Mike Fries - President and CEO Charles Bracken - EVP and CFO Tom Mockridge - CEO, Virgin Media Balan Nair - EVP and CTO Lutz Schuler - CEO, Unitymedia

Nick Lyall - Societe Generale Ulrich Rathe - Jefferies International Michael Bishop - RBC Capital Markets Jeff Wlodarczak - Pivotal Research Group James Ratcliffe - Evercore ISI Matthew Harrigan - Wunderlich Securities, Inc Ben Swinburne - Morgan Stanley Amy Yong - Macquarie Capital James Ratzer - New Street Research

Thank you, operator, and welcome, everybody. We certainly appreciate you joining us today for our year-end results call.

I will let you know right off the top that our agenda is going to be a little bit different than in the past. As we foreshadowed, we're essentially hosting two calls this morning.

We will spend the first hour or so on Europe for Liberty Global Group shareholders and then we will transition to LiLAC and spend the second hour or so talking about our Latin American and Caribbean business. So it's going to be a longer morning for the shareholders of both stocks, but we hope a bit more informational and helpful for everyone.

And of course, we welcome your feedback, so please reach out to Rick and the Team and let us know what you think. So I will kick it off, the first half of the call here on Europe, and as usual I am joined by Senior Execs in Denver and throughout Europe.

I will make some brief remarks about 2016, try to give you the big picture, which we think, by the way, looks very bright indeed. Charlie will give you the numbers and then we will get right to your questions.

As usual, we are working from slides so I hope you can down those slides, get them in front of you and follow along, because they've got a lot of great data in them. I'm going to begin on slide four with what we think the big takeaways are from the quarter.

These are the things we think you need to know. First of all, on the back of a very strong fourth quarter, which included 7.5% rebased OCF growth, excluding Ziggo, we achieved our 2016 financial guidance targets.

This was helped, of course, by a 24% increase in RGU growth to [indiscernible] with nearly one million net adds for the full year, and as we expected, the uplift in subscriber growth was supported by our new-build program. With a little over 0.5 million new households built in the fourth quarter alone, we hit our full-year target of 1.4 million new homes built.

Of course, Project Lightning in the UK is our most important new-build initiative and you're going to hear a lot about that today, trust me, along with our other new-build plans in Europe for 2017. Our Connect & Play bundling strategy is working really well for us.

It helps when you have the best fixed network with top speeds of 200 to 500 megabits across Europe and headed to one gig, by the way, by the end of the year as we start our DOCSIS 3.1 field trials. It helps when you are a quad-play provider nearly everywhere, with mobile working as both a revenue driver and a retention tool and it helps when your video platforms rock.

With advanced UIs, Replay TV, Go apps and Netflix, our entertainment product has never been better or more compelling, in my view. Three final points on this slide, all of them financial.

First, as Charlie will outline, we exceeded guidance, with 2 billion of adjusted free cash flow for the full year. At the same time, we strengthened our balance sheet by lowering our cost of capital and pushing out maturities.

We now have over 6 billion of liquidity in Europe, as we define that term. Lastly, I think you'll be pleased to learn for a whole host of reasons, market dynamics, excess liquidity from the Vodafone JV transaction, we're increasing our share buyback program this year by an additional 1 billion, so we are now targeting a total of 3 billion in share repurchases in 2017, which is just under 10% of our market cap.

To recap, our new-build initiatives are working, our Connect & Play bundles, together with mobile, are generating customer excitement. We've never been on better footing financially, which is why we are upping our buyback this year.

Most importantly, growth is accelerating just as we indicated it would. If you turn to Slide 5, I think you can see that pretty clearly.

On the left-hand side of the slide, we show the acceleration in our quarterly operating cash flow growth. It was about 2.5% in the first half of the year, rising to 5.2% in Q3 and 7.5% in Q4, as I just mentioned.

We've highlighted the Q4 OCF growth of our key regions just to the right of that chart. You can see that the UK and Ireland kicked in 8% OCF growth.

Markets like Belgium and Central Eastern Europe had 9% OCF growth. Several factors contribute to the uplift: price increases, RGU growth and, importantly, I think the impact of our Liberty Go efficiency programs, which we have talked about this year.

In fact, operating cost for the second half of the year, when you exclude Ziggo, were down 1% versus the same period in 2015. I like the chart on the right-hand side, too, of this slide, which shows our year-over-year subscriber results.

Net adds for 2016 were up 24%, as I mentioned, to 950,000. Two great storylines here, plainly illustrated in this chart.

The first is a 12% uplift in broadband net adds, which of course was supported by new build and innovative products like our Connect Box, which provides ultra-fast Wi-Fi speeds throughout the home. We installed three million Connect Boxes last year, by the way.

Consumers love this device. The second is a 31% improvement in video attrition, or said another way, we retained an additional 123,000 video subs last year, versus last year, which we attribute to investments we made and the functionality and the performance of our next-gen platforms, along with the broadening of our content offering in core markets and, of course, supported by our new-build program, which we dig into a bit further on Slide 6 for both 2016 and 2017.

As we said before, our new-build initiatives are a major source of growth for us with unlevered IRRs we estimate in 30% range. But they're also consuming a lot of capital, so we want to be as transparent as possible for shareholders and analysts keeping track of how we are doing.

As reported, in 2016 we built 1.4 million new homes. That's about a 50% increase from the prior year and as with just about any large-scale and complex construction project, we did encounter some operational and logistical challenges.

We highlighted those to you throughout the year, but that is normal and necessary in my view and actually has given us even greater confidence for this year's objectives. Total new-build CapEx in 2016 was around $800 million end to end, including CPE and related cost.

This represents nearly 20% of our total CapEx last year, which means that our more normalized P&E ratio to revenue would have been around 22%. For 2017, we are targeting another 1.4 million homes, but with a different geographic mix and when you exclude Netherlands and the upgrades we did in Germany last year, we're actually increasing the new-build by 200,000 homes this year.

This slide lays out, I think pretty clearly, what we're going to do in each of those markets. On the far left, you will see we are ramping up materially at Virgin Media from 465,000 homes to up to 800,000 Lightning premises in 2017.

Again, this is our most important market. I'm going dig into it a bit more on the next slide.

In Germany, we will increase our two new builds by 20% to about 100,000. We're also going to continue to upgrade MDUs, don't get me wrong, but we're not going to track those the same way.

We'll track those separately. In Switzerland and Austria, we'll building another 50,000 homes and we expect to see very good penetration levels here just like we did throughout 2016, actually reaching 50% or higher.

Belgian, there's not much happening. This market is largely cabled, so we're really just focused on new housing formation.

And then lastly, in Central Eastern Europe, we did a lot last year. We built nearly 600,000 homes but we're reducing our build estimates in 2017 as we focus on what we thing are the highest return areas, but more importantly, we have to spend some marketing dollars on penetrating the footprint we already built over the last two years.

If you add it all up, we're going to increase our new-build CapEx in 2017 to around $1 billion, including around $900 million of construction and capacity-related costs. For those keeping track of the math, the higher spend per home in 2017 is really related to the higher weighting of the UK in the mix.

We are still in line with our forecast of build cost. Clearly, our most important investment in new build is Project Lightning in the UK, which we break down a bit more detail on slide seven, so hopefully you can turn to that.

When you step back and look at it, 2016 was a great year for Virgin Media. Total net adds were up about 40% at 304,000, with a little over half of those new RGUs coming from Lightning territories.

By the way, that means that half our growth came from the existing footprint, which means we were stable in that area year-over-year. I'm excited by that.

Broadband RGU adds were up significantly and we continue to gain market share on footprint, where speeds, as you know, are 2.5 to four times higher than BT and Sky. This is a huge advantage for us.

Importantly, we gained video customers last year, as a direct result of not only our new-build program but also more on-demand content, a refreshed user interface and the launch of our new V6 set top box. By the way, the UK is the first market to get the EOS box that we developed for Europe.

It's 4K enabled, has six tuners, a terabyte hard drive, a much faster processor and much better overall customer experience. It's also less expensive.

It is important to point out that Q4 net adds of 36,000 were impacted by the November price increase that we announced in October, which did result in a pick-up in churn. The good news, though, is that, that churn in December and January have fallen from the peak levels seen in October and November.

In fact, December was a record month for sales and installs and our net adds are up significantly during the first six weeks of 2017, so we think that is behind us. The middle chart shows the phasing of our new build the last year.

As you can see, there was a significant ramp in Q4, with over 215,000 new homes built. As you will note in the press release, the 465,000 home figure that we did for the full year includes about 140,000 homes which are essentially built and paid for but haven't been released to marketing yet.

Typically these homes need to be powered up, which has already happened for 20% of them this year with the balance occurring, we believe, within 90 days of a period end. Now, we show them as home passed since the capital has been spent.

By the way, our fully loaded cost these days is around GBP600 pounds per premise, right in line with our forecast. Beginning 2017, about 15% of our new build will be larger turnkey projects, so not just in fills and MDUs.

The benefit here is it allows us really far greater economies of scale as we literally hand over a contract to a single supplier to go and extend network in a whole town or village. The far right-hand side of this slide shows, I think pretty well, our penetration in new Lightning homes.

After nine months, we are averaging 23% penetration and after 15 months we are averaging 32% penetration, so we think we are on track to hit 40% after three years. Lightning is not only about passing more residential properties.

As we expand the network, we're also targeting more commercial premises and expanding our services to SoHo and SME customers. In 2016 we added 18,000 commercial premises as part of our build efforts and that number should double this year.

Lastly, and very importantly, ARPUs are right in line with what we've targeted. The estimated run rate ARPU after discounts is about GBP48.40, slightly ahead of our expectations.

So this is a big year for Virgin Media, no question about it, with a significant ramp up in new build, new and expanded video services continue to OpEx efficiencies and a reinvigorated mobile proposition, which is a great segue to Slide 8. I think everyone on this call understands and appreciates our strategy on fixed mobile convergence in Europe.

We think we made tremendous strides in 2016 to ensure that we are delivering market-leading mobile services to complement our gigabit-ready broadband networks. This slide provides a great update on where we stand in each geography.

I will start on the left, in the UK, where we have 3 million mobile subs and nearly $900 million in mobile revenue. FMC, or fixed mobile convergence penetration, is only 20% in this market, but I think it is important to know that we have made some really key moves in the last few months we think are going to energize Virgin Media's quad-play opportunity here.

For example, we launched 4G in the fourth quarter and became the first in the UK to market zero rated services for WhatsApp and Facebook messaging. We just announced, and you would've seen this, I'm sure, a five-year extension to our BT MVNO agreement.

It's full-MVNO relationship and what we believe are on very favorable terms including, by the way, optionality around what we may choose to do with other MVNO solutions down the road. Later this year we're going to start the process of migrating our existing mobile customers onto our own centralized core platform, which is going to give us increased control of the customer, the ability to offer true converged bundles, by the way, which nobody in the UK is doing today.

As I mentioned on the earnings call in November, as you look at each of these markets we believe the quad-play penetration across the group should reach 30% to 40% over the medium term. So there's lots of upside here.

In Belgium, Telenet is leading the charge on innovative products in our converged environment. You remember, we have three million mobile subs after the acquisition of BASE and about $800 million of mobile revenue.

Belgium is already our most advanced mobile market. It has 38% fixed mobile conversion penetration and a one-of-a-kind fixed mobile bundle called WIGO that has already been a huge success in the market.

Of course, in the next 24 to 36 months we're going to realize tremendous synergies from migrating the Telnet subscribers over to base network. So Belgium is set.

On the far right, we highlight some of our other European markets, but I want to spend the last minute or two talking about Holland, where we recently completed the JV with Vodafone. This is a huge opportunity for us.

With the combination of Ziggo's nationwide platform that connects 9.5 million broadband and TV subs with Vodafone's 4G mobile network that has five million mobile subs and we've talked about how financially accretive the deal was for us at closing and over the medium term, but it's also strategically important. There's only 20% of existing Ziggo broadband customers taking a Vodafone post-paid mobile today.

We have tremendous upside as we start crossing-selling fixed to mobile products. Now part of that confidence in Holland extends from the steady turnaround in our Ziggo platform, which you can see pretty clearly on Slide 9.

We've talked a lot about Ziggo over the last 18 months and I felt it was important to reflect on the good things that have happened, which this chart, I think, tells the story quite well. In the fourth quarter of 2015, so over a year ago, we lost 52,000 RGUs in Holland.

Mostly all of those were video losses and we were flat in broadband and voice. Every quarter since then, we have shown consistent improvement, you can see that on the chart, culminating in the fourth quarter of 2016 with 51,000 positive net RGU adds, so a 100,000 sub turnaround over the year, which happened.

By the way, in all products we added video subs, broadband subs, voice subs. So many things contributed to these results over the last year, so improvements in network reliability, customer service, reduction of truck rolls and our enhanced bundles.

But Ziggo's turnaround, in my mind, also serves as a great case study for how impactful the entertainment platform can be in competitive markets. Here is what we have been up to.

Holland is our largest market for Horizon set tops and the companion Horizon Go app, both of which have about a million users today. Replay TV is killing it with 800,000 users.

That's up 70% in the last year. In November, we celebrated the first anniversary of Ziggo Sport, which has become the preeminent and most-watched sports channel in Holland.

Over 80% of our customers watch it regularly and close to 40% have it set up in their top-10 channel list. As announced earlier, you should know this, we launched the Netflix app in the fourth quarter and on January 1st we added exclusive content from HBO to our [indiscernible] portfolio, making us the quote, Home of HBO in Holland.

These were all really important steps. As Vodafone Ziggo, which it is called now, is starting out with good momentum in the largest part of its business, broadband and entertainment, and we are super excited to see how the new combined Management Team can elevate both the fixed and mobile business as they execute on a EUR3.5 billion synergy plan, by the way.

So stay tuned; we will provide updates on that as we go. I'll finish my remarks on slide 10, recapping our priorities for 2017 and providing some guidance, which I'm sure you are all interested in.

For the five pillars of our operating game plan for 2017 on the left-hand side should be familiar and consistent to all of you. Now the foundation of subscriber growth is our Connect & Play platform, which means to us exploiting the fastest broadband speeds in every market, combining that with the most advanced video platform, which is characterized by the incredibly user interface, access to the most comprehensive content offering on all your devices wherever you are.

You then add to that mobile and seamless connectivity and supercharge the whole thing by expanding our scale and reach with high-return network extensions to millions of homes. That is the core subscriber growth strategy.

We'll also continue to leverage our B2B opportunity, especially and SME in SoHo, with cloud-based services, Wi-Fi access points, security platforms and, importantly, mobile. And then lastly, we will continue to drive scale-based efficiencies throughout the organization.

We've talked about it all year. You're probably sick of hearing it from us, but the proof is in the numbers.

As I mentioned earlier, our indirect costs were down 1% in the second half of 2016 on an FX-neutral basis and pretty much every market contributed here. The UK and Ireland were down 2%; Switzerland and Austria were down 6%; Central Europe was down 2%.

Even our corporate costs were flat. All these drivers factor into our 2017 guidance targets, which you can see on the right-hand of the side.

To begin with, we are switching up the structure of our OCF guidance from this point forward. A year ago we provided you with a three-year CAGR of 7% to 9% for rebased operating cash flow growth and the principal goal was to communicate to you a new elevated standard for growth over the medium term that was consistent with our internal plans and, by the way, our compensation schemes.

Those goals remain in place, in particular our compensation plans. Nothing has changed.

Now as our fourth quarter OCF growth of 7.5% should indicate, we are trending up towards 7% to 8% annual OCF growth. In fact, we want to confirm today that we expect to be a 7% to 8% annual growth company over the medium term with actually some upside to that range in 2018, or next year.

The truth is it that took a bit longer in 2016 to get the engine humming and we still have a lot of work to do in front of us, don't get me wrong, to consistently hit that cruising altitude of 7% to 8%. In 2017 we're going to go with a more conservative range, with rebased OCF guidance of 6% to 7%.

By the way, that is a 50% uplift from 2016 and I'm pretty sure well above Street consensus. Some have asked about the EUR100 million of service charges that we will collect from Vodafone, the Vodafone Ziggo JV and how those are treated.

Let me be clear. We have decided that those fees will not contribute to our OCF growth rates.

In fact, they'll be rebased for all periods as if they existed in all periods and, to be honest with you, depressed growth in 2017 by a couple hundred basis points. So even though it is depressing the growth, we think it is the right way to approach this, especially for the comp.

On the balance of our typical guidance figures, we expect P&E additions as a percentage of sales to range between 29% and 31% compared to about 28% in 2016 but, of course, we're stepping up new-build spend, so that is normal. We're going to reduce our adjusted free cash flow for the year to about $1.5 billion, again reflecting the higher CapEx spend on new build.

In terms of our share repurchase program, as I said on the opening slide, we are expanding the program this year by an additional $1 billion and now expect to purchase $3 billion worth of stock this year. As I look back over 2016, I can tell you all of us, we feel really good about the foundation we have established for accelerated and sustainable growth, and growth is what it is all about.

We've got a super-fast broadband network, killer TV apps, triple-play bundles, mobile launch to everywhere, millions of new homes built and ready to market and an operating model that generates material cost efficiencies. I feel we are on our way.

I hope you agree we are on a way. I'm excited that we are able to show you some great results this quarter.

Now I will turn it over to Charlie and then we will get to your questions. Charlie?

Thanks, Mike. I'm now on Page 12 where we present the full-year financial results for the Liberty Global Group.

Two quick notes before I go into the details. First, our results include BASE in Belgium as of February 11, 2016.

Second, since the joint venture transaction with Vodafone in the Netherlands closed on December 31 of 2016, our P&L and cash flow include the financial results of Ziggo for the full year of 2016, but we have deconsolidated the Netherlands from our balance sheet at year end. Starting on the left of this page and adjusting for FX and the impact of acquisitions, we grew rebased revenue by 2.5% year over year to $17.3 billion in 2016, or 3.3% excluding Ziggo.

I will provide some color regarding the drivers in a minute. With respect to our OCF, we reported just over $8 billion for FY16 and when excluding the Netherlands as per our guidance, we delivered 4.3% rebased OCF growth in 2016, which was within our 4% to 5% guidance range for the year.

2016 was clearly a year with two halves. In the first half of the year, we reported rebased OCF growth of 2.4% whilst in the second half of 2016 we delivered rebased OCF growth of 6.4%, including 7.5% in Q4.

This acceleration was partly driven by our Liberty Go efficiency program and we are please report that our overall indirect cost base of around $4.5 billion, when you exclude the Netherlands, was close to flat in 2016. Moving to our property and equipment additions, we spent $4.6 billion in Europe, or 27% of revenue in 2016, which is above the 23%, or $3.9 billion, in 2015.

In line with our full-year guidance, absolute P&E additions increased by around $700 million in 2016, largely due to increased line extension and scalable infrastructure spend which was related to new-build projects and, to a lesser extent, higher spend to support capital. Adjusted free cash flow declined by approximately $450 million during 2016 as compared to 2015, but finished ahead of our updated guidance of $1.8 billion.

That was mainly due to favorable working capital movements in Q4 driving the adjusted free cash flow to a billion for the final quarter of the year. This year-over-year decline is primarily due to higher vendor financing payments that more than offset the increased cash received from OCF and related working capital changes and lower cash payments for capital expenditures, both of which benefited from increased vendor financing efforts.

On a net basis, our vendor financing programs results in around $140 million of additional cash flow in 2016 as compared to 2015. Turning to slide 13, which shows the full year 2016 financial performance of our Western European operations, which represent over 90% of our total European revenue in OCF, I will now go into the drivers for each of our key segments, starting on the left with our largest business, Virgin Media in the UK and Ireland, which reported rebased revenue and OCF growth of 3% and 5%, respectively.

On the revenue front, Virgin Media's full year result was primarily attributable to a higher cable subscription revenue driven by a mix of improved volumes year-over-year and an increase in ARPU per RGU. In Q4, rebased revenue growth at Virgin was only 1%.

That's partly related to a 9% decline in our mobile business, including interconnect and Freestyle handset revenue and a decline of 5% in our B2B revenue. B2B revenue was impacted by a $12 million revenue benefit in Q4 of 2015, relating to the settlement of disputes with mobile operators.

Cable subscription revenue, on the other hand, grew 4% in Q4. Virgin Media ended 2016 particular strongly, with an 8% rebased OCF growth rate in Q4, which was supported by strict indirect cost control.

Looking ahead to 2017, we expect Virgin Media's top line to benefit from the November 2016 price increase, a bigger annual impact from our new-build activity and our new 4G mobile offerings, among other things. On the other hand, an expected GBP30 million increase in network infrastructure charges will lead to OCF headwinds in 2017.

The OCF growth phasing is expected to be weighted towards the end of the year, a similar trend to 2016. Moving to Germany, Unitymedia generated solid results, with 6% rebased revenue and OCF growth, driven by a combination of an increase in ARPU per RGU and the addition over 300,000 subscribers last year.

These positive revenue trends were partially offset by higher staff-related costs and higher programming and copyright expenses. In Belgium, Telenet delivered rebased revenue growth of 3%, as continued growth in our legacy cable business was muted by a decline in mobile revenue in the former base business due to adverse competitive and regulatory pressures.

Telenet's OCF increased 4% in 2016 on a rebased basis, including a 9% growth in Q4, which benefited from an $8 million positive pylon tax settlement in Wallonia. Turning to Switzerland and Austria, we delivered rebased revenue growth of 2% and rebased OCF growth of 5% in 2016.

Revenue was primarily driven by mobile volume growth and a solid performance in the B2B segment, supported by growth in cable subscription revenue due to higher ARPU per RGU, which was offset by lower average subscribers. With respect to Switzerland and Austria's rebased 2016 OCF growth, we benefited from tight cost controls, in part driven by Liberty Go efficiencies.

Moving to the far right, I will for the last time highlight the performance of our Dutch business, Ziggo, on a standalone basis. On the back of the improved operational trends that Mike highlighted earlier, Ziggo reported close to flat Q4 rebased revenue performance, leading to a 2% revenue contraction for the full year.

Rebased OCF declined 3% in 2016, which is driven by higher direct costs, including the programming cost, which was mainly driven by our investment in our popular Ziggo Sports channel. This increase was partially offset by lower indirect expenses on a year-over-year basis, primarily driven by decline in integration-related expenses.

Turning to our balance sheet on slide 14, total third-party debt and capital leases for Liberty Global Group was $37.8 billion, while the cash and cash equivalents totaled just over $1 billion at year end. After excluding the $2.1 billion of debt backed by shares that we hold in ITV, assume a time and Lionsgate, our consolidated adjusted gross and net leverage ratios were five times and 4.8 times at year end.

As a side note, when you include the $2.3 billion of cash proceeds that we received in the first week of January following the closure of the Dutch JV, our cash balance would've been $3.4 billion, which would lower our net leverage on an adjusted basis to 4.5 times. We were active in the credit markets during the last quarter of 2016, extending the average tenor of our third-party debt to 7.5 years, up from just over seven years at Q3.

More than 85% of our debt comes due in 2021 and thereafter, while our blended fully swapped borrowing cost is now 4.7%, as opposed to 4.8% in Q3. In 2017, we will remain opportunistic and continue with our strategy to refinance ahead of the curve and maximize tenor across all credit silos.

So far this year, the credit markets have been robust and we managed to refinance another $4 billion in the first six weeks of 2017 at attractive rates. Moving to the middle of page, you can see our liquidity which, including the JV proceeds, total $6.4 billion comprised of $3.4 billion of cash and $3 billion of aggregate unused borrowing capacity under our credit facilities.

On the right-hand side of the slide, we highlight our share repurchases. During Q4 we bought back approximately $450 million of stock, bringing the total amount of our buybacks to nearly $2 billion in 2016 and, as Mike stated earlier, we remain committed to buybacks and our Board has authorized a significant increase in the buyback.

To summarize on Page 15, our new-build activities continue gaining momentum and we remain focused on investing in product innovation, further advancing our fixed to mobile conversion strategies and differentiating our bundles with our Connect & Play strategy. These investments, in combination with great customer service, should enable us to successfully execute reasonable price increases across our footprint while delivering solid RGU growth over the years to come.

2016 was clearly a year of two halves, where we invested in the foundation of our Liberty growth plan in the first half and we saw the benefits kicking in during the second half. This resulted in a solid set of financial results, especially in Q4, and sets the stage for our goal to deliver 6% to 7% rebased OCF growth, stepping up to 7% to 8% annual rebased OCF growth over the medium term.

With that, Operator, we are happy to open up for questions.

Morning. It's Nick from Societe Generale.

Can I just ask a question on UK cost, please? Your [little] cost control was very strong in the fourth quarter, so could you tell us, in terms of programming costs, were costs down mainly because of BT and what do you expect the outlook to be, really, for programming costs into next year?

Also, is there anything we should expect in terms of a reduction in the MVNO costs, with net cost, even with data rising from the new BT deal, please? Thank you.

Hi, thanks. First of all, everybody, appreciate you putting up with the long remarks.

It was a lot to talk about, so sorry for that, but wanted to make sure you had all the info. On the programming costs, Nick, those are not a part of indirect costs as reported.

We put that up in our direct costs and our direct costs are increasing year over year along with our revenue. Gross margin, largely flat but we are not, and nor have we, indicated material changes in our direct cost profile, which, where programming would reside.

For the most part, we are increasing our programming costs every year to support the video platform as we've outlined. Tom, I don't, I think Tom is on but he's got a hoarse voice, so I'll let him chime in if he's up to it.

We have not disclosed, nor are we going to disclose, any details from the MVNO agreement or extension with BT but suffice it to say that we would have been unlikely to reach an agreement with somebody for an additional five years that didn't contemplate improved pricing and improved product access and it is also, of course, a very full MVNO that gives us control of our customers. You should assume that the terms of our mobile access going forward will be better than they have been in the past and that is why we agreed to extend the contract.

There was a bit of a competition for that as well, so I think we ended up with a good deal that will be, you will see that certainly over time in the numbers.

That's great, Mike. You mentioned as well, sorry, just to come back on the MVNO agreement, you mentioned MNO optionality for later.

Should we read into that a little break clause or is there may be more to it that we should think about?

I think you have got it right. We wanted to ensure that we had flexibility in the event another strategic solution presented itself and so there are, and I think we have been public with that, there are some break cause terms built into that.

That is all we will say.

That's great. Thank you.

You got it.

Thanks very much. I was interested to discuss the UK cable service revenues.

You mentioned that the rebased growth was around 4%. I think the first three quarters have averaged slightly below 4% as well.

I understand there's a couple of one-offs in there, but still, given that there was a significant price increase about mid-quarter, I was wondering why that number would not be higher. In particular, if it is not simply the phasing of one-offs, I was wondering, have you used unusually strong retention measures to keep the churn down here?

Is there a particular issue in the quarter on the price increase with retention measures that is different from the ones you would usually apply, or do you have any other reasons why the growth came in the way it did? Thank you.

Tom, are you to answering that? I know you've got a cold.

Mike, I'm here and hello, everybody. We certainly used retention measures very effectively through the period.

I wouldn't call them unusually strong. I think the issue we had with the price rise, of course, it was the second price rise we took in calendar 2016.

We had a price rise in February, this second price rise in November. It's been quite a common practice in the market amongst our competitors, but its something that Virgin Media certainly had not done in recent times.

I think we did come under some more pressure under churn and we used our wide range of retention measures in addressing that. That clearly has an offset and in the end, it does retain those customers.

As alluded to earlier, we have seen that churn performance recover and we have certainly seen a strong sales performance that ran throughout 2016 on the back of the core business and Lightning continue and so we do see a good recovery in volumes coming through.

Thanks. Can I follow up with a very quick one on the financing?

Charlie, you said that you're increasing exposure here. Could you explain why you are actually increasing exposures, because the spend of financing deals are becoming better, because people are desperate to jockey for a place in your list or is it simply attractive rates and that's the reason why you increase it, or are they actually getting better and that's the reason why you are increasing it?

Thank you.

There were two big issues. One issue is, is that the type of spend that we are increasing is new-build construction and typically the sweet spot of vendor financing is the new-build construction firms, because obviously it's hard labor so they have to pay their wages in two weeks and clearly us paying them earlier rather than later is very attractive them.

I think the second issue is, is that because of the controls in financing the supply chain, not at our level, obviously, but small to midsize companies, source of financing from us is very attractive and arguably a cheaper source of financing they get from the bank market in Europe today.

Thank you very much.

Two questions, please. Firstly, on Virgin Media, you clearly mentioned the phasing of growth will effectively build throughout the year, but I wanted to understand will the phasing of new builds, ie the $800 million, will that also phase in a similar fashion to 2016 and might there be this issue where we have homes passed but not marketable again so we should think about that in terms of the growth for 2018 versus 2017?

Secondly, Telenet presents a very upbeat message about moving to 1 gigabits across the footprint by the end of 2018 and having completed over 30% of the node upgrades, so I was wondering if you could update us on the progress there across the rest of the footprint? Thanks.

On the Telenet question, I think the strategy is clear, and Balan is on, he can address it as well, we need capacity in that market and the one gig upgrade has been something we have been on for quite some time. Not sure what else to add to it.

The business is solid. We have not seen the sort of impact that we estimated to see from the resale provisions although Orange is certainly doing their best and maybe start to try to drive growth.

I think the real story of Telenet is of course getting the mobile platform to fully integrated, getting the customers moved over and continuing to press forward on the quad-play offering, which we think is unique and by far the best in the marketplace. We are confident that Telenet can continue to drive good mid-single-digit growth this year.

I think that was our guidance and it makes sense. A few headwinds on the mobile revenue side.

I think they articulated that as well. But for the most part, really swinging to more aggressive growth as they start to migrate customers from BASE, or for Telenet over to the BASE platform and of course saving that many that they're otherwise paying in MVNO costs.

You should see, I would say, accelerated growth from Telenet and that's been the storyline over the next 24 months and that is one of the reasons we are excited about it. Tom, I'm not sure how much you want to say on the phasing of the build.

I think historically we have certainly focused on the second half of the year for all kinds of reasons and the marketable question will be one that evolves. This was a particularly unique fourth quarter but I will say we have decided to define a homes passed as a basically a premise that can be powered up and made operational within three month of construction.

And the reason for that is we spent the capital. We want you to see that the capital, actually 90%-plus of it, has gone to building that premise and when it gets connected with power and those sorts of things, if it's within 90 days, we will start marketing it.

The point I'll make is if it does continue through this year you will see our denominator in the penetration rates will be a bit higher because we do include, in that denominator, even those homes that are not yet marketed. It is not a marketed-only ratio, if you follow me.

We will keep you abreast of that quarter by quarter. You've got the numbers for this quarter, 140,000, a bunch of them already hooked up, within 90 days should be hooked up and then you will have that number every quarter from us.

Not sure if you wanted to add anything to that, Tom.

Nothing to add, thanks, Mike.

Just to quickly follow up on the Telenet [indiscernible] costs, really I was after where you are in terms of upgrading the network speeds across the rest of the footprint, given Telenet's comments about getting to one gig by the end of 2018. Is that the sort of metric we should be thinking about for the other markets as well, or will they be slightly behind?

Well, the other markets will be driven mostly by DOCSIS and we are field trying that this year. We are not going public with our network plan yet or maybe ever in terms of where we intend to be one gig and why, but you should assume that, that is around the corner for us and with marginal expense for the most part with DOCSIS 3.1.

Balan, I don't know if you're on. If you want to add anything to that, go ahead.

Sure. We have been upgrading all across the board, all of our CMT assets, to be DOCSIS 3.1 capable and get us to the one gigabit with much better spectral efficiency.

You will start saying that, as Mike stated, by the end of 2017 we will have the one gigabit product around a lot of Europe, starting with trials and then full rollout as well.

That's great. Thank you very much.

Good morning, guys. I wanted to focus on the UK as well.

Specifically on the 5% decline in business revenue, how much of that is broader economic market weakness versus the inherently lumpy nature of that business and if you could talk about the prospects for business in the UK going forward? Then there's some speculation you are going to launch a UK budget brand, I guess to go after some players, TalkTalk or Plusnet from BT.

Is that something that's interesting?

Tom, do you want to hit those?

On B2B, I think the apparent decline is entirely due to a positive adjustment we had in the prior period. I think the underlying B2B revenue was up and our profit contribution from B2B significantly up.

I think we are continuing in B2B to have a good growth business across SoHo and SME and with a much more focused effort on MLE where we have gone in and really made sure the capital allocation is efficient.

There was a GBP12 million, I believe that was the number, GBP12 million of revenue in Q4 2015, Jeff. Something to do with settlements disputes with mobile operators.

That was the [indiscernible] compared to that.

In our public sector business, I think we are rigorous. We did a quite extensive review of that two years ago.

We've made sure all of those accounts are a positive and significant internal rate of return and we tend to be in that area of the public sector, a bit more regional, bit more emergency services, which seems to be a steadier business than some of our competitors experienced in dealing with the central government. I think in terms of B2B we see it as a continued growth area, particularly SoHo/SME but pretty much across the board.

And then the UK budget brand potential?

I think we're always reviewing the way we go to market. I think the budget area is of less interest to us than maybe our competitors, but we are constantly thinking about how we can get through the emerging segments in the marketplace and so we will keep items under review.

Thanks very much.

It's James Ratcliffe for Vijay. Two if I could.

It looked like there was a significant rise, about 12% organically in Germany OpEx. There was some mention of additional costs there.

What was driving that? Is that from one-time or otherwise?

Secondly, when you look at the 2017 OCF growth of 6% to 7%, can you help us break that down? How much of that is organic growth of the business?

How much is ongoing contribution from Liberty Go? How much is any tailwind from footprint expansion?

Thanks.

Sure. On the second question, James, and I think Lutz is on.

He can address the OpEx. On the second question of the, we're not going to provide a whole lot of color here on where that 6% to 7% comes from, but you should assume it's not going to be materially different than 2016.

Clearly, efficiencies will be a part of that as we continue to roll out and implement all of the various things we're doing across the business to be more efficient in how we were in the business and so that is going to be a chunk of it. There will be organic growth as, steady-state growth as we saw this year in markets like the UK where we grew basically the same as 2015 in the business as usual segment.

You're going to see new-build obviously kicking and in various markets along with price increases. We took price increases again across the board, some more aggressive than others, but if you laid them out year over year 2016/2017 we continue to take reasonable price increases on our products to reflect the investment we're making in customer service and innovation all that good stuff.

I don't think it is going to be materially different and we'll certainly give you more color on it as the quarters unfold. In terms of Germany OpEx, Lutz, if you're on, I think you can address that.

It's mostly to do with marketing and customer growth. Go ahead.

I think the cost development on the business as usual to keep the lights on is indeed decreasing, so we are getting efficiencies. We have done also, we're in the middle of a restructuring program and laying 20% of staff off.

Why is cost increasing? Because we have new sources for growth, so investments in B2B, we fuel growth there, getting more customers.

We have new-builds now so we have generated 200,000 homes and we have a dedicated sales team for that, to if not to generate the customers and we have ramped up also marketing activities for the consumer. You see that in the numbers, especially in quarter four.

Therefore, the increasing cost at the end is simply to make sure we have the same growth speed also in the future.

Thank you.

I would point out, though, that the operating cash flow margin in the fourth quarter was still 62.5%. It continues to be a profitable business and that is up from 61.5%, 61.8% in the first half of the year, so they are continuing to scale.

Great. Thank you.

Thank you. I wanted to get your view from a European perspective.

[As you try ]at Supermobility and I think on occasions that cable's almost in a uniquely advantageous spot for 5G, given the density, the cell site locations, the right away, the powering and everything and he was saying it's almost inefficient in stateside for mobile providers to build out in these efforts and small-cell topologies and then there are things happening on the technology side, even using 802.11 waveforms for LTE over time. It could further advantage the cable.

When you look at Europe, given your situation in Belgium with BASE and your JV in the Netherlands now and in other markets, how do you feel about 5G? And do you think that part of the winning game plan might be to carry even more data for other operators beyond the cell tower business you have right now?

Thank you.

Sure, Matt. I think we have talked about 5G pretty much on every call and we've said the same thing, which it is certainly an evolutionary technology, one that people will embrace, operators and consumers.

It's going to take time, four to five years before I think even launch and certainly longer than that before any material penetration. So we believe you are accurate and correct that, that technology does require more infrastructure on the ground, the back haul and other matters and we think our networks clearly will play a role.

But the important point to make is we are in the mobile business and we intend to be even more successful in the mobile business over the next three to five years so we will be a 5G provide. Not only will we benefit from the developments that will occur and all of the positive consumer benefits that will occur, but we will be actually delivering those benefits to customers as a mobile operator and obviously to the extent we have network in those markets, we'll be benefit, utilizing our own networks.

It is a win-win for us. It's not simply a, we're not a taker in the sense that we hope 5G works and they come to us knocking on the door and asking for access, it is the other way around.

We're in the mobile business, so either through our MNO or MVNO relationships we intend to be a player in 5G and then of course to take advantage of the fact that we have the densest, most accessible network for back haul and other things that are necessary. So it is a win-win, as we see it.

Thanks, Mike.

You got it.

Thank you. Good morning.

Mike just going back to your comments on entertainment being a core differentiator for you in a lot of markets, you've also talked recently about acquisition opportunities around content. You have done some small broadcaster acquisitions.

Can you maybe update on your thoughts on how content assets may or may not play a greater role going forward for the company? And then just for Charlie, I think you or Tom mentioned the phasing for OCF growth in the UK would be back-half weighted.

Is that probably also a good place for us to be for the overall company in Europe in terms of phasing to the 6% to 7% guidance? Just need more color.

I figured since the UK is so big it probably is, but I thought I'd come back and ask.

Good questions. Listen on the entertainment side, and I will repeat what we said before, nothing has changed.

There are no Disneys or Time Warners in Europe. We need to be looking at the content on a market-by-market basis, being opportunistic about the kind of product that people want in those markets and what we can gain access to a efficient way.

In many ways, Holland is a great case study, incredible functionality on the entertainment platform, available on every device, so we've completely neutralized the impact of OTT, if you will, integrating great OTT apps like Netflix right into the core product and then topping it off with exclusive sports, exclusive HBO. When you add it all up, we are not betting the farm on that sort of package.

That is a really affordable and, we think, manageable set of content investments in a market where we need it to differentiate and it is working, as you can see in the numbers. What we do another country will be case by case.

Free-to-air assets have worked in for us in Belgium and Ireland, but fortunately those were small investments and the benefits are clear. We're extend reach, we're developing, getting right in the middle of original production.

We're offering content that is only available to our customers. We'll start zero rating that content.

So having a relationship with free to air in some of those markets where we can access that asset efficiently and extensively, I might add, importantly, I might add, makes sense for us. But we're going to look at it case by case.

I think there is no big bang that we see across Europe. We're going to be smart about content and start to focus on what customers want first part.

That is the strategy. It hasn't really changed and I think we're going to be, certainly you will know more as the year unfolds but that's the basic approach to it.

Charlie, you want to hit the phasing point?

I agree with you. I think the phasing of the acceleration will come towards the back half of the year not the least because clearly we are building momentum in the new-build.

We continue to drive these synergies in the Liberty Go program on the cost side. I would assume a much faster growth in the second half than the first half.

Thank you both.

You got it.

Thanks. Two questions for you.

First on Germany, I know convergences is really important for the model, but clearly you're early in Germany. What are your thoughts on mobile going forward?

Is that even a necessity given the footprint? How has your relationship with Vodafone evolved since the Ziggo JV?

Thanks.

In Germany, Lutz can chime in, it is not yet a quad-play market. It's got the lowest quad-play penetration of any country.

It's certainly early days. The beauty of this market is we continue to penetrate broadband, all broad providers are doing it, penetrate broadband quarter after quarter.

We're doing 60,000 net adds in just at Unitymedia every quarter. The cable industry is doing 140,000, 150,000 net adds every quarter, which is 50% more than the entire DSL industry, but they are also adding 100,000.

You are adding 250,000, 300,000 new broadband customers every quarter across the industry in Germany and that is a piece of the business you want to be owning and we think we are over achieving, of course, on our footprint. So it is clearly very much a broadband market.

The entertainment piece is evolving, of course, and something where we think we are leading the charge in and convergence will happen over time. We are developing.

We have a mobile product out there today. We have 350,000 SIMS, something like that in the marketplace.

I think we are also being cautious and putting our money where the opportunity is at this moment, which is clearly in broadband and video. On the Vodafone side in Holland, it has been, it's gone swimmingly.

We have got a great team on the ground, could not be happier with the combined management group. It's so far a very high functioning relationship in terms of what we can achieve and what we need to achieve in that market to be competitive.

I am hopeful, we are all hopeful that Holland starts to rationalize when it comes to pricing and discounts and we think it should and probably will. We have a number of, I can't talk about them and I won't talk about them, but we have a whole host of arrows in our quiver here to be able to, are implementing this year as we start cross-selling and converging the product.

Then not to forget the synergies that we believe are achievable as we integrate the business. So lots of good things that are going to happen there.

The relationship with them has been super. We're excited about Holland collectively and individually.

And it's not going to happen overnight. It's going to take some time.

The mobile business there in particular is challenging, as you would have noticed from their numbers if they've reported yet. But it is nice to have the Ziggo piece going well and bedding down the biggest part of it and, but we are excited.

Great. Thanks.

You got it.

Thank you much, indeed. Two questions, please, first one for Charlie.

Just wondering if you could discuss a little about how you are thinking about leverage going forward. You mentioned you're at now 4.5 times post the closing of the Dutch transaction.

That's given you some flexibility to increase the share buyback going forward. How are you thinking about an optimal capital structure in the medium term?

And then the second question I had, please, was thinking about Project Lightning take-up in the UK. Kind of question in two parts, firstly, you are saying now after 15 months you've got 32% take-up.

Do you think in the medium term maybe 40% could be conservative? And then the second part, I noticed that after 12 months of take-up you have cut the number since November from 29% take-up now to 25%.

It sounds like there is something going on with the Q4 2015 cohort that you released to market. What is going on with that quarter of homes released?

Is that just a one-off or is that something we need to dig into in more detail? Thank you.

I will let Tom flesh it out, but on the Virgin question, the Project Lightening question, you're going to have some variability as you release homes into that cohort. Remember, even in, as I said, the denominator includes homes we have not even released to marketing yet.

So that's going to show some variability year-over-year and month-to-month or cohort-to-cohort and we will try to provide transparency where we can, but it's not atypical that you'll see that kind of variability. Depending on how many homes you put into the denominator and how long you been marketing them and all that good stuff.

In terms of upside, we're not sitting here today saying there is more upside to 40%, but we think 40% is a good number and again, if we get there, that is GBP1 billion of margin. So we are hopeful to get those kind of numbers and that would be, for us, more than successful in terms of our deployment of capital.

So we are not upping that number today. Charlie, you want to hit the leverage point?

Yes, I think our guides have been for a very long time four to five times. We are very comfortable at the top end of that range, particularly given the interest rates remain very, very low, particularly compared to when we set that guidance and that our debt continues to be fixed rate, fully swaps at very attractive rates.

I think our all-time lowest cost of borrowing came in this quarter at 4.7%. I think you can assume whilst we have no immediate need to do it, we're very comfortable if we had to, to get to five times again.

Great. Tom, did you have any more details on that Q4 2015 cohort at all?

I don't at hand. I think inevitably it will be because the cohorts, as we move forward, the pool in the cohort is going to vary and the mix will vary.

We'll come out with that in more detail and make sure that we are completely transparent on how we are reporting those numbers.

Great. Thanks, guys.

Okay. We appreciate everyone hanging in there and a little longer call today, but glad you could join us.

We are going to transition to the Latin America and I think if you want to just hang on, I believe, Operator, is all you have to do, but we're going to pause and then let others join. Is that correct?

Great. All right, thanks, everybody.