Liberty Global Ltd (LBTYB) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's second-quarter 2016 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 express written consent of Liberty Global is strictly prohibited. (Operator Instructions) Today's formal presentation 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 day, August 5, 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 outlook and future growth prospects and any 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 details from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed forms 10-Q and 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 good morning or good afternoon, wherever you may be. I want to welcome both our Liberty Global and LiLAC shareholders to our second-quarter call. I am joined, as usual, by my senior leadership team across the globe. And I will get them involved as needed here in the Q&A.

Our agenda is pretty straightforward for us. I'll make some brief remarks about the quarter, focusing specifically on products and operations. And then Bernie will provide some detail on the numbers, and we'll get straight to your questions. As usual, we are speaking from slides. And hopefully, you can access those on our website or download them. I think it will make a presentation a lot more meaningful for you.

I'm going to start on slide 4 with some key highlights or takeaways from the quarter. Number one, this is an important inflection point for us. We have always indicated that the first half of 2016 was really an investment period where we would be laying the groundwork for next year and 2018. And that's reflected in our financial results, where the benefits of our Liberty Go initiatives and convergence and product innovations are just now starting to emerge as we head into the second half of the year.

That confidence is supported by strong subscriber growth in the quarter. We added nearly 280,000 new RGUs in a three-month period. That's double what we did last year in the second order and up 80% from just the first three months of the year. And it brings year-to-date net adds to 430,000, with material improvement across all our products and essentially all our markets, too. A bit more detail on that in a second.

By far one of the most accretive and fundamentally sound things we are doing is expanding the reach of our networks through our new-build program. With every meter we trench and every fiber we pull, our confidence in this capital investment grows. Homes released in June were up 40% over May, and we have already activated 500,000 new homes on our way to 1.5 million for the year and 7 million on a cumulative basis between now and the end of 2018. And these are all high-return projects that are going to drive subscriber and cash flow growth in the future like we are beginning to see right now in the UK.

We also made progress in two other key value drivers for us. B2B revenue was up 11% in the quarter. That was supported by SOHO, in particular, where we are targeting new customers with superior speeds and business-class services. In fact, SOHO revenue was up 40% year over year. And our mobile business, in my view, is really taking shape strategically and operationally. When you include cable and wireless, we now serve over 10.5 million mobile subs. We added 100,000 postpaid SIMs in the quarter. We are marketing 4G services in five European countries with four more pending. And, of course, in Belgium we recently launched our first true converged quad-play bundle on the back of our BASE acquisition.

As you might have read, we also recently got conditional Phase 1 approval of our joint venture with Vodafone in the Dutch market, where I feel we're making really good progress. We are cooperating exceptionally well with them. There are substantial synergies ahead of us in this deal, which I think is going to be a win-win not just for customers but, of course, for shareholders.

Bernie is going to take us through the numbers in a moment. But we have spent considerable energy and resources in the first half of the year putting in place the building blocks of our future growth, which, as I said, should reach an accelerated pace in the second half of the year, driven by new-build mobile and B2B and also supported by the realization of some significant scale-based efficiencies across our footprint. You may have noticed that indirect costs, for example, in the second order were largely flat year over year. Now that we have closed the BASE in cable and wireless deals, we have also updated our guidance. And I'll take you through that in a minute.

The punch line, however, is that we are not changing our mid-range or three-year guidance of 7% to 9% OCF growth through 2018. And I will point out in a minute that we also see some upside at LiLAC.

As ever, our balance sheet is strong. It remains strong, with our currencies and interest rates hedged and an average maturity of seven years. We also generated just under $500 million of free cash flow in the quarter. And since closing the cable and wireless deal in mid-May, we have reignited our share repurchase program, as we told you we would. In just the last week of June, we bought back $300 million worth of stock, bringing total buybacks in the second quarter to $700 million. And that, for those who are keeping the math, would leave $3 billion on our buyback authorization through the end of 2017.

Slide 5 provides a bit more detail on our accelerating subscriber growth. It shows you the first and second quarter for this year. And last year -- I'll just make it you points here, and then I'm going to dive into some country details. But clearly, we are excelling in broadband. You will see that in the dark part of the bar chart. Net adds in the quarter were 191,000, up 40% over last year and up nearly 30% on a year-to-date basis.

We continue to push our speed advantage over VDSL in every single market. We are typically twice as fast as the incumbent. We are offering up to 500 megabits per second. And to complement these speeds, we are rapidly rolling out a super-fast Wi-Fi router. And we've already put 1.2 million those into the market. We are realizing how important that is in the home.

You also notice that we are consistently showing improvement in our video subscriber attrition. We lost only 63,000 TV subs in this last quarter, compares to 138,000 in the first quarter. That is driven, of course, by some customer growth in the UK but also the rapid rollout of advanced TV services. We now have nearly 7 million households or 45% of our digital TV BASE watching and enjoying our entertainment services on an advanced platform. We've had huge success with Replay TV, now live in five markets, with over 60% usage rate. And our TV Everywhere services, which are available throughout Europe to nearly 15 million eligible households with usage growing every single month.

When you add it together, we have more than doubled our net add performance year to date, compared to 2015 with 433,000 net new RGUs through June 30, versus 211,000 for the same period last year. And that trend bodes well for the second half. Last year, we added over 660,000 new RGUs in the third and fourth order. Obviously, we are shooting to exceed that number in the second half of this year, all of which is great fuel for 2017 growth.

And on the following two slides I'm just going to summarize some key information, key developments in our top four markets, starting with UK and Germany on slide 6. Virgin Media in the UK continues to be our engine of growth, not just today but certainly over the next two years. Product enhancements, a strong marketing campaign, great bundles are driving higher sales and lower churn. In fact, Virgin had record customer additions -- so, actually new homes connected -- of 31,000 in the UK and 66,000 RGU adds. That's the best second order since 2008.

While Project Lightning is in full swing, I also want to point out that half of those customers came from our legacy footprint. So, really the best is yet to come from our new-build program.

Our ultrafast network remains the speed leader in the market. We are usually 3 to 4 times faster than BT and other competitors. And of course, we haven't even watched Euro DOCSIS 3.1, which will take that speed advantage higher. Virgin Media is also investing in its TV service.

Earlier this week, we initiated the most significant upgrade of our TiVo platform ever. It's a brand-new user interface, beautiful. And later this year, we will launch our EO set-top box, which is a sleek 4K box, the one we are rolling out across Europe. And, again, another positive step.

Project Lightning, as I mentioned, is at full steam ahead. Our 2016 target is connect to over 500,000 homes. So far this year we have built over 140,000 premises. And all the planning has been done to more than double our build-out in the second half. So we feel really confident on that front.

Most importantly, though, penetration rates, ARPUs and build costs are all right on track. We just had the whole Board in London about two weeks ago, went through all the details, and it's looking terrific. So you should definitely see an acceleration in growth from this point.

Now, I just want to address Brexit quickly. We have been asked many times what it means to us. While we didn't support Brexit on a corporate level, we do respective the voters' decision. And while we favor stability and regulatory certainty, we are not actually that worried at all about the future here. We've seen no slowdown in our sales levels in the UK, and I think consumers are the ones that matter. Actually, we are up year over year. Across all of our markets, consumers are looking for fast, reliable and seamless connectivity and a wide range of high-quality content. The UK is no different. Consumers want world-class communications content, and we are delivering that to them.

And then one last point -- there's very little risk from currency fluctuations in the UK. Of course, our borrowings are all hedged, and substantially all of our OpEx and CapEx is in sterling. So, feeling very positive about that.

Moving to Germany, Unitymedia delivered a great quarter. After taking price increases in the first quarter, we switched our focus to volume growth in the second quarter. And we headed over 100,000 new RGUs, up 20% from last year and proving that there's still a lot of volume growth in this market. The broadband speeds are as important as ever in Germany. We are still 3 to 4 times faster than DT, even where they have advanced vectoring, and, of course, much, much faster in the remaining 80% of the market.

Our Horizon platform in Germany is adding great momentum. We had 42,000 new Horizon customers in the second quarter, bringing that total to over 500,000 -- in fact, 527,000. That's just 8% of our video base. And when you look at markets like Switzerland, where Horizon is at 26% of the base, we have a lot of potential here. And then, of course, we've also improved Horizon Go. We added HD channels. We've got 1 million Wi-Fi home spots, a lot of really positive things happening here.

And then one last kicker -- we expect to see some real benefit from our new-build activity in Germany as well as a robust SOHO strategy. So, lots of positive things in what is already our most profitable operation with 62% OCF margins.

Slide 7 highlights Holland and Belgium, and I'm going to start with Ziggo, where investment in our products, our content and our functionality is actually really paying off here. Year over year, our RGU attrition was reduced by 70%. We continue to add broadband subscribers, albeit in small amounts. But we've had four straight quarters of positive broadband growth. Overall, customer churn in the second quarter was our lowest in two years, partly supported by our new service programs and our product innovation, but also by our Horizon TV base, which has now doubled to over 900,000. We are seeing Horizon Go usage benefiting from a new marketing campaign. We are going to put the Olympics on our Replay TV service. And Ziggo Sport is now a leading broadcaster in this marketplace with, in fact, the highest customer satisfaction of all of our products, and we haven't even launched the English Premier League, which happens in about two weeks.

And, of course, broadband superiority continues. Now 50% of our Internet base in Holland of 3 million, actually, have migrated from 120-meg to 150-meg product. So with the Vodafone JV around the corner, we are feeling very positive.

And finally, in Belgium we are squarely focused on convergence with our most advanced quad-play offers anywhere. The BASE mobile integration is on track, and we are targeting an annual synergy level of about EUR220 million by 2020; that stays the same.

But even more exciting, we recently launched what we call WIGO, which is the first fully integrated quad-play offering in Europe that we know of, and with the best content and seamless connectivity across fixed and mobile for the entire family and business. After only nine working days at June 30, we had already added 13,000 WIGO subs, bringing quad-play penetration now to 22% in that market.

On top of that, Telenet has always focused on customer experiences. We have been out to visit almost 250,000 customers just to ensure optimal Wi-Fi service, that they understand how to use their apps and all the various services we provide. Interestingly, Telenet had a very successful premiere of a TV series called Chaussee d'amour, which they produced and broke records across Flanders with 500,000 SVOD takes in just the first two weeks.

So, lots of good things are happening here. Our top line in OCF growth was partly offset by headwinds from BASE, as we described. But we are well underway to create a leading converged player in Belgium, which is a great segue to slide 8, where we provide an update on our guidance.

As you know, in our February earnings call we issued guidance for each of Europe and LiLAC. Of course, most importantly, we issued rebased OCF growth guidance for 2016 and for the next three years. And in that case we excluded certain assets. So in the case of Europe, we excluded Ziggo, given the pending JV with Vodafone. And we excluded BASE Mobile in Belgium since the deal had just closed and we were not prepared to provide any forecasts.

And of course, for LiLAC, we excluded cable and wireless since the transaction had not yet closed. We also provided PP&E guidance as a percent of revenue on largely the same basis, so excluding BASE and cable wireless. And we issued our forecast for free cash flow, which typically includes any and all assets we believe contribute to free cash during the year, regardless of when they were acquired or when they might be disposed.

So today we are going to update and hopefully clarify all of our guidance to include BASE and cable and wireless, since those operations are obviously squarely in the fold. And I'll start at the top of this slide, where we've outlined guidance for Europe.

So previously, we were targeting 5% to 7% rebased OCF growth for 2016, again, excluding BASE and Ziggo. And after layering in BASE, which was underperforming when we closed the deal, and as I just described is in full integration mode, we are revising that rebased OCF growth figure to 4% to 5% for 2016.

Similarly, we have updated the PP&E and free cash flow guidance to include BASE, and those move just slightly. So now we are forecasting 26% to 28% PP&E as a percent of revenue -- it was up 100 bps -- and $1.8 billion of free cash flow versus the $2 billion, which reflects mostly one-time investments in BASE this year as well as some FX adjustments.

So just a reminder -- this is largely a timing issue in Belgium. Right? Synergies between Telenet and BASE are still forecast, as I just said, to be EUR220 million. And Telenet is forecasting robust OCF growth beginning next year and especially in 2018. And that's just one reason why we are not changing our three-your outlook on OCF growth in Europe, which we continue to forecast at 7% to 9% for the three years and in 2018.

And I'll finish off my remarks on slide 9 with a brief update on LiLAC. We are now coming up on about 80 days since we closed the cable and wireless deal, which has added significant strategic relevance, scale and diversified growth opportunity for LiLAC across the board. Annualized revenue for LiLAC is now $3.6 billion, and that is spread across multiple regions and businesses, which we show here on this slide. Despite a relatively large geographic reach, 80% of that $3.6 billion of revenue comes from, really, six markets. Chile represents a quarter of LiLAC's revenue, followed by Panama at about 18% and Puerto Rico at 12%. And then you can get another quarter or 24% of that revenue comes from three large island markets: Jamaica, Bahamas and Barbados. And so these are really the markets that are going to move the needle for LiLAC today and tomorrow.

From a business line point of view, B2B and the undersea fiber business represent about 30% of revenue for LiLAC now. And mobile is about 20% of LiLAC revenue with consumer and fixed line services, with video, voice and data making up that balance.

On the commercial front, growth was strong in the second quarter with over 45,000 subscribers added, bringing LiLAC to 5.4 million fixed RGUs. In fact, VTR delivered its best-ever customer growth with 24,000 new households connected, and its best RGU performance in three years with 37,000 net adds. Cable and wireless contributed about 7,000 RGUs during the six weeks that we actually owned it and included it in the quarter. And then Puerto Rico gained about 2,000 RGUs in a tough macro environment.

Beyond fixed line, as I just mentioned, cable and wireless brings a significant mobile presence to LiLAC. The total mobile base is now a combined 3.8 million subs in the region, and cable and wireless gained about 150,000 mobile subs just in the last year, fueled largely by mobile data. In fact, mobile data penetration at cable and wireless is up 7 points to 53%, and that's an increase of over 300,000 data customers in mobile.

And then VTR added 7,000 mobile subs, which is a great return to growth for them.

In just these first 11 weeks or so since we have closed cable and wireless, you might expect there has been a lot that has gone on here. We have really, I think, created a seamless management integration, including the appointment of John Reed as interim CEO, who has done a great job. We are able to consolidate cable and wireless into our financial results, not an easy task. We aligned key functions and technology roadmaps. We have launched a full strategic review across geographies and business units. We are undergoing a detailed synergy assessment, of course, which we expect to complete in the third quarter. We are already benefiting on the CapEx side. As you can imagine, we are bringing our scale to bear immediately with key vendors.

And in the meantime, cable and wireless remains on track with their previously quantified synergies with Columbus, which are very, very important.

From an operational point of view, across the region we are focused on a few key strategies -- number one, targeting investments to enhance our net superiority and expand our footprint. Right? At cable and wireless, it's critical that we strengthen our network position with investments in 4G and various fixed-line topologies, depending on the market. Recently, for example, we launched LTE Advanced in the Caymans. We rolled out fiber to the home in the Bahamas, and we had a significant upgrade program across Panama. In Chile and Puerto Rico, also we are on track to collectively deliver new builds and upgrades of about 150,000 homes in 2016. And we are continuing our one-gig upgrade in Puerto Rico as well.

Commercially, broadband and converged offers are the key competitive tools for LiLAC. With a bundle ratio of about 1.8, there is no doubt we have substantial opportunity to sell incremental services to our customer base. And in cable and wireless, we see tremendous potential in broadband. And certainly as we refine our go-to-market strategy in each country, broadband superiority will underpin that approach.

We're also strengthening the video proposition across the region. We have launched new advanced video platforms in Panama, the Bahamas. Cable and wireless is delivering Flow Sports and Flow Sports Premier, which is a great service across the Caribbean. And we will carry the Olympics and an English Premier League service starting this month. And we are expecting to complete the rollout of next-gen video services in Chile using an advanced interface there as well.

So in our mind, LiLAC is off to a very busy start. The M&A pipeline is filling up, as you might imagine, with some interesting opportunities. And I think, most importantly, we are confirming our 2016 guidance today at 5% to 7% rebased OCF growth, now including cable and wireless. We're also confirming our midrange guidance of 7% to 9% rebased OCF growth, which looks solid to us. In fact, we think there could be some upside to that as we finish refining and improving the LRP for an integrated cable and wireless and LiLAC.

So, a lot of very positive developments here across our business. We are really, really encouraged and excited about the second half of the year. And I look forward to getting to your questions. Now I will turn it over to you, Bernie.

Thanks, Mike. On the following slides I will take you through the financial results for the Liberty Global Group, which consists of our European operations including BASE since February 11, followed by an overview of the performance of the LiLAC Group, which consists of our operations in Chile and Puerto Rico and, since May 16, cable and wireless.

On slide 11, we present financial results for the Liberty Global Group. When adjusting for FX and the impacts of acquisitions, we grew our rebased revenue by 3% year over year in the first half of 2016, in line with our top-line growth in the first half last year. Our rebased OCF increased 2% during the first six months.

Our first-half property and equipment additions in Europe were 23% of revenue, above the 22% of revenue that we reported in the prior-year period. The increase in absolute P&E additions in the year-to-date period was principally due to increased line extension and scalable infrastructure spend related to new-build and upgrade activities across our footprint.

In terms of the breakdown of our first-half P&E additions, 46% pertains to line extensions, upgrade and rebuild and scalable infrastructure. 30% was related to CPE, and 24% was related to support capital. As shown earlier on Mike's slides, we are updating our full-year P&E guidance, now including BASE and excluding the Netherlands, to range from 26% to 28% of revenue. Consistent with this guidance, our spend on new builds is expected to accelerate materially in the second half of the year.

From a free cash flow perspective, Liberty Global Group reported free cash flow of $412 million year to date. The decline in our free cash flow in the first half of 2016 as compared to first half of 2015 is largely attributed to lower benefits from vendor financing activities. For full-year 2016, we expect to deliver $1.8 billion of free cash flow including the Netherlands and BASE and adjusting for latest FX rates.

Slide 12 shows the Q2 financial performance of our operations in Western Europe, which represent over 90% of Liberty Global Group's revenue in OCF. Virgin Media, comprising our businesses in the UK and Ireland, posted rebased revenue of 3% and OCF growth of 1% in Q2. Virgin Media's top line continued to be supported by higher cable subscription revenue, partly driven by increases in broadband volumes and higher mobile revenue including handset sales. Virgin Media posted 1% rebased OCF growth in Q2, as the aforementioned revenue growth drivers were partially offset by higher programming costs and the negative impact on our current-year growth of an $11 million nonrecurring impact of reduced network infrastructure charges in Q2 2015.

Looking ahead, we anticipate rebased segment OCF growth in the second half of 2016 to be higher than the first half of the year, as we expect to benefit from continued volume growth, increasingly driven by Project Lightning and ARPU improvements.

Unitymedia increased rebased revenue by 7%, up from 6% growth in Q2 2015, driven by an increase in both ARPU per RGU and subscribers. Rebased OCF growth in Germany was also 7%, mainly following the revenue growth and supported by strong cost controls. In Belgium, Telenet delivered Q2 rebased revenue growth of 3.5% as stronger growth in Telenet's cable business was partly offset by a rebased decline in revenue at BASE, the recently acquired mobile business.

Rebased OCF growth at Telenet was 1%, similar to the revenue result. Telenet's OCF growth was adversely impacted by an OCF contraction at BASE.

Ziggo in the Netherlands reported a 3% rebased revenue decline in Q2, while OCF declined 4%. Ziggo's rebased revenue was consistent with the past three quarters, reflecting the impact of RGU losses over the last 12 months and lower ARPU per RGU.

Looking ahead, we expect to benefit from the July 1, 2016 price increase. But due to subscriber losses over the last 12 months and the current competitive environment, we foresee continued top-line pressure throughout the remainder of 2016. Our weaker rebased OCF result at Ziggo was driven by lower revenue and higher programming costs that were only partially offset by lower indirect expenses.

And finally, Switzerland and Austria delivered rebased revenue growth of 2% and rebased OCF growth of 4% in Q2, while improvements in mobile revenue and higher ARPU per RGU more than offset the effects of subscriber attrition. Our OCF margin expansion was helped by lower staff and network-related expenses that were partly attributed to the integration of our Swiss and Austrian organizations.

The next two slides are focused on our balance sheet to highlight what we are doing to manage our capital structure. I am on slide 13 now. At June 30, 2016, total third-party debt attributed to the Liberty Global Group was $46 billion and cash totaled $786 million. We remain very focused on keeping our tenor extended. And at Q2, our average maturity was approximately seven years, with over 90% due in or beyond 2021. Our blended fully swapped borrowing cost of debt improved to 4.7% as compared to 5.2% one year ago, as we took advantage of recent market conditions to restrike portions of our derivative portfolio.

To manage risk, our debt structure is organized around ring-fenced borrowing groups that include no cross default provisions or parent guarantees that extend outside of the borrowing silos.

Finally, our debt remains hedged, as we have swapped all of our non-functional currency exposures to match local currency cash flows. And we have fixed substantially all of our floating-rate debt. Whenever we issue US dollar or other debt that does not match the underlying cash flows of the operating business, we immediately swap it into the functional currency.

Also in terms of OpEx and CapEx, our non-functional currency expenditures are limited. And we look to hedge this risk through the use of forward contracts.

On slide 14, we show Liberty Global Group's leverage, share repurchase activity and our liquidity position. Our gross and net leverage ratios at the end of Q2 stood at 5 times and 4.9 times, respectively, excluding $2.3 billion of debt backed by the underlying shares that we hold in ITV, Sumitomo and Lionsgate. The decrease in these ratios from the end of Q1 2016 were due to a sequential increase in the reported quarterly OCF and a lower debt balance due to the weakening of all of our borrowing currencies against the US dollar. Liberty Global Group's liquidity position at June 30, 2016 was approximately $4.6 billion, comprised of nearly $800 million of cash and $3.8 billion of unused borrowing capacity. Regarding our buyback program, in Q2 we repurchased nearly $700 million of our shares, including $300 million in late June following the Brexit vote in the UK. By the end of 2017, we are committed to purchase an additional $3 billion of stock to complete our current $4 billion repurchase authorization.

On slide 15, we present the first-half results of the LiLAC Group, which includes cable and wireless from May 16, 2016. When adjusting to neutralize the impact of acquisitions and FX, our operations attributed to the LiLAC Group generated rebased revenue growth of 3% and rebased OCF growth of 6% for the first half. I will provide more color on our Q2 results on the next slide.

P&E additions for the LiLAC Group increased from $126 million in the first half of 2016 to $205 million in this first half of the year, primarily as a result of the recent acquisition of cable and wireless and, to a lesser extent, the Choice acquisition in Puerto Rico. In terms of CapEx as a percent of revenue, the first-half this year stood at 23% as compared to 21% in the prior-year period, with a higher percentage primarily attributed to the inclusion of cable and wireless for part of Q2 2016.

Looking forward, we are updating LiLAC's 2016 guidance range for property and equipment additions to include CWC. The new range is 19% to 21% of revenue, a decrease from our original guidance of 21% to 23%.

In terms of free cash flow, LiLAC posted a free cash flow contraction of $15 million year to date as compared to free cash flow generation of $28 million in the prior-year period. The year-over-year first-half decline was primarily the result of negative impacts, higher income tax payments in Chile, and the inclusion in Q2 2016 of cable and wireless' negative free cash flow of $22 million, partially offset by organic OCF growth and the positive impact from vendor [financing] activities this year. We continue to expect limited free cash flow for full-year 2016, with our guidance now including cable and wireless.

Slide 16 provides more detail from a geographic perspective. Cable and wireless experienced a 1% rebased revenue contraction from May 2016 through June 30, as our revenue growth in Jamaica and Panama was more than offset by declines in Barbados, the Bahamas, and Trinidad and Tobago. Cable and wireless OCF increased 4% on a rebased basis during the post-acquisition period. This OCF growth includes the benefits of staff and network-related synergies from CWC's integration with Columbus, partially offset by, among other factors, the higher integration costs.

Our Chilean operation, VTR, reported year-over-year rebased revenue growth of 4.5% in Q2 2016, driven by both subscribers and ARPU per RGU and growth in our mobile subscription revenue. Meanwhile, VTR's rebased OCF growth for Q2 was 2%. This growth rate reflects the impacts of increases in programming, copyright and other costs, due in part to the impact on US dollar programming costs of a weakening Chilean peso.

In Puerto Rico, we posted a 1% year-over-year rebased revenue growth during the second quarter, led by growth in B2B. Disciplined cost control supported our 5% OCF growth at Liberty Puerto Rico.

With respect to leverage, the LiLAC Group ended Q2 2016 with adjusted gross and net leverage ratios of 4.5 and 4.1 times, respectively, after giving pro forma effect to include the OCF of cable and wireless. At June 30, 2016, the LiLAC Group's average tenor of attributed third-party debt was just under six years, with less than 10% of maturities due prior to 2022, and our blended fully swapped borrowing cost was 6.5%. The LiLAC Group's liquidity position at the end of Q2 2016 was approximately $1 billion, including $500 million of cash, and the aggregate unused borrowing capacity under our credit facilities of just over $540 million.

To wrap up, we have updated our 2016 guidance to include both BASE and cable and wireless. Our new-build program is picking up steam. And we are on track to hit our target of 1.5 million new homes for the full year. The accelerated new-build activity in the second half is expected to lead to continued improvement in our overall RGU performance for the rest of the year. In addition, our OCF growth in Europe and the UK, in particular, is expected to ramp in the second half as we benefit from Liberty Go, including the new-build activities.

At LiLAC, we have kicked off the integration of cable and wireless and continue to expect 5% to 7% rebased OCF growth for the full year. And finally, we remain aggressive buyers of our stock at current levels.

And with that, operator, please open the call for questions.

(Operator Instructions) Amy Yong, Macquarie.

I was wondering if you could talk a little bit about some of the content investments you have made recently. You spent some time talking about how he the video bundle is to you in terms of Horizon and TiVo. But what about some of the investments you are making, whether it's all three media and, I guess, Lionsgate ITV.

Then my second question is on LiLAC. What changed the initial expectations of the $125 million synergies that cable and wireless laid out, and how quickly do you think you can talk about the synergies to the market? Thank you.

I think the -- let just start with the LiLAC question. As I think Bernie mentioned, we are on track with the $125 million synergies that they represented. We don't see any issues with those between Columbus and cable and wireless. And thus far, I think tracking exactly as planned. We have not yet disclosed the synergies, and that's what we are working on, between cable and wireless, LiLAC and Liberty Global. Those numbers, we think, will also be substantial. But remember, during the acquisition process we are not able to get a lot of information. Because of UK takeover codes we didn't really have the ability to project clear synergies between cable and wireless and us. And that we expect to do in this quarter. And to me that's going to have a material impact on the overall expected synergies in the next three-year time frame. But as soon as we have that, we will let you know. The main point is tracking on the disclosed synergies of $125 million.

I will also point out, because I probably should have more clearly, that some people have noted that the EBITDA or OCF number for cable and wireless in the June quarter looked meaningfully different than what maybe consensus was. And we could have and should have done a slightly better job of explaining that. There were a number of issues between the March quarter and the June quarter including some definitional and policy-related matters when we went from IFRS to GAAP, which we do provide (inaudible) detail on things related to integration costs and how GAAP requires you to attribute integration costs and revenue recognition issues, which we think is cleanup. There were some accrual releases in that March quarter, maybe to be expected perhaps when you are anticipating closing the transaction. But no question there were some things that you wouldn't see repeating.

And then, obviously, some seasonality in the business. We expect the LiLAC second half -- sorry, cable and wireless second half to be closer to the trend that people are expecting, certainly mid- to high-single-digit rebased growth second half over last year's second half. We will do a better job of explaining that. I think we should have made clear to you that there were some accounting definitional issues between the two quarters, some accrual releases that the Company had decided to take in the fourth quarter, some seasonality. But for the most part we are tracking back to levels that I think people are expecting.

On the content question, I think we have been pretty clear about that. We are starting to see some things pay off. We will be announcing some production activity with All3Media across our footprint. So we have decided to produce and cooperate with them on four scripted series, and that will find their way into our networks exclusively, at least at the outset. We are doing some great work between All3Media and our Irish broadcast networks. The Lionsgate relationship is off to a great start. We think there's going to be some interesting cooperation there. We just renewed our Discovery deal, which we think is going to be very positive from the point of view of sports and Olympics and all the rights that we need to get our customers happy.

So I don't think the content investment strategy has changed materially. We are looking at smart, opportunistic investments, not investments that significantly change the weighting of our balance sheet or our cash flows, but where we can get inside and make some important strategic moves with that partner. And thus far, that's paying off. So I think you should expect more of that.

The broadcast investment in Brussels is paying off. That show hit it hard -- 500,000 views; was one of the top shows in Belgium. And we did that with our broadcast partner and got directly involved. And it has been a huge benefit for Telenet.

So those are just smart, clever, opportunistic and offensive moves that don't cost a lot but will have a big impact in our local markets.

Got it. Thank you.

Daniel Morris, Barclays.

You showed a very interesting Lightning chart in Q1 showing the 13%, 22% and 26% penetration rates after three, six and over nine months. I just wondered if you got an update on those data points or any comments around whether you are seeing a shift in that momentum since Q1, or it is still very similar. And then I have a little follow-up on ARPU, if I could.

Punch line on that -- and I'll let Tom provide some color -- is we are seeing very good penetration rates, in the mid-20s after nine months. And nothing has changed our view. I think the forecast that we gave around penetration, ARPU and the build cost in Lightning.

Tom, you might want to provide some color on the first half or perhaps the second half.

Thanks, Mike. And thanks for the question. I'll confirm the point that we are seeing a continuation very much of what we've seen in the previous quarters of the penetration is very much on target. Remember, we said 39% after three years. And we are achieving 26%, roughly, after the first nine months at the moment across the various types of networks that we are building. The volume is picking up. We've seen a further pickup in this quarter. And to give an indication, we have at the moment in the build program that was issued to our build partners, 700,000 premises. At this time last year that equivalent number was about 50,000. So in terms of the engine that is driving this, it's now really getting into gear, and we continue to have a high degree of confidence that the execution is on target.

That's very clear. Thanks. Just the brief follow-up was just on the UK ARPU trajectory. There's obviously a bit of pressure, and I wondered if that was back-end-loaded customer additions, the Lightning mix or something else. So just color on the UK ARPU, if you could.

Well, there's one regulatory issue I think was mentioned in the release where we did lose a bit of revenue in the way we billed people on paper bills that could make a [concession] there, and that did impact the numbers. But fundamentally what's happening here is that as we are ramping up the pace of the business in the last 12 months, we have increased gross additions by an annualized rate of over 100,000 customers. These people are inevitably coming in on promotional deals that generally go three, six, nine, 12 months. You have also seen in the first half of this year we have, to a greater extent, relied on [jewels] to drive the growth of the business. We've got good growth out of that, typically. Virgin Media in the UK had flat growth in the first half. You will see that swing hard to triples in the second half, as it normally does with football season, as Mike just mentioned. So we are very confident that we will get those people up as they come off the promotional discounts, that we will give more triples in the second half.

But the other thing I would mention, that we are conscious of our ability to offer a great product, 200 meg going to 300 megs. And so we will be looking at our ability to take price across the base. So with the combination of these things we are very confident about the ARPU going forward.

Very clear. Many thanks.

Jeff Wlodarczak , Pivotal Research Group.

Was hoping to get more color on the implied healthy EBITDA acceleration in the second half. Is that mainly Liberty Go and Project Lightning, which you touched on on the call? Or are there other things breaking your way in the second half to accelerate your growth? And then I've got a follow-up.

Jeff, I think it's a combination of things. On the top line it is going to be the impact of new builds. Tom just gave you some numbers around the queue, if you will, for the pipeline of new homes coming online. We know that's a big part of it. Definitely going to see some benefits of the scale efficiencies I referenced. When we look at the second quarter we think indirect costs as we adjust them are flat year over year. And we've made that clear, that that's our goal is to try to keep those numbers flat. And I think you should expect that in the second quarter the last nine to 12 months planning are certainly going to start to picking up on the cost line.

But on the revenue line it's all the factors we've discussed. It's new build, for sure. In the UK it's also selected price increases where we might take them across Europe. It's going to be our B2B business and mobile business layering in. You're going to start to see a turnaround slowly in places like Belgium, where that integration, as we've signaled, has impacted their numbers, at least in the first half or first and second quarter. So it's all the main drivers we have identified in the past. And so far we feel good about it.

Number one, and perhaps most importantly, is the subscriber growth we have achieved in the first half of the year. We are 2X what we did last year. So there's no question that the growing RGU momentum is going to benefit us both in the second half of the year and going into 2017. So that is the good news, for sure. Not only are we seeing benefits around new builds and B2B and mobile, but also just raw customer and subscriber growth, which is, of course, going to drive your revenue more than anything. So that's where the confidence comes from.

Thanks. And then I'm looking for more color on Switzerland. You had the very large price increase which you announced in the fourth quarter hit in the first quarter and hit your RGU results. Are you seeing some lead-over from that in the second quarter? Is that more competition related? And what are you doing to stabilize Switzerland?

I will let Eric -- Eric Tveter's on. I'll let him pop in. But Switzerland is really an isolated issue around broadband. Do you want to address that, Eric?

Sure. In the second quarter we rebranded, dropping the legacy Cablecom name. Some of the bright spots -- our mobile growth accelerating steadily; customer experience and product satisfaction as well as churn reduction are improving. But the main competitor has been effective at the low end in the first half. And we have a competitive response for them, and I expect our sales performance to improve in the second half with a strong wrong marketing effort and the aggressive rollout of our new Connect Box to almost 200,000 Internet customers to drive Internet market leadership and provide seamless connectivity.

So I think the price increase had an effect. And I think in the next month we will also improve our fixed/mobile convergence products in that our megadeal is working well, which is a three-plus-one product. And I'm, again, confident about the improved performance in the second half.

Thanks.

Vijay Jayant, Evercore ISI.

Mike, I just wanted to get some clarification that the conclusion of BASE is about a 50-basis-point drag on EBITDA and about $100 million impact on free cash flow, given that we have no sense on that asset is doing.

And second, obviously your comments and your expectations are suggesting that we are at an inflection point now with Liberty Go kicking in. Given your growth in the first half of 2.7% EBITDA for Europe and implying the new target suggests 5.5% to 6.5% EBITDA growth. So the question really is -- I think it was asked earlier, but the confidence on the cost [sides] that you control -- is there any way you could size that for us and let us understand why that is really achievable, given that your underlying business seems to be at least 3% growth right now?

Sure. Charlie, you might want to work up -- I don't think John is on -- an answer on BASE, if you have it handy. I don't know that we have disclosed the specific or quantified the specific impact except to say that the business was clearly -- we knew what it was doing when we bought it. It was in some structural decline. We knew that it was going to take some integration effort to get the business back into the Telenet fold. So if, Charlie, you want to quantify some of that? I don't know if we disclose the that, I don't know if we disclosed the basis points and cost implications. But go ahead.

Very quickly, you are right. Again, (inaudible) what has been disclosed in the Telenet. But certainly on the Liberty level, that with the numbers you mentioned, 0.5%, and broadly $100 million is about right, clearly exchange rate dependent, blah blah blah. But that is right.

Yes. I think, Vijay, on the Liberty Go side and on the cost side, we have in the past, and we can do it again, explain where exactly we are finding those benefits. But it's not rocket science. As we brought this Company together, as we changed the operating model, as we as the management team set our sights on improved efficiencies, there are a dozen work streams underway, covering everything from customer call centers to supply chain to, of course, procurement on the CapEx side to consulting costs -- I'm sorry -- for consultants, but that's coming down, to travel. There are just dozens and dozens of things we are doing as a team collectively and cooperatively to get our cost base where we think it ought to be. So it's not just costs that are going to drive our performance, of course. It's revenue, and that's where the rubber meets the road.

But we have shown in the past, and I think we deserve a little bit of credibility here, on our ability to drive efficiencies. I don't think we've missed a single synergy budget in 10 years of acquisitions. You can go back and check that. So when we say we think we can bring costs in online, I think we should be trusted.

Revenue stuff -- that is where we make or break this thing. And thus far we feel extremely confident on things like Lightning and new build. But our work is cut out for us. So we have to work our butts off and figure out how we get the engine moving in the second half. We have headwinds. Ziggo is a headwind. That deal is going to be a terrific transaction for us; we all know that. It's going to generate cash, free cash, and it's going to be a stronger business.

So we have to manage our headwinds, as we do. But I feel pretty confident about it. I don't think we would be repeating ourselves. I don't think -- we had an opportunity here. I don't think we would be confirming our midterm guidance if we didn't feel we could achieve it. So I think that's the best answer to that question.

Great. Thanks, Mike.

Frank Knowles, New Street Research.

I wonder if you could expand a bit more on your comments on content. I think you noted that both in the UK and the Netherlands content costs had gone up a bit in the first half. Could you just refresh our view on the content cost per sub on your main markets and where they might be heading, given your increased investments in some original content and local sports and so on?

Yes. Our content costs across the board are up mid-single-digit, I think maybe less than that. But there's going to be puts and takes. We did announce the Discovery deal that required us to make good on some earlier periods. So while that comes with huge rights and all sorts of great positive content benefits, clearly that was something that has impacted the second quarter.

We don't see anything specific on the horizon of that nature that should be impacting us. We are still in the high single digits on a cost-per-sub basis, $7, $8, more or less. And most of the increases year over year are going into our SVOD content. Things like the production deal that I described, which I probably described a bit prematurely, that is single-million euro kind of dollars here. We aren't suggesting for a second that we are going to start spending huge amounts of money on original content. It's a smart, clever, relatively small investment by multiple markets to get some content on our platform that's unique to us.

So I think the content picture remains as we have described it in the past. The pie is shifting. We are putting more emphasis over time in SVOD content, in the rights that drive our digital TV Everywhere platform, which is performing extremely well. We are working our tails off to manage linear costs where we can. But big, big providers like a Discovery, who drive huge amounts of rights onto our nonlinear platform, are critical for us -- and you have the Olympics and other things.

So you are going to find some of those things happening from time to time. The picture still remains, in our minds, extremely positive. We are in the -- if you take premium out of the UK, we are in even lower content cost on a per-sub basis, more like $5 to $6. So we are in a very advantaged position relative to, for example, US operators when you look at our content picture. And it's our jobs to ensure that we are driving great product into the stuff we know customers love -- TV Everywhere, nonlinear rights, VOD, et cetera -- and that we are managing the fixed costs as we go or the more linear costs as we go. And I think we've done a good job. Bruce Mann, who we hired as our head of programming, is working extremely well across our footprint. And we just bought one of our new -- one of our core content guys into LiLAC to drive those content costs. So I think if you look at it globally, it's a huge priority of ours. And I think we're going to have good success there.

That's really helpful. Thank you. If I could have a quick follow-up just on the advanced TiVo and the new EOS platform you mentioned, if you could just talk a bit about what you think the effects of those are going to be maybe in 2017 and onwards. Is it -- are we going to see any sort of meaningful reduction in CPE cost? Is it primarily to improve retention or ARPU by moving people up the chain in the video world?

I'll let Tom talk about the TiVo UI itself. But the EOS box -- and Balan is on here as well -- is certainly just one good example of how we are driving scale across the footprint. It's a 4K box. It costs much less than our current Horizon boxes. It's cloud based. It is essentially going to be the workhorse of our video platform. It's powerful, inexpensive, with great scale benefits. And we're going to roll that out wherever we can, of course; and the faster we roll it out, the better. And that's what we should be doing. That's what you would expect a company of our size to be doing.

Balan, do you want to add anything on that, on the EOS box?

I think you've covered all the specs. This is going to be, certainly, the box that will be rolled out all across Europe. And we'll bring it to South America as well. And we will have a very easy way to move UIs on it, so you could have TiVo one day on it and you can have the Horizon UI on the same box the next day. So it's a very fungible, low-cost, high-powered box.

And the TiVo UI -- I just saw it a couple weeks ago; Tom, you can add to it -- looked beautiful, great, super. It's a terrific-looking UI. I think we will be state-of-the-art in that market with exactly all the features and functionality you need to see. And it is a perfect migration path for us to not just stay relevant but to lead in the video space in the UK, where we are the only guys with all the content, only guys with all the sports, only guys with Netflix, et cetera, et cetera. So anything on that, Tom, on the TiVo relationship?

I'll just add on that point that the relaunch under the brand Virgin TV in the United Kingdom with the new EOS box and the interface will, in addition, give us a very, very significant step up in our ability to do on-demand programming across its multiple forms and give our customers access to a large range of over-the-top applications, which those of you who are our customers would have seen already. But we will definitely be adding to that. So I think we are very confident that we can structurally lift the breadth of programming and the utility of it that we give to our people in a way that certainly hasn't happened since the TiVo box was initially launched in the United Kingdom four or five years ago.

Thank you. Very helpful.

Ben Swinburne, Morgan Stanley.

I have two questions, maybe for Tom in the UK around Lightning. I think Mike said about half the customer adds, roughly, were associated with new footprint this quarter. Wondering if you could just help us think about the homes marketed. I think we have a sense for how quickly you are building homes in the UK; I think you said you had 700,000 premises under construction, maybe. But what is the homes-marketed number we should be thinking about as we track the success of that build, which is so key to your full-year guide?

And Mike, just on the programming cost side, as you think about your three-year guidance, is there a number you have in your head either for programming or maybe for direct versus indirect as we think about what you think you are going to be investing over the three-year period annually in growth around programming costs, just so we can fine-tune the ramp here through 2018?

Sure. Tom, do you want to start with Lightning?

Yes. On Lightning I think it's the numbers we did refer to in the release that there were 85,000 additional premises released from the Lightning program in Q2, which was in addition to the 70,000 we did in Q1. And we have a full-year target of release this calendar year of 500,000, which we have a high degree of confidence that we will achieve as the team continues to bring on these contractors, skill them up, give them the clear commitment that we are going on with this program so they put the resources into it. So 500,000-plus is the number to look for through the year.

On content, I mentioned the number earlier. We are at about 850 a month per sub; I think that's on current FX and includes premiums, certainly lower than that on the Continent, where we don't have the big premiums at Sky, et cetera. You should expect, and we do expect -- I will give you some basic parameters that that number in our overall content picture will grow at or above our revenue rate. But that's the smart investment. That's what we need to retain high-margin, high-IRR customers across the video platform. Video is -- maybe it might only be 35%, 45% of our revenue, but it is a critical part of our bundle, of course. And we are really pleased with our ability to compete on the video front. So you are going to see us, of course, maintain not just relevance but, I think, really important superiority, if we can, in our content offer.

And so for the most part, and I think we've said this publicly in the past, you are going to see content cost grow year over year, at or above our revenue rate. But of course, we have -- that's investment we are making to drive revenue. And you will see other aspects of our expenses, in particular our indirect costs, reduced.

So direct costs -- Ben, I think the way to look at it is our direct costs, as you should expect, will grow at or above, near our revenue because that's what's driving that revenue -- interconnect, content, things of that nature. And so we want to push top-line revenue growth. That's the number one thing. Drive absolute margin. And then, of course, a benefit from -- longer-term from a more efficient cost model below that line. So that's the basic way of looking at it, and I think that's probably how you are modeling it already.

Okay. Thanks a lot for the color.

David Wright, Bank of America.

It's actually a couple of questions. If you could just confirm just the guidance change is just purely mechanical, that there is no change to the underlying -- that's just a very simple question -- mechanical from obviously the new consolidation effects.

And then my second question is just a Lightning -- I just wanted to just get a bit of a view on the net add swap, the percentage of triple-play apps who have come aboard. I think you gave some indication on the Q1 that it was around about 50% or so of the net adds were coming on triple play, which was running below the blended base. Are you seeing a similar number in Q2, a number higher, number lower? And I guess if it's not higher, what level of confidence do you have in selling into triple play? Or is this the kind of structural change that we are a little nervous of, which is the consumer being a little more focused on the broadband pipe and maybe taking the OTT solutions? Thanks.

Tom, do you want to start with the Lightning question?

Yes. I confirmed that number, the 50% in Q1, again in Q2, coming in on triples. But remember, this is the first half of the calendar year. And as I mentioned a minute ago, historically in the UK Virgin Media has been a flat company in the first half. This year, we are close enough to 85,000 customers up, and we will unquestionably lift that triple number through Q3 and Q4. Obviously, the test for us is to lift it to maintain our overall leverage in order to maintain the business in general.

One point I should make about the programming cost is that going into Q3 we lapped the increase in football costs that came through at the beginning of the season last year. So there will be a year-on-year benefit that we see in the underlying numbers, with that being lapped.

But sure -- 50%, and we will lift that number in Q3, Q4.

I wasn't quite sure on the (multiple speakers) -- go ahead. You have a follow-up there?

No, sorry. I didn't mean to interrupt, Mike. I guess I just sort of am curious; you are adding the dual-play sub spot. What is your confidence on their not selling them into triple play? And is it not the case that you might face a little more pushback now from the kind of structural OTT threat? What is the hook that's bringing the double and triple play for the net new Lightning adds?

I think one of the issues there, of course, that when we go into these Lightning areas, we are generally taking subscribers off an existing platform. So these are -- some of them are people that haven't been on service before, but many of them do have service. And there's every reason to think we can sustain that ratio and that we can get growth from (inaudible), we can get growth from triples. And progressively we are going to get from quad play. So I think --

It also has to do with how we are incenting sales teams. There's some blocking and tackling there as well. So we think those issues are easily sorted.

Okay. And if you could maybe mention on the guidance, Mike -- I guess it's just a purely simple, I guess, yes effect, I guess, it's just purely mechanical (multiple speakers).

Well, I want to make sure I understand your question. Maybe you could just repeat it. I didn't quite follow the question.

Yes. So you have changed the guidance to increased (inaudible) CWC. So just -- is the guidance purely a mechanical change from those two, or can we confirm there's no change to the guidance of any of the businesses, ex-BASE and CWC?

Well, if I'm following you correctly, we changed it -- on the case of LiLAC we did -- after 80 days here, we have enough information around cable and wireless to believe that our guidance for LiLAC is confirmed both short-term and medium-term. So the answer is that when you include cable and wireless into our previous guidance, the guidance doesn't change in LiLAC.

In the case of Europe, the principal impact from BASE is what's driving that most materially. We've also had some FX headwinds. So I think the European guidance is a bit more complex, of course. There are two or three elements in there. But the one that's most concrete, of course, is including the BASE asset, which was not included when we provided guidance in February. Is that clear?

Yes. I guess just -- without taking too much time. So I guess those additional impacts beyond BASE, you mentioned there was a little currency. There's a little FX --

Yes. And we know where we are in H2, so we are not breaking all that down for you. But in the end we thought it was smarter to narrow it and certainly include assets that we now own and operate. So I know where you are going, but there's not much more detail (multiple speakers) --

Essentially, though, there's no downgrade, essentially, to the guidance ex-BASE? Is that correct?

Well, there's a number of factors. FX is clearly one of them. There's other -- we know where we are now through H1, and we know where we need to be H2. So it's a combination of factors. The most concrete of those is BASE, and I think we already just quantified that amount for you in your earlier question.

Okay. Thanks, guys.

All right, listen. We appreciate you getting on the call. Its, as we said at the outset, an inflection point for us. And we do feel confident about the second half, not the least of which because of subscriber growth in the first half, which is twice last year. We think the cost efficiencies will start to factor in, as we predicted. Some of the headwinds will tail off.

So the second half of the year, important for us. This is a journey; I want to remind you of that. This is a journey for all of us. We are not -- we are in this for the long-term. We hope you are too. We did signal this for everybody. So while we feel good about the trajectory, it doesn't, to us, reflect anything but exactly what we more or less expected.

On the LiLAC piece of the equation, I'll just repeat that now that we own cable and wireless we are absolutely pleased. It's a terrific business -- strong management, tons of opportunity not just around synergies but around revenues. But as we integrated the business, it was important for us to get it level-set, especially around GAAP. And we will do a much better job of providing transparency to you in the second half around comparable periods prior and current so that you can understand how we are looking at those numbers. But as I indicated earlier, we do feel the second half will be a mid- to high-single-digit grower, rebased, and that the numbers will look more like what you had in your consensus.

So what that, we'll let you go. Hope you have a great rest of the summer, and speak to you on the next call. Thank you.

Ladies and gentlemen, this concludes Liberty Global's second-quarter 2016 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.