Nov 4, 2016
Executives
Mike Fries - President and CEO Tom Mockridge - CEO Virgin Media Charlie Bracken - EVP and Co-CFO Balan Nair - EVP and CTO
Analysts
Vijay Jayant - Evercore ISI Ben Swinburne - Morgan Stanley Ulrich Rathe - Jefferies International Michel Morin - Morgan Stanley Jeff Wlodarczak - Pivotal Research Group Michael Bishop - Goldman Sachs Sean Dillon - Exbank
Operator
Welcome to Liberty Global's Third Quarter 2016 Results Investor Call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited.
[Operator Instructions]. As a reminder, this investor call is being recorded on this date, November 4, 2016.
Page 2 of the slides details the Company's Safe Harbor statements regarding forward-looking statements. Today's presentation materials 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 Form 10-Q and 10-K.
Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. I would now like to turn the call over to Mr.
Mike Fries.
Mike Fries
Okay. Thank you, operator and good morning or good afternoon, everyone.
Appreciate you joining us on our Q3 investor call today. I've got, as usual, a bunch of my senior leadership team from Europe and Denver on the call and they will chime in as needed during our Q&A.
I will do things a bit differently today. We'll spend time on each of Europe and Latin America separately to try to give you a bit more data.
And then starting next year, we'll most likely migrate to separate calls to provide better transparency and color on each of the asset groups. But today I'll get started with some brief remarks about the quarter, focusing on products and operations for each of the regions.
And then Charlie Bracken, our co-CFO, soon-to-be CFO after Bernie's pending retirement at the end of the year, will take us through the financials. And then we'll get right to your questions.
As a reminder, we're working off of slides. So if you can get access to those, it will make the presentation a lot more useful, I'm sure.
I'm going to start off on slide 4 with key highlights for Europe. And there's seven key takeaways here on this page, all of them very important.
I'll begin with perhaps the most important and that of course revolves around growth. On the last two calls we talked a lot about our expectation that we would deliver improved performance in the second half of the year as our Liberty Go initiatives around revenue, new-build and efficiencies began to take hold.
And we're pleased to report operating and financial results this quarter that reflect that acceleration. Subscriber growth in Europe year-to-date is now up 50% over last year.
And even more importantly, we delivered 5.2% rebased OCF growth in the quarter. That's excluding home which is the basis of our guidance.
Now, I'll provide more detail on each of those numbers in a minute. But one key driver of that growth is our new-build plan across Europe which continues to ramp up.
Year to date, we've built 850,000 new homes on our way to over 1.3 million across Europe by year-end which means we've got a big fourth quarter coming up. And the good news is that we continue to see green lights across the board on build costs, penetration rates and ARPUs.
At the same time that we're expanding our footprint we're also investing heavily in the products that we know our customers want today, like super-fast Wi-Fi routers in the home, our new 4K box that will supercharge our cloud-based video platforms and cost us less, continued investment in multi-platform content like Netflix and exclusive sports and mobility in every market with quad-play bundles that deliver value and simplicity. Now, the other half of the Liberty Go plan is based on realizing scale efficiencies across Europe and we're right on track with that as well.
Just this week, we went live with our centralized technology and IT platform. This has been a 15-month process impacting over 4,700 people and it's gone extremely well and we'll see big benefits from that.
We're expanding securement synergies, we're creating common customer contact centers, reducing headcount across central functions. This is all hard work.
But, as I've said, we've got decades of experience doing this and, as I've said also, we're on-plan. The punch line is that we can confirm today our 2015 financial guidance targets for Europe with one small caveat.
Despite a continued pickup in Q4 which we expect, we now think that we'll be at the lower end of that guidance at 4% to 5% rebased OCF target, largely driven by the phasing of our new-build program in the UK which is now heavily weighted in Q4 and certain commercial initiatives in the UK, like moving forward our price increase which will impact churn in these last couple of months. Quickly on M&A, we're making great progress in our Dutch JV with Vodafone.
We still expect to be able to close around year-end. We've already recapitalized the pro forma entity and should receive proceeds at closing of between $2.3 billion and $2.5 billion.
In the meantime, Ziggo continues to trend in the right direction, with positive revenue growth sequentially at 2% and another quarter of improved RGU loss at just 11,000 actually in the period. And then finally, our commitment to our stock is unwavering, with $1.6 billion of repurchases year to date including $640 million in Q3.
That leaves us about $2.4 billion available for buybacks between now and the end of 2017. Slide 5 provides a bit more detail on our operating results.
On the left-hand side you'll see our quarterly net add. Just a couple of key points to make here.
One, we've seen steady improvement quarter over quarter and, two, our year-to-date growth of 620,000 RGUs is nearly 50% more than last year. There's three key drivers behind this.
Number one, our new-build program is providing greenfield marketing opportunities; it was always intended to do that. Number two, we've seen improved broadband additions every quarter.
Three, maybe most importantly, we've seen significant improvement in our video attrition quarter after quarter, from a loss of 142,000 in the first quarter to just 39,000 in this quarter. I think that's the result of many things, not the least of which is Project Lightning in the UK, where we're adding new customers to the base and even Holland, where Ziggo's investment in sports, ReplayTV and TV Everywhere services is really paying off.
The right-hand side of the chart shows our rebased OCF growth in Europe over the last three quarters, again, excluding Ziggo, as Holland will be consolidated shortly. You can see our growth of 5.2% in the quarter, up from 1.7% and 3.1%.
And as we foreshadowed, we had another strong quarter in the UK with 6% growth and Germany continues to hit on all cylinders with 7% rebased OCF growth. Belgium continues to be impacted in the short term by the integration of BASE, but that will roll off next year and they will start picking up.
And I think Charlie is going to get into some of these numbers in a bit more detail shortly. Slide 6, it gives you some background on our revenue growth profile in Europe.
It's really just a visual to remind you of how we see the future. We remain committed to our 7% to 9% OCF growth for 2018.
And, as we've said, about half of that acceleration will come from these core revenue drivers you see here which are already having an impact, as we just discussed. Starting with our goal to expand our footprint, 6 million homes cumulatively by 2018 -- these are high-return, offensive and scalable investments where we have great control over capital and timing.
And then that will help us get our fair market share of customers for sure. That and our investment in our products and customer experience will in turn provide the right conditions for reasonable pricing power as well and I think we've demonstrated that this year.
And then finally, on the right side we have total conviction on the benefits of mobility, both from a growth and retention point of view and I'll show you that in a minute. And then lastly, B2B allows us to leverage our superior networks, particularly in SOHO and SME.
So I'll dig into each of these quickly right now. Starting on Slide 8 -- I'm sorry, Slide 7 which provides -- it's a busy chart, but it talks about our new-build program.
And I'll just focus on three key points here to cut through, if you will. First, the bars in the middle illustrate that we're accelerating our new-build activity every year from this point forward.
From 900,000, in fact, last year to 1.3 million new homes this year, growing to as much as 2.5 million homes in 2018. That will bring total marketable homes added to our footprint of around 6 million.
And, of course, we're providing ranges on this slide to be conservative, but I think you get the point. We've also provided some broad CapEx figures to give you a sense of the investment we're making here.
Net growth from around $600 million this year to about $1.2 billion in 2018. Now, these numbers exclude CPE and related items, so it's just the network build portion.
But I think it's important to repeat that even including variable CPE which will add about 40% to 50% to the total cost, these projects generally deliver unlevered returns in the 30% range and are largely debt-financed from the immediate cash flow they start to produce. By far, our largest commitment has been in the UK, where Project Lightning is well underway.
The red callout box in the top shows you that we've already started achieving penetration rates in the 30% range after 12 months which means we're on track to hit our forecast of 39% in three years. In fact, a third of our UK customer growth and around 40% of our RGU growth in the UK is attributable to our new-build plan.
And just over half our Lightning customers are taking the full triple-play in the UK and we're generating ARPUs which are right in line with our expectations. The overall build cost per home in 2016 is also in line with our estimated GBP600 per home.
And while we're a bit behind on the phasing of the build-out, we've ironed out the kinks, as they say. And this year, we'll build twice as many homes as last year and then next year we'll almost double that again.
We hope some of this transparency helps and we'll certainly continue to report as much detail as we can going forward. Now, Slide 8 provides a snapshot of our B2B business in Europe.
Again, there's a lot of data here, so let me try to hit the high points. First of all, you'll see on the left our B2B business today is about $1.7 billion in revenue and that excludes Ziggo and it's growing at 10% year to date.
The round circles show you how that revenue breaks down by segment and by product. 60% of our revenue today is what we call Enterprise and 40% is SOHO and SME.
So we're underpenetrated in SOHO in our minds which is actually growing over 20% per year and we're also small in the SME segment with huge potential there. In fact, the right-hand side shows you that growth opportunity for us in Europe.
We estimate this market in our footprint for SOHO and SME to be about $19 billion. And so obviously today we're a pretty small player.
But by continuing to exploit our superior broadband network and by investing in the products and services that make a difference to these customers -- things like 500-megabit speeds, mobile data, managed Wi-Fi, hosted voice, cloud-based services and security, these sort of things -- we should drive that market share up meaningfully. So it's a big opportunity for us in this particular market.
Now, as you all know, we have crossed the bridge on mobile. It is unquestionably a core part of our product strategy and our customer value proposition.
And Slide 9 breaks down both the logic and some of the numbers for you. Now, we already know there are significant benefits to our fixed business for mobile.
Mobile expands our geographic reach. It adds national weight to our brands and generates significant synergies and we've demonstrated that.
But even more importantly, from a consumer's perspective, mobile allows us to provide seamless and ubiquitous connectivity and cross-platform services that drive ARPU, reduce churn and are financially accretive. And it's an accelerator for our B2B business.
And as the chart on the right shows you, in Europe alone we're approaching 10 million mobile subs across nine of our 12 markets and with total revenue of about $2.7 billion when you include the Dutch JV with Vodafone. We've also shown on the far right, on that far column, our fixed mobile penetration rate in each market.
You'll see a high watermark there in Belgium of 37% which means that four out of every 10 broadband subscribers of Telenet take a mobile product from us. Now, Belgium is our most advanced FMC market.
We just launched our first fully integrated bundle called WeGo, where you get unlimited voice across fixed and mobile, shared data buckets across five phones, the best entertainment package on every device. And it's doing extremely well.
We've got 100,000 users in the first 100 days. In the UK, we're at 19% FMC coverage and that's, of course, before the launch of 4G which will provide a much more robust quad-play service there.
So that number is expected to rise. And our Dutch JV will start life at 20% which means one in five Ziggo subs already have a Vodafone mobile service even before we start cross-selling.
So everywhere else, we're just getting started. You can see those smaller numbers.
But when you add it all up at the bottom-right, you can see that 15% of our 17 million broadband subs take a mobile service from us today. And we think that number should reach 30% to 40% in every market we operate in over time.
Now, of course, that number will ultimately depend on the size and the composition of our broadband base, our ability to offer best-in-market mobile data products -- a bunch of other factors as well. But there is significant growth ahead of us in mobile as a product.
But also, we know that as we grow that product there are huge benefits in our fixed base, higher ARPU, lower churn, happier customers. Slide 10 is a great segue -- or that whole point is a great segue this slide which illustrates how we see our business evolving.
In the wake of AT&T's acquisition of DIRECTV and now the Time Warner announcement, a lot of folks in our ecosystem are having what I would describe as an existential moment. What does it all mean?
Where do I fit in? What's my next move?
And that's understandable. Right?
These are some tectonic shifts occurring. From our perspective, it largely validates our strategy on a few levels.
First, everything begins with connectivity. It's the core of our business and the passageway through which all the goodness travels and is enabled.
And while the foundation of that connectivity platform is our 50 million fiber-based, giga-ready homes in Europe that serve 22 million video and 17 million broadband subs today, as I just described mobility complements our fixed network superiority. It extends our reach, it reinforces our brand, it provides a seamless connectivity experience for consumers.
Fixed mobile convergence in our view is inevitable and we're way ahead of the curve in Europe and already reaping the rewards. Now, while connectivity is king, I like to say entertainment perhaps is the Kong, if you will.
We want our customers to connect and play on our platforms. And we already deliver entertainment to 22 million homes in Europe.
We're already their primary source of video in the home. And like some of our peers, Comcast for example, we're upgrading that entertainment experience with a beautiful user interface that rivals any OTT service, with the widest content offering in the market -- broadcast, sports, premium, SVOD, TVOD, replay and even OTT apps like Netflix all on one platform.
And, of course, access to everything on the go, anywhere on any device, with the same UI and with streaming benefits across our fixed mobile networks -- that's where this business is headed and -- which is not a dream; this is today. And unlike the U.S., we can be selective about when and where we vertically integrate with content investments because for us it's really about national scale.
In Holland, we're the only home of Ziggo Sports, HBO and the most robust replay TV and go apps in the market. In Belgium, our broadcast network delivers exclusive scripted dramas to Telenet customers.
All3Media is developing original scripted series for first-run on our SVOD platform and we have four or five great ideas cooking with Lionsgate. So we're in a great position, in our view and ideally suited to take advantage of where this business is headed.
Now, I will finish up my remarks with a few on LiLAC, beginning with some highlights on Slide 11. At the top of the list is an update on cable and wireless.
We're now six months into the acquisition and we've used that time wisely, in my opinion. I'll make four key points right up front for you.
First, the operating cash flow reset, while disappointing, was necessary. There is no way around the adjustments required when you translate from IFRS to GAAP.
And we were also forced to take some more conservative views on certain accounting policies. Either way, the current OCF level, in our minds, is more consistent with normalized operating performance and I'll show you some numbers on that in just a moment.
Second, from the current operating levels and valuation we see a clear path to the same sort of growth and value creation we've always expected from this business. Since we closed the deal, we've simplified the operating model.
And we've put strong management in place with integrated key functions with Liberty -- procurement, programming, finance, treasury, accounting and technology -- so that cable and wireless now has a direct link into our best and brightest in Europe. And we developed our bottom-up long-range plan market by market.
We've got a pretty firm grip on this business now and I'll tell you we're excited. Perhaps the best indication of that is our announcement today that we think synergies between cable and wireless and LiLAC should be in the $150 million range.
This is big, but an achievable number. And, again, it's above and beyond the $125 million that we're already achieving from the cable and wireless Columbus acquisition.
More on that in just a minute. And then fourth, while we're excited about our outlook for 2017 and beyond, we were a quarter too early perhaps with our second-half guidance.
Competitive pressures and Hurricane Matthew will make it difficult to hit that target, as I'll show you in just a minute. Slide 12 digs a bit deeper into cable and wireless on some of these issues.
As I just mentioned, cable and wireless experienced some headwinds in Q3 which led to weaker than anticipated performance and our reduced second-half guidance. Revenue was down 4%, driven in part by competition from new entrants in a few markets, some delays in network and product launches and, to be frank, a bit of management distraction which is not uncommon in the first few months of an acquisition integration.
Jamaica was a bright spot, with revenue up 7% in the quarter, driven by mobile which grew 22%, as well as some encouraging momentum building in the managed services business there. At the end of the quarter, we increased pricing in Trinidad, Jamaica and Barbados for 5% following the launch of some improved products offerings there, led by Flow Sports with the premier league and we'll see the benefits of that in Q4.
At the bottom-left, a few more details on synergies. We estimate them to be about $150 million by year-end 2020, split roughly 50-50 between OCF and CapEx.
Of the $75 million of OCF, cost savings really are the primary driver. Examples of this are leveraging our Liberty Global scale and capabilities to drive content costs down; reducing the cost of bandwidth for use of the best-in-class cable and wireless subsidy asset.
And of course there's no need for corporate cost in London. On the CapEx side, we'll leverage our purchasing power and rates to drive procurement efficiencies and we've already seen benefits starting to come through here.
There will be some revenue opportunities like expanding cable and wireless outstanding B2B portfolio into some operating regions in our territory. And then finally on the right-hand side, we've laid out a trending schedule for cable and wireless operating cash flow for the last six quarters.
Why are we doing this? The purpose is to try to level-set the number by rebasing historical figures for our GAAP adjustments.
So you can compare these to current and future quarters. And we're happy to discuss those changes -- the GAAP changes during Q&A, but they are all well-documented in the 10-Q.
The other purpose of this slide is to explain the March or calendar Q1 quarter for cable and wireless. Obviously, it was an outlier and it deserves some explanation.
First of all, the $268 million you see here, as I just explained, is already adjusted for GAAP and is lower than the cable and wireless reported figure of $285 million. So that's point one.
Point two, then, is that then we've provided a simple bridge from the $268 million to the Q2 figure of $201 million which was the first quarter that we reported after closing in May. Now, to keep it simple we've put the $67 million difference into two buckets, performance-related and other.
The $29 million of performance-related variants include some large B2B deals and carrier promotions that closed in Q1 and, of course, were not repeatable in Q2. There was some normal post-Christmas seasonality which typically generates a bump in revenue and higher integration costs in Q2.
The $38 million of other items impacting the trend include accounting base and nonrecurring items, as well as some phasing issues. For example, in Q2 we made the decision to switch from accrual to cash basis accounting for a couple of very large overdue customers and related bad debts.
And there was also a very large nonrecurring vendor credit that benefited cable and wireless in that Q1. And the balance of the variance which is smaller related to costs that were essentially deferred from Q1 to Q2 -- I'm not sure why, but we can come up with some reasons for that.
Finally, you'll see our estimate for Q4 in the far right-hand side of $215 million to $225 million which continues the trend of sequential OCF improvement despite the $10 million impact from Hurricane Matthew and it sets the stage for strong growth in 2017 and beyond. And I'll close on Slide 13 with a quick update on Chile and Puerto Rico which continue to perform strongly and for which we're now forecasting 6% OCF growth this year, right in the middle of our range.
Starting with VTR on the left which has generated 6% growth in revenue and OCF year to date. Underpinned by broadband and mobile momentum in Q3 and our investment in customers and things like launching the WiFi Connect box, raising our core triple-play offer to 100 megabits and deploying Horizon actually in Chile in our top-tier package.
We've got a new-build program there well underway as well and we're on track to deliver more than 125,000 new homes in Chile in 2016, with possible acceleration next year. And then finally on Chile, we've just completed a business reorganization that's impacting over 20% of our employees which includes streamlining technology and administrative functions and outsourcing our call center function, all of which will help create a more robust cost structure for the business.
And quickly in Puerto Rico, even in the face of macro weakness which we all know about, we've achieved 11% OCF growth year to date. Some of those drivers include the launch of a skinny video bundle with eight mini-tiers, top speeds now of 400 megabits a second and a TV everywhere app with 60 different channels and apps.
So, good strong growth in our legacy LiLAC markets and, I think, a renewed enthusiasm for cable and wireless' opportunity. And for me, it's a great combination and I would certainly recommend you watch this space.
Charlie, I'll turn it over to you.
Charlie Bracken
Thanks, Mike. First, I'll take you through the financial results for the Liberty Global group which consists of our European operations which include BASE and [indiscernible], followed by an overview of the LiLAC Group which consists of our operations in Chile and Puerto Rico.
And, since May 16, cable and wireless. As a reminder, we will deconsolidate another from smart financial reporting once the Vodafone joint venture closes which is anticipated around the end of the year.
So throughout my slides, I'll periodically mention certain metrics including the Netherlands to match the basis of our European guidance targets. On Slide 14, we present year-to-date financial results for Europe.
Adjusting for FX and the impact of acquisitions, we grew our rebased revenue by 3% year over year to $13.1 billion for the first nine months of 2016. That's broadly in line with our top-line growth in the first nine months of last year.
Our rebased OCF growth was 2% or $6.1 billion, for the first nine months and that increases to 3% when you exclude Ziggo in the Netherlands. PP&E additions of $3.1 billion in Europe were at 24% of revenue year to date.
That's above the 22% that we reported in the first nine months of last year. Now, excluding the Netherlands, our capital intensity also stood at 24%.
That's below our full-year guidance of 26% to 28% of revenue, as the largest portion of our new-build activity is expected to occur in Q4. Absolute PP&E additions increased by $290 million.
That's an increase in the year-to-date period and that's largely due to an increased line extension and scalable infrastructure spend related to our new-build projects. In terms of the breakdown of our Q3 period additions, 48% pertain to line extensions, upgrade and rebuild and scalable infrastructure and 24% was related to CPE and 28% was related to support capital.
Moving on to adjusted free cash flow, our European business reported $1 billion year to date. That's below the $1.7 billion that we reported last year, largely due to lower benefits from vendor financing activities as well as higher cash paid for interest.
We remain committed to delivering $1.8 billion of adjusted free cash flow for the full year 2016. That's despite the recent weakness of the British pound versus the U.S.
dollar. It's worth noting that although we now call the metric adjusted free cash flow, we have not changed our definition.
Slide 15 presents the quarterly financial performance of our European operations, with a focus on the large Western European operations which represent over 90% of Europe's revenue and OCF. Our largest operation is Virgin Media in the UK and Ireland, where we achieved Q3 rebased revenue growth of 3%, while OCF increased 6% on a rebased basis.
Virgin Media's revenue growth was attributable to higher cable subscription revenue, higher-level handset sales pursuant to our freestyle proposition and higher business revenue which was partially offset by lower mobile subscription revenue impacted by the split contract program in the UK. The OCF growth in Virgin Media further benefited from tight cost controls.
In Germany, Unity Media generated a 6% rebased revenue growth in Q3, driven by increases in both ARPU per RGU and average subscribers. Our rebased OCF growth in Germany was 7% mainly following the strong top-line trends.
In Belgium, Telenet delivered Q3 rebased revenue growth of 1%, as continued growth in our legacy cable business was muted by a decline in revenue of BASE as a result of both adverse regulatory and competitive impacts. Telenet's rebased OCF increased 3%, driven primarily by the lower direct costs, lower sales and marketing spend as well as lower cost for outsourced labor and professional services.
We saw positive developments at Ziggo, where we reported a stable Q3 rebased revenue performance, although OCF declined 4% on a rebased basis. Ziggo's flat rebased revenue performance was the result of having fewer RGUs and lower ARPU per RGU offset by revenue gains in mobile and B2B.
The rebased OCF decline was driven by higher direct costs, including programming costs, partially offset by a decrease in indirect cost, including lower integration-related expenses. The increases in our programming costs primarily reflected targeted investments in content related to our Ziggo Sport channel.
Now rounding out Western Europe, our operations in Switzerland and Austria together delivered rebased revenue growth of 1% and rebased OCF growth of 2% in Q3. Revenue was primarily driven by mobile sales and growth in cable subscription revenue due to higher ARPU per RGU.
And rebased OCF grew due to the aforementioned revenue increases and was helped by lower staff-related costs associated with the integration of our Swiss and Austrian businesses. So overall, the Liberty Global group, excluding the Netherlands and including BASE which is the same basis as our guidance, delivered rebased revenue growth of 3% and rebased OCF growth of 5% for Q3.
And as Mike mentioned earlier, we expect solid rebased OCF growth during Q4. With respect to our balance sheet on Slide 16, total third-party debt and capital leases attributed to our European business at the end of Q3 amounted to $38.2 billion, while cash and cash equivalent totaled $500 million.
Our reported debt decreased by $7.7 billion from Q2 2016 primarily due to the application of held-for-sale accounting in connection with the pending Dutch JV. After excluding the $2.3 billion of debt backed by shares that we hold in ITV, Sumitomo and Lionsgate, our consolidated adjusted gross and net leverage ratios were 5.1 times and 5 times at September 30.
We were active in the credit markets during Q3 and have extended our average tenor of our third-party debts slightly to over seven years. Now, more than 90% of our debt comes due after 2020 and our blended fully swapped borrowing cost is now at 4.8%.
Total liquidity in Europe at September 30 was approximately $3.6 billion, comprised of $500 million of cash and $3.1 billion of aggregate unused borrowing capacity under our credit lines. As you move to the right-hand side of the slide, you can see that we have repurchased approximately $640 million of stock during Q3, bringing us to nearly $1.6 billion year to date.
And of course, we remain committed to purchasing an incremental $2.3 billion of stock over the next five quarters to complete our current $4 billion authorization. Turning to LiLAC on Slide 17, we present our financial results for Latin America and the Caribbean which include cable and wireless from mid-May.
Operations attributed to the LiLAC Group generated rebased revenue growth of 1% and rebased OCF growth of 5% for the first nine months of the year. And I'll provide more details for Q3 on the next slide.
P&E additions increased to $365 million year to date, primarily as a result of the cable and wireless acquisitions and, to a much lesser extent, the purchase of Choice in Puerto Rico. P&E additions as a percent of revenue was at 20%, in line with the prior year.
In terms of adjusted free cash flow, LiLAC posted negative $55 million year to date, as compared to a positive $40 million last year. Now, the year-over-year decline was primarily the result of including cable and wireless' negative free cash flow in the first current year since the date of acquisition.
In terms of guidance, we continue to expect limited free cash flow for the full year 2016. And with respect to leverage, we ended Q3 with $6 billion of total third-party debt, with growth in net leverage ratios at 4.2 and 3.9 times, respectively.
The average tenor of our attributed third-party debt exceeds five years, with less than 10% of the maturities due prior to 2021 and our blended fully swapped borrowing cost is 6.5%. Our liquidity position at the end of Q3 was approximately $1 billion, including over $470 million of cash.
Now, Slide 18 provides more detail on our three operating segments within LiLAC. Cable and wireless experienced a 4% rebased revenue contraction in Q3.
A 7% revenue growth in Jamaica was more than offset by declines in Barbados, the Bahamas and Panama. In early October, Hurricane Matthew caused significant damage to our business in the Bahamas.
The cost to replace certain parts of our network in the Bahamas is expected to range from $35 million to $45 million, but we currently expect that a significant portion of those costs will be recovered from third-party insurance carriers. Rebased OCF growth in cable and wireless was 3% in Q3.
And despite the top-line weakness, cable and wireless benefited from staff and network-related savings following the Columbus acquisition as well as lower integration costs. BTR in Chile delivered 6% year-over-year rebased revenue growth in Q3 on the back of increases in both cable and mobile subscription revenues.
Rebased OCF growth was 3% in the quarter, as the aforementioned revenue growth was partly offset by increases in programming and staff-related costs. And in Puerto Rico, we reported nearly flat year-over-year rebased revenue growth for Q3, as growth in our B2B business was mostly offset by ARPU per RGU declines and lower subscriber volumes.
However, rebased OCF growth at Liberty Puerto Rico during the quarter was 21% and this performance came from a combination of cost discipline and efficiencies from the Choice integration as well as a recognition of a $5 million benefit related to a favorable ruling on an outstanding legal case. On Slide 19, we provide our guidance for the LiLAC Group, including updated OCF guidance for cable and wireless.
The legacy LiLAC Group comprised of Chile and Puerto Rico is projected to deliver 6% rebased OCF growth this year and is consistent with our previous guidance of 5% to 7%. Due primarily to competition challenges and Hurricane Matthew, OCF for cable and wireless is expected to come in between $215 million and $225 million during Q4 which will lower the expected half-two 2016 OCF for cable and wireless to between $430 million and $440 million.
And finally, we continue to anticipate LiLAC's group P&E additions as a percentage of revenue which includes cable and wireless, but they will range between 19% and 21% in 2016. Concerning our medium term expectations, we believe we can grow the combined platform of 7% to 9% over the next few years.
But we're currently undergoing a comprehensive bottoms-up strategic review and are refining our long-range plan this fall. To wrap up, we're confirming our guidance, albeit at the lower end of our 4% the 5% rebased OCF growth, for Europe and we're expecting a very solid Q4.
We continue investing in product innovation and we're delivering on our connect-and-play strategy which delivers the best connectivity both in and out of the home and combining it with a premier entertainment. Our new-build program remains a key part of our growth acceleration strategy and is expected to further ramp up in Q4 and beyond.
Liberty Go is already delivering efficiencies as we continue to execute our plan. And at LiLAC, we're well underway with the integration of cable and wireless.
And despite some tepid results at cable and wireless itself, we continue to see substantial growth potential for the business. And finally, we remain an active and opportunistic buyer of our stock.
So with that, Operator, we're ready to take questions.
Operator
[Operator Instructions]. And we will take our first question from Michael Bishop with Goldman Sachs.
Michael Bishop
Just two questions, please. Firstly, there's obviously a lot of moving parts in terms of the Liberty Go efficiencies.
And you've pulled out some headcount reductions in the UK and also Germany, I believe. But just from a big-picture perspective, could you talk to us about how far you are through the efficiency savings for this year?
And then, as an aggregate how should we think about the efficiency savings phasing in 2017 and 2018? And then just following up on the UK and the slower build, is this completely just a timing issue?
And if so, could you just point us to the reasons for that? Or are you actually holding back the investment a little bit given the ongoing issues with BT?
Because ultimately if that becomes quite a protracted process around open reach and does that change your overall investment plans in the UK? Thanks very much.
Mike Fries
Thanks for the question. This is Mike.
On the Liberty Go side, we originally explained that we thought that our cost over a three-year period would be reduced by approximately $1 billion. And that was essentially looking at our normalized increase in OpEx and suggesting that we felt we could keep OpEx indirect costs essentially largely flat over the next three years.
And as a result of that, we would be generating efficiencies over what we would normally be spending as we drove revenue growth. And I would say if you look at that phasing, it's a three-year process for the most part and we're not quite a third of the way in.
And this year, we're right on track with our anticipated efficiencies, roughly $280 million already realized through the course of this year. And the balance of those will phase in over the next two years or 24 months -- not necessarily equally.
And of course, Ziggo moving the Dutch asset out of the group had some differences. We'll clarify those in the first quarter or year-end results call when that happens.
But for the most part, that is the trend. We've got a little less than a third already underway this year and there's a bunch more yet to get done.
But every one of those efficiency work streams is intact and managed. And getting this T&I reorg underway was a massive effort and that's going to drive a ton of benefits.
So it's a long list of things we're doing across central and local market activities and functions and we're on track this year with about $290 million of those efficiencies. Turning to the UK build, I'll let Tom answer.
But I'll simply say, no, we're not adjusting our speed to market at all based on BT. If anything, we're speeding up.
But I'll let Tom deal with the phasing issues specifically. Tom?
Tom Mockridge
Thanks, Mike. On Lightning, clearly we're continuing to build very, very successfully and we've got a large team out there that it is constantly increasing in its footprint.
And we're also increasing the proportion of the build that we do on fiber to the premise. What we're finding -- there are issues particularly dealing with local government authorities and that does mean sometimes it is taking a little bit longer to get those planning permissions and actually getting to the ground.
But in no sense is that diminishing our ambition. And particularly as we move to more and more fiber to the premise, we think we can increase the scale of each build we're doing.
We'll be less dependent on doing smaller infills. And through that process, we can actually really lift this to the full scale that will get us to the 4 million homes over the period to really 2019.
So there's not any sense at all about diminishing our targets or our ambition here. And I would point out again the chart Mike referred to earlier on Page 7 of the deck, that we're delivering these penetrations.
We're very positives about the penetrations that we're getting and we're certainly targeting 2017, with the great bulk of our subscriber and RGU growth will be in Lightning homes.
Michael Bishop
Thanks. And maybe just a follow-up on the BT issue -- does that come into your thinking at all?
Tom Mockridge
Frankly, if we were a cynic we might say that a bit of the disruption at BT is to our advantage. BT said publicly that they are going to hold back on investments while there's uncertainty about their position.
But we're running our own race. BT had a long period of advantage in this country where the old Virgin Media wasn't investing.
And now with Liberty Global as our shareholder, we've got the resources to do it. So we're running our own race and making a success of that.
Operator
And we will take our next question from [indiscernible].
Unidentified Analyst
One question -- on Project Lightning, you are bringing at least 200,000 new serviceable homes in 4Q. How have you readied yourselves and marketing efforts around that large volume being brought online?
And what type of commercial activity can we expect as a result? Thanks.
Tom Mockridge
Again, Mike, shall I comment on that?
Mike Fries
Yes, go ahead.
Tom Mockridge
We're running a fully integrated sales operation. Obviously, we know through the build process where these new homes are coming on stream.
And what we do is we run a local marketing effort beforehand. But in particular, we rely on our door-knocker team, the direct sales guys, who will go down the street and knock them door by door.
And we will have increasingly a targeted offer in those homes because these are homes where it's the first time they've ever had the opportunity to buy Virgin Media. We're particularly successful in getting Sky customers out of these homes.
These are people who haven't had that choice before. And of course, the broadband is a big driver as well.
But we have a scale across our wholesale effort that is really driving that direct sales effort into these homes at first pass.
Unidentified Analyst
And just one follow-up -- as you change your mix to more STTP, are we assuming this is within the same original geography? Are you moving to new areas?
Tom Mockridge
To some extent, it is changing the geography because the FTTP will be more scale builds. You might see recently we announced we would do Rexam in Northern Wales.
There's a significant community which has never had a choice apart from BT before. And we'll be doing that as a turnkey with an external supplier which will give us an entire community.
So that's not an infill; that's much more of a line extension. So we'll continue to do the infill as well, but generally the FTTP will be scale builds in significant communities.
Operator
And we will take our next question from Vijay Jayant from Evercore ISI.
Vijay Jayant
A couple of questions, I think first, Mike, you talked about one of your pillars of growth being mobile. And if you sort of look at the numbers through 2016, there seems to be some sort of a deceleration.
Can you sort of talk to that? And obviously there's some headband on the top line associated with some handset-related negative impact.
Can you also address how that works? And second, on your filing you talk about the possibility of a UK network infrastructure tax possibly next year and then the chance of that being reversed.
Can you help us understand what that is and the chance of a reversal? Thank you.
Mike Fries
Sure, Vijay. On the mobile business, I think we're -- as I said, for us it's strategically critical.
We're focused on ensuring that we're developing a quad-play bundle in every market, that we have all the tools in place to be competitive with the product. Every quarter is going to be different.
The deceleration I think you are referring to is largely attributable to the handset issue. In some cases, we're not selling handsets and that handset typically would go to revenue and in many cases we're using SIM cards only.
So I think the handset revenue might provide a little bit of volatility. For us, what's most important is are we getting post-paid subs added to the footprint.
And we're doing that over time to benefit from mobile comp, not just from the revenue of mobile -- certainly not just a one-time revenue, a handset sale where we're providing leasing options and the financing options. But also, more importantly, from the ongoing revenue from that customer and then of course the churn benefits from the quad-play offer.
On the tax, Tom, I think you can address that. It's a bit of a nuance in the marketplace and it's -- I don't know how much disclosure we've provided on it, Tom, but you are welcome to address it.
Tom Mockridge
The issue is it's not an infrastructure tax particular to our sector. It's the way that local government revenue is collected in the United Kingdom and the charge is allocated.
And the charge does appear to be shifting more to network operators depending irrespective of what industry you are in. And that will be definitely costing us some more going forward.
There are transitional arrangements, so it will be a phased increase. It's something that we will absolutely manage within our current potential footprint and won't be a major impact on our numbers going forward.
But it's clearly something that we would prefer being handled differently.
Mike Fries
And it's also impacting all operators, not just impacting us.
Operator
And we will take our next question from Michel Morin from Morgan Stanley.
Michel Morin
I was wondering on LiLAC, specifically for this year there's expectations of no free cash flow. But what are your thoughts going into next year?
I'm asking the question because we're seeing CapEx declines. And, as I recall, cable and wireless had given guidance of CapEx to sales of 14% for their fiscal March 2018.
So I'm wondering how we should be thinking about that CapEx and the potential for free cash flow. And then related to that, are there any plans to possibly use the buyback for LiLAC?
Thank you.
Mike Fries
Good questions. We're not going to provide any guidance for LiLAC into next year.
We'll certainly do that as we get closer, as we finish the year and normally in that February time frame. We'll give you some greater guidance -- I think Charlie addressed the free cash flow profile pretty clearly in his remarks.
The business isn't a major generator of free cash flow today, largely because of the interest factor [Technical Difficulty] margins of the business. We expect over time, of course, that the combined LiLAC Group will generate meaningful free cash.
And when we have the opportunity to provide a bit more information about that medium term guidance, we'll do it. For the time being, though, I will stick with the guidance that we've given.
In terms of buybacks, at this point we haven't done anything with buybacks on LiLAC. Partially that's because of the cash position.
There's a couple hundred million dollars of trapped cash in some of the markets. We want to make sure we've got the balance sheet way squared away, our free cash flow profile squared away.
I think we're also -- I didn't mention, but we're also heading towards, in our mind, a pretty hard spin sometime next year. So it's our anticipation that sometime in 2017, probably the second half of 2017 because there's quite a bit of financial work that has to be done before you can spin, we will proceed with a spin.
It's not a definitive statement, but it's one that's our intention to try to do that, as we've said to you in the past. And as we do that, as we prepare that business to be split out, then we'll certainly obviously be providing a bit more detail behind the scenes.
But for the time being, we will stick with the guidance we have.
Michel Morin
Mike, just on that last point about the hard spin, does that mean -- I think on the last conference call you had said that you expected to look to do additional deals before doing a hard spin. I think your wording was that you would put more cargo on the ship before letting it sail.
Are you kind of changing your view on that now?
Mike Fries
Not really. The cargo in that particular reference -- the cargo principally meant expertise, having a good understanding of the business and getting it set to move forward.
So the cargo really implied the integration and the time spent as essentially a controlled business within the Liberty Global family, in my opinion, gave us the time to provide them with the expertise, the talent, the benefits of what we've learned in Europe, the procurement relationships, the programming relationships, the strategic guidance -- all of that stuff is what I referred to as cargo. It wasn't actually physical assets.
In terms of the M&A front, we'll make the decision about M&A on a case-by-case basis. I'm not suggesting that there won't be or can't be any transactions until we spin.
The tracker is a fully viable stock; it's got good liquidity and is trading solidly. So I don't think there's a reason why we couldn't use the tracking stock -- there is no reason why we wouldn't other than what is the deal and are we willing to use stock trading where it is for that deal.
So from that point of view, I'd say it's really opportunistic on the M&A front. We wouldn't necessarily have to wait for a spin.
But the timing of the spin is really around first, as I said, getting the business organized. And we think we've done that well.
And then getting the mechanics of the spin and the accounting straightened out. And that's probably going to be in the second half next year.
Operator
And we will take our next question from Jeff Wlodarczak from Pivotal.
Jeff Wlodarczak
I wanted to focus on Germany. On German new-builds, correct me if I'm wrong, it appears you anticipate adding about 120,000 upgrades this year.
How much do you expect that to accelerate next year? And then, BT recently has gotten, I guess -- towards the end of the summer has gotten more aggressive around pricing and promotion.
Are there any signs of a competitive normalization there yet? And I've got a follow-up.
Mike Fries
Well, Balan, I'll let you talk about the new-build program in Germany. On the competitive front -- and I don't know if Lutz is on the call -- but on the competitive front, I think we're holding our own.
We've had a great quarter in Germany and I think we're not necessarily succumbing to the game that others are playing in that market. I don't think we need to for the most part.
But if you look at our broadband adds and you look at our historical net adds across the market, we're right there we want to be, to 90,000 this quarter and 100,000 last quarter; averaged 90,000 to 100,000 in prior years per quarter. And that's being achieved, we think, in a profitable way.
So while we're sensitive to the offers that BT and Vodafone and others are providing, we're not necessarily following right in line. We think that our product -- our speeds are faster our business and our opportunity -- our product opportunity is better for consumers.
So we feel good about the market and principle there. In fact, we've got a pretty good push on in the fourth quarter.
We should do some pretty meaningful net adds in the fourth quarter. And the cable business in Germany is more than holding its own in terms of new net adds in the market despite pressures from Deutsche Telekom and that's because it's a better product.
It's just simply a faster, better bundle and that's what consumers in that market want. On the new-build -- I don't know, Balan, if you are on, if you have that number.
Balan Nair
Sure, Jeff. For the upgrades in Germany specifically, we're probably keeping it pretty close to where we had in 2016.
And there may be some slight increases. We're still looking for some opportunities, but it's going to be very opportunistic with a lot of the MMAs out there.
Jeff Wlodarczak
And then on Switzerland, you revamped all of your promotions right at the end of the third quarter. Can you provide any color on how those revamped promotions are doing -- how you are doing in the fourth quarter as a result of it?
Balan Nair
Too early to tell. The connect-and-play launch is -- that slide I put out there on connect-and-play is essentially our go-to-market strategy -- is going to be our go-to-market strategy everywhere.
Switzerland would be one of the first that we've actually rolled it out. The initial results are good.
I'm not going to give you any specific guidance in terms of what the fourth quarter is looking like, but I'll tell you that it's resonating pretty well. Our sales are up in October 20%, 30%, so people are certainly excited about what's happening.
So from our perspective -- so far, so good, but we want to be careful about providing too much guidance.
Operator
And we will take our next question from Ulrich Rathe from Jefferies.
Ulrich Rathe
My first question is on the UK. You are highlighting you had sort of a record Q3.
But the year-on-year improvement of the intake was a lot lower than last quarter. So I'm wondering how you view that.
Is that simply that Q3 in 2015 was a crazy quarter or is there something holding you back? Or how would you sort of describe that?
And in this context, could you just clarify one thing on the UK penetration rates? These numbers look very impressive, but I think your competitor has suggested that you are a bit selective with sort of looking at these penetration rates only in certain regions or certain areas.
Is this correct or are you doing this strictly over the whole of the new-builds? And then I have a follow-up.
Thank you.
Ulrich Rathe
Well, on the first question I'm not sure I follow. Net adds are up on almost 50% in the third quarter this year versus third quarter last year and I think this year we did a little over 90,000 and last year somewhere like 65,000 or something like that.
So net adds are up year over year -- maybe I misunderstood the question.
Ulrich Rathe
That's what I meant to say is that they are up less than in last quarter. That was the question, I suppose.
Balan Nair
Well, that has a lot more to do with Q2 2015. Last quarter we did 66,000 RGU net adds in the course of the quarter.
Before that was a flat quarter in Q2 2015 -- virtually zero. So that's going to show you obviously a pretty big variance.
But a normalized rate is probably where we're and fourth quarter, obviously, we're expecting a pick-up from here. Because, to get the numbers that we're anticipating, both in terms of revenue and operating cash flow growth for the fourth quarter in the UK and with new-build coming on stream, we're certainly anticipating an even bigger number in the fourth quarter this year than we had in the third quarter.
Do you want to address the second question, Tom?
Tom Mockridge
I had not heard that one before about any questioning from our competitors and that's not a problem. But what you are seeing here is very directly the number of premises we've installed versus the number of homes that have been built.
That's a very simple denominator and numerator and nothing there -- no subtlety to it.
Ulrich Rathe
My follow-up would be, again, on Switzerland. These tariff changes are quite interesting, I think, in that they sort of release people from, at least optionally, from the forced and the U-charges.
And I think you said this is a blueprint for other countries. Does this mean that you are planning similar tariff structures also in Germany?
Because that is quite a material deviation from the way [indiscernible] charged before. Thank you.
Mike Fries
Yes and it's not necessarily the -- I'm not suggesting that the pricing structure is repeatable or would be repeated. I'm really talking more about how we will approach the bundle and how we see products marketed.
The way we approach the pricing of each bundle in every market will be unique and specific to that market. But the idea of a connect-and-play bundle where you are focused on connectivity and then various entertainment options and various -- and variations of that, that is something we intend to try to do.
And we think that's a very simple message for consumers. The pricing will be market by market, of course, depending on the competition, what our existing back-book looks like, et cetera.
Operator
And we will take our next question from Ben Swinburne from Morgan Stanley.
Ben Swinburne
Mike, I would have thought the price increase in the UK in November would be a nice revenue tailwind, but you seemed to suggest at the beginning that it was going to drive enough churn maybe to be a net negative in the quarter. Add some color on the impact you'd expected from the price increase and maybe the thought process as to why you guys implemented one, I think, a little bit earlier than you typically do.
And then on the new-build, I think you were at 7 million over the next few years back a year ago. Now it's been reduced a bit.
And you've always talked about modulating that based on what you see. Do you think that number is set in stone now or do you think that might continue to move up or down depending on how the penetration returns appear over time?
Mike Fries
On the new-build question, I think our number was 6 million to 7 million and now it's maybe 6 million. But I have to be honest with you, we're feeling a bit sheepish or shy about guidance these days.
We just want to be giving people numbers that they can -- especially when we're providing -- in the case, like we did today, we're providing financial figures and things of that nature. So we haven't changed our long term view of new-build at all.
We feel like we're on track with all of our initiatives in every country. But if we're going to put it on paper, we're going to be conservative.
And so I think that's the better way to consider those numbers. And the price increase -- I'll let Tom address that more specifically.
But certainly it has had an impact in the fourth quarter for those two months. But it also inevitably has some has some impact on -- not just on sales but also on churn.
So we're going to see a mix of that. But the punch line is the UK is expecting to have a very strong fourth quarter across all metrics.
And now when we provide guidance, we anticipate performing at that one level and then as we get into the quarter and we get in closer to that final period, we anticipate we look at performance up to that point. So it's really about modulating performance that we expected versus what we see, but it's all going to be pretty good.
And we don't -- and you're right about that -- it will have a positive impact and you'll see that come through in the fourth quarter. Tom, do you want to address that?
Tom Mockridge
I have nothing to add to that. I think absolutely we're very focused on delivering a very good Q4 result.
Mike Fries
Super. All right.
Thanks, everybody. Listen, we appreciate you putting up with slightly longer remarks.
And, as I said, we will probably find a way to make this an easier series of calls going forward. We know that LiLAC shareholders want to get into the details of those businesses as well.
On Europe, I would just leave you with the thought that we thought we told you we would have some liftoff here in the second half of the year. We think we have done just that.
We have delivered results that should give you some confidence that what we've been saying will in fact occur. And in Latin America, I feel good about cable and wireless.
We now have six months into this business. We really feel like we understand the opportunity better and we're going to be conservative about how we guide.
But, more importantly, internally we're extremely excited about the opportunity, especially when you combine it with LiLAC and the 150 million of new synergies which could be conservative in my view. So, a lot of good things happening and we look forward to talking to you about our fourth quarter and year-end in February.
Thanks for joining us.
Operator
Ladies and gentlemen, this concludes Liberty Global's third quarter 2016 results investor call. As a reminder, a replay of the call will be available in the investor relations section of Liberty Global's website at www.Liberty Global.com.
There, you can also find a copy of today's presentation materials.