're moving into are just the sort of average UK market share areas or whether they are materially different?

And then just as a quick follow up, on the $4 million, how much do you assume for infill and how much do assume for new build opportunity because clearly, some political pressure in the UK to raise the number of homes being built so I just wonder if you have any views on that? Thanks.

I think in this -- Tom, you can address the first question for new build is relatively small in infill and I think it's 10% to 15% of the project is a new build where most of it is infill, which is equally important because customers and regulators and governments want to see fast, super fast broadband available to all and not -- there should be haves and have-nots even in the urban markets. So I think that's the right answer to that. Tom, do you just want to address the first question please?

On the first question, I think we would find typically in the areas in these urban cities and towns where we do have a presence today in network and where we had actually had homes past, that both communities are very similar to the ones where we do have homes past.

And that's exactly the point of the infill and in areas we do have a presence, we'll normally be either 50% market share and the other three operators, major operators, will be sharing the remaining 50%, with Sky and BT probably joint labels and then TopTalk bringing up 10% of that.

So we'll find, we think, a similar pattern in these other areas as we go and do the infill and we've got a proven ability to take customers off our competitors and plus as an ongoing opportunity to lift that 80% penetration progressively through 90% and all the way to US label. So we think there's an opportunity there to get both completely new customers as well as take customers from our competitors.

Thanks.

Saroop Purewal, Redburn.

Hi there. This is Saroop Purewal from Redburn. Just got one question on Project Lightning and if you learned anything from your trials in Glasgow and Teesside. I was also wondering about the lock-in for contracts for your prospective customers. So for example, at BT and Sky, potentially your -- the customers that your targeting may be locked up for 12 to 24 months; is that something that is a regulatory issue or you've been discussing with Ofcom?

Tom?

The answer is no. We also use contracts if we offer a discount to a new customer, we will typically require a 12 or 18 month contract. We have not reserved ourselves; we are doing everything as an industry practice. I think we've shown in these trials that in six months, we've gone to 23% that clearly leads the people who had the ability to come off of the existing deal. Sometimes, people frankly swallow the contract because they want a better service or these were people who didn't have it and there is a reason why we'll need the three years to lift to the 39%, 40% is exactly that reason.

Some people will be on contracts but 12 months comes around, 18 months comes around and people look around when their contract comes up. It's -- people make adjustment about these things and that's an opportunity.

Okay. Thanks very much.

Justin Funnell, Credit Suisse.

Yes. Hi. Thanks. Just again on the UK buildouts, obviously, makes a lot of sense what you're trying to do. With some markets, third-party, some of the bundlers being able to lobby and get co-billed policy; we see that into Spain and France. If Ofcom was sympathetic to that approach in the UK and you're having to show your docs with others, would that affect your investment decision?

Secondly, obviously expanding the physical size of the aggregate, does that affect your OpEx in the UK? We're going to a kind of OpEx to EBITDA in the first couple of years? And then thirdly, as you become more of a nationwide operator in the UK, does that affect your content strategy? Can you start to take a furthermore sort of leading role in content acquisition? Thank you.

I'll give you the last one; Tom, you can give us the first two. I think the content strategy that we've articulated for all of Europe is consistent and holds for the UK as well, which is that we're going to be highly strategic, opportunistic in some cases but also authentic and careful. So I don't anticipate personally that regardless of this network extension that we would be changing dramatically our position on content in the UK.

Our goal, as I said in my remarks, is to populate our networks which are superior and provide the best connectivity for customers with all of the content available in the marketplace and to ensure that our customers don't have to give up on anything to be connected to our networks. And so I don't know that, in fact, I'm certain that this particular network extension, which will take years to get to completion, will change considerably how we approach content in the UK. Do want to get the first two, Tom?

Sure, Mike, on the first, we don't see any lobbying or pressure in this country for a co-billed policy. Ofcom traditionally and I think at this time, continues to be very supportive of an infrastructure competition model, and sees that as a particular benefit in the UK. Certainly historically Virgin Media was in its diligent footprint has put a lot of pressure on BT and so probably we see and is supporting the fact that Prime Minister was here today, very directly championing this making, complimenting Liberty Global for choosing to make the investment here.

I think is evidence as sort of the policy support for the structure of the way we have the market at the moment. In terms of the cost issue, if anything, I think it's going to be the opposite, where we will get unit costs on average down but this line extension because we'll be averaging the investment in operating costs and marketing and sales and the whole gambit of those issues, especially in customer base. So I think on a margin basis, this will help us improve margins, and alternatively, if we had more customers in absolute terms, we're going to have more cost.

But I think this will help us with margin. In any case, we've been getting a lot of operational efficiency in this business; there's been a lot of synergy and work with Liberty in areas of self install. We've learned a lot from our colleagues across Europe and we're getting much stronger self install rates here. We get better MPS scores, people patting themselves on the back as they managed to do their own install and they're happy with it and that's the distinct benefit so I think we actually see operational, on average, operational benefits from this investment.

I think Justin, in my remarks, I mentioned the 60%-plus contribution margin to operating cash flow is what we expect so that's sort of right in line with what Tom had said in his thing.

So there's no timing of focus? There's no upfront effects from this. It should be pretty smooth?

Yes. I think that's right.

Yes. Thank you.

Carl Murdock-Smith, JPMorgan.

Thanks very much. Two questions, please. In the UK, what do you think of BT deciding they'd like to own mobile infrastructure rather than pursue MVNO? With yourself being considerably lower churn in quad-play households. Does that impact your thinking of your ability to ramp penetration in Project Lightning against more quad-play focused competitors and ultimately a lower churn knocked overall?

And then secondly on the CapEx space and not Project Lightning, can you just provided a bit more color on why CapEx isn't stepping up until 2016? Thank you.

The answer to the second question is we are being conservative and we're already in late February here. The planning required to implement a project like this is substantial and we want to be smart about it so we've been conservative in 2015 about what we can and should achieve in terms of rollout and that's the principal reason. I think I said less than 10% would be achieved of this year and that's -- I think that's the right way to approach it. We could ramp that; we can accelerate that.

I'll let Tom add to the BT point, but I'll simply say that from our perspective, it's not a surprise move by any stretch and the fact that they are acquiring an incumbent mobile operator implies to me and for quite a large sum of money implies to me that they intend to be more rational perhaps than they might otherwise be in an MVNO type arrangement.

And are looking at the market as we see it, in the long term as a quad-play opportunity, that doesn't concern us one bit and the lastly, we have factored that, of course, into all of our assumptions since it's been known for quite some time and we wouldn't -- weren't surprised by it so that's built into the assumption (inaudible). I'm going to hand it to you, Tom.

If I might just add to the point that BT has had lots of compliments for its sports strategy and that strategy has enabled BT to reduce its rate of decline in the homes where we have cable in front of the homes, we typically get 50% market share and BT is around 20%. With obviously, Sky and TopTalk and sometimes a few of the smaller operators there as well.

So where we are face-to-face, we've got a very good track record of beating BT because our products are much better with twice the speed and that still got big issues to make that sort of future investment and of course, as they make these choices, maybe giving themselves a chance there. So nobody wants to understate the competition or minimize of the challenges but I think we do have a track record in this business and a head-to-head competition of beating BT and as we extend the network, we're, frankly, intending to keep doing that.

Sounds great. So just --

Go ahead, Carl.

I was just going to -- I ask as a follow-up to that, obviously given, Mike your comments about conservatism, and then, Tom, your comments about beating BT, by the time you that you will be developing the majority of this roll out, BT will also be rolling out G.Fast, improving their own network speeds. So to what extent at that point, do you think your network will continue to act as a hook to enable you to gain that very aggressive adoption curve?

We don't think there's any G.Fast or any other copper-based technology that is going to put us at a material disadvantage on broadband speeds at all. I mean, we'll be trialing 3.1 this year, which will get to 1 gig and as you know, ultimately we can get to 10 gig over time with the right sort of investment, et cetera and rolling out 3.1 for us is a relatively inexpensive, largely variable cost exercise, as it was with a 2.0 to 3.0. So I'm not, Balan, if you're on the line, you're welcome to add to that but we feel pretty confident in the long run about our network's superiority in any instance there.

Yes. I agree with you. Everything you said, Mike.

Yes. Listen, we appreciate you. We've gone a little bit over here. So we appreciate you sticking around. We promise on third quarter call that we'd have great things to talk about in the fourth quarter into the full year. I think we have. As I look at it, all pistons are firing in our business, our growth is strong, our products are incredible, in my opinion, our innovation engine is doing terrific work across Europe.

We're benefiting from scale both in synergies and the project like Lightning, which allows us to easily extend our footprint and reach and the cap structure remains geared to value creation so we're really feeling like all pistons are firing and the year started out strong and we appreciate your support. Don't forget to vote for the tracker and we'll speak to you soon. Thanks very much.

Ladies and gentlemen, this concludes Liberty Global's 2014 results investor call. As 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.