Liberty Global Ltd (LBTYB) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's 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. At this time, all participants are in a listen-only mode.

(Operator Instructions)

Today's formal presentation materials can be found under the investor relations section of Liberty Global's website at www.lgi.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, February 14, 2013. I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Thank you, and welcome, everybody. Let me first introduce who is on the call with me. I have got Bernie Dvorak, Charlie Bracken, our co-CFOs; Diederik Karsten, in Europe; Balan Nair, our CTO; Rick Westerman, of-course, our Head of IR. Those are the folks you're likely to hear from. Several others just in case. Our agenda is going to be as it normally is. I'll do a quick overview. Bernie, at this time, will run through our financial numbers, and then we'll quickly get to the questions. That's the main goal. Operator, can you handle the Safe Harbor Statement, please?

Thank you. 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 Form 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 back over to Mr. Mike Fries.

Thanks. I'm going to kick it off on Slide 4. Again, these slides are available on our website and we encourage you to try to get them, which is just a summary of 2012 and some recent highlights. Beginning with our operating and financial results. I don't know if I can actually say it any more plainly but we had a really strong year, including record subscriber growth of 1.6 million new RGUs. That was helped considerably by our biggest quarter ever with 465,000 net adds in Q4.

Our financial results were right in line and improving as the year progressed. Revenue was $10.3 billion, that's up 6% on a rebased basis. And OCF was up $4.9 billion, or was $4.9 billion, up 4% for the year. Both those numbers were even higher in the fourth quarter, with rebased revenue growth of 7% and OCF up 6%. And you can see we blew through [precastle] targets, with over $1billion in 2012. That was up 30%.

We've also been pretty busy on the strategic front. I assume at this point, everybody is aware of our announced acquisition of Virgin Media. We're extremely excited about this combination. And I'll hit a few of the highlights again in just a minute. Of-course, it's a natural continuation of our rebalancing effort back into Europe, after the sale of Japanese and Australian businesses, the latter of which occurred just last year. More recently we upped our stake in Telenet and just announced EUR900 million shareholder distribution there, 58% of which will accrue to us.

2012 was the year we launched Horizon TV and I think changed forever the digital video experience for our customers in Holland and now Switzerland. I'll give you more on that in just a few slides. And we're building momentum in the wireless base. Particularly in Belgium, where our mobile subs increased by 275,000 to over 0.5 million. And in Chile, where VTR launched our first MNO and added about 140,000 subscribers since May.

And then finally, our balance sheet and capital structure remain in great shape with over $5.3 billion of liquidity at year end and that number is pro forma for the Telenet tender. And continued access to the capital markets, even before the Virgin Media financings. We extended maturities to 2017 and beyond. We reduced borrowing costs by 80 basis points and we raised attractive capital for M&A and buyback activities. And we finished our third straight year of over $1 billion in stock repurchases. I know that some of you, to some of you we sound like a broken record on these calls, but we take great pride in delivering on the re-strategic goals every year, stable organic growth complemented by consolidation opportunities that drive scale and enhanced with a levered equity capital model that focuses on shareholder returns. And 2012 fit right into that model.

You can see a high-level snapshot of our reported results for the year on Slide 5. We ended 2012 with 34.8 million RGUs, that's an increase of 2 million when you add acquisitions to our 1.6 organic net adds. Bernie is going to dig into the financial results in more detail in just a moment, but you also see our $10.3 billion of revenue and $4.9 billion of operating cash flow for the year, along with another uptick in our OCF margin to 47.2% despite the pressure of mobile in Chile and new product launches and record sub growth. Cash Capex was down 200 basis points to 18% of revenue, which is a good number and given our record net ads and launch of Horizon and our wireless rollouts. And lastly, adjusted free cash flow, as I indicated, was up 31%, much higher than our mid-teens guidance.

And as you'll hear in just a moment, we did hit or exceed all of our guidance targets. Keeping that result was driven in large part by our record subscriber growth. And Slide 6 shows how that growth has picked up steam every year since 2009 when we added 577,000 new RGUs compared to 1.6 million last year. That's a 40% kegger which includes of-course the benefit of growth from new acquisitions, along with improved results in most of our existing markets. It's no secret that Germany remains our biggest driver to subscriber growth, with 768,000 additions in 2012, a new record for us, including over 200,000 in the fourth quarter. But even the rest of Europe, excluding Germany, was up 13% year over year to 700,000 net adds. That was driven by Central and Eastern Europe, which is up 24%, and markets like Switzerland and Belgium, which added on a combined basis roughly 70% more new RGUs in 2012 than 2011.

The engine of our growth story is volume and market share gains and those are broken down by product on Slide 7. As always, our broadband bundles are driving our voice and data net add, at the top of the slide you'll see that. And with nearly 1.9 million new broadband and voice RGUs in 2012, and bringing total voice and data subscribers to 65 million. And despite a much larger footprint, we lost the fewest number of video subs in five years, 287,000. Certainly we're hopeful that we can continue at that trend of declining video losses, especially as we roll out our Horizon TV media platform, which we provide a quick update on Slide 8.

In the five months since our launch in Holland, we've sold over 100,000 subscriptions and over 200,000 unique users enjoying the online and multi-screen services. Consumer demand was more than double our internal projections. People are using and enjoying the killer features, like a beautiful UI, access to all the best live channels and thousand hours of broad content on your smartphone, tablet or laptop. The launch in Switzerland last month has gone equally well. In just a few weeks we've sold over 20,000 subscriptions and have 10,000 unique Horizon TV online users.

In addition to growing and keeping customers, Horizon is financially accretive as a product. We've mentioned that before. In Holland, it headlines our most popular bundle with 60 megabit broadband speeds of EUR55. That's an incremental EUR5 above our old super play bundle. And we've taken a similar approach in Switzerland where for an incremental 10 Swiss Francs you get Horizon TV access to online services and 50% increase in broadband speeds. I can't emphasize enough how pleased we are with Horizon and the impact its having and will continue to have on our marketing and bundling strategies.

In fact, everything we do is focused on offering the most compelling triple-play bundles in every market and we analyze that a bit for you on Slide 9 where at the bottom of the page you will see we have 9 million bundled subscribers today, representing about 46% of our 20 million customers. That's up 12% for the year, and most of that growth is coming in the triple-play sector, which is two-thirds of our bundled subs and growing much more rapidly. But the punch line is that we still have 11 million single-play customers, which represent a very large pool of growth going forward. And that growth will come from digital television, where every year we convert about 1 million analog TV homes to digital and we still have 8.4 million to go. And from broadband, where our internet penetration in a key market like Germany for example is just 18%, 50% of the rate in more mature markets like Holland, and still well below our average in Europe, about 28%. And while we're proud of our success to date, we think there's a lot of growth ahead of us.

And couldn't really let the call go by without revisiting for you our recent decision to acquire Virgin Media and we do that on Slide 10. I'm not going to repeat everything I said in our call last week, but this truly is a powerful combination, hits the mark just about every strategic and operating criteria we've established for ourselves. First, it adds great scale to an already large cable platform. We'll have 25 million total customers at close, 47 million RGUs, and a world-class network spanning the most desirable markets in Europe. While the UK is still very competitive, we think the four remaining players have pursued consolidation and technology strategies that should support rational behavior. Second, it's complementary to our own operating growth profile and actually accretive to our free cash flow. And it allows us not to just maintain but enhance our commitments to share buybacks over an extended period of time, starting with an already announced $3.5 billion repurchase program over the two years following close.

There are also a few other factors that drove timing and terms for us. First of all, in addition to a fantastic management team and culture, we expect to learn from Virgin Media in the B2B and mobile space in particular where on some levels we're still playing catch up. Second, as you know, the financing markets are very supportive right now of our business. The transaction is fully funded at this point with a blending cost of debt capital in the 5%s, and obviously that was a crucial in a deal of this size. While we are always sensitive to dilution, it's important to note that we're issuing stock in the mid 60's on average that we repurchased for an average price of around $30 per share. And then finally, there are a few tax attributes and that creates significant value and flexibility going forward.

So, just to review, the timing was right from a financing, a dilution, and a valuation point of view. Growth is achievable and complementary to our own growth. Free cash flow is accretive and actually accelerating over time. And the structure of the deal has many long-term benefits to both sets of shareholders, in particular, as it relates to our buyback posture over time. And we hope to close that transaction second quarter.

What about the rest of 2013? Our strategic plan. Well, we summarize that on Slide 11. First, we will continue to energize our bundles across Europe with the fastest broadband speeds. We already have 120 to 150 megabit offers in every market. And while we have no plans today, we have lots of flexibility to take those speeds to 400 megabits at very little incremental cost. Second, we're on track to rollout Horizon TV in Ireland and Germany and to support existing markets with continued innovation like IP clients, a new remote controls, and a cloud-based UI. We plan on maintaining a careful and tactical approach to mobile with progress in Chile, continued volume growth in Belgium, and several new markets coming along with mobile, voice, and data services in the rest of Europe.

Obviously, we expect to learn a few things from Virgin Media, where one of five cable customers already take their mobile service. And as we've discussed in the past, B2B is a real growth area for us. Today, we generate about $500 million in revenue from the commercial sector. We anticipate that this will be one of our fastest growing revenue streams this year. We'll do that by exploiting untapped growth opportunities in markets like Germany where we're just getting started. And by focusing on the SOHO sector across our footprint. We should expect to hear a lot more in the quarters ahead on B2B.

On the M&A front, obviously closing and integrating Virgin Media is a main priority. Conservatively, we estimate $180 million of Opex and Capex synergies. But we'll also see German synergies reaching their peak this year as well. In fact, we already saw some of that in Q4 where German operating cash flow growth was 15%. And then lastly, it's all about the bottom line for us. Pro forma for the Virgin Media acquisition, we see OCF acceleration off a base of $7.5 billion for the full year and not just in quantum but in yield.

So all three strategic areas are really I think in focus for us and going to perform well. Growth driven by scale and innovation, (inaudible) consolidation opportunity which benefits our P&L, our balance sheet, our strategic position, and then, of-course, our balance sheet itself which remains geared towards shareholder returns. So we're confident and the year started off reasonably well. We're excited about it and look forward to talking you about our first quarter. With that, I will turn it over to Bernie for the financials.

Thanks, Mike, and hello, everyone. I'm working off of Slide 13. So building upon Mike's earlier statements on our financial performance. Revenue grew by $800 million, or 8% to $10.3 billion for the full-year 2012. While OCF increased 9% to $4.9 billion. Our reported results were helped by the positive impact of acquisitions, particularly Kabel BW in Germany. Our growth in US dollar terms was off set by the adverse impact of foreign currency movements, as the US dollar appreciated on average during the year relative to all of our key currencies, including an appreciation of approximately 8% to the euro on average in 2012 versus 2011.

With respect to revenue, RGU volumes drove our revenue growth as we added 2.9 million advanced service RGUs in 2012 consisting of digital television, broadband internet, and telephony subscriptions. If we neutralize for currency movements and M&A activity, revenue increased 6% on a rebased basis including a stronger second half performance. And this result was at the top end of our 2012 revenue guidance mid-single digit growth. If you turn to OCF, we delivered rebased growth of 4% in 2012. And this growth rate is lower than our rebased revenue growth due primarily to the negative OCF associated with our Chilean wireless project, the expansion of Telenet's low-margin mobile services, and subscriber acquisition costs associated with our record RGU performance. And finally, OCF margin was flat in 2012 at a little over 47% as compared to 2011 OCF margin. And the operating leverage in the business plus the favorable impact from acquisitions was largely offset by margin contraction in Chile and Belgium due to the impact of wireless.

If you turn to Slide 14, this highlights our full-year results by operating region. Our European broadband operations, excluding Telenet, generated $6.9 billion in total revenue, and slightly over $3.6 billion in OCF, resulting in a 53% OCF margin. Rebased revenue growth was 5% and rebased OCF growth was 6% with our western European operations driving the result, posting 7% rebased growth for both revenue and OCF. Our top performing operations in terms of rebased growth were in Germany and Ireland. In addition, our business in Switzerland delivered substantial improvement in rebased growth year over year. Our Central and Eastern European operations were largely flat year over year in terms of both rebased revenue and OCF growth.

Turning to Belgium, Telenet reported $1.9 billion in revenue and $940 million in OCF, which equates to rebased revenue growth of 8% and OCF of 5%. And Telenet's revenue growth was its best in five years. And was supported by its strong showing in mobile, a 23% year over year increase in advance service RGUs and selected price increases. With respect to OCF, Telenet reported 5% rebased growth for the full year, including rebased growth of 3% in the fourth quarter. Telenet's fourth quarter OCF growth was adversely impacted by significantly higher handset subsidy costs, driven by strong mobile sales, but also benefited from certain nonrecurring items.

Moving to Chile, our VTR group reported revenue of $941 million and OCF of $314 million for 2012. Although the Chilean market remains very competitive, we delivered 6% rebased revenue growth for the full year, including 8% rebased revenue growth in Q4. In terms of rebased OCF growth, our VTR group reported a negative 7% in 2012, which is impacted by a year over year increase of approximately $50 million in the incremental OCF deficit of our wireless operations there.

Slide 15 presents the rebased revenue growth rates of our four largest markets, consisting of Germany, Belgium, the Netherlands, and Switzerland. These markets account for 65% of our total revenue today. The purple bar highlights our rebased revenue growth for 2012 while the blue bars provide our 2011 rebased growth. It's clear that Germany, our largest market with $2.3 billion in revenue is driving very strong top line growth at 11% for the full year, including their best quarter since we acquired Unitymedia back in 2010, coming in at 13% in the fourth quarter.

We've already talked about Telenet so let's move to the Netherlands. We posted 4% top line growth to $1.2 billion, which we see as a good result given KPN's more competitive posture in the second half of the year. And finally, our Swiss business delivered another year of solid improvement. RGU adds increased to 80,000 in 2012 versus 33,000 in 2011, along with multi-year highs in terms of rebased revenue and OCF growth, with top line growth doubling from 2% in 2011 to 4% in 2012. And with the introduction of our Horizon TV platform last month, together with an approximate 3% price increase on our basic TV service from January 1, we're very bullish on upc cablecom's growth prospects in 2013.

Slide 16 provides our 2012 capital expenditures measured as a percentage of revenue and adjusted free cash flow results. Our cash Capex totalled $1.9 billion for both 2012 and 2011. As a percentage of revenue, this reflects the decline from 20% of sales in 2011 to 18% in 2012. The year over year decrease in cash Capex is due principally to our working capital efforts around vendor financing and capital leases which increased $170 million in 2012 over the previous year. If we look at total property and equipment additions, which includes Capex on an accrued basis, as well as all vendor financing and capital lease additions, our capital intensity was down 30 basis points from 22.4% in 2011 to 22.1% in, which we believe is a solid result given our record RGU growth and the inclusion of a high-growth asset in KBW.

Turning to the right side of the slide, we highlight our adjusted free cash flow which primarily we lose the impact of our mobile initiative in Chile. In 2012, we generated a 31% increase in adjusted free cash flow to over $1 billion for the full year, including $590 million in the fourth quarter. We clearly outperformed our guidance target of mid-teens growth, due largely to the impact of the KBW acquisition, improved working capital management, and increased OCF generation. Our working capital improvements include the positive impact of not only our vendor financing arrangements, but also our efforts to streamline our cash collection and billing processes.

Go to Slide 17, this captures our leverage and liquidity positions at year end. Our total debt was $27.5 billion and our consolidated cash as adjusted for cash released from restrictions upon completion of the Telenet tender offer was $3.1 billion. Our debt increased about $1 billion in the quarter over Q3. And this is due in part to approximately $500 million of debt we assumed from the acquisition of 1link in Puerto Rico as well as the impact of currency movements. And after adjusting for a Sumitomo loan, we had gross leverage of 5.3 times and net leverage of 4.7 times, up slightly as compared to Q3 leverage levels. And as we said last week, we expect the Virgin acquisition to be a modest deleveraging event, taking our gross leverage down to roughly 5 times based on current estimates.

We were very active in the credit markets during 2012, refinancing our debt at very attractive terms and raising incremental capital. And as Mike mentioned, we finished 2012 with a fully swapped borrowing cost of 7.2% and a maturity profile of more than 85% of our debt due in 2017 and beyond. If you move to the right side of the slide, our consolidated liquidity position totaled $5.3 billion at year end, down slightly from $5.5 billion at the end of Q3. And our $3.1 billion of adjusted cash consisted of $1.8 billion at the LGI parent, and $1.3 billion at our operating subsidiaries, primarily Telenet, as said earlier just announced the shareholder distribution earlier this week which will bring roughly $700 million of cash to LGI.

Turn to Slide 18. As we discussed on the Virgin acquisition investor call last week, we laid out our view of the combined Company over the medium term horizon, which is consistent with our view of LGI's growth profile on a stand alone basis. We remain focused on generating mid-single digit rebased revenue and OCF growth, reducing our capital intensity in terms of both property and equipment additions and cash Capex. And finally mid-teens free cash flow growth on an annual basis over the medium term. This free cash flow growth will be coupled with the continued focus on stock buybacks, which we expect to increase substantially upon the successful completion of the Virgin Media acquisition. Operator, this completes our prepared remarks today. So please open up for Q&A.

(Operator Instructions)

Daniel Morris; JPMorgan.

Yes. Good morning, and thanks for taking the question. I wanted to ask a question on Germany, which delivered some fantastic results in Q4. I wondered if you think the regulatory and other environment is right for further M&A in the market at the moment? Or whether we should continue to think that you run the two businesses you've got? Thanks.

Listen, we have always been very cautious about the German regulatory environment, even when we announced and closed our second acquisition there. And I haven't witnessed, nor do I think any of our team have witnessed meaningful change in that posture to date. Hard to say what that regulatory environment will look like in a year or 18 months or 24 months. Clearly, we think there is compelling logic for consolidation in the cable sector, given the fact that it competes with several national platforms including sky, Deutsche Telekom, Vodafone, et cetera. It is the only fragmented operator working against mostly national platforms, whether they be television or telecom or bundled. We'll see how it unfolds over time. There's no imminent change that we have noticed, but we always remain optimistic that we can win that argument over time. We'll just have to see.

That's very helpful. Thanks. If I could just ask a brief follow-up on Germany. Could you give us an update on the carriage fee situations? I imagine that dropped out, but I think there's a court case ongoing; is that right?

Sure. Diederik, do you want to provide a quick update on that?

At this stage, talk about 2013. First, from a financial point of view, it makes sense to say that we did not -- we're not recognizing the revenue. But at the same time, we appealed against their, I'd say, refusal to continue paying. And that is still under discussion and under debate. So, there's no new positive nor negative news other than to say that we do not agree with their position. We stated it, and there are I would say the first signs of more substantial talks.

That's helpful. Thank you.

Matthew Harrigan; Wunderlich Securities.

Thank you. Neil over at Virgin used to frequently comment that cable and wireless certainly had a lot better utilization of their network during the day to say the least, which is understandable because they're just focused on the commercial side of the market. But I think even Virgin felt there was a lot of headroom. Could you talk a little bit more about the competitive topology by market, and what the opportunity is? And size-wise, what the buckets are? Where you tend to go, small versus medium, metro ethernet and all that because it does seem like a big opportunity.

And secondly, Horizon looks really elegant. Looks like you're getting a lot of pull demand rather than just push demand. If you put that together with B2B, is that likely to keep your Capex at a pretty high level -- of sales being a little bit longer than people had expected? That might be a very good thing if the ROIs are satisfactory, but it's still a bit of a game changer in terms of how people look at the mechanics on the cash flow development over time.

Well, I'll address the second question, and we'll get Balan in particular to talk about the first question. On Horizon and B2B, just to point out that the Horizon box over time will become increasingly less expensive to us, and is substituting an already a sophisticated digital box. It's not additive per se; it's replacing an existing CPE component, and replacing that component at declining costs. I don't think, personally, the Horizon rollout across Europe is going to have a meaningful impact on our Capex guidance or the sort of profile that you're referring to.

The B2B business for us, and the most exciting opportunity we see is in SOHO. That's where a lot of our growth is coming from on a revenue basis, and SOHO is not a capital-intensive business, Matt, as you know. It's more or less picking low-hanging fruit. There's certainly some expenditure, but it's definitely a more profitable, higher margin opportunity for us than large investment in commercial contracts, but we'll do both.

I think those have been built into our forecast. We've always anticipated both of those things. So, if we said something a year ago, it wasn't as if all of a sudden we've realized -- we are going to have to sell Horizon and do B2B. I don't think there's any meaningful change.

I'm not entirely sure about your network question. If you're referring to the copper network or if you're referring to the --

No, I just mean in terms of how entrenched you guys are, competing with Deutsche Telekom, your KPN, on the business side. And in the UK, Virgin does pretty well. But there's sill some really entrenched guys like BT and Cable & Wireless and all that. And is there any low-hanging fruit? Do you think the SOHO end of the market is so different that you're going to have relatively attractive entre without people getting too aggressive on the price reaction and all that?

Easy question, not necessarily a technical question, and I will just repeat what we've said many times, which is we have always anticipated that we will continue to see telco competition in all of our markets. These organizations are not going anywhere. Even though they are mostly suffering or hemorrhaging at this point, they're still going to compete. And they're going to compete aggressively, and they're going to compete effectively over time. We've never assumed that we're going to have a free run at market share gain or volume growth.

We have always assumed that telcos have large balance sheets, usually government ownership, and significant employment bases, so they're not going to just disappear. And that we have to maintain a vigilant competitive posture. And we think our technology is superior to anything that's being offered, certainly VDSL and any vectoring strategies, and in equal to fiber. And so, we really don't feel any risk or threat to our ability to be a market leader in broadband speeds. And more importantly, you find that with our cable customer base and our innovation on the video side, we think it's a winning combination.

So, that's really the way we look at it. They're not going away. They're going to be effective over time. They have large balance sheets, but there's nothing they can do that we can't do better. And fortunately, we're better positioned financially and strategically to do that in the near term, and even in the long term. So, that's how we see it, and that's the best way to answer that question.

I want to be your first US Horizon customer. It really looks greet.

Okay. We'll make that happen.

Jeff Wlodarczak; Pivotal Research Group.

Is it reasonable to assume, especially given the strong trends in the fourth-quarter results, that your EBITDA growth should accelerate in 2013 off of 2012? And then any colors you can give on trends in first quarter would be helpful, and then I have one follow-up.

I think we said, Jeff, on the call here that we do expect a modest acceleration in 2013 in our core LGI business. And that's driven as much as anything just by the trends we've delivered over the course of the year. As you know, the first quarter versus the fourth quarter, it's been accelerating. And there's also some headwinds that will sort themselves out a little bit.

I think we have said, while we're still providing mid-single-digit guidance, we do feel that there's opportunity for acceleration in that OCF growth full year versus full year, and that will -- first quarter for us has been good. It's been strong. Germany and other core markets are performing well. And I think the trend is positive.

All right. And then, specifically in the Netherlands, the last three quarters or so, KPN has been getting obviously much more aggressive, sort of blowing up their financials. Ziggo has decided to respond with increased marketing spend. Can you provide more color how you're approaching KPN? You had a good EBITDA quarter, but how should we think about that going forward?

I'll let Diederik handle that in particular. But I'll simply say that just as we indicated, certain of these telcos are going to do whatever they can to try maintain some level of growth. Even though that KPN's had a very difficult quarter financially, where every metric was down -- revenue, EBITDA, Capex up, and the large capital raise -- are not going away. And they've been more effective of recent with some modest fiber rollouts and their positioning.

Diederik, you want to handle that?

Thanks, Mike. To build on that, obviously, I can't speak on behalf of Ziggo. But it's clear that with them throwing in additional (inaudible) marketing on top of what you would say would be a healthy situation. I think we still stick to the strategy where we strive for healthy RPU revenue and corresponding OCF development. And also for 2013, we believe we got some strong levers.

Just to remind you, just three or four months ago we introduced Horizon, went through the first introductory stage, like Mike said, that is successful, and we can throw that in the mix now, a superior video platform. Propositions not even completed. In a few months from now, we're going to add the non-DVR box to it. So, from that point of view, you know, next to that we have the superior speed strategy, where we have next stages to come. Obviously, this is not the call to kind of make our competitors smarter. But you can expect from us a further, I'd say, sticking to the strategy, being smart in the propositions to further slow down their retaliation.

Great. Thanks a lot, guys.

Vijay Jayant; ISI Group.

Mike, I just want you to drill down on the Chile mobile rollout. Can you give us more color on how unit growth is sort of trending? Obviously, there's been a drag on cash flows. Can you give any color on when can we see that breaking even? What's it doing to the core business in terms of reducing churn and ARPU lift and the like? Thanks.

Yes, I mean, as we said at the outset, and Mauricio, I'll let you address this more specifically, but the commercial product, the commercial success has been very satisfying. We're getting plenty of demand in Chile. And we added 140,000 subs. And most of those are coming in the right way, with high ARPUs and many from our existing cable base. I would characterize the first half of year, so to speak, in Chile in the mobile business as successful. From a product point of view, and a branding and a bundling point of view, it's hit our expectations. We have work some work to do on the network, and on the economics of the network. And a lot of our attention right now is focused on that because it's most important for us to have profitable subscriber growth. And we have to work some angles, so to speak, to make sure that, going forward, we can drive as much volume through the mobile network there at a profitable pace.

I think we're retooling a little bit, if you will. I don't know, Rick, if we're providing guidance specifically on that. You might give me some guidance right now whether we are saying that. I think you might see growth in the first quarter a little slower than you perhaps would have anticipated. Because we want to make sure that it's profitable growth. And there's no rush. The business is achieving its objectives for us. And, you know, that's sort of the high-level overview.

And Mauricio or Rick, if you want to comment further?

I think the only couple of things that I would add to that is that on top of the commercial success that Mike is describing, our subscriber base is very, very satisfied with the product. We're reaching customer satisfaction levels that are second only to Intel, which is very helpful. And thus, our subscribers are actually coming from our existing triple-play base, close to 75%, 80%. So, the bundling there with our triple play is working as we expected it would.

And in terms of retooling our network, as you'll recall, we have a hybrid model in Chile, in which we have our own network, but we also load traffic into our roaming partner. And as we go forward, we're going to make sure that we strike the right balance between loading traffic on our network and that of our partners, as MVNO rates have decreased significantly in Chile as a result of our entry. Therefore, we can retool the economics to our advantage on either our network or on our partner's network.

Mike, if I could add another question. Obviously, there's been some speculation on potentially Vodafone looking to get into the cable market in Germany. How do you sort of view a Vodafone-type player getting into the cable business from your vantage point? Obviously, you guys were really the only game in town when there was an M&A deal, and now maybe there's somebody else coming. How do you see that as a strategic play going forward?

There's a couple of different perspectives you can take. Number one, if it's true, which I have no idea, it certainly validates the business model that cable represents, which is one where volume growth, ARPU growth and stability, high margins, and better products ultimately win the day. So, it wouldn't surprise me in the least if it were something they were looking at because I think many mobile operators, in fact, most mobile operators have found it difficult to enter the fixed business with a complement of products that are required to compete against us or to telcoms or others.

So, first of all, it's a validation if it's true. But even if it's not true, I don't think it has much of an impact on us. As I said at the outset of the call, the German regulatory environment is where it is, let me say it that way. And I don't know whether or not it would allow for such a transaction with us or with Vodafone. So, it will be interesting to see if there's any merit to it. It will be intriguing to find that out.

But it does, in my opinion, mostly validate the fact that our business is strong. Our core business is stable. Our fundamental products are superior. Consumers will gravitate to our products and services first. Mobile, for us, has always been tactical and supplemental, and has some strategic benefits as well. But I'd rather be approaching a mobile business from our position of strength, than having to sort out a fixed strategy from arguably a position of weakness as a mobile-only player.

So, again, it validates our business model. It doesn't surprise me if it's true. It may or may not succeed on a regulatory point of view, from a regulatory point of view, and we'll see how that shakes out. By the way, if it does succeed, it's probably encouraging for us from a regulatory point of view. I think it's interesting, is my first reaction.

Thank you.

Bryan Kraft; Evercore Securities.

Hi, thanks. Two questions. One, can you just comment on the outlook for Capex this year in terms of -- if you look at accrual basis Capex to sales, do you expect the guidance or the Capex this year to directionally be consistent with your medium-term guidance of having it trend down? And also, how are you thinking about the acceleration or expansion of your mobile efforts outside of Chile and Belgium, and what the consolidated margin impact could be from mobile this year overall? Thank you.

Charlie, do you want to address the Capex point?

I think we feel pretty comfortable that Capex will continue on a downward trend, but on a stand alone and indeed as part of a combined Virgin group.

And our mobile plans, and Diederik you can comment on this. Our mobile plans for the rest of Europe are modest. By that I mean they should not have a meaningful impact on any significant financial metric because we are taking, as we said many times, a very careful approach. We are spending some money on centralized network and systems. We're not purchasing spectrum. And we're positioning ourselves with very full MVNO products and services to enter the market effectively and competitively, but not overly aggressively, and certainly not without a focus on the impact it would have on our P&L and our profitability. We're not giving you specific guidance around mobile today. I'll just simply say it's not going to have a significant impact.

Great. Thank you.

Frank Knowles; New Street Research.

Good afternoon. I have a quick question on Telenet actually. So, following the completion of the tender process, during the process you mentioned you would look to exert greater management control over Telenet irrespective of the result actually of the tender. And I wonder how we might see that becoming evident through the year, both in terms of maybe direction of the business and also management? Thank you.

Yes, well, we have no comment on the management situation today. In terms of the general direction of the business, we've said publicly that we think there are significant benefits to further integration between our core European platform and Telenet. It has, in some cases, been a strong partner of ours, if you will. But I think there's been plenty of missed opportunity, and in bringing that company more closely, or bringing it closer into the general operating platform that we manage today across 11 markets, makes perfect sense for us. And I think you'll see those benefits accrue over the course of a year. But I think it's premature to give you specifics. And it's certainly premature to talk about any management changes.

Thank you. So, if I just also may follow up on Telenet just in terms of any further future buyout of minorities. Could you just explain what the restrictions are now that one such period is finished?

Well, there really aren't any restrictions, per se. But there are rules around tenders, specifically one that requires that any tender happen at or above the last price, should we purchase any shares that are above the last price. We don't have any plans. I wouldn't worry too much about that issue from a market point of view. We're happy where we are at 58%. We have a lot of work to do to integrate the business more effectively. We think it's performing well. And we're happy where we are.

That's really helpful. Thank you.

Will Milner; Arete Research.

Thank you. A couple from me. Last year you saw a material reduction in fully swapped borrowing costs, I think down to 7.2%. Given the sort of refinancing you've done so far this year, and what's in the pipeline, do you expect this to continue to decline in 2013, and perhaps some quantification around that?

And the second question, just on the guidance, you've given this pro forma for Virgin in the medium term. I wanted to understand if you'd be confident that Liberty excluding Virgin media would grow free cash flow in the mid-teens as the guidance was for 2012? Sort of thinking really around the catch up of new vendor financing deals. Thanks.

Charlie, you can address the balance sheet point on the free cash flow. We haven't provided specific guidance around LGI, but we have said that the two companies together have complementary growth. You can read into that the fact that on a stand alone basis we believe growth at Liberty Global would be complementary and consistent with the growth we've provided and the guidance we've provided on a combined basis.

I would say, you're quite right, the cost of debt is coming down. We have an opportunity to reprice some of our more expensive debt. Some of that has already been executed. We did a refinancing of some of our German debt in early January. And I would say we'll certainly get below 7% on the LGI capital structure, and we could get a little lower depending on how the rest of the year plays out. And I would reiterate that on a stand alone basis we're on track for the mid-teens growth. We would probably have paid down some debt because we didn't use it to buy Telenet. I think we feel pretty comfortable. This Company continues to grow in line with our long-term projections.

On the vendor financing, I'm not sure what your point is. But just to remind everybody, we are undertaking a massive focus on working capital management. As part of that, we are looking to optimize payment terms from our vendor. It is more efficient for us to do that, particularly with smaller vendors who pay us for the privilege -- to do that via intermediating by our bank. But this is essentially a working capital management exercise, and we're very pleased with the results so far. But there are still opportunities there to continue to optimize the balance sheet, in my view.

Okay, great. And, Charlie, just a very quick follow-up on Telenet's proposed shareholder distribution. To what extent are you able to mitigate withholding tax on that distribution? Or to what extent are your liable to withholding tax on that distribution?

It will be tax free to us under EU rules.

Okay. Thank you.

Ben Swinburne; Morgan Stanley.

One just on Eastern Europe where you had some nice margin expansion on sort of flattish revenue. I don't know if Diederik had any comment on that, if whether that was a sort of sustainable step down of the expense base or something one time? And Charlie, your interest expense has come down during the year as some of the swaps maybe are rolling off. Any guidance for us as we think about the next year or two as to where, as those derivatives expire, what kind of savings you might see? Thanks.

I think on the interest charges, we're at 7.2% now, and I think we continue to have opportunity to reprice our debt. Giving you a final target will obviously depend on how the markets hold up, and clearly where we end up refinancing. We've done some already. We've refinanced some of the German bonds. There's more to go in the first quarter of the year, and that certainly gives us a reduction. So, I'm very comfortable in saying that we're on a downward trend, and we should get -- come to below 6% -- sorry, 7%.

As Mike said, we were, you know, below 6% and the high-5%s on the Virgin capital structure. So, the blended average group is going to have a pretty attractive cost of capital. And if markets hold up, and clearly we hope they do, there's still opportunity to work on repricing debt.

Anything on Eastern Europe?

Diederik, you want to address that?

Yes. If you're kind of referring to trends in the business, I'd say that most of the countries indeed went through a relatively healthy year. Some of them able to drive pricing, and to also reach healthy levels of [ARPU] growth. Romania, for example, where a few years ago we were facing non-traditional competition, is turning the corner also behind adoption of strategic innovation like the 3.0. And we see that in more countries, although having said that, there are still some unprecedented DTH competition going on in some of the countries like the Czech Republic. We're cautious, but maybe cautiously optimistic.

Thank you.

Listen, I think that concludes the call. We wanted to get through quickly this morning, so everybody can get back to their mornings. But I think we covered all the main issues, and we feel really good about our full year, of course. We are excited about the first quarter. It's going extremely well, especially in markets like Germany.

All of us are focused on the Virgin Media transaction, and doing what we can to get that deal closed. It is now financed. And hopefully, very shortly, we'll be realizing the benefits of that as a combined platform. So, we remain excited about that.

And we'll be reporting our first-quarter results soon, and we look forward to talking to you then. So, thanks for participating, and we'll speak to you soon. Bye, bye.

Ladies and gentlemen, this concludes Liberty Global's 2012 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.lgi.com. There you can also find a copy of today's presentation materials.