Liberty Global Ltd (LBTYK) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's third-quarter 2014 results conference call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. (Operator Instructions) As a reminder, this conference call is being recorded on this date, November 6, 2014.

Page 2 of the slide 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 on future growth prospects and other information and statements that are not historical fact. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission including its most recently filed forms 10-KA and 10-Q.

Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. I would now like to turn the call over to Mr. Mike Fries.

Thanks, operator, and welcome, everybody. We appreciate you joining us for the third-quarter call. As usual, we have a good cross-section of management on the phone from various time zones including Bernie Dvorak and Charlie Bracken, our co-CFOs; Balan Nair, CTO; Diederik Karsten, EVP European office; and a few others who may jump on the call during the Q&A if needed.

The agenda will be familiar to all of you. I will start with an overview of the quarter and some highlights and then turn it over to Bernie for the financials. And if we do this right, we should have plenty of time for questions.

We are going to be using the slide deck, and you will hear us refer to some slide numbers if that's helpful for you. And I will kick it off on slide 4, some key highlights and takeaways from the quarter. And the first point I would make is that, like many of our peers in the cable industry, our primary headline is strong and steady organic growth. We had a record third quarter with 344,000 net adds, bringing our year-to-date subscriber growth to 930,000. I can tell you that October was a great start to the fourth quarter, and that quarter is always the strongest, as you know.

I'll talk a little bit about the key drivers of that growth in just a minute, but I want to say we also added 29,000 new customers in the quarter, meaning new household connections. And that's compared to an average quarterly loss of 10,000 over the last seven quarters. Together with our GU additions and ARPU uplift, we drove financial results that were right on target.

Fee-based revenue growth was 3%, and that reflected a sound underlying set of operating trends, offset somewhat by non-operating headwinds, and Bernie will discuss those. OTF growth, on the other hand, 5% for the quarter and 6% year to date is ahead of plan and supported by the benefits of scale and synergies that we been talking about all year.

Free cash flow is a key measure for us, as you all know. And some thought that our original year-end guidance of $2 billion was a bit aggressive when we announced it. But with $1.4 billion year to date, up 45%, and a strong fourth quarter on tap, we are confident of hitting that all-important number of $2 billion. And that, of course, excludes Ziggo, which will bolster our free cash flow on a pro forma basis.

Speaking of Ziggo, we announced yesterday our successful completion of a tender offer which, following some post-closing procedures, will result in us owning 100% of that company and thereby fully consolidating the Dutch cable market finally. And I will be in Amsterdam on Monday with others to congratulate the teams and basically launch integration activities which are well-planned and ready for execution.

We also announced the creation of a tracking stock for our Latin American and Caribbean assets I've been talking about for a while. This will require shareholder approval and a bit of time to officially implement, but we continue to believe that this is the best way to create value for shareholders, by highlighting our fast-growing operations in Chile and Puerto Rico and positioning us to explore new opportunities in a region with massive broadband upside.

In a moment, I will share some updates on our TV, Internet, and mobile products. But the punch line is that our ability to launch new services has never been better. Whether it's our TV Everywhere apps, our mobile platforms, our Wi-Fi connectivity, we've always known that our network was the best, but now we can say that our opportunity to monetize that network has never been better.

I will wrap up the highlights with some comments on our balance sheet and capital structure which I think you all know are important drivers of value creation for us and for our stock. At September 30, we were levered 4.6 times, with 90% of our debt due 2019 and beyond. And we had $4.6 billion of liquidity, which we will use a portion of to fund Ziggo. And, of course, we will be kicking off an additional $2.6 billion in buybacks that will go through the end of 2015. Pro forma for both of these, and given our free cash flow generation and borrowing capacity, we actually expect to end 2014 in the neighborhood of $5 billion of liquidity.

Now, I promised you I would hit some highlights -- key drivers of growth, and I do that on slide 5. I've already touched on subscriber growth. Pro forma for Ziggo, our network will pass 52 million homes, connect over 27 million customers, and deliver nearly 56 million video, voice, and broadband products.

And despite those large numbers, we continue to see growth in services and ARPU across our markets. While today the average customer takes two products from us, and in fact 42% take three or more products, we still have 10 million homes that only subscribe to one product, which is typically a basic video subscriber. And we continue to upsell this space as well as market triple- and quad-play bundles to our entire base every day. And I think you're familiar with that part of our business.

You've also heard us talk about pricing power, which is a tremendous opportunity. When we step back and look at the average ARPU we generate per Western European household, for what's generally a much better service bundle than our peers elsewhere in the world like the US, the bottom line is that we are underpriced in Europe, and we're confident that increasing demand for broadband and advanced TV applications together with our innovation engine will help us drive more value into the home and more revenue into our business.

Our third growth driver is mobile and B2B, each of which is currently generating higher revenue growth than our consumer triple-play business and will continue to do so for the next several years if we do our job correctly. Together, they are generating $3.1 billion of annualized revenue, mobile and B2B, and that's about 18% of our total business; and our combined revenue growth in these categories year to date was 8% to 9%.

So what's happening? Well, quad-play penetration is approaching 20% in the UK in Belgium. And with seven additional market launches ahead of us, we are moving full speed ahead into the mobile business. And B2B is being fueled by 30% revenue growth in SOHO and a solid mid-single-digit revenue growth in our SME and large enterprise segments.

Finally, we continue to realize good-scale benefits and synergy benefits across our business. I talked about this in the past. And if you look at Virgin Media and the synergies we forecasted in Ziggo, we're expecting about $550 million on an annualized basis. Don't be surprised if we raise our synergy target with Ziggo. And by the way, we're also in the midst of combining our Austrian and Swiss operations, so both of these factors are likely to take that number even higher.

If you -- just a couple of quick slides on our products, beginning on slide 6. One area where we are investing tremendous time and resource is our video entertainment platforms across Europe, and it's occurring on three levels. Today, 65% of our cable households subscribe to one of our digital services, and those 13.5 million digital customers generate almost twice the ARPU of an analog customer.

So it shouldn't be surprising that we are focused every day on upgrading the remaining 7.3 million analog cable subs to digital. And year to date, we've added over 350,000 digital subscribers. This is the bread and butter of our video business, and it's reflected in the fact that we had our lowest Q3 video attrition in seven years.

On top of that, however, we are winning the battle for the next-generation TV experience. And by now, I think everybody knows what I mean by that. Our Horizon platform is a killer app that is beginning to transform how Europeans consume television. We recently launched Horizon in four countries, and we're already 30% penetrated in three of those markets. Including the TiVo platform in the UK, which reaches over 60% of our digital households, we have 3.2 million next-gen video customers who watch more TV, churn less, and spend more.

Now, a big part of their happiness stems from their love of our Horizon Go and our other TV Everywhere applications. We offer hundreds of linear channels, which is unique to Europe, and thousands of movies and TV shows on every device. And now we have over 1.2 million customers actively using these services on their laptops, smart phones, and tablets.

And we haven't stopped there. We're also enhancing the quality and range of content available with our own subscription [be a fee] services like MyPrime in Holland and Switzerland. That provides subscribers with a compelling option to Netflix on any device and at no incremental fee. Uses of MyPrime is really strong, with 30% of entitled homes in Holland, for example, regularly watching MyPrime. And that compares to an estimated Netflix penetration of about 10%, so I think you get the point.

Horizon is just one of two key services in our core bundles. The other, of course, is broadband, and we talk about that on slide 7. And while we believe we are winning over consumers with Horizon's advanced TV app, we know the gains who are actually over in broadband. Combination of our superior speed and quality of service is allowing us to take market share in every country. In fact, we estimate that we gained more broadband addition in our top five countries on our partial footprints last quarter than all of our nationwide telco competitors combined. Why is that happening?

Well, first of all, we are faster. To date, 30% of our European broadband base is already on a 100-megabit broadband service. Our average consumer speed is 65 megabits per second, and consumption exceeds 54 GB on a monthly basis. We are also cheaper. On average, our core bundle is 5% to 10% less than the competition, and it usually includes faster broadband. Then we offer a better range of services including a better TV app, cheaper mobile services, and ever-expanding Wi-Fi coverage.

So how are these parts, initiatives, and value drivers playing out in our top three markets? Slide 8 includes some updates from the UK, Germany, and Holland which, on a pro forma for Ziggo, now make up about 60% of our revenue.

Just a few quick highlights on each. Virgin Media hit the accelerator button on subscriber growth, with its best quarter since our acquisition. On the back of new big bundles, we added 35,000 new customers and 70,000 new RGUs in the UK. Mobile revenue growth was 10%, that's a solid number, and really resulted from shifting more and more customers from prepaid to postpaid with about a 2.5 times ARPU uplift. Virgin Business, our B2B operation, continued to rebound with another quarter of 6% revenue growth achieved by leveraging contract wins over the last 12 months and launching new product propositions in SME and SOHO.

You probably also saw that we announced a network expansion plan to 100,000 new homes in East London, which is a great and cost-effective way to grow our residential footprint within our existing CapEx plan. These investments have a great return. Typically, we achieve penetration rates of 20% to 25% year one and 40% over time.

On the cost side, we are fully on track to hit our $350 million synergy number at Virgin. And it's already added 200 bps to the OCF margin, you probably noticed that, and driven rebate OCF growth year to date to 6%.

Germany continues to be our growth engine, with its 11th consecutive quarter of at least 120,000 new ARPU adds. Broadband remains a killer service there. And we even increased the top speed in November to 200 megabits per second, twice as fast as what the incumbent is rolling out over the next three years.

That forecasting, we started balancing volume and price in Germany with recent price increases in both KBW and the Unity footprint. And Horizon is picking up speed in Germany, and it's really becoming an anchor to our prime bundle of 120 megabits unlimited voice, HD channels, and also includes our Horizon Go service.

And then lastly, things are about to change in Holland, we believe, for the better as we start integrating our nationwide cable platform under the Ziggo brand. We're excited about the broadband opportunity, of course. In the last 12 months, we did go in UPC together and added nearly 170,000 broadband subs. That compares to just 5,000 for KPN over that same period. And this is our first truly national quad-play opportunity, with our full MVNO launched in October and a broader commercial launch plan for next year.

So in sum, our largest operations are performing well, and we are taking advantage of built-in growth opportunities and responding to market changes with a relentless focus on new product development. Our cash flow and operating margin improved quarter after quarter on the back of growth, scale, and synergies. And our capital structure, including $2.6 billion of planned buybacks over the next 14 months, is geared for equity returns. So we're feeling great about that.

I look forward to taking your questions. And right now, I turn it over to Bernie. Bernie, all yours.

Great. Thanks, Mike. Before I start up my presentation, two short remarks. First, the Chellomedia assets that we sold in January 2014 have been treated as a discontinued operations, so those results have been excluded for all periods. And second, when we refer to our year-to-date 2013 combined results in the presentation, they include Virgin Media for that full period, even though we did not own Virgin Media prior to June 8 of last year.

On slide 10, we present our reported and re-based revenue and OCF results for the year-to-date period. For the first nine months of 2014, we reported $13.6 billion of revenue as compared to $12.8 billion of combined revenue for the prior-year period. In terms of OCF, we generated $6.4 billion year to date versus $5.8 billion on a combined basis in 2013. Excluding the impact of FX and the impact of acquisitions, we posted 3% re-based revenue and 6% OCF growth driven primarily by RGU adds.

Strong cost controls and integration synergies drove our higher OCF margin of 46.8% for the year-to-date 2014 period as compared to a combined OCF margin of 45.4% last year. This margin expansion of 140 basis points can be attributed to improvements across the vast majority of our operations, including a 260-point increase in Germany to over 62%.

Slide 11 highlights our results for the nine-month period for Europe and Latin America. I will take a deeper dive into the results of our key European markets in a moment. But here's a quick snapshot of our overall European operation, which generated $12.7 billion of revenue and $6.2 billion of OCF year to date, equating to a 49% OCF margin. These results represent 3% re-based revenue growth and 6% re-based OCF growth. Our operations in Western Europe, which account for over 90% of our total European business. delivered re-based revenue growth of 3% and re-based OCF growth of 7% year to date. Meanwhile, our CEE business reported slightly positive re-based revenue and OCF growth of 2% year to date.

Our Latin American operations consisting of our cable systems in Chile and Puerto Rico reported $900 million of revenue and $350 million of OCF year to date, reflecting an OCF margin of 39%. Together, these two businesses generated re-based revenue growth of 4% and re-based OCF growth of 17% in the nine-month period. VTR's 4% re-based revenue growth was driven by our continued triple play success and growing mobile revenue. while its 15% re-based OCF growth was primarily driven by a reduction in the OCF deficit of VTR's wireless operation.

In Puerto Rico, we reported 3% re-based revenue growth, while the impact of synergies from the integration of OneLink fueled our 24% re-based OCF performance. With our current operating momentum, we remain confident in our ability to deliver higher re-based OCF growth this year as compared to 2013.

If you turn to slide 12, take a closer look at the Q3 performances of our top five countries which represent around 80% of our business. Starting in Germany, we generated re-based revenue growth of 5% and re-based OCF growth of 7% in Q3. This growth was largely driven by 500,000 RGU adds during the last 12 months and increased broadband, Internet, and digital cable ARPUs offset by lower telephony usage.

Next is Belgium, where Telenet delivered re-based revenue growth of 6%, our best result this year, and re-based OCF growth of 4%. The key driver of our growth in Belgium is the continued traction of Telenet's Whop and Whoppa triple-play bundles, driving 150,000 RGU net adds over the last 12 months. Telenet's growing mobile base, which now exceeds 860,000 subs, also contributed to this growth.

Our Swiss operation reported 4% re-based growth for both revenue and OCF. From a top-line perspective, UPC Cablecom delivered re-based revenue growth in excess of 3.5% for the 10th consecutive quarter. Our Swiss OCF growth included increased marketing expenses due in part to the launch of our MyPrime video streaming service during the quarter.

In the UK, Virgin Media generated Q3 revenue of over $1.7 billion and OCF of $756 million, reflecting 2% re-based revenue and 6% re-based OCF growth. Virgin Media's cable subscription business delivered steady 3% re-based revenue growth and also reported strong results from mobile and B2B, which delivered re-based top-line growth of 10% and 6%, respectively. Our performance in these areas was partially offset by lower revenue from other sources due to reductions in interconnect revenue and revenue from Virgin's off net business.

OCF growth in Q3 was aided by a $32 million non-recurring item related to network infrastructure charges, of which $26 million related to periods prior to Q3 2014. And on the other hand, we also incurred an $18 million drag in Q3 from a full quarter of the new line rental saver related bad impact. So if you net the two in the quarter, they are both involved -- or calculated in our re-based OCF growth, which would have a negligible effect if you combine the two.

In the Netherlands, we reported modest re-based revenue and OCF declines of 1% in the quarter mainly due to the challenging competitive environment in this market. This quarter reflects an improvement compared to the declines we reported in last year's third quarter, partly driven by our improved products which are now incorporating Horizon Go, MyPrime, and Wi-Fi roaming. So in total, our top five country operations generated 3% revenue growth and 5% re-based OCF growth in the third quarter.

If you turn to slide 13, this highlights two important metrics for our business, which are property and equipment adds and adjusted free cash flow. First, our total P&E additions show declining capital intensity for Q3 and year to date as compared to the prior-year periods. For Q3, we reported P&E additions of $908 million, or 20.2% of revenue, in 2014, compared to $955 million, or 22.3%, last year.

Similarly, for the year-to-date period we reported P&E additions of $2.79 billion, or 20.5% of revenue, as compared to a combined $2.8 billion, or 22% of combined revenue for 2013. These slightly lower P&E additions in absolute terms are partly as a result of higher levels of CPE purchased in 2013 related to our various Horizon launches last year. It's also worth noting we are on track to achieve our guidance for declining capital intensity this year.

Turning to our adjusted free cash flow performance, we delivered $321 million of adjusted free cash flow in the third quarter, which represents a 66% year-over-year increase driven mainly by organic OCF growth and lower CapEx. From a year-to-date perspective, we reported $1.4 billion of adjusted free cash flow, a 45% increase as compared to the combined result for the same period last year. This increase was supported by strong organic OCF growth, favorable networking capital movements, and lower CapEx. And we remain confident that we will meet or exceed our $2 billion adjusted free cash flow target for the full year.

Moving to slide 14, the top chart summarizes our leverage position. We had $41.1 billion of total debt at September 30, down from $42.6 million at the end of the second quarter, which primarily resulted from the weakening of our currencies versus the US dollar. FX movements also contributed to the reduction of our leverage ratios, which stood at 4.6 times gross and 4.5 times net at the end of Q3.

We continue capitalizing on favorable market conditions. And subsequent to quarter end, we refinanced nearly $2 billion of debt at Virgin Media and at Unitymedia, lowering our blended average cost of debt to 6.3% on a pro forma basis. And, as Mike said, we continue to extend our maturity profile with those transactions. Our quarter-end cash position was $1 billion, along with total consolidated liquidity of $4.6 billion when including the $3.6 billion of maximum borrowing capacity under our credit lines. And with the Ziggo transaction nearly completed, we will be able to restart our share repurchase program and look forward to repurchasing the $2.6 billion of equity over the next 14 months.

So in summary, we are pleased with our Q3 results. And, together with the closing of the Ziggo acquisition, we look forward to a strong operating momentum heading into 2015.

So with that, operator, please open up the line for questions.

(Operator Instructions) Ben Swinburne, Morgan Stanley.

I don't know if Tom's on the call, but I wanted to start in the UK and get a sense for how the new products were impacting your market share. And if you have any thoughts on some of the new entrance coming into the video space, I think EE is planning to launch a video service. How do you think your bundles are going to stack up in an increasingly competitive landscape? It seems like you've got a lot of momentum at your back right now.

Ben, it's Mike. Tom is on the call. You want to take that, Tom?

Yes, thank you. Certainly, we are very pleased with the growth we saw in Q3, which has come from both top-line acquisition and clearly a better churn performance. And in the first part of Q4, we've seen a continuation of that trend. The new bundles are working well. But generally we find that the market is continuing to behave for all of us, that this has continued to be a good market. I think generally the major players are all showing some growth, and we are participating in that. And relatively speaking, if we're growing, of course, that should improve our share. But we don't see this as being only a share gain. There's still homes out there that don't have broadband services, and we continue to acquire those.

In terms of EE, we don't see that as being a significant challenge to us, that we are a full-service video supplier with a full package of Sky and VT channels and pretty much everything else that you would desire, including Netflix. So we see ourselves as operating at a level where we don't really see ourselves in direct competition with EE.

My (multiple speakers) --

Go ahead, Mike. Sorry.

I was just going to say that they are really offering inferior products. The broadband product they offer are inferior, and the video products they offer are just incomplete. So it's going to be tough, I think.

Yes. Mike, just on Germany, we've been spoiled by incredible growth over the last few years there, and 5% still very healthy. I think you put some price increases in recently, but just could you tell us how you're feeling about the sustainability of revenue growth in your German market?

Listen, I think we always signaled that revenue growth at 8% to 10% wasn't probably sustainable in any market. So while we expected over time for growth to get closer to the mid single digit or mid to high single digits, that's what we're seeing. And it's also a function of managing I think the profitability of the business better than we have in the past with respect to rate increases and trying to ensure that it's not just a volume gain for us; it's actually a value gain, and that's the one we are playing.

I really don't see meaningful slowdowns; not in the near term, anyhow. If you look at broadband, my estimate is that these cable operators in Germany added something like 100,000 broadband subs in the last 12 months and the entire DSL base went backwards. So the underlying trends of organic growth remain extremely strong, and we just have to be very smart about how we promote and price our products. And that's really the main game.

But I do think with margins up in the 16% range and synergies tailing off a little bit, certainly it's always going to come back to earth, if you will. But the engine that that represents in terms of our overall growth picture won't change. It is a solid market with still tremendous amounts of opportunity in the core business.

And particularly around Horizon and digital. We are seeing good take-up of Horizon now that it's available across the footprint. It was only available at half our markets up until recently. And that bundle, EUR40 or so in the MDU space, is really, in our opinion, going to sustain and stabilize growth for a long time. Diederik, do you want to add anything to that?

Yes, maybe zooming in on the net that's in Q3, Q4 broadband, which were at 77, maybe at the low-end of what we reported earlier quarters. From a sales point of view, Mike, couldn't agree more. Sales momentum is indeed continuing. The net adds of 77,000 were a bit depressed by 6,000 since we had an installation backlog that sometimes happens will disappear before Q4 is over.

So also from a net add point of view, I should talk broadband, which is always an important signal point. I think couldn't agree more that we are still going through the right momentum. Historically always with operationally, a strong second half.

Thank you.

Vijay Jayant, Evercore.

Just wanted to touch on Holland with the transaction closing and you guys getting 95% of footprint. So is there some opportunity, by being truly national now, that your position can change both from a competitive standpoint and really obviously the mix will be smaller on where KPN has built fiber? Anything you can talk about -- just the fact that they have bigger scale and what that could do for that business apart from the synergies that you have already identified.

And second, just wanted to get any update on the whole SCO process with KBW. I think the 10-Q mentioned that there was some discussions with the appellants on it. And anything you can share there will be appreciated. Thanks.

Hey, Vijay. We can't say anything about the SCO process. I'm sorry. Wish we could, but certainly we are working on that. As we said in the Q, we're trying to find a negotiated settlement for that situation. So stay tuned.

In Holland, I think there are tremendous benefits from being a national platform with 95% coverage. Some synergies you mentioned in passing, but I will tell you that we really feel strongly about the impact those will have, not just on margins but on the basic platform itself. And we will talk about those more as we start the process, but we are pretty positive about the synergy opportunity.

But just stepping back and looking at revenue for minute, take mobile. We have today -- we've launched mobile in an early-phase manner with SIM cards only. They've got a mobile product. But if you step back and look at our ability now to market 95% of the country to quad play, that's impactful, and we really are excited about the opportunity to get into 4G on a nationwide basis and be competitive.

I don't think it's going to -- the government recently came out with -- the ACM did with some sense that we are jointly dominant with KPN. We don't agree with that, of course. They did also add another three years to KPN's local loop unbundling requirements. So more or less, the market is the same. But we think that having the ability to price nationally, having the ability to have one brand nationally, having the ability to launch products across the entire footprint is going to be tremendously beneficial to the overall business. So margins aside, we do think our ability to compete at the top line will be substantial.

But we're competing pretty well. And Ziggo has actually outperformed our UPCNL business, and it had positive growth both from customers and revenue and EBITDA. They're in slightly different markets than we are, but we think together that platform is going to be really powerful. So you have to wait and see, and we will have to prove that to you, but pretty positive about that.

I have a quick follow-up. Like you consolidated operations in Switzerland and Austria, is there a possibility to do that with Holland and Belgium?

Too soon to say, but you can bet that we are always going to be looking for the smart operating opportunities to improve how we do what we do but also do it more cost effectively. We do generate extremely high operating margins at the operating level and at the consolidated level for a Company with $50 ARPU, so we will take some credit for that.

But you can always do things better and do things more efficiently, and Austria and Switzerland consolidation is really just a reflection of that. These are contiguous markets where we saw pretty substantial strategic benefit, and we were surprised by the economic benefit of putting those two operations together. So we will look closely at all the possibilities there, and we will certainly keep you posted as we do that.

Thanks so much.

James Ratcliffe, Buckingham Research Group.

Two if I could. First of all, for the LatAm space, can you talk about the opportunities you see in LatAm and also about what the rationale for doing a tracker versus just hard spinning the asset is?

And secondly, big deal got in the headlines in Virgin, Ziggo, et cetera. But you have always been serial acquirers in big markets and small cable operator space in traditional roll-up. What inning are we in in that process? How expansive are those opportunities to pick up 50,000 subs here, 10,000 subs there, et cetera? Thanks.

Sure, James. Well, on the LatAm spin, we have, I think, articulated the rationale a couple times, but I will do it again. We see the opportunity to highlight value in a region that has, quite frankly, superior growth prospects to Europe in terms of when we look out, it's probably a high single-digit EBITDA grower, OCF grower, versus what we are -- where we are at this point in Europe. But it's also a market that has a different risk return profile. So it seemed to us not only an opportunity to highlight the value in Latin America, but give shareholders the decision as to where they want to put their money and effort.

From our perspective, we see the market as a bit fragmented for sure. But we pick countries as opposed to assets, and we focus our attention on the countries and markets where we think there is the ability to achieve scale than the opportunity looks particularly exciting. Broadband penetration throughout Latin America is 25%, so there's huge appetite for broadband in our opinion. And how you do it and where you do it will be -- will depend on the market, of course.

But with the management team we have, with our experience in the region going back 20 years now, with capital allocated to that particular part of the world, we think it could be exciting. So you got the opportunity to highlight value in outperforming assets that probably aren't being highlighted today, has a strong organic growth story going forward. And we think the M&A opportunities could be interesting if we pick markets and not assets and we do that carefully with the right kind of risk return profile.

In terms of roll-ups, I don't want to say what inning we are in. I think you guys know the market in Europe quite well. We have -- our shops in terms of large-scale acquisitions in the two deals in Germany, Switzerland, UK, the consolidation in Holland, those are all transactions that are right down the middle for us. Will there be large-scale transactions of those types going forward? Hard to say. At this point, we're not forecasting any; it's not how we operate our business, anyway.

But there are small roll-ups happening all the time. We're doing deals in Switzerland all the time. We have already made one acquisition in the UK. We may not have publicized that. We looked at Eastern Europe. There is still some opportunities there, Poland and other markets. See you we'll always be looking at the upside of market infill, and you can expect that we will do that very cost effectively and continuously.

But how do I put it inning on it? That's hard to do in my opinion.

Great. Thank you.

Tim Boddy, Goldman Sachs.

I wanted to ask a little bit about the slowdown you are seeing in the Netherlands. I put it differently, I was kind of hopeful we would see a bit of recovery there. We started to see that last quarter ,but it seems to have got a bit tougher. So any color around that would be helpful.

Also, there's been some discussion around expanding the network in the UK. I don't know if you can give us any clues as to your thinking there of whether you've reached any decisions on that. Thanks very much.

Well, I will let Diederik hit the NL point. And on the UK, really haven't made any decisions about what we'll do. But you can expect that year after year, we will look at the sort of opportunities that the companies had in the past which is infills and small market -- small network extensions.

There could be an opportunity to be more aggressive in that marketplace for broader new builds, but we are not in a position today to tell you what that looks like or whether we would do it. And we want to see how this 100,000 home build-out in London goes. We want to make sure our assumptions are accurate, but I wouldn't be surprised if somewhere in the course of next year, we are considering that option more seriously impossible even discussing it, but premature today. Diederik, do you want to talk about Holland?

Yes. Thank you, Mike. With regards to quarter three, we saw a change in the competitive environment where KPN after two quarters, so for them, disappointing broadband losses, helped the promotional pressure where Ziggo followed. You can see that in their broadband results, for example, and UPC consciously did not. As a result, it's the promotional short-term tactical pressure which led to the somewhat lower results than anticipated and seen in the earlier quarters.

If you still for -- but if you still compared it, the broadband gains, UPC, which is plus 9,000 net adds versus you -- KPN, which was only 6,000 with all their promotional power support that subscribed -- but Mike said that their strength in our basic propositions and therefore our midterm view on the recovery to stronger results is still there.

Another KPI indicating that is a slowdown in the churn versus last year in the UPC footprint also since the announced slowdown of the fiber to the home rollout of KPN. And that is for us obviously also good news.

By and large, we don't see any reason other than overly aggressive approaches from competitors to change our minds about the health of such markets.

Thank you. Yes, thank you.

Michael Bishop, RBC Capital.

Just a quick one on the UK and Virgin Media. Clearly, you saw very strong performance, and a number of operators were communicating price increases during 3Q and into 4Q. Some of those operators have actually raised pricing twice this year already. Do you think there's scope for Virgin to take an early price increase, or is it better just to capitalize on the continued momentum of the new bundles into Q4 and 1Q whilst you've got momentum and others are communicating price increases? Thanks.

Tom, you want to handle that?

We would approach that the way the Company has in the past, which is to take an annual price rise, and generally that's been early in the calendar year. And so I think you look for announcements on that reasonably shortly because you've got to notify people ahead. So I think you'll see us behave in a similar fashion in the past, which is to take a fair, reasonable rise and to secure the benefit to the customer, but for the continued quality service.

And just a follow-up, it seems like you have eased some of the promotion levels across those new bundles. So you're having success without matching the promotions of competitors. Do you think that can continue, given some of the impact of the relaunch offers since Christmas?

Absolutely. I think we've seen particularly both VT and Sky discount to a (technical difficulty) extent in the last two, three months or so. I think they both felt the effect of that. And even in recent weeks, you might've seen some readjustment in their approaches. And to some extent, they have confused each other's market a little bit because I think we've stood above that and apart from that and still got some good growth numbers, and even in these current weeks continuing to get them.

So we are comfortable. Of course, we discount on acquisition. Every player in the market does. But we don't discount to the point that you are offering products for free because it's not a very good price point. So we think we can grow while still maintaining the ARPU.

Well, we don't have to discount when you consider the fact that we are offering twice the broadband speed. It's generally more pay TV with Sky and BT Sport, more HD content. It's -- this Big Kahuna bundle has value all over it, so we really don't have to promote that.

Great, thanks very much.

Jeff Wlodarczak, Pivotal Research.

Good morning, guys. First of all, congratulations on completing the Ziggo transaction. I had some follow-up questions on The Netherlands and one on M&A. It sounds like you could raise your Netherlands synergy targets, which is good news. How many quarters of dissynergies should we expect before we see those benefits?

And then separately, is Ziggo able to access the large Netherlands NOL you have at UPC? And then I have the follow-up.

Well, we're not going to -- while I'd like to, Jeff, I'm not going to give you a breakdown of the annual synergies just yet. We've said publicly what we think they are. And I did mention today we think we will be coming out with a higher number. And it's always difficult to estimate synergies from the outside. But now that we've had a slightly better look post the announcement of the deal, we have, I think, more confidence that that number will be higher. But I'm hesitant to give you a time frame on that.

Charlie, do you want to take the NOL question?

Yes, look, I think -- I'm not going to give specific guidance around Holland. I think we remain committed to -- the guidance we've given to the market is that we believe the tax leakage in our business will remain relatively low due to a number of NOLs that we have around the group. So I think you should expect us to continue to report a relatively low cash tax charge.

I was just going to say, in regards to dissynergies, can we expect a couple quarters where you've got dissynergies out of The Netherlands before we see the benefit, or you just don't want to go there?

I don't think we should go there. And sometimes that's the case; sometimes it's not. It all depends on what you are attacking and the time frame in which you do it. Remember we've given ourselves three years generally in this market and what we've said to hit the original synergy estimate, which was I think EUR160 million. So it really is -- it's too difficult to say how that will layer in quarter to quarter. I wouldn't want to.

Okay, fair enough. And then on M&A, given that the EU overruled the local Netherlands regulatory authority and reviewed your Ziggo deal, the EU seems to focus more across Europe than a specific country. Does that actually increase the chances that you will maybe do M&A, like, for example, go look at Germany and look at a Level 4 player, for example, rather than before, where you had to deal more with your local regulator? Thanks.

That's a good question. I think there's a couple points. Number one, we have to be cautious about what we've seen, per se, at this stage because we have an entirely new commission in place. And so while, for quite a while, we have been dealing with actors that we know and understand and have a good relationship with, now we have an entirely new set of actors that we have to get to know and appreciate.

For the most part, I would say that the current regulators in Brussels will more or less continue down the same path as the prior regulators. And that is one of, I think, a healthy balance between allowing the industry to consolidate and, generally speaking, allowing telco operators and ourselves to have a bit more freedom to grow versus protection against consumers and things of that nature.

The second thing I'll say is that national regulators always maintain a fair amount of political control. And while in Holland, we were successful in getting the transaction out of Holland into the EU, we can't say that will happen in every case. But I would say that it's certainly more favorable today than it was in the past. And to the extent that the current commission decides to keep that moving in that direction, that I'm hopeful.

But I do think the trend is the same. The trend is that hopefully less regulation, consolidation is positive, and cross-border combinations in particular are looked upon relatively favorably in an industry that has an opportunity to drive Europe's future. There is tremendous investment planned and tremendous upside, we think, deliverable by the industry we operate in. And I think regulators see that as well, after years of a pounding, so to speak, that they want to see a healthy telco and IT industry. And I think that's going to be their mandate.

Thanks, Mike.

Jason Bazinet, Citi.

Just a quick question. I always marvel at your ability to grow OCF faster than revenues. And I'm sure it's a combination of the synergies and mix and maybe operating leverage. But if you sort of swirl everything together and just gave broad brushstroke over the next few years, do you feel comfortable that OCF can continue to grow faster than revenues? Thanks.

Well, that's a good question, Jason, and I think it's a combination of things. Then I will let others chime in. Charlie may have a view on this. While our OCF growth is right where we thought it would be, 5%, 6%, and we'd said in the single digit, revenue growth is also where we thought it would be, because we knew this year we had some headwinds on the revenue side and some tailwinds on the expense side with synergies, etc. So I think this year, we are coming in right where we thought we would.

We expect over time, though, I'll tell you, that our headwinds and revenue will likely taper off. Whether it's usage of voice or other factors, regulatory and interconnect and things that have impacted us over the last 12 to 18 months, we think those will taper off. And so we do see a slight uplift going forward in our revenue profile, and you would probably expect that as well. And probably a healthier balance between growth of OCF and growth of revenue, something you're more used to seeing.

So I think we are in an interesting period here where we've had some headwinds on revenue and some tailwinds on OCF, and those are kind of canceling each other out on some level. But going forward, that should be a more balanced growth profile in my view.

Okay, great. That's very helpful. Thank you.

Matt Harrigan, Wunderlich Securities.

I guess an extension on the LiLAC question from James, you talked at a Communicopia about $3 billion in EBITDA in M&A targets. I know you select it by market. But it sounds like that would have -- that big a number would have to encompass TBT, and maybe you can do some things, even if a telecom, or you've got some technological changes with wireless drops and all that. If you do something down there on M&A side and you ranked asset, does it have to be the traditional cable type situation that you are so adroit with?

And then secondly, on Wi-Fi, the new models of iPhone are Wi-Fi enabled. Certainly Cisco, surprise surprise, is talking up Wi-Fi voice. Is that something you'd be looking at in the Netherlands? Or you've got so many balls in the air on the product road map side right now, you would rather let that coalesce a little bit more someplace else rather than fool around with it?

Yes, I will lead Balan think about the Wi-Fi question, and I will start with the LiLAC question. I think -- the first answer, Matt, is we will be taking an approach to this market that doesn't look hugely dissimilar to the approach we have taken historically. That is we understand the cable business. It's one that we think we run well, operate well, can value appropriately, finance, et cetera. So our first course of action will be clearly to look at markets where we think there's an opportunity to build scale in cable. Especially given the underlying growth opportunity and broadband, which is, we think, a fixed broadband opportunity for the long haul.

Which markets, which assets, I'm loathe to say. There is a long list of prospects, of course, so we are going to be very careful. And the asset -- the entity will only have certain amounts of liquidity available to it, so it can't just go out and do any transaction. I think it will probably start small.

In terms of Wi-Fi, we've said publicly we are very excited about the Wi-Fi opportunity in general. We have close to 5 million hotspots today and Wi-Fi spots today throughout our footprint, and that's growing every month. And we think will be substantially higher when we speak about it in 12 months' time. And so we are ever seeing more and more of our customers access and use that Wi-Fi network, which is a good thing.

And we are doing -- looking at Wi-Fi first and Wi-Fi calling opportunities that go beyond the app that you can put on the iPhone that we deliver and make them more native Wi-Fi-first opportunities. It's early -- too early to say what that might look like, but we think it's an interesting platform for us. And Balan, you may want to add something to that.

Sure. So Mike, as you pointed out, we've already launched apps on smart phones that tie back fixed lines. So you have your biggest combined service both on your smart phone and your fixed line; same number, it rings on both sides. But that's not enough.

We also are now looking at building a Wi-Fi for service where the voice originates and terminates on Wi-Fi can seamlessly hand off to 4G. We are doing a proof of concept over the next 90 days, but it's something that we are very serious about, and we are working with some other operators on this as well.

The big thing you need for that, Matt, and this is a important distinction, is to make what Balan just said work. That's seamlessly hand off a Wi-Fi call to a mobile network when they get in their car, they drive down the street, or walk into the park, you've got to have an MVNO or a mobile platform. And we will have eight markets launched. We've got 4 million mobile subs. The fact that we have an embedded mobile network platform in all of our core markets makes the development of this type of Wi-Fi-first product infinitely easier. Because if you can't hand the call off, it doesn't really make consumers very happy.

That's great. Thanks, Mike. Thanks, Bal.

Carl Murdock-Smith, JPMorgan.

Just one question, please, on the UK. I just wanted to ask about your recent complaint to Ofcom about the way Premier League rights are auctioned. What would you view as a good result of any inquiry there? And just a bit more color around your thoughts on the topic. Thank you.

You can take that, Tom, but we are all aligned on this idea.

Simply, the complaint is down to the point that the current option system, which is mandated originally by the European Commission but now supervised by the British Ofcom, is that the auction rules here permit the Premier League to hold back 60% of the games. So fundamentally, a UK viewer is paying a price which is twice the European average for less than half the games. And we -- as an operator, we are (technical difficulty) through Sky and VT, but we are paying a share of that. More importantly, our customers are paying the full price of that because we seek to pass it through entirely as a cost. That in fact sort of increased. It's happened in the past 70% first cycle. It's pricing what's a very good product, being the Premier League -- it's pricing at a point that customers are just not being attracted to it.

So you would hope that there's an alignment, frankly, between our interest, of course, which is to make it affordable. But between the consumer interest, at least control the rate of increase in that price, and we would hope that Ofcom would share that view which would probably most likely mean it's requiring the Premier League to make more games available so that there is more viewership opportunities, and it is a value (inaudible) proposition.

And if the rules were changed and more games were available, would you be interested in bidding and taking ownership of some of those games rights?

No.

That was great. Thank you.

Daniel Morris, Barclays.

I just wanted to come back to the Netherlands where you have already mentioned that the cable has been taking very high share of adds but also seen this elevated promotional activity. I just wondered are you looking at Ziggo -- the Ziggo acquisition as an opportunity to reduce the marketing spend in the promotions and get the market a little bit more rational? Or do you rather see the Netherlands as an opportunity that may be getting the legacy UPC business growing a little bit more like Ziggo?

And then just as follow-up related to that, can you just let us know what you're thinking about vendor financing post Ziggo? I just wondered could we see another positive working capital inflow from that in 2015, or do you think the principal payments will be higher than the accruals next year? Thank you.

Well, I'll take the first one and then Charlie can pick up the second one. As I said before, certainly, we would love to see the Dutch market become even more rational than it's been. That would be an advantage and a nice outcome. KPN signaled, I think, in their remarks that they want to win some broadband subs. So we can't control what they will do, and we will be definitive about this. We have no impact on what they do. There's nothing even close to joint dominance in this market, nor do we expect there will be.

I think you can expect that there will be some harmonization of product, brand, potentially of pricing, of marketing plans. To be a true national platform, you need to see a harmonization of those things across the country. That should be beneficial to Ziggo on one hand because we think we can add great products like Horizon to their platform. And to UPC on other hand because we think the brand, Ziggo, would play even better than UPC does in our own market. So there's going to be positive contributions to each part of the country from the other, and we are just certain that that national platform -- with the synergies that will be driving as well as the revenue opportunity to have a stronger brand and stronger product offering is going to be a positive thing for us in Holland for a long time. So we will have to prove that to you, but we are pretty confident of that. Charlie, do you want to talk about that in financing?

Yes, I think we continue to believe that there's opportunities and sustainable opportunities to optimize our balance sheet and achieve positive working capital flows, of which better financing is only one tool. There are others. And clearly Ziggo, not to say it wasn't well managed before, gives is yet more opportunity to do that. So I think you should expect to see continuing working capital and cash flow improvement. So I think it's more than just better financing. There is a sustainable opportunity through the cycle to optimize our cash flow and to take the benefits of being a cable company, which essentially has a very positive relationship with its customers, from a working capital point of view.

That's helpful. Many thanks.

Well, thanks, folks. We appreciate you getting on the call as usual. As I said, we had a great start to the fourth quarter. We are excited about all the things that we're doing market to market, and we will talk to you about that in the new year. And our goal is to try to meet and actually exceed your expectations, and we feel like we're doing a pretty good job of that, and we will work harder and continue to work hard on doing that going forward. So appreciate you joining the call. And, operator, that's it. Thank you.

Ladies and gentlemen, this concludes Liberty Global's third-quarter 2014 results conference call. As a reminder, the 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.