Nov 6, 2014
Executives
Michael T. Fries – President and CEO Bernard G.
Dvorak – EVP, Co-CFO, and Principal Financial Officer Tom Mockridge – CEO, Virgin Media Diederik Karsten – EVP, European Broadband Operations Charles H.R. Bracken - EVP, Co-CFO, and Principal Financial Officer Balan Nair – EVP and CTO
Analysts
Benjamin Swinburne - Morgan Stanley Vijay Jayant - Evercore James Ratcliffe – Buckingham Research Tim Boddy – Goldman Sachs Michael Bishop - RBC Capital Markets Jeff Wlodarczak - Pivotal Research Jason Bazinet - Citigroup Matthew Harrigan - Wunderlich Securities Carl Murdock-Smith - J.P. Smith Daniel Morris - Barclays
Operator
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 expressed written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode.
Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.libertyglobal.com. Following today's formal presentation, instructions will be given for a question-and-answer session.
As a reminder, this conference call is being recorded on this date, November 6, 2014. Page 2 of the slides details the Company's Safe Harbor Statement regarding forward-looking statements.
Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company's expectations with respect to its outlook and future growth prospects, and other information and statements that are not historical 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.
Michael T. Fries
Thanks operator and welcome everybody. We appreciate you joining us for the third quarter call.
As usual we have the good cross section of management on the phone, and from various time zones including Bernie Dvorak and Charlie Bracken, our co-CFOs; Balan Nair, CTO, Diederik Karsten, EVP European Ops and a few others who may jump on the call during the Q&A if needed. Generally as 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 here is referred some slide numbers if that’s helpful for you. And I will pick it up 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.
And I can tell you that October was a great start into fourth quarter and that quarter is our strongest as you know. I will 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 is compared to an average quarterly loss of 10,000 over the last seven quarters. So together with RGU additions in our go out list, we drove financial results that were right on target.
Rebased 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. OCF growth on the other hand, 5% for the quarter and 6% year-to-date is ahead of plans and supported by the benefits of scale and synergies that we have 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 untapped 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 the tender offer which following some post closing procedures ends up in us owning 100% of that company and thereby fully consolidating a dense cable market finally. I will be in Amsterdam on Monday with others to congratulate the teams and officially launch the integration activities which are well planned and ready for execution.
We also announced the creation of a tracking stock for our Latin American Caribbean asset that we have 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 the region with massive broadband upside. In a moment I will share some update 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, 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’ll 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 December 30th, we were levered 4.6 times with 90% of our debt in 2019 and beyond, and we have $4.6 billion of liquidity which will use a portion of the fund Ziggo and of course we’ll be kicking off an additional of $2.6 billion in buybacks that will go through the end of 2015.
Pro forma from both of these and given our free cash flow generation and borrowing capacity, we actually expect to end 2014 in the neighbourhood of $5 million of liquidity. Now as promised you I’d give some highlights, one of the key drivers of growth and I do that on slide 5.
We have already touched on the subscriber growth, pro forma for Ziggo our networks were past 52 million homes, connected over 27 million customers, and delivered 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.
Well 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 up sell this space, as well as the market trickle in Quad-Play bundles to our entire base every day. And I think you are 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 from the Western European household, for what's generally a much better service bundle than our peers elsewhere in the world like the U.S., the bottom line is that we are under priced in Europe.
And we are 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 in our consumer triple-play business and we’ll continue to do so for the next several years if we do our job correct.
Together they are generating 3.1 billion of annualized revenue in 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 and Belgium.
And with seven additional market launches ahead of us, we are moving full speed ahead into the mobile business and B2B is being fuelled by 13% revenue growth in SOHO and a solid mid single-digit revenue growth in our CEE and large enterprise segments. Finally we continue to realize good scale benefits and synergy benefits across our business.
I’ve talked about this in the past and if you look at Virgin Media and the synergies we have forecasted in Ziggo, we’re expecting about 550 million on an annualized basis. Don’t be surprised if we raise our synergy target for Ziggo and by the way we are 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 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 its securing 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 everyday on upgrading the remaining 7.3 million analog cable sub to digital.
And year-to-date we’ve added over 350,000 digital subscribers. This is bread and butter of our video business, and it’s reflecting in the fact that we had our lowest Q3 video switching in seven years.
On top of that however, we are winning the battle for the next generation TV experience and by now I think everyone knows what I mean by that. Our Horizon platform is the killer app that is beginning to transform how Europeans consume television.
We recently launched Horizon in four countries and we are already 30% penetrated in three of those markets including a TiVo platform in the UK which is 60% of our digital household, we have 3.2 million next gen video customers who watch more TV, churn less, and spend more. Now 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 are also enhancing the quality and range of content available with our own subscription via fee services.
Like MyPrime in Holland and Switzerland that provides subscribers with a compelling options -- on any device and at no incremental fee. Users of MyPrime is really strong with 30% of entitled homes in Holland for example regularly watching MyPrime and that compares to an estimated net penetration of about 10%.
So I think you get the point. Horizon is just one of two key services in core bundles.
The other of course is broadband. We talk about that on slide 7, and while we believe we are winning over consumers of Horizon and TV app (ph), we know the game is largely over in broadband, the combination of our superior speed, quality of service, and allowing us to take market share in every country.
In fact we estimate that we gain more than -- more broadband additions in our top five countries on our partial footprints last quarter and all of our nationwide Telco competitors combined. Why is that happening?
Well first of all we are faster. Today 30% of our European broadband base is already on a 100 megabit broadband service and our average consumer speed is 65 megabits per second.
And consumption exceeds 54 gigabytes 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. And 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 product initiatives and value drivers playing out in our top three markets. Slide 8, includes some updates from the UK, Germany, and Holland which in 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. From the back of being bundled we had a 35,000 new customers and 70,000 new RGUs in the UK.
Mobile revenue growth was 10%, like the solid number and really resulted in shifting more and more customers from prepaid to postpaid with about 2.5 times ARPU uplift. Virgin business or B2B operations continues to rebound with another quarter of 6% revenue growth achieved by leveraging contract wins over the past 12 months and launching new product propositions in CEE and SOHO.
You probably also 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 achieved penetration rates of 20% to 25% in 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 we have already added 200 bps to the OCF margin, you probably noticed that and driven rebased 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 RGUs adds. Broadband remains the killer service there and we even increased at a top speed in November to 200 megabits per second, twice as fast as what the incumbents is rolling out over the next three years.
As forecasted we started balancing volume and price in Germany with recent price increases of both KBW and Unity footprint and a rise in -- in Germany and it is really becoming an anchor to our prime bundle of 120 megabits limited voice and 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 on Ziggo brand.
We are excited about the broadband opportunity of course. The last 12 months Ziggo and UPC together have added nearly 170,000 broadband subs, that compares to just 5000 for KB over the same period.
And this is our first truly national Quad-Play opportunity with our full MVNO launched in October and a broader commercial launch planned for next year. So in summary our largest operations are performing well.
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 to equity returns. So we are feeling great about that and look forward to taking your questions.
And right now I would like to turn it over to Bernie. Bernie, all yours.
Bernard G. Dvorak
Great. Thanks Mike.
Before I start with my presentation two short remarks. First, Chellomedia assets that we sold in January 2014 have been treated as a discontinued operation.
So those results have been excluded for all periods. And second, when we refer to our year-to-date 2013 combined results in this presentation, they include Virgin Media for that full period, even though we did not own Virgin Media prior to June 8th of last year.
On Slide 10 we presented and reported in rebase 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 impacts of FX and the impact of acquisitions, we posted 3% rebased 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 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 is 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% rebase revenue growth and 6% rebase OCF growth. Our operations in Western Europe which account for over 90% of our total European business, delivered rebase revenue growth of 3% and rebase OCF growth of 7% year-to-date.
Meanwhile our CEE business reported slightly positive rebase 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 rebase revenue growth of 4% and rebased OCF growth of 17% in the nine month period. VTR's 4% rebased revenue growth was driven by our continued Triple-Play success, and growing mobile revenue while its 15% rebase OCF growth was primarily driven by a reduction in the OCF deficit of VTRs wireless operation.
In Puerto Rico we reported 3% rebase revenue growth while the impact of synergies from the integration of one link fueled our 24% rebase OCF performance. With our current operating momentum, we remain confident in our ability to deliver higher rebase OCF growth this year as compared to 2013.
If we 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 rebase revenue growth of 5% and rebase 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, we are telling at deliver rebase revenue growth of 6%, our best result this year and rebase OCF growth of 4%.
The key driver of our growth in Belgium is the continued traction of telling that’s WAP and WAP Triple-Play bundles driving a 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% rebased growth for both revenue and OCF. From a top line perspective new PC cable com delivered rebased revenue growth in excess of 3.5% for the tenth consecutive quarter.
Our Swiss OCF growth included increased marketing expenses due in part with the launch of our MyPrime video streaming service during the quarter. And the UK Virgin Media generated Q3 revenue of over 1.7 billion and OCF of 756 million reflecting 2% rebase revenue and 6% rebase OCF growth.
Virgin Media’s cable subscription business delivered steady 3% rebased revenue growth and also reported strong results from mobile and B2B was delivered rebased top line growth of 10% and 6% respectfully. Our performance in these areas was partially offset by lower revenue from other sources due to reductions in inter connect revenue and revenue from Virgin’s off net business.
OCF growth in Q3 was aided by a $32 million nonrecurring 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 debt impact.
So if you net the two in the quarter they are both involved or calculated in our rebased OCF growth which would have a negligible effect if you combine the two. In the Netherlands we reported modest rebased 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% rebased OCF growth in the third quarter.
Let me turn to slide 13, it highlights two important metrics for our business which are property and equipment adds and adjusted free cash flow. First, our total P&E additions showed a decline in 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 probably a result of higher levels of CPE purchased in 2013 related to our various Horizon launches last year. It is 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 results 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 have 41.1 billion of total debt at September 30th down from 42.6 billion at the end of the second quarter which primarily resulted from the weakening of our currencies versus the U.S.
dollar. FX movements also contributed to a 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 Unity Media 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 the 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
(Operator Instructions). And we will take our first question from Ben Swinburne with Morgan Stanley.
Benjamin Swinburne - Morgan Stanley
Hey, good morning guys. I don’t know if Tom is on the call but I was wanting to start in the UK and get a sense for how the new products were impacting your market share and if you had any thoughts on some of the new entrants coming in at 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 got a lot of momentum on your back right now?
Michael T. Fries
Hi, Ben it is Mike. Tom is on the call, you want to take that Tom?
Tom Mockridge
Yeah, thank you. Look, 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 are seeing continuation of that trend. The new bundles are working well but, generally we found that the market is continuing to behave for all of this, that this is continued to be a good market.
I think generally the major players are all showing some growth and we are participating in that. Relatively speaking if we are running of course that should improve our share but we don’t see this as being only a share game.
There are still homes out there that don’t have broadband services and we continue to acquire those. In terms of the EE, we don’t see that as being a significant challenge to us that we are a full service video supply with the full package and VT channels and pretty much everything else, that you would desire and we think so, we see ourselves as operating at a level where we don’t really see ourselves in direct competition with EE.
Michael T. Fries
I was just going to say that you really operating inferior products. I mean the broadband products they offer are inferior and the video products they offer are just incomplete.
So it’s going to be tough I think.
Benjamin Swinburne - Morgan Stanley
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 are you feeling about the sustainability of revenue growth in your German market?
Michael T. Fries
Listen I think we always signaled that revenue growth of 8% to 10% wasn’t probably sustainable in any market. So while we expected overtime for growth to get closer to the mid single-digit or even you know mid to high single-digits that’s what we are 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 game for us. It is actually a value game and that’s the one we are playing.
I really don’t see meaningful slowdowns, not in the near-term anyhow. I mean if you look at broadband, my estimate is that cable operators in Germany added something like 100,000 broadband subs in last 12 months and the entire DSO base went backward.
So the underlying trends of organic growth remained 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 60% range and synergy sort of even off a little bit certainly it is always going to come back to earth if you will but the engine of that represents in terms of our overall growth mixture won’t change.
I mean it is a solid market with still tremendous amounts of opportunity in the core business. In particular around Horizon and digital, I mean 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 at 40 Euros or so in the NDU space is really in our opinion going to sustain and stabilize growth for a long time. Diederik, you want to add anything to that?
Diederik Karsten
Yes, maybe zooming in on the net that’s in Q3 for a broadband which were at 77 maybe at the low end of what we reported earlier at quarters. From a sales point of view I couldn’t agree more sales momentum is indeed continuing.
The net adds of 77,000 were kind of 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 I couldn’t agree more that we are still going through the right momentum historically always with operationally a strong second half.
Benjamin Swinburne - Morgan Stanley
Thank you.
Operator
We’ll take our next question from Vijay Jayant with Evercore.
Vijay Jayant - Evercore
Thanks, just wanted to touch on Holland with the transaction closing and you guys getting 95% of footprint, is there some opportunity by being truly national now that your position can change both from a competitive standpoint and really the obviously the mix will be smaller on where KPN build fiber, anything you can talk about just a fact that you have bigger scale and what that could do to that business apart from the synergies that you’ve already identified? And second just wanted to get any update on the whole FCO process with KBW, I think the 10-Q mentioned that there were some discussions with the appellants on it and if there is anything you can share that will be appreciated, thanks?
Michael T. Fries
Hi, Vijay, we can’t say anything about the FCO process. I am sorry, wish we could, but certainly we are working on that and as we said in the Q we are trying to find a negotiated settlement to that situation, so stay tuned.
In Holland I think there are tremendous benefits from being a national platform with 95% coverage. 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 a minute, take mobile.
I mean we had today -- we have launched mobile in sort of early phase sort of manner with SIM cards only. We have got mobile product but if we 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 of getting to 4G on a nationwide basis and be competitive.
I don’t think we have seen -- the government recently came out with the ACM bid with some sense that we are jointly dominate with KPN, we don’t agree with that of course. We did also add another three years to KPNs local loop on bundling requirement.
So more or less the market is the same but we think that having the ability 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 lines will be substantial.
But we are competing pretty well. And Ziggo has actually outperformed our UPC and our business had positive growth both from customers and revenue and EBITDA.
They are in slightly different markets than we are but we think together that platform is going to be really, really powerful. So, you will have to wait and see.
I walking through that to you but pretty positive about that.
Vijay Jayant - Evercore
Can I have a quick follow-up, like you have consolidated operations in Switzerland, Austria is there a possibility to do that with Holland and Belgium?
Michael T. Fries
You can't really 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. I mean 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 the Austria and Switzerland consolidation is really just a reflection of that. These are continuous 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 of the possibilities there and we will certainly keep you posted as we do that.
Vijay Jayant - Evercore
Great, thanks so much.
Michael T. Fries
Okay.
Operator
And we will take our next question from James Ratcliffe with Buckingham Research Group.
James Ratcliffe - Buckingham Research Group
Good morning, thanks for taking the question. Two if I could, first of all for the LatAm spin, can you talk about the surf opportunities that you are seeing in LatAm and also about what the rationale for doing tracker versus just hard spinning the asset base?
And secondly in big deals that got in headlines in Virgin, Ziggo, etc but you have always been serial acquirer and big market and small cable operator space and traditional roll out, what inning are we in that process, how extensive are those opportunities to pickup 50,000 subs here or 10,000 subs there, etc? Thanks.
Bernard G. Dvorak
Sure James. Well on the LatAm spin, we have I think articulated the rationale a couple of times and I will do it again.
We see the opportunity to highlight value in our regions that has quite frankly superior growth prospects to Europe in terms of when we look out it is probably high single-digit EBITDA grower, OCF grower versus what we are -- where we are at this point in Europe. But it is also a market that has different risk return profile.
So it seems 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 if 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, then the opportunity was particularly exciting.
I mean broadband penetration throughout Latin America is 25%. So there is huge appetite for broadband in our opinion and how you do it and where you do it will be -- it will depend on the market of course.
But with demand (ph) 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 have got the opportunity to highlight value in outperforming assets that probably aren’t being highlighted today.
As 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 and with the right kind of risk return profile. In terms of roll ups, I don’t want to say about anything more.
I mean, I think you guys know the market you are in quite well. We have our shots in terms of large scale acquisition so with two deals in Germany, Switzerland, UK, the consolidation in Holland, those are all transactions that are right down in the middle for us.
Will there be large scale transactions of those types going forward? Hard to say.
I mean at this point we are not forecasting any, it’s not how we operate our business anyway. But there are small roll outs happening all the time.
You know we are doing deals in Switzerland all the time. There we have already made one acquisition in the UK.
We may not have publicized that. We look at Eastern Europe, there are still some opportunities there, Poland and other markets.
So you will always be looking at the upside of market infill and you can expect that we’ll do that very cost effectively and continuously, cooperating on it because it’s that not hard to deal in my opinion.
James Ratcliffe - Buckingham Research Group
Great, thank you.
Operator
We’ll take our next question from Tim Boddy with Goldman Sachs.
Tim Boddy - Goldman Sachs
Yes, thanks for the question. I wanted to ask a little bit about the slow down you are seeing in the Netherlands.
Well as per the different name, I was kind of hopeful we would see a better recovery there and we started to see that last quarter. But it seems you got a bit tougher.
So any color on that would be helpful. Also there has 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, whether you reached any decisions on that? Thanks very much.
Michael T. Fries
While dealing with the NL point and the UK really haven’t made any decisions about what it will be. But you can expect that year after year we’ll look at sort of opportunities that the companies had in the past, which is infill and small network extensions.
There could be an opportunity to be more aggressive in that marketplace for broader new build but we are not in a position today to tell you what that looks like or whether we will 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 and possibly even discussing it but it is premature today. Diederik you want to talk about Poland.
Diederik Karsten
Yes, thank you Mike. With regards to quarter three, we saw a change in the competitive environment where KPN off to two I’d say quarter.
So for them disappointing broadband losses up to the promotional pressure where Ziggo followed considered in their broadband results for example and UPC consciously did not. As a result it’s the promotional that kind of short term tactical I’d say pressure, which led to this somewhat lower I’d say results than anticipated and seen in the earlier quarters.
If you still -- but if you’d still compare it, the broadband gains UPC which is plus 9k net add versus KPN which was only 6k with all their promotional power support that subscribe but Mike said that there is strength in our basic propositions. And therefore our midterm view on recovery to I’d say stronger results is still there.
Another KPI indicating that is a slowdown in the current versus last year and the UPC footprint also since the announced slowdown of the fiber to the home roll out of KPN. And that is there 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.
Tim Boddy - Goldman Sachs
Thank you.
Operator
And we’ll take our next question from Michael Bishop with RBC Capital.
Michael Bishop - RBC Capital Markets
Hi, good afternoon. Thanks for the question.
Just a quick one on the UK and Virgin Media. I’m clear you saw a very strong performance and a number of operators were communicating price increases during 3Q and into 4Q and some of those operators are actually various pricing twice this year already but do you think the 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 get momentum and the others are communicating price increases thanks.
Michael T. Fries
Tom?
Tom Mockridge
I think we’ll, we would approach that the way the company has in the past which has taken annual price rise and generally that’s been early in the calendar year. And so I think you would look for an announcement on that reasonably shortly because you going to run out people ahead.
So I think you will see us behave in a similar fashion in the past which is to take a fair reasonable rise and secure the benefits of the customer, but for the continued quality of service.
Michael Bishop - RBC Capital Markets
And just to follow-up, it seems like you have eased some of the promotion levels across those new bundles, you are having sort of success without matching a promotions of competitors, do you think that can continue given some of your competitors have sort of relaunched offers since Christmas?
Tom Mockridge
Absolutely. I think we have seen particularly both VT and Sky discount to an unusual extent in the last two to three months or so.
I think they have both felt the effect of that and even in recent weeks you might have seen some readjustment in their approaches. And to some extent both confused each other's market a little bit.
I think we have stood above that, apart from that and still got some good growth numbers even if these current weeks continuing to get them. So we are comfortable, of course we discount on acquisition probably when the market does but we are not going to discount to the point that you are offering products for free because it is not a very good price point.
So, we think we can grow whilst -- ARPU.
Michael T. Fries
Well, we don’t have to discount when you consider the fact that we are operating twice the broadband speed. Generally more pay TV with Sky and VT Sports, more HD content, it -- this picture in the bundle has value all over it.
So, we don’t have to promote that.
Michael Bishop - RBC Capital Markets
Right, thanks very much.
Operator
We will take our next question from Jeff Wlodarczak with Pivotal Research.
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 Netherland synergy targets which is good news, how many quarters of this synergies should we expect before you 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?
Michael T. Fries
Well, we are not going to as much I would like to Jeff, I am not going to give you a breakdown of the annual synergies just yet. I mean we have said publicly what we think they are and I did mention today we think we will be coming out with a higher number.
It is always typical to estimate synergies from the outside but now that we have had a slightly better look post announcement of the deal we have more confidence that that number will be higher. But I am hesitant to give you a timeframe on that.
Charlie you want to take NOL question.
Charles H.R. Bracken
Yeah, I think -- I will not give with regards -- I think we can remain committed to the guidance we have 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 goods. So, I think you should expect us to continue to report a relatively low cash tax charge.
Jeff Wlodarczak - Pivotal Research
I was just going to say in regards to this synergies can we expect a couple of quarters where you have got this synergies out of Netherlands before we see the benefit or you just don’t want to go there?
Michael T. Fries
I don’t think we should go there and Jeff sometimes that’s the case sometimes it is not. It all depends on what you are attacking and the time frame in which you do it.
Remember we have given ourselves three years generally in this market, when we were set to hit the original synergy estimate which I think is €160 million. So it is really, it is too difficult to say how that will layer quarter to quarter, I wouldn’t want to.
Jeff Wlodarczak - Pivotal Research
Okay, fair enough. And then on M&A, given that you overruled the local Netherlands regulatory authority and reviewed your Ziggo deal, I know you seems to have a smaller crocher (ph) than a specific country, does that actually increase the chances, maybe do M&A for example go and look in Germany and look at a lot of foreplayers for example, rather than before where you had to deal more with your local regulator, thanks?
Michael T. Fries
Yeah, it is a good question. I think, a couple of points.
Number one, we have to be cautious about what we think or say at this stage because we have an entirely new commission in place. And so well 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 healthy balance between allowing the industry to consolidate and generally speaking allowing -- to present ourselves to have a bit more freedom to grow and versus you know protection against consumers and things of that nature.
Second thing I’ll say is that national regulators always maintain a fair amount of political and a controlled 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 if the current commission decides to keep that moving in that direction then I am 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. I mean there is tremendous investment planned and tremendous upside we think deliverable by the industry we operate in.
I think regulator see that as well. After years of 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.
Jeff Wlodarczak - Pivotal Research
Thanks Mike.
Operator
We’ll take our next question from Jason Bazinet with Citi.
Jason Bazinet - Citigroup
Hi, just a quick question. I was more -- your ability to grow OCF faster than revenues and I am sure it’s a combination of the synergies and mix and maybe operating leverage but if you sort of swirl everything together and just be broad brush stroke over the next few years do you feel comfortable that OCF can continue to grow faster than revenues, thanks?
Michael T. Fries
Well, it’s a good question Jason and I think it’s a combination of things. And I’ll let others join in, to really help you on this.
While our OCF growth is right where we thought it would be 5% to 6% and mid 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 overtime though I’ll tell you that our headwinds and revenue will likely taper off.
But its usage of voice or other factors; regulatory and inter connect and things that have impacted us over the last you know 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 are more used to seeing.
So I think we are in an interesting period here. We had some headwinds on revenue and some tailwinds on OCF and those will kind of cancel each other out, on some level but going forward that should be a more balanced growth profile in my view.
Jason Bazinet - Citigroup
Okay, great. That’s very helpful, thank you.
Operator
We’ll take our next question from Matt Harrigan with Wunderlich Securities
Matthew Harrigan - Wunderlich Securities
Thank you. I guess an extension on the LiLAC question from James, you talked to the communico about $3 billion in EBITDA in M&A targets.
I know you be selective by market but it sounds like that would have -- that big a number would have to encompass GVT, maybe you could do something’s even for telecom or you got some technological changes and wireless drops, and all that. If you do something down there on M&A side and you ring that does it have to be traditional cable type situation that you’re still dealing with?
And then secondly on Wi-Fi, the new models of the iPhone are Wi-Fi enabled. Certainly Cisco surprise is talking up Wi-Fi voice, is that something you’d be looking at in data or you got so many balls in the air on the product road map side right now you’d rather looked at color less little bit more in some places else where there has been full round of it?
Michael T. Fries
Yes, I’ll let Balan take it that many questions and I’ll start with the LiLAC question. I mean I think it’s -- the first answer for that is we will be taking an approach in this market that doesn’t look hugely dissimilar from 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, etc.
So our first course of action will clearly be to look at markets where we think there is an opportunity to build scale in cable. Especially given the underlying growth opportunity in broadband which is we think a fixed broadband opportunity for the long haul.
Which markets, which assets I am willing to say there is a long list of prospects of course. But we are going to be very careful.
And the asset, the entity will only have certain amounts of liquidity available to it so, we can’t just go out and do any transaction. I think we will probably start small.
In terms of Wi-Fi we said publicly we’re very excited about the Wi-Fi opportunity in general, we have more close to 5 million hotspots today and Wi-Fi spots today throughout our footprint and that’s growing every month. And we think we’ll be substantially high when we speak about it in 12 months time.
And so we are seeing more and more of our customer's access in usual Wi-Fi network which is a good thing and we are really looking at Wi-Fi first and Wi-Fi calling opportunities that go beyond the apps that you can put on the iPhone that we deliver and make them more native Wi-Fi first opportunities. It is 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.
Balan Nair
Sure. Mike, as you pointed out we’ve already launched apps on smart phones that tie back to your fixed line.
So your biggest combined service both on your Smartphone and your fixed line same number it rings on both sides. But that’s not enough, we are also now looking at building a Wi-Fi service where the voice originates and terminates on Wi-Fi and seamlessly hands off to 4Gs.
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.
Michael T. Fries
The big thing you need to that Matt and this is important distinction. To make the -- work, and seamlessly hand up 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 got to have an MVNO or mobile platform and we have eight markets launched, we got 4 million mobile subs.
The fact that we haven’t 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 we can’t hand the call off, it doesn’t really make consumers very happy.
Matthew Harrigan - Wunderlich Securities
That’s great. Thanks Mike, thanks Balan.
Operator
We’ll take our next question from Carl Murdock-Smith with J.P. Morgan.
Carl Murdock-Smith - J.P. Smith
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 enquiry and just a bit more color around your thoughts on the topic? Thank you.
Michael T. Fries
Bernie -- you can take that Tom, but we are all aligned on this idea, go ahead.
Bernard G. Dvorak
Simply the compliant is going to the point that the current auction system which is mandated originally by the European commission that may supervised by the British Ofcom is that the auction road here permits the Premier League to hold back 60% of the games. So fundamentally a UK villa is paying a price which is twice the European average for less than half the games.
And as an operator we buying through Sky and VT but we are paying a share of that more pertinently our customers are paying the full price of that because we seek capacity through entirely as a cost. But if that sort of increased, it has happened in the past 70% clear circle, its pricing what’s a very good product.
Being with Premier League its pricing it at a point that customers are just not being attracted to it. So we would hope that there is an alignment frankly between our interest of course which is to make it affordable.
But between the consumer interest to least control the rate of increase and that price and we would hope that Ofcom would share that view. Which would probably most likely mean requiring the Premier League to make more games available so that there is more viewership opportunities and it is a value for any proposition.
Carl Murdock-Smith - J.P. Smith
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?
Bernard G. Dvorak
No.
Carl Murdock-Smith - J.P. Smith
That’s great, thank you.
Operator
And we have time for one final question. We’ll take that question from Daniel Morris with Barclays.
Daniel Morris - Barclays
Yes, thanks for taking my question. I just wanted to come back to the Netherlands, where you’ve already mentioned the cable has been taking very high share of adds but also seen as elevated promotional activity.
I just wondered that you looking Ziggo, the Ziggo acquisition as an opportunity to reduce the marketing spend and the promotions and get the market a little bit more rational or do you rather see the Netherlands an opportunity of maybe getting the legacy UPC business going a little bit more like Ziggo? And then just as a follow up related to that, can you just let us know what are you 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 that principle payments will be higher than the accruals next year?
Thank you.
Michael T. Fries
Well, I’ll take the first one and then Charlie can pick up the second one. I mean as I said before, certainly we would love to see that Dutch market becomes even more rational then 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 is nothing even close to joint dominance in this market and already we’d expect there will be. I think you can expect there will be some harmonization of product, of 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 -- on to Ziggo on one hand because we think we can add great products like Horizon into their platform.
To UPC on the other hand because we think the brand Ziggo will play even better than UPC does in our own market. So there is 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 it 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 confident of that.
Charlie you want to talk about other financing.
Charles H.R. Bracken
Yes, I think we continue with these opportunities and sustainable opportunities to optimize our balance sheet and achieve more positive working capital flows, which I don’t think there is only one tool there were others. And clearly Ziggo, not to say it wasn’t well managed before because there is yet more opportunity to do that.
So I think you should expect to see continuing working capital cash flow improvement. But I think it’s more than just financing.
There is a sustainable opportunity through the cycle to optimize that cash flow and to take the benefits of the cable company which essentially has a very positive relationship with its customers from working capital point of view.
Daniel Morris - Barclays
That’s helpful, many thanks.
Michael T. Fries
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 are doing market to market and we’ll talk to you about that in the New Year.
And our goal is to try to meet, and try to exceed your expectations and we feel like we are doing a very good job of that and we’ll work harder and continue to work harder and doing that going forward. So appreciate you joining the call and operator that’s it.
Thank you.
Operator
Ladies and gentlemen, this concludes Liberty Global's third quarter 2014 results conference call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.libertyglobal.com.
There, you can also find a copy of today's presentation materials.