Liberty Global Ltd (LBTYB) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's 2015 results investor call. This call and the associated webcast are the property of Liberty Global. Any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited.

(Operator Instructions)

Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.LibertyGlobal.com.

(Operator Instructions)

As a reminder, this investor call is being recorded on this date, February 16, 2016.

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 outlooks 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 Form 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.

Thank you, Operator, and welcome, everybody. We certainly appreciate you joining our call today. I have with me, as usual, a whole host of Management folks that I will call upon and will help chime in today and get all of your questions answered. I'll provide an overview -- so traditional agenda -- and then Bernie will take us through the numbers. And then we will get right to your questions.

And we are talking from slides, and it might benefit you if you can get a hold of those, because we'll be referring to them throughout the course of our prepared remarks. So I'm going to kick it off on slide 4, with what I believe are the key messages you're going to want to take away from this call. We know there's a lot of noise and activity in the market right now -- in our sector, in particular. So to keep it simple, these are the things we think you need to know about our business.

First, and I think foremost, we're very fortunate that the foundation of our story continues to be growth. Since the formation of Liberty Global over 10 years ago, we have delivered 42 straight quarters of positive growth in subscribers, revenue, and operating cash flow. And as we look out, we actually see a long runway for us to keep delivering those great results. In fact, we think the trend is actually improving from here.

If you look at 2015, our second half of the year was better than the first half, across the board. I'll walk you through those numbers in a moment. If you look at our OCF guidance for 2016, you'll see improved growth compared to last year. And if you look out the next three years, we're actually forecasting even better financial growth through 2018. Now, we're fortunate, to be honest, to operate in a very good sector here. I mean, there are few industries I'm aware of where consumer demand for your core products -- in our case, fixed and mobile broadband or TV anywhere services -- are growing at such a fast pace. But our confidence in these numbers is also grounded in the launch of our Liberty 3.0 program, which is a rock-solid plan that focuses on new and existing revenue drivers, and a streamlined operating model to deliver better and better results. And this is actually now in full swing for us.

Now, there's no doubt you have seen the news about the Vodafone JV, where we've agreed to create a 50/50 venture together with Vodafone in the Netherlands. This is going to be a great deal for everyone involved, especially Dutch consumers, and I'll walk through it in a moment. But the JV not only creates a national powerhouse in Holland, but it is a highly accretive transaction for shareholders, with a number of strategic and financial benefits.

And then lastly, at times like these, we think you should take particular comfort in the hard work we've put into our balance sheet and the commitment we have to our capital structure and buyback program. Our proven levered equity model is anchored by long-term fixed rate debt, significant liquidity, and a recent increase to our authorized buyback program. So those are the main headlines that we'll flesh out here in the course of the call, starting on slide 5, where I'm going to provide another layer of highlights that support some of these main takeaways.

And I'll start with operating and financial results here. We added 344,000 RGUs in the fourth quarter, our best quarter of the year, bringing full-year net adds to 870,000. On top of that, we grew our post-paid mobile sub base over 450,000 in 2015. Revenue was up 4% in the fourth quarter and 3% for the year, while OCF -- operating cash flow -- was up 6% in the quarter and 4% for the full year. Now, these results were driven in both cases by a combination of volume, price increases and growth in mobile and B2B. And we generated $830 million of free cash in the fourth quarter, bringing the full year of free cash flow to $2.5 billion. That's up 20% on an FX-adjusted basis, and actually ahead of our guidance.

In the center of the slide, we highlight a few value-creation drivers. I mean, these are the deals, the initiatives, the products that are really moving the needle for us. I've already mentioned the Dutch JV with Vodafone. More on that in a moment. But we're also working hard to close the Cable & Wireless transaction, where we continue to believe this will be transformational for LiLAC. We're adding substantial scale and synergies to our existing assets in that region, and so we're hopeful to get that done in the second quarter. We expect the deal to close around then. And after that, we'll probably begin the process of spinning off LiLAC to shareholders, as many of you have anticipated.

We recently closed and are already integrating the BASE mobile acquisition in Belgium, which will give Telenet all the ingredients for a superior fixed-mobile offering and great synergies down the road. And Project Lightning in the UK, which we talk about every quarter, is off to a great start. With 0.25 million new homes built and released in 2015, the project is right on track. We're ahead of plan on just about every metric -- number of homes, the cost per home, penetration rates, and RPU. It really has lit a fire under us to pursue new-build opportunities throughout Europe, which I'll talk about as part of Liberty 3.0.

On the video side, we added a record 1.5 million next-gen TV subs in 2015. That's up from 1.1 million in 2014, and bringing our total next-gen base to 6.5 million. We ramped innovation this year big-time with new products like Micron, our [S spot] service, Replay TV, an expanded Horizon Go TV Anywhere app in all of our European markets. I'll talk a little bit more about Horizon in a moment.

And then lastly, on the right side of the slide, we highlight our balance sheet, just referenced briefly, which we believe remains de-risked, with basically $4.9 billion of liquidity, gross leverage at around 4.9 times, and a record-low fully swapped cost of capital of 4.9%. Over the last few years, we've termed out most of our debt, so 90% of that debt is due 2021 or after. And this should, in our opinion, be a source of comfort for investors in volatile markets like these. I'll also say, though, volatile markets create opportunities. And we did buy back a record $2.3 billion of stock in 2015, nearly $900 million in Q4 alone. And today, we're announcing a new buyback program, which, together with the $1.6 million remaining on our previous buyback program, takes us to a total authorization of $4 billion by the end of 2017.

Now let me jump to slide 6, which illustrates the momentum point that I started with, and the momentum that we saw through the course of 2015. And it shows you all the key growth metrics for us -- what we did in the first half and what we did in the second half, and how those ramped up. On the left side, you can see that we more than tripled net adds from the first half to the second half -- 200,000 to over 660,000. And that was across all products. We halved our video attrition. We grew broadband additions by 50%, and particularly, in markets like Germany and the UK; and nearly doubled our telephony adds.

Rebased revenue growth ticked up every quarter this year, driven in part by B2B and mobile revenue growth, which increased by double digits in the second half of the year. And several markets, like UK and Germany and LiLAC, improved rebased revenue growth to 5% and 7%. And then rebased OCF growth ramped to 5% in the second half of the year. And that's including, as I said, over 6% in Q4. We're really excited about the momentum across the platform, as evidenced, of course, by our free cash flow, where we had 60% of it generated in the second half of the year, and totaled over $2.5 billion -- I think, demonstrating that we're able to balance price and volume, and also the prudent use of [inter] financing to try to drive free cash flow. So we're very pleased with that number, which was ahead of guidance.

Now, slide 7 -- let's jump to the deal we announced today. I will tell you, personally, I am very excited about this 50/50 joint venture with Vodafone in the Netherlands. We think this combination makes perfect sense for shareholders, and makes perfect sense for customers, and it makes perfect sense for the entire Dutch market. By combining Ziggo's fiber-rich broadband network with Vodafone's 4G mobile network, this new joint venture will instantly become a major national player in what is a rapidly developing quad play market and converged market in Holland. That's no surprise to anyone, that our two operating businesses are highly complementary, with very little overlap. Today they serve collectively over 15 million broadband, video, mobile, and fixed telephony subscribers. And you can see the breakdown on the right-hand side of the slide. And of course, we're also creating an even stronger B2B challenger to KPN, which will target all segments of the Dutch economy. I'm very excited about that piece of this.

And as you might expect, the headline synergies in this deal are substantial. We estimate the MPV of synergies at around euro3.5 billion. 70% of those synergies are coming from OpEx and CapEx efficiencies, with the balance coming from revenue. And the cost synergy side are things you're going to be familiar with -- infrastructure savings, backhaul, IT, SG&A redundancies, procurement, R&D. And then of course, the revenue upside comes from cross-selling converged products, which we're excited to get started on. Now, slide 8, we lay out a few more details here on the deal structure; and then, importantly, on the benefits, as we see them. And just to remind you, it's a 50/50 JV in all respects, so both parties here will have equal governance. We are jointly appointing management, we're making all the key decisions together, which we're actually encouraged by.

Some quick comments on valuation. Now, when you combine two operating units, the key is actually relative valuation. So I'll try to explain how we, at Liberty, see the euro1 billion equalization payment, which was in the press release. To begin with, we value our business in Holland at about euro14 billion, or roughly 11 times Ziggo's 2015 adjusted operating cash flow. And we've broken those cash flow numbers down for you at the bottom of the slide there. When you subtract Ziggo's euro7.3 billion of debt from that euro14 billion number, you arrive an equity value for Ziggo at roughly euro6.7 billion. This is how we see it. Now, the equalization payment of euro1 billion implies that there's a euro2 billion difference in those equity values in a 50/50 deal. So the debt-free value we attribute to Vodafone is about euro6.7 billion minus euro2 billion, or euro4.7 billion, which equates to roughly 7.8, 7.9 times their 2015 EBITDA. These are how we see the numbers -- a euro14 billion enterprise value for our asset, roughly a euro4.7 billion enterprise value for their business. And when you put those together, subtract our debt to equalize the difference in equity, it's about a euro1 billion payment to us.

A few other important points: between signing and closing, both parties will keep the free cash flow of their respective businesses. And then post-closing, we've agreed to maintain a new capital structure, which targets 4.5 to 5 times leverage. All proceeds from those are capitalizations, and from the free cash flow in the future, will be distributed to each of us equally going forward. And then lastly, we will retain about euro2.9 billion of Dutch NOLs for use outside the JV, which is obviously beneficial to the rest of the group.

Now, why do we like the deal so much? First, obviously, we're encouraged by the premium multiple we're getting for Ziggo going into the deal of around 11 times -- especially when you factor in that we'll be retaining 50% of the business and its future upside moving forward -- and it's future free cash flow and recap proceeds. So from our perspective, that is a terrific outcome for our shareholders. And our half of the synergies alone, if you just took that number, [through half] of $3.5 billion, it's about a turn and a half on top of that 11. So that's one way to look at it; certainly how we looked at it. People can look at it differently. A few other benefits. We'll be moving over $7 billion of debt off balance sheet. So the deal is obviously deleveraging to the group. And we've agreed to an appropriate -- we think, appropriate -- exit in liquidity provisions, which are always important in joint ventures like this.

And lastly, perhaps most importantly, I'm really excited to partner up with Vodafone. We've gotten to know each other pretty well over the last year. I have great respect of Vittorio and his management team. We're really looking forward to tackling this opportunity together, learning from each other and creating substantial value for our respective shareholders. As we indicated in the press release, we expect this to be an EU filing on the regulatory front. And if all goes as planned, we should close the deal around the end of the year, if not sooner.

So let me jump to slide 9 here and build on some of these things. It's the first call of the year, and as we typically like to do, we want to lay out for you a bit of our strategic game plan. Specifically, with Liberty 3.0 off and running, we wanted to show you the key value drivers as we see them. You can see on slide 9 in the circle there. And I'll talk about each of them. These are the things we think will accelerate revenue and OCF growth for us over the next three years. I'll start at the top of the slide with market share. Today, we serve 27 million customers that subscribe to 57 million services. And all of our innovation, all of our product development, and all of our technology investments are focused on driving increased profitable market share in our core businesses. In broadband, for example, we continue to leverage our speed advantage. Everything we market and sell today is 100 megabits or faster. I think our average, looking at the back book, is 90. We're not far from a gigabyte of speed with DOCSIS 3.1, soon to be rolled out. When you couple that with the most advanced TV platforms available, you've got a very powerful one-two punch.

We added a record 1.5 million Horizon TV subs last year. Today our next-gen TV platform is about 40% of our digital TV sub base and growing. And these platforms provide seamless entertainment in and out of the home, on all your devices, with Replay TV, S spot services, hundreds of apps, network DVRs and beautiful user interfaces. And then, of course, when we roll out our new, more powerful cloud-based set-top at a lower cost -- a lower CPE cost than our current boxes -- the benefits of this Horizon platform go beyond just higher RPU and lower churn, and they start to encompass the entire business model, CapEx included.

Now, all of this investment gives us the room to price our services in a way that optimizes value for us, but also still provides great value to consumers. And we'll be much more systematic. I can tell you, we are already much more systematic, comprehensive and analytical in how we manage pricing going forward. And we know that this will be a significant source of cash flow over the next few years. You should expect that. And then we also intend to use all of those benefits to supercharge these investments in products and technology by extending our reach and adding millions of new marketable homes to our footprint. This is the new-build component of the plan. Project Lightning in the UK really lit a fire under the network team in all of us. In addition to those four million homes in the UK, we now believe there are millions and millions more across our footprint. Our budget is to build 1.5 million in 2016, including over 0.5 million in the UK alone, and a total of over 7 million homes over the next three years. As I've stated before, these are high-return, cash flow-generating investments that exploit our existing scale, and actually enhance our growth materially. That's a big driver for us.

Moving to mobile: Europe is developing into a quad play market. And we are committed to convergence across our business. With the completion of the BASE deal in Belgium, we have approximately 7 million mobile subs which generate over $2 billion of revenue -- all of that growing essentially in double digits. You combining that with our fixed network and our Wi-Fi and 4G mobile -- you put all of that together, it's starting to provide a ubiquitous and seamless connectivity experience to customers. And we know that's what they want. I think we've been extremely disciplined and smart in how we've tackled this opportunity. In most markets, we have MVNOs, and they are working well at good pricing, 4G access. In Belgium, we've purchased an MNO, but for very good and very specific reasons. And in Holland, we're partnering with the best operator in the market, and we think the best brand in the market. You should expect us to remain opportunistic here. We're in the driver's seat. That's how we see it. And we're well-positioned to make decisions in each market that maximize value creation for our business going forward.

On commercial B2B services, the effort is also ramping as we focus on exploiting the SOHO opportunity across our markets and extending our business solutions into the SME market. In Belgium, for example, we have successfully penetrated 50% of the SOHO market. And this ought to be a realistic target for us in other markets. We think it will be. Meanwhile, our B2B revenue growth accelerated to 9% last year -- that's up from 7% the year before. And that's driven by SOHO segment in particular, which is growing 20% a year. Today our European footprint surpasses over 4 million SOHOs and over 500,000 SMEs. But these numbers will clearly grow, of course, as we expand our network by another 7 million residential premises over the next three years. So B2B is undoubtedly an important part of our growth story.

And then I'll wrap this slide with a few words on efficiencies and what we expect to generate as part of Liberty 3.0. It's not really a cost-cutting exercise; it's an efficiency exercise. And the best way to articulate it, I think, is to simply say that we believe we can keep our indirect cost base flat over the next three years as we accelerate our top-line growth and deliver on the strategic drivers that I've just talked about. 50% of these efficiencies, if you will, are already in flight. Many of these programs are already underway. We're in the midst of developing them. And I think you'll see some of that benefit in 2016. You can see -- in a moment, I'll talk about guidance, and you'll see that. But we really expect the growth to ramp in 2017 and beyond.

So let me get to the punch line of my remarks before I turn it over to Bernie, and talk about our outlook and guidance on slide 10. Now, we have two sets of shareholders here, so we're going to provide an outlook for each of Liberty Global Group, which is Europe; and the LiLAC Group, which is Latin America and soon-to-be Caribbean. So for the Liberty Global Group, we're targeting 5% to 7% OCF growth for 2016. This is obviously an uptick from current trends. And the forecast excludes Ziggo, which of course will move off balance sheet when the JV closes. And it also excludes BASE in Belgium, which we haven't provided guidance on that. But 5% to 7% OCF growth for 2016. And despite an expanded investment in new builds, which I just spoke about, which drives the bulk of our expected increase in PP&E additions of around $700 million, we still expect at least $2 billion of free cash flow in 2016.

Now, for the first time, we're also providing specific medium-term outlook for OCF growth. We haven't done that in the past, as you know. We've talked a lot about Liberty 3.0. I just did it now. And we feel it's time to be a bit more granular with you. So for the three-year period ending 2018, we're forecasting OCF growth for Liberty Global Group of between 7% and 9%. Now, we understand most analysts and investors are not forecasting anywhere near this type of growth. But we're confident that we can execute on our 3.0 plans and get to these levels, these high single-digit levels. And of course, we plan to repurchase $4 billion of equity over the next two years, which will certainly benefit the equity story here.

Quickly, guidance numbers for LiLAC are very similar. We're forecasting 5% to 7% OCF growth this year in 2016, and 7% to 9% OCF growth -- or an OCF CAGR -- for the next three years into 2018. Both of those figures exclude Cable & Wireless. And we're already on record, of course, by saying we expect double-digit OCF growth when we're able to combine Cable & Wireless and LiLAC. For the time being, we're providing this guidance for LiLAC standalone.

So let me wrap it quickly. We consistently talk about three things in our business -- growth, scale, and the benefits of a levered equity capital structure. And all the things I've talked about today, I think, support those three primary drivers of value creation for us. We see accelerating growth for us; not flat -- accelerating growth. Certainly we're adding to scale, with a new-build program that targets 7 million homes, with a joint venture in Holland, which adds a massive mobile base and gives us great opportunity in that market. On the capital structure, we remain extremely confident. And I think the $4 billion of our buyback certainly should signal to you that we believe in our story, believe in our equity, and we're excited about what lies ahead for us.

Bernie, all yours.

Thanks, Mike. A quick note before I start. First, I will present the results of the Liberty Global Group, which includes our European operations, followed by an overview of the performance of the LiLAC Group, which includes our operations in Chile and Puerto Rico.

On slide 13, we present financial results for the Liberty Global Group. For the full year ended December 31, 2015, we reported total revenue of $17 billion. When adjusting for FX and the impacts of acquisitions and dispositions, we grew the top line by 3%, while our rebased OCF growth was 3.5%. As expected, our growth rates improved in the second half of the year, and we reported Q4 rebased growth of 3.5% for revenue and 6% for OCF. On the next slide, I will give you more detail on the performance of our team markets. Our European operations reported a 2015 OCF margin of 47.9%, marking a 70-basis point improvement over 2014, which was partly driven by operating leverage and cost controls.

Moving to our property and equipment adds, we ended the year within our guidance range of 23% of revenue, and above the 21% of revenue we reported in 2014. The step-up in our absolute P&E additions was due principally to increases associated with the acquisition of Ziggo, as well as higher spend for line extensions, new builds and upgrade projects. These increases were partially offset by the impact of the strengthening of the US dollar against all of our European currencies. The increase in the year-over-year ratio was mainly due to higher new-build investments.

And finally, our European business delivered $2.4 billion of free cash flow in 2015, up 16% year over year on a reported basis, and over 20% after adjusting for Ziggo and FX. The improvement in our reported free cash flow was attributable to the effective lower interest rates, our organic OCF growth, the inclusion of Ziggo versus the prior year, and benefits from our vendor financing program. Partially offset by trade working capital outflows, the adverse impact of FX, and higher tax payments. Looking ahead to 2016, we expect the rebased OCF of Liberty Global Group, excluding Ziggo, to grow from 5% to 7%, as mentioned earlier by Mike. We expect our free cash flow to exceed $2 billion, while our P&E adds as a percentage of revenue are expected to range from 25% to 27% in 2016. The P&E addition guidance represents an increase over 2015 levels, due primarily to higher planned spend on new builds and upgrade activities. And we expect to meaningfully increase our vendor financing program to fund a portion of this higher spend.

Slide 14 breaks down our 2014 revenue and OCF growth rates in Western Europe, which makes up approximately 90% of Liberty Global Group. Kicking off with our largest operation, Virgin Media in the UK and Ireland, we delivered rebased revenue growth of 4% and rebased OCF growth of 6% in 2015, including strong Q4 revenue and OCF growth rates of 5% and 7%, respectively. The revenue growth in Q4 and full-year 2015 was primarily attributable to higher cable subscription revenue, driven by over 200,000 net RGU adds in 2015, as well as improvements in RPU per RGU, higher mobile handset revenue in the UK, and faster B2B growth. Our OCF margin at Virgin Media expanded 110 basis points year over year to nearly 45%, as stringent cost controls helped offset higher programming and mobile handset costs.

In Germany, Unitymedia successfully balanced subscriber volumes and pricing in 2015. And we are pleased to report 6% rebased revenue and 7% rebased OCF growth for the full year. Unitymedia reported a particularly strong Q4 for OCF, with rebased growth of 11%. Moving to Belgium, Telenet reported rebased revenue and OCF growth of 6% each for the full-year 2015 period. Revenue growth in this market was driven by the continued traction of our triple play products, and a growing contribution from our mobile and B2B businesses.

In the Netherlands, Ziggo reported a 2% rebased contraction in 2015, for both revenue and OCF. Both declines reflect the continued competitive environment in the Dutch market and challenges associated with the integration during the year. Primarily as a result of cost controls and the continued delivery on our synergy plan, Ziggo's OCF in Q4 was $10 million higher than Q3, and 2% higher than the Q4 2014 amount. Looking forward to 2016, despite our subscriber losses last year and the current competitive environment, we expect to stabilize the top-line performance in the Netherlands through continued investment in our product suite, improved customer service, and the positive momentum in our mobile and B2B operations. It's worth noting that our Dutch business remain on track to deliver euro250 million of run rate synergies by 2018. Rounding out our Western European operations, Switzerland and Austria delivered rebased revenue growth of 3% and rebased OCF growth of 6% in 2015, including 13% rebased OCF growth in Q4. Our top-line growth was driven by a mix of our fixed residential business, B2B, and mobile, while our rebased OCF was aided by lower staff-related and network costs, as well as lower marketing spend in Q4 2015 versus Q4 last year.

On slide 15, we take a look at leverage, share repurchases and liquidity. At year-end 2015, we had $45 billion in total debt attributable to the Liberty Global Group, which was flat from our debt level in Q3. Early in 2015, we took advantage of attractive capital markets, which allowed us to push down our blended cost of debt to a record-low level of 4.8% at year-end 2015 -- 110 basis points below our interest costs a year earlier. Consistent with our long-standing policy, our debt remains nearly 100% hedged, as we have swapped our non-currency exposures to match local currency cash flows, and we have fixed all of our floating rate debt. Our gross and net leverage ratios at the end of Q4 2015 were 5 times and 4.9 times, respectively, excluding $2.4 billion of debt backed by the underlying shares we hold in ITV, Sumitomo, and Lions Gate. We have an extended maturity profile with an average tenant over seven years, and only 11% of our debt comes due before 2021.

Turning to the middle of the slide, we continue to focus on returning capital through share buybacks, and bought a record $2.3 billion worth of our shares in 2015, including $900 million in the fourth quarter. As Mike mentioned, our Board recently authorized an additional $2.4 billion of repurchases. So we plan to buy back a total of $4 billion by the end of 2017. As a reminder, we will be locked out of the market during the period in which the CWC shareholders vote on the transaction and make an election on the consideration to receive, which we expect will occur for up to two months at the end of Q1 and the beginning of Q2. We plan to use our substantial liquidity position, which amounted to $4.4 billion at the end of 2015, to reignite our share repurchase program as soon as we can, especially with our stock at these levels.

Moving to slide 16, we present a summary of the LiLAC Group's 2015 financial results, which is made up of our operations in Chile and Puerto Rico. Starting with the graph on the left side of the page, rebased revenue increased 7% year over year to $1.2 billion. Our growth was well-balanced between Chile and Puerto Rico, which I will show you on the next slide. LiLAC's OCF growth increased to $491 million in 2015, representing rebased growth of 8% for the full year, partly driven by the fact that we delivered customer growth in every quarter during 2015 in both Chile and Puerto Rico. The LiLAC Group's OCF margin increased 70 basis points over the last 12 months, due to the aforementioned revenue growth and supported by operational efficiencies. Looking ahead to 2016, we expect the rebased OCF of LiLAC Group to grow 5% to 7% in 2016, as mentioned earlier.

P&E adds for the LiLAC Group declined to 19% of revenue in 2015, as compared to 21% of revenue in 2014. The decrease in absolute P&E adds was primarily related to the depreciation of the Chilean peso against the US dollar, and lower spend on support capital, scalable infrastructure, and CPE. The inclusion of the Choice acquisition in Puerto Rico for seven months in 2015 partially offset this decline. As we look to 2016, we are targeting P&E additions of 21% to 23% of revenue. The year-over-year increase as a percentage of revenue is directly attributable to our build programs in both Chile and Puerto Rico, as we look to roughly double our 2015 construction activity in 2016. Ending with the last chart on the bottom right, you can see that LiLAC's free cash flow increased 25% year over year in 2015 on a reported basis.

On slide 17, we lay out 2015 results for our businesses in Chile and Puerto Rico, as well as consolidated leverage ratios for the LiLAC Group. Starting with revenue, Chile and Puerto Rico delivered 7% and 6% rebased growth, respectively, in 2015. BTR's rebased revenue result was driven by a combination of cable and mobile subscription revenue, both of which increased as a result of subscriber gains and higher RPU per RGU. Despite a challenging economic environment, our revenue growth in Puerto Rico was primarily driven by volume growth.

Moving to OCF, both Chile and Puerto Rico produced strong full-year rebased growth rates in 2015 of 7% and 10%, respectively. With regard to our Chilean result, it's worth noting that unfavorable currency movements relating to our nonfunctional spend in US dollars reduced our OCF on a year-over-year basis by approximately $8 million during 2015. The chart on the right displays the gross in net leverage ratios of the LiLAC Group, which came in at 4.4 and 3.9, in line with our leverage ratios from Q3. Over the course of last year, we were able to lower our total cost of debt to 6% from 9.2% at year-end 2014, due largely to the re-strike of our derivative positions associated with the senior secured notes that we completed during Q4. At December 31, 2015, we had total debt attributed to the LiLAC Group of $2.3 billion, and cash and cash equivalents of $275 million. Meanwhile, liquidity at the LiLAC Group increased from $470 million in Q3 2015 to $506 million in Q4, split between $231 million in unused borrowing capacity and $275 million of cash.

To sum up, in 2015, we achieved our key financial targets, we were able to improve our performance in the second half of the year, and we are excited about the growth prospects ahead of us. We remain committed to shareholder returns, as evidenced by our new share repurchase authorization. And finally, we're very excited about our JV in the Netherlands, which is a game-changer for this business, and is expected to be substantially accretive over time. And the Cable & Wireless transaction is progressing as planned. We have filed our preliminary practice statement and we expect the deal to close in Q2, just a few months away. On that note, we appreciate your vote in the upcoming shareholder meeting.

And with that, Operator, please open it up for Q&A.

(Operator Instructions)

And we'll take our first question from Michael Bishop with RBC Capital Markets.

Yes, hi, good morning, guys. I just wanted to ask, when you think about the JV with Vodafone, if you think back to the purchase price of Ziggo and the implied 14 billion EV of the transaction today, I just want to get a sense of how far through the original [EUR250] million of synergies you were through? And how you thought about the equalization payment from Vodafone versus them, obviously guessing 50% of the future synergies, which might include some of those original Ziggo synergies?

And then just following on from that, do you have any specific thoughts about the use of cash from the Vodafone JV? You mentioned it's a de-leveraging event. Clearly we've seen the buyback guidance slightly increased. But is there room for more buyback on top of that with the extra cash? Thanks very much.

Hi, thanks, Michael. First of all, the synergy numbers that we provided, and provided some detail on in the press release, reflect the synergies between the two entities post-JV. So they are on top of the synergies we're already pursuing and are well-underway in achieving from the Ziggo, UPC NL merger a while back. So they are on top of that. Your second question -- what was your second question, Michael?

It was just about the potential use of cash as a deleveraging event. You're obviously getting the equalization payment, plus the re-leveraging of the JV.

Well, we did announce today an increase in our buyback plan from [$1.6 billion to $4 billion]. That could be potentially use of cash obviously. We haven't -- it's deleveraging in the sense that we're taking over EUR7 billion of debt off the balance sheet. I didn't mean to imply that we would use that extra cash to de-lever, as such. But it's de-levering from our group balance sheet.

And the uses of cash are to be determined. Of course, we have been and continue to be very focused on our capital structure and buyback, so you can assume that's a use of cash. And just generally running our business the way we run it. So I don't see any material difference. And we haven't specified a specific use of proceeds for that number. But the [$2.5] billion is not meaningfully different than the increase in the buyback we just authorized, but not necessarily related either. So I think it's business as usual.

Great. Thanks so much.

We'll take our next question from James Britton with Nomura.

Thanks very much. Firstly, on the deal in the Netherlands, given you secured a very good valuation for the Vodafone asset in your negotiations, can you just explain why you prefer not to buy the Vodafone business outright and secure 100% synergies for yourself? And then just a follow-up on the Ziggo business, when do you expect the network problems at Ziggo to be fully behind you? And on what timeframe can we expect you to push price again in that market? Thanks.

So on the Ziggo business, we have seen continued and sustained improvement in almost all of our network statistics and service statistics from -- really from September. And I think I've reported on that. We've talked about that in our previous calls. And we continue to see that. The network is highly stable today. And we've actually seen a nice uptick since the beginning of the year in our sales and net adds.

On pricing, we are a rational pricer. And we did, of course, make some moves recently in the market to reduce the number of free months, and continue to believe that the products in this particular market are fairly valued and fairly priced. So we're not really pushing that competitive position too aggressively. We're trying to be reasonable in how we price and manage our products. And I think you might have noticed today, we've done that very thing.

So I think the business is stabilizing, the network and all the service metrics are clearly stabilizing, and have through the third and fourth quarters of the year. With the launch of Ziggo Sports and, you know, the massive uptick/uptake of Replay TV and the other things that are really having a positive impact on NPS in this market, we're really pleased. So this particular operating business has been doing quite well of recent.

And in terms of your first question, I think the deal we've done is the right deal to do. In this particular market, combining these businesses and working together to jointly achieve the synergies that exist, that we know exist in this particular combination -- that's the right way to do it. I mean, I'm not going to go back and say why this or why that. This was a transaction that made the most sense for us, and I believe for Vodafone, and for shareholders and for consumers. So that's how we ended up here.

Thanks.

Yes.

Our next question comes from Amy Yong with Macquarie.

Thanks. Mike, I was wondering if you can just talk a little bit more about the pros and cons on the wireless side of an MVNO versus owning. And clearly, as [you're deep] your expertise, can you just talk a little bit more about the unit economics of controlling your subscriber a little bit more? And some of the metrics that you're focused on, whether it's churn and ARPU? And then lastly, if you can talk about your wireless strategy in the UK, given some of the regulatory changes there? And then also Germany? Thank you.

Sure. So I think in my remarks, I've been clear that we have taken, I would say, an opportunistic but disciplined approach in how we've dealt with the wireless opportunity in all of our markets. And in many instances, MVNO deals work well for us. Where we have full MVNOs, control of our customer, use of our own core network, and access to 4G, we have been satisfied and continue to be satisfied with those types of opportunities. And the economics look good to us in many of the markets we're in, as we forecast consumption and demand and penetration of product.

So from our perspective, if you look at how we've tackled mobile market throughout Europe, it's a hybrid. That hybrid makes sense to us. In the case of Belgium, where we purchased BASE, the synergies were material. The network overlap in Flanders was material, and the asset was relatively small. So we really felt that this was a way of perhaps improving the economics a bit through greater synergies, but also having even greater control in a market where we felt it was necessary.

The JV here in Holland is a third approach, and one that we think also makes a lot of sense, given our relative positions in this particular marketplace, the quality of the Vodafone network -- the number two network by market share, but by far the best network, we believe, in Holland. So it made terrific sense for us, and this was a deal that we were able to get done.

I think you should expect as you look forward -- which is really the basis of your question -- that we will continue to be opportunistic and disciplined in terms of how we look at the mobile opportunity in each particular market. It's too soon to say what we might do in any one market, except that we feel good about the strategy we're pursuing today. We feel good about each of the markets we're in. The UK, specifically, has been a terrific set-up for us.

I can't get too detailed about where we think this regulatory review of the [O23] deal will -- where it will end up and what it will mean to us. I have to be careful about that. But suffice to say we are the largest MVNO in that market. We have a substantial subscriber base, we have demonstrated a commitment to convergence. And we are, of course, having been through it ourselves in Belgium and understanding in Austria and Ireland, and having seen the mobile consolidation narrative play out, there may very well be benefits to us in this particular situation. But I can't be more specific than that.

I will just tell you that our forecasts, our predictions, our outlook for the UK market, which is quite robust, do not include or assume any improvement in the MVNO arrangements that we have there today. We believe our business model is set for the foreseeable future in that particular marketplace. And the guidance that we've delivered, both for 2016 and the next three years, do not presume any improvement in MVNO. So should something happen in that market, it's all upside as far as we can tell. And of course, you can bet we are around the sidelines of that discussion to see what might make sense for us.

Great, thank you.

Yes.

Our next question comes from Ulrich Rathe with Jefferies.

Thanks very much. I was wondering whether you could comment a bit more on the interim period in the Netherlands before the deal would close? You have left it out of the guidance, which -- however one wants to interpret that, to include maybe suspect that you're either not entirely sure, or that maybe there are particular risks there that you don't want to expose yourself in the guidance. Could you sort of describe your views on that a bit? And also whether you have shifted management priorities in the interim, for example, by de-emphasizing your own mobile push in anticipation of the JV, and focusing maybe more on the fixed-class line side of things? Or any other changes in the way you approach the Netherlands while you are going through this period? Thank you.

Yes, I can't -- I would like to provide you with detail on the Dutch market, specifically for Ziggo, but I am precluded from doing that, I'm told, by our lawyers, because of the Cable & Wireless transaction in the UK Takeover Panel. So we can't do that today. I apologize. You might be able to discern that number on your own, but I can't provide guidance for Ziggo specifically.

And in terms of Management priorities, remember, Vodafone is our MVNO provider in this marketplace. So in the end, from our perspective, it will be business as usual for both parties. And we will -- we're not quite sure how long the regulatory process will take. We've said publicly we think by end of the year, if not sooner. So each party, I'm sure -- and Vodafone, I'm sure, would have said the same thing -- we're going to run our businesses as we would expect to run them, and deliver to the joint venture the most robust and successful businesses we can manage. I don't see any meaningful change in how we run and operate our business through the course of the year.

I'll say that I have been pleased with the turnaround in Ziggo. And I can describe it as a turnaround. If you look at our ability to continue to deliver broadband subs, and we've had good success through the first part of the year, if you look at our ability to improve the customer experience, which was a critical issue for us over the summer. And you look at our discipline around pricing and the new products we've launched, which have had a material impact on customer satisfaction and demand, I think we're in good shape. So it's just business as usual for us.

Thanks. Could I follow up on Germany, please? Given you have announced, I think, to your customers some price increases, what gives you the confidence that the churn issues this year would be contained compared to the experience on the price increases last year? Thank you.

We have learned quite a bit about price increases through 2015. And Diederik is on; I might ask him to comment on that as well. But we have become much smarter about how we manage prices. And looking at our acquisition prices in particular, in relation to our back book prices, the experience in Germany last year was really mostly driven around an acquisition price increase, which impacted sales, of course. And the prices this year are lower.

And I think certainly we believe implemented more appropriately across the sub base, yet still impactful to cash flow. So price increases are -- continue to be an important part of our growth in cash flow and free cash flow, as you might expect. But I think we're much more intelligent, and certainly, we believe, more effective in how we're implementing those price increases.

And we learned a bit about Germany, for sure, last year, and you can expect we won't make those same mistakes. So the increases are across a different part of our sub base, it's less focused on acquisition prices, more on finding the areas within our back book and existing customer base that we think we can manage, and improve or normalize pricing. And there's plenty to be gained in the revenue line from those types of activities. Diederik, do you want to add anything to that?

No, Mike. I think, absolutely right. And looking at the pricing increases, it's also a better balance between different segments. And if you look at the early reception, it seems they were indeed more intelligent than last year. That's also how, it seems, they were perceived in the market.

Thank you very much.

And our next question comes from Matthew Harrigan with Wunderlich Securities.

Thank you. There was a lot of excitement at SCTE on Wi-Fi First handsets. I mean, some of that is dissipated from T-Mobile, Bright House trial getting pulled. But can you talk about some of the things on the road map for wireless that make the -- you know, even going out to 5G, where you need to have lower latencies and all of that, where it makes the deal make even more sense? Maybe that's kind of the Balan question.

And then secondly, when you look at your video pricing, do you think you're going to get any halo from the advent of 4K, hopefully with the Olympics and all of that? Because it feels like maybe you could price segment a little bit more aggressively. Thank you.

Hi, Matt. I'll let Balan certainly go through your wireless question. We have certainly done work on Wi-Fi First, as you know. We've talked about that publicly. The road map -- the technology road map for mobile is something that we are monitoring. We're not, of course, launching 5G anywhere. We don't have a particular plan to do that. We're sort of in the -- if you will, in the wake of our mobile MVNO providers in the markets that we have those arrangements.

But in terms of video pricing, I don't know whether 4K is going to make a material difference, Matt. To be honest with you, I think we're in a wait-and-see mode. It does have -- been at CES -- you were there, too, I'm sure -- has certainly an impact, I would say, marginally on the viewer and its experience. So I think it's too soon to say. We've got to have content. We've got -- in terms of what will it mean to our broadband delivery and things of that nature, we're also in a wait-and-see mode.

So I'm not -- we haven't taken any action today per se to anticipate meaningful consumption of 4K. We'll let Balan jump in he has a different view on that. But it's something we're in a wait-and-see mode on. It will be more impactful than 3D, which everybody felt was going to have some material impact on consumer satisfaction, and it didn't. But I think we're still in the early stages of knowing what that might mean to us. Balan, do you want to add anything to that?

Sure, Mike. On the 4K, for sure, beginning next year, our devices, the set-top boxes that we're going to put out there, will be 4K-capable. So we'll be ready for it when the content catches up with it.

On the 5G front, we think most of the standards will be done around next year, 2018 perhaps. And deployments in the network -- perhaps after 2020, you'll probably start seeing handsets, right about 2020 and beyond. And there is opportunity for us, for sure. It allows us to reform spectrum and perhaps give more spectrum back to LTE offering. But I think on the Wi-Fi First question, we've done trials on it. We can get it working, but the more you do on the MVNO side, the less the need for a Wi-Fi First solution.

Thanks, Mike. Thanks, Balan.

You got it.

And our next question comes from Jeff Wlodarczak with Pivotal.

Good morning, guys. Can you use the remaining [2.9 billion] or so of [net owned] NOLs to shield your income from the JV? Or can a JV effectively purchase your NOL when they want to shield their taxes? That's my first question.

We want to be careful about being too specific about the tax arrangements here. I think it's -- you're spot-on, that the [2.9] billion of NOLs that remain outside of JV could be put in the JV, but that would require some measure of compensation. And what we might do with those NOLs, I think, is something we have to just see in time what the best use of will be.

Okay, thanks. And then I think it was [350] million of dis-synergies. How should we think about the timing of how those costs fit in 2017 and 2018?

Yes, I mean, in this case, we've been a little -- it's a slightly longer timeframe for synergies. But I think that's partly just because they are substantial, and if you look at them as a percent of OpEx or CapEx, or even the revenue synergies, they are material here, probably larger than most people thought. And so we've been appropriately conservative about the timeframe -- closer to four or five years in what we would typically do two or three years.

I don't think -- we're not providing annual guidance on that today, Jeff. But of course, as time goes by and we have greater visibility, and working more closely, we can provide a bit more transparency. And so that's all I can say. But the negative synergies would layer in, in the early part of any synergy plan, of course. And the timeframe we've provided here is a little longer than normal, on the upside. So that's all the color I can provide at this point.

And then one last quick one. At some point, are you going to be restricted from share repurchases around the close of the [Vod] deal?

The only restriction I'm aware of -- I'll let Rick or Bryan chime in here -- when we file the proxy for the Cable & Wireless deal, we will be out of the market from the point in time that, that is filed until that deal closes -- or the share [will go of the vote], I'm not sure. But we are in the market, if you will, clear, of course, as of today, and through the date of that filing, which we anticipate to be in March. Bernie, do you want to add anything to that, since you spoke about it?

No. I don't think there's any restriction around the Vodafone closing transaction, just the [CWC], which I think is your question.

Great, thanks very much.

Our next question comes from Michel Morin with Morgan Stanley.

Yes, thanks, good morning. I wanted to touch on LiLAC. In your guidance, you talked about 5% to 7% OCF growth, but limited free cash flow. So I'm assuming it implies slightly higher CapEx. If you can explain a little bit what's going on there? Perhaps it's just currency effect. And then your midterm guidance calls for an acceleration. And I was wondering if you could give us a little bit more color as to whether or not that would also be true for revenues, or if it's really coming on the cost side?

And my second question would be on Chile and your mobile net adds, which have been weaker in the second half of the year. Just wondering if you can comment as to what's going on there? Again, and it's still relatively incipient MVNO there. Thank you.

Sure. Betzalel is on; I'll let him work up the Chile answer in terms of the midterm guidance that we provided. And we've been somewhat clear on this in the past. But generally speaking, the increase, if you will, over our run rate growth, we attribute about 60% to revenue and 40% to efficiency. So the [3.0] plan that we've been talking about publicly has always been primarily a revenue-driven plan.

I talked about in my remarks, the core revenue drivers -- B2B, mobile, and market share gains and price increases where appropriate. So for sure, you should expect that this is not a cost-cutting exercise. In fact, if you look at our indirect costs, we expect them to be flat. That's not really cost cutting; that's really cost maintenance. Then of course, our direct expenses would go up, because many are variable and driven by revenue.

So as you anticipate and forecast greater revenue growth, you're going to see an increase in your direct costs. But if you maintain that indirect cost line relatively flat, that allows to you generate obviously incremental margin, which is what's driving our expected increase in growth. So it is definitely a revenue -- primarily revenue-driven business opportunity.

In terms of LiLAC, the free cash flow posture of that business has always been a little bit different. And that has to do as much as anything with the CapEx profile we're in today, partially currencies. But we do anticipate free cash flow in that market, in that region, of course, to ramp. And with the Cable & Wireless deal, the synergies we anticipated in that particular deal, we did say that we saw double-digit OCF growth over the medium-term, post-closing. And you would expect that, that would also have a positive impact on free cash flow. We just didn't provide any guidance on that. Betzalel if you are on, do you have the Chile mobile net add figure?

Yes, good morning. What we see in the Chilean market is an entrance of a new player, [WUMP], that came very aggressive. But despite that, we were able to grow our base by [30,000 post Base op], focusing as we were doing for the last years on our base, expanding into [its positive place]. So I think the other players were impacted more partly by the new player. We will keep on focusing on expanding our base into a full play.

All right, thank you. That's helpful.

Our next question comes from Daniel Morris with Barclays.

Good morning, and thanks for taking the question. It's on CapEx really. I just wanted to understand how best to bridge between the kind of 22%, 23% run rate and the 25% to 28% you're talking about the next three years? If I look at your incremental build plans, it looked like there's at least a million a year of extra households you're planning to build out, versus certainly my expectations. And if you think about a kind of [600, 700] CapEx for home [past], that seems to give you 3 to 4 percentage points of extra CapEx to sales. So is it kind of as simple as that, and there's nothing else really going on in the CapEx line? And then I have a follow-up, please. Thanks.

I think you're looking at it correctly, Daniel. Charlie, you can chime in here, or Balan. But I would say the vast majority, if not all of the increase in our CapEx to revenue ratio which we put in the 10-K is attributable to incremental new-build, which we estimated at 7 million homes over the next few years. So that's a lot of activity, it's a lot of CapEx. And you should obviously anticipate that, that is going to impact the CapEx figure.

We did say for 2016, the vast majority of the 700 million increase in PP&E is going to be attributable to the incremental new-build activity. But remember, these are, in our experience, 30% IRR, huge cash-on-cash returns, self-financing after a period of time, and easily vendor-financed. So from the point of view of free cash flow, we can manage that, and they do become accretive very rapidly. But certainly there is some impact on the accounting figure, and I think you've correctly assessed it.

That is very clear. Thank you.

I agree with that, but the only thing I'll say is, there was a bit of increase in CPE, because the new homes will be more net adds, we hope. But otherwise, the major cost categories have been flat. So it is all coming out of new-build and CPE, to some extent.

That's very clear. So it was great CapEx. Just as a follow-up, can you let us know -- you obviously had a lot of big-builds in the second half of 2015 in terms of the UK Lightning. I just wanted to have the take rate going there. Any surprises, either on the upside or downside? Or is it really running in line with expectation?

Well, it's running in line, and I think we said that in our remarks. But Tom, if you're on, I'll let you address more specifically.

Good morning, all. I think as Mike mentioned earlier, the numbers are generally running ahead of our expectation in terms of take-up. We are finding, in new property developments where there's a new construction, we are -- after 6 to 12 months, we're getting penetrations as high as 50%. In the infill areas where we are filling in those gaps in the network that we had previously, after 6 to 12 months we're getting 20%, and that continues to rise over time.

So we are very pleased about the take-up we're getting. And certainly it's Lightening, which has supported the record growth in subscribers that Virgin Media had in Q4. Not only Lightning, because we had a good [VAU] quarter as well. But we see both those contributing to continuing growth in the first six weeks of the new fiscal year.

Great to hear. Thanks for that.

And we'll take our final question from Ben Swinburne with Morgan Stanley.

Thank you. Good morning. Mike, I think we've historically thought about kind of mid-teens free cash flow growth from Liberty. And you've laid out this three-year plan for OCF. I'm wondering if you have any more you can to help us at least think directionally about the free cash flow CAGR? I would imagine there's -- it's probably pretty backend-loaded. But you've got a lot of moving pieces between the new-builds and the vendor financing piece, which I think ultimately sort of reverses itself. So any color you can help us and think about the free cash flow CAGR?

And along those lines, can you help us with the 7 million new-build homes? Will the homes in Germany and any other markets you're thinking about building out be less expensive than the UK? Just any color on sort of regional differences, to help us fine-tune, would be helpful. Thanks.

Yes, sure, Ben. Certainly on the new-build, you should expect that the most expensive construction we're undertaking today is in the UK. And we've been public about those numbers -- [GBP500 -- GBP400 to GBP600]. And you should expect that those numbers are lower in Germany, and lower in other markets like CEE, or Central East Europe, which is also a component of the 7 million. I don't know that we have provided any specific guidance, but perhaps we can think about that for the next call or the next communication, in terms of translating that. Or maybe Bernie, tell me if we put any specific numbers in 10-K. But they are going to be lower than the UK, that's for sure.

Yes, we didn't disclose anything, Mike.

Yes. On the free cash flow figure, we did say this year, even with the [$700] million increase in CapEx, mostly attributed to the new-build activity, we still think we can generate [$2] billion of free cash. And we didn't provide free cash flow guidance over the three-year period. But you, I think, have also correctly assessed that it's partially backend-loaded. Because that expenditure is obviously driving growth and driving scale, and giving us the opportunity to impact the cash flows as we expect to.

So the 60% of the 3.0 value accretion, if you will, coming from revenue, does take capital. So we're not providing that guidance today, but you can bet, Ben, because you know this, we are highly focused on free cash flow. That for us, free cash flow per share and having access to that free cash flow is critical. And as we get -- perhaps in the next call, we'll be a little bit more specific, as we're farther into 3.0, we have greater transparency on the joint venture, et cetera. But you can -- I think you're correct in saying that it's partially back-loaded, or back-ended.

Okay, thank you.

Yes. I think that's our last call. So we're going to thank everybody for joining the call today. We are -- as I sit here, I've never been more excited about where we're headed. If you look at the three things that we have talked to you about consistently for a decade -- growth, scale, and sort of prudent management of our capital structure -- all three of those things are in great shape today.

I mean, on the growth front, the fact that we're telling you we see an acceleration and an improvement in our growth profile over the next one to three years, hopefully gives you confidence that the trajectory is improving. That we are committed to 3.0, and that we're all incented properly to achieve those sorts of numbers. With the new-build program, even with the JV in Holland, our ability to optimize and maximize scale across our European footprint has never been more important. And quite frankly, I feel really good about the things we're doing to achieve that.

And then lastly, whether it's free cash flow or commitments to leverage, appropriate leverage, our de-risked balance sheet, and then lastly, and just importantly, our commitment to the buyback program, which we've increased today. All of that should give you the confidence that we believe in what we're doing, and that we feel really good about the next three years and the medium term. So appreciate your support, and I'm sure there will be plenty of questions and opportunity to chat about this over the next couple of months before our next call. But thanks, as always. And we'll speak to you soon.

Ladies and gentlemen, this concludes Liberty Global's 2015 results investor 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.