Liberty Global Ltd (LBTYB) 2013 Q2 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 expressed written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.lgi.com. (Operator Instructions). 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, operator. Welcome everybody to our second quarter call. I am joined as usual by Bernie Dvorak and Charlie Bracken, our co-CFOs; Diederik Karsten, who runs our European Operations; Bryan Hall, our General Counsel. That is four of my five EVPs. Rick Westerman is also on and two or three others we may call on from time to time, but a good group. And we are ready to get rolling. So, operator if you could read the Safe Harbor.

Thank you. Page two of the slides details the Company's Safe Harbor statements 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/A and 10-Q. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

I would now like to turn the call back over to Mr. Mike Fries.

Thank you. As usual we are going to speak from some slides. They were a little late in getting up today on the website, so if you do not have them, feel free to grab them.

I am going to start on slide four which I think is pretty compelling snapshot of our current cable platform. If you look at it, you will see the pro forma for the Virgin Media transaction which of course closed on June 7th. Our broadband networks now reach 47 million homes across 14 countries. Including 12 contiguous markets in Europe, which represent about 9% of our business Europe does. We currently serve 24.5 million customers who subscribe to 47.5 million video, voice and data products, and we are currently generated average monthly ARPU of about $46 and that is rising every quarter. I have said it many times our business thrives on scale and that has never been more true than today.

If you look within markets especially important when you consider the national reach of Teleco, DTH and OTT competitors and the growing need to enhance our brand and build awareness of our services, but on a regional basis it is equally important. Scale is enhancing our ability to drive operating efficiencies through centralization and best practices strike better deals with programmers and technology suppliers, stimulate innovation and launch new products, access to capital markets et cetera. We have come a long way from where we were even five or six years ago and we are still reaping the benefits of that scale. We are not just big, we think we are really well positioned for steady and continued growth.

Take a look at the breakdown of our 48 million RGU on slide five. You will see that in addition to our 22 million video customers we are now serving 14 million broadband subscribers and 12 million voice subscribers. On roughly 45 million two-way homes that is about 30% and 25% penetration respectively,. Of course markets like Germany stand at lower penetration levels, so there is good organic growth remaining. In addition we still have quite a bit of runway left when it comes to up-selling services. The graph on the right hand side of slide five is a break down of our 24.5 million customers into single, double and triple play categories.

What you will see there is 55% or roughly 13.5 million of our 25 million customers take a bundle from us today and 70% of those have taken a full (Inaudible) play. While we are pleased with that, the green line on that bar indicates that we still have 11 million or 45% of our customers who just subscribed to just one1 service typically video. That is a huge up sell or conversion opportunity for us. By comparison Comcast has around 22 million with only 23% of their customers still on a single play. And Virgin is best-in-class with only 15% of its customers on an old package. The punch line is we have a lot of growth in front of us in the core business even before you start factoring b2b mobile and other strategic opportunities.

How are we tracking in. Slide six provides year-to-date highlights which I will walk through quickly starting with organic growth. Through June we have added 560,000 net new RGU and over 1.3 million over the last 12 months. Bernie is go to provide more detail, but if we include Virgin Media for the full six month period, we generated rebased revenue growth of 4% and OCF growth of 5%, which puts on pace to exceed $17 billion of revenue and $17.5 billion of OCF on an annualized basis.

Adjusted free cash flow on an combined basis again including Virgin for the full six months increased 30% to $760 million. On the M&A front obviously the main event was closing Virgin Media. We will talk more about that opportunity and business in a moment. I am sure you also noticed we recently increased our position in Ziggo to 28.5%. This latest transaction was really part of a hedging structure on our existing stake which happened to allow us to require more shares. I do not have much more to add at this point. I'm sure you would like to hear more. We continue to believe there is great strategic opportunity for cooperation in the Dutch market we are just not quite sure how to get there.

On the innovation front we are busy preparing for HorizonTV launches in Germany and Ireland in the coming weeks. With Virgin Media completed wireless has become a more significant part of our business. Interesting to note that annualize mobile revenue now exceeds a $1 billion with quad-play penetration at Virgin and Telenet around 15%. If we achieve those type of quad-play numbers in our newer mobile markets, we add another 1.5 million subscribers.

Finally a couple quick comments on the balance sheet at the June we had total liquidity of $5 billion included over $2 billion of consolidated cash and with 85% of our debt due 2018 and beyond with an average borrowing cost of 6.8% and the rate and currency hedges in place we continue to feel very good about our debt structure. Lastly, following the closing of Virgin Media we restarted our buy-back program and have purchased over $300 million in stock during June and July on our way to the announced $3.5 billion over two years. So all three of the component of our value creation strategy are clicking right now. Solid organic growth and free cash flow generation, accretive integration of scale and adding acquisition and continued execution of our levered equity capital model.

Let's dig into the most element here and that is our operating growth. As we do every quarter slide seven shows our net ads by product, and if you eyeball the graphs on slide seven which show net ads for the first six months of the year going back to 2010, you will see while our year-to-date results were lower than last year they are better than what we typical average. 70% of the difference between this first six months in 2013 and last year's explained by more moderate but really exceptional growth in Germany and our recent challenges in Holland, and I will talk about both of those markets in a second. The top left chart show broadband addition 382,000 in the first half of the year with Germany delivering nearly half of those new customers. We continue to push our speed advantage across all of our markets, with our average customer today actually getting 40 megabits.

The top right shows our telephony net ads of 373,000 that basically mirrors our broadband growth. And video losses are shown on the bottom left. While we strive to hang on to everyone of our 22 million video subs, the good news is that losses have remained pretty stable even though we are operating on a much large video base. Then you see our total RGU net figure of 564,000 on the bottom right. This includes a loss of 38,000 at Virgin Media for that stub 23 day period otherwise net ads would have been 600,000. Again net ads are lower than last year but certainly better than our historically average, and it is important to note that we went into this year with a heightened focus on customer economics and profitable growth especially in markets like Germany, Ireland,Central and Eastern Europe, so we are actually tracking pretty close to our internal budgets.

Now over the last five years we have successfully rebalanced our business in Europe, particularly Western Europe. In fact roughly 80% of our revenue and cash flow now comes from just five markets. We call them the "Big 5" for lack of a more creative term, U.K., Germany, Belgium, Holland and Switzerland. The chart on slide eight I think is a good illustration of why we have targeted these countries, simply put they are driving the vast majority of our growth.

I will talk about each of them briefly, but as you see on slide eight revenue and OCF growth for the Big 5 year to date have been good, as in prior periods Germany and Belgium continue to be our strongest performers with essentially double digit revenue and OCF growth in both markets year-to-date. Switzerland is steady and right down the middle with 5% revenue and OCF growth in the first half, and as we discussed on our last few calls competition in the Dutch market has heated up and our results may reflect some increase churn for the last six months. Revenue is down 1%, OCF is off 3%. I am going to provide more color on that market in a minute, but effectively under performance in Holland has been offset by better than expected performance in Belgium.

Finally Virgin Media generated 2% revenue growth and 6% OCF growth in the first six months. Current results are tracking below the prior management teams 2013 forecast, but that is not too surprising not to us any way given the distraction of the sales process and pending transition. Revenue in particular was impacted by softness in b2b and mobile business and the latter was mostly affected by lower usage and termination rates year over year. There is good news here however on two fronts, first of all Virgin Media's b2b pipeline is very strong reflecting less than budgeted performance in the first half so it has built up for the second half, and more importantly we are increasingly more confident that synergies will be materially higher than we estimated at the announcement of the deal in February.

Let me dive into a bit more detail on Virgin Media on slide nine. First of all, I am thrilled with the new management structure lead by Tom Mockridge. Formally he was with News Corp for 20 plus years, who started at CEO the day we closed. Tom has added two very strong Liberty Global executives to his team, Robert Dunn who was formally head of our Dutch operations has joined Virgin as CFO, and Dana Strong formally head of our Irish operations has taken over the COO role.

These executives are complemented by key personnel from Virgin Media that are staying on with us including Paul Buttery, Paul Richmond and [Marie Staw] as well as Virgin Media's new b2b head Peter Kelly, who joined from Vodafone. The entire group is focused squarely on driving performance, managing the integration process and creating value. As I just mentioned even though it is early days we feel there is material upside to our previous synergy estimates of $180 million which included $70 million of CapEx. Operationally Virgin Media added over 160,000 RGU in the last 12 months, nearly all of those in the data business.

And where Virgin's leadership is (Inaudible) into the fast broadband continues with a market share of 62%. That together with over 1.7 million TiVo boxes in the field has helped to drive cable ARPU which are approaching 49 Pounds and reduce churn which has declined every quarter for the last 7 quarters. We just had the entire Board in London last week and I will tell you we are very excited about the U.K. market and feel very positive about the Virgin business going forward.

Turn to slide ten, talk about Germany quickly where the momentum continues to be very strong. We added 300,000 RGU during the first half of 2013, driven by our triple play packages, which offer broadband speeds generally three times faster than DT. As I referenced earlier our total net ads versus prior quarters are a little lower but we have consciously focused on more profitable growth in Germany. For example we halved promotional periods to three3 months this year and we introduced onetime activation fees. Strong gain and that focus on customer economics helped drive ARPU up 9% year-over-year to over 20 Euros, by the way that is up nearly 40% since we entered the market three years ago.

And it helped deliver best in class revenue and OCF growth of 9% and 10% year-to-date. So we are strongly positioned for continued growth in Germany, we are the clear speed leader where the incumbent is focused on (Inaudible). The broadband market remains relatively under penetrated at 75% today and only 27% of our base is triple play, so there is huge upside in the bundling activity. Of course we are currently preparing for our Horizon launch in earlier September.

Telenet also delivered excellent growth as you will see on slide 11. Top line growth of 12% year-to-date which was given primarily by contribution from mobile. As we projected mobile add did slow down from 103,000 in Q1 to 50,000 in Q2, but we still added an impressive 400,000 mobile subs in the last 12 months, bringing the total base to 675,000 and quad-play penetration to 14%. At the same time the fixed business continues to perform well and is benefited from the price increase we took back in February. Cable RGU net add 46,000 were much better than 2012. On the product front in late June introduced two new bundles with broadband speeds of 60 meg and 120 meg, which have really grabbed customer attention. So the balance of the year looks equally strong in Belgium.

Just to the north in Holland things have been a bit more challenging. KPN continues to take an aggressive posture in their retail marketing consumer services, which is driving better subscriber numbers but massive decline in their EBITDA which is down 6% again year-to-date in the consumer residential business. There are bright signs here for us however. KPN recently took some price increases across our base perhaps signalling a more rational stance which we think is accurate. And cable continues to win the market share gain in broadband out pacing KPN over the last three quarters for new broadband customers.

Meanwhile we have made various product and operational changes we think will be useful, and I will talk about those in a minute. We also hired (Inaudible) to run our Dutch operation. He formally ran KPN Dutch business and head of their consumer divisions for fixed and mobile, and has a terrific grasp on the market and has already made an impact. Our improvements to our product portfolio included introducing low end three play bundles to combat KPN's low end brand. We have also introduce 150 megabit and 200 megabit products in April and we are currently trialing 500 megs. In video we unencrypted the digital package which has really helped us differentiate cable from the two set top box focus of KPN's packaging.

Horizon is doing well. We have 185,000 HorizonTV subs, representing about 17% of our base, and we just launched a new code drop which meaningful improves the customer service. Lastly in recent weeks we have seen an improvement with positive net adds for the month of June and July actually better than budget and long-term I think this market will be just fine. You can expect the rest of the it probably will be challenging in terms of revenue and OCF growth. Lastly I will wrap it up with a quick update on Switzerland on slide 13. As you know the markets or bundles here stack up well versus the competition. We offer much faster broadband speeds and greater value. Nearly 50% of our Internet base is at 75 megabits or more and our 150 megabit bundle which includes Horizon for about 108 Swiss franc is by far the best deal in the market. Horizon is doing well, with 85,000 HorizonTV subs 14% of our digital base and that has helped us achieve good RGU and 5% revenue and OCF growth year-to-date. With relatively low double and triple-play penetration in this market because we just started bundling really later than other markets we feel good about continued growth in Switzerland.

Before I turn it over to Bernie, I will just say we are busy, busy, busy and as you can expect that is how we like it. But we feel really positive, management team is focused and energised. And look forward to taking your questions. Bernie, over to you.

Great. Thanks, Mike. And hello everyone. I think to start I would like to mention that our reported results include Virgin Media for the 23 day period since the acquisition closed on June 7th. So if that wasn't obvious, I just wanted to point it out. And to asses our first half performance we think it is best to first look at Liberty Global's performance excluding Virgin Media which is -- I am on slide 15 right now. Then look at Virgin Media's stand alone performance and then bring those two sets of numbers together to form what we are calling combined results. It is worth pointing out that when we report our rebased growth on these combined results the rebased calculation adjusts to neutralize currency movements as well as conform free acquisition periods for certain accounting policy changes and acquisition accounting impacts as it relates to Virgin Media.

So with that as a backdrop, I will start on page 15 again which lays out our rebased growth rates in the manner I just described. In terms of revenue growth on the left side of the page Liberty Global excluding Virgin Media delivered 6% rebased top line growth on the back of strong performances in Germany and Belgium. The middle bar highlights Virgin Media's rebased revenue performance of 2% for the first half which showed solid growth in their core residential cable business and was offset by declines in b2b and mobile revenue streams. As a results our combined rebates revenue growth was 4% for the first half of the year reflecting a full six month period of Virgin Media, and the combined revenue was $8.7 billion for the first six months of the year.

If you move to the right the (Inaudible) trends are apparent in terms of our rebased OCF growth. Excluding Virgin Media we generated 4% rebased OCF growth, which was lower than our revenue growth as we had OCF margin compression due in part to our results in the Netherlands and Belgium. On the other hand, Virgin Media had a solid six months with margin expansion and rebased OCF growth of 6%. Combing Virgin with Liberty Global for the full period the combined rebased OCF growth would have been 5% for the first half of 2013 and the combined OCF would have been $3.8 billion.

If you turn to slide 16 this presents our reported results by geography for the first six month of year. Overall our European distribution operations reported $5.1 billion of revenue and $2.5 billion of OCF for the first six months of 2013, reflecting rebased revenue growth of 6% and OCF growth of 4%. Our European performance was driven by Western Europe which accounts for roughly 90% of our European revenue. In Western Europe we achieved revenue of $4.4 billion and OCF of $2.4 billion which equates to rebased growth of 6% for revenue and 5% on OCF for the first six months of 2013 compared to the same period last year. In terms of our reported results it is worth noting that Virgin Media added $401 million of revenue and $175 million OFC for the 23 days that we consolidated in Q2.

Turning to Central and Eastern Europe which collectively represents less than 10% of our overall revenue we generated 1% rebased revenue growth together with a 1% decline in OCF due to continued high levels of competition. If you move on to VTR and Chile we reported consolidated revenue of $503 million and OCF of $172 million which equates to rebased growth of approximately 8% for revenue and 11% for OCF. And for the first time in Q2 VTR's mobile business was not a drag on our OCF growth. The second to last row on this page shows our reported results with the 23 day stub period of Virgin, and on a reported basis we delivered $5.9 billion of revenue and $2.7 billion of OCF equates to 5% rebased revenue and 3% OCF growth. Finally the last row shows six months combined results with revenue of approximately $8.7 billion and OCF of approximately $3.8 billion. And as I previously mentioned this reflects 4% combined rebased growth on revenue and 5% on OCF.

Slide 17 recaps property and equipment additions and cash CapEx performance with Liberty Global and Virgin Media results combined for the full periods presented. As a percentage of revenue both metrics fell year-over-year. Combined property and equipment adds for the first half of 2013 were $1.87 billion or 21% of revenue as compared to $1.85 billion or 22% of revenue in the first half of last year. The year over year decline was primarily related to lower spending in Germany, Chile and Belgium offset in part by higher capital spending in other markets. CPE and scalable infrastructure accounted for roughly 55% of the combined total with an additional 25% attributable to network investment and the balance to support capital. If you turn to cash CapEx as would be reported in the cash flow statement the combined cash CapEx for the first half of 2013 was $1.48 billion or 17% of revenue versus cash CapEx of $1.58 billion last year or 19% of revenue in the first six months of 2012. These amounts are lower than our overall adds to property and equipment primarily as the result of the use of better financing in Cap leases and most of our vendor financing arrangements have 360 day payment terms and they represent a sufficient way of financing a portion of our capital spend as we have discussed in the past.

If you turn to slide 18, this reviews our combined adjusted free cash flow performance and provides an update on our stock repurchase program. As the left bar chart shows combined adjusted free cash flow was $760 million for the first six months of the year which reflects a 30% increase over the combined results in the prior year period. As you can see from the light purple bar, Virgin Media drove the growth in combined adjusted free cash flow. As we look out to the balance of the year we expect that our second half adjusted free cash flow will be weighted into Q4 which is normally the case for us. On the right side of the page we show the initial progress we have made toward our two year share repurchase target of $3.5 billion. Shortly after we completed the Virgin Media acquisition we resumed our stock buy-back in earnest and from mid June through last Friday we had already repurchases $300 million of our equity. So we are off to a good start. A little ahead of pace, and we expect that we will continue to be active buyers of our stock going forward.

Slide 19 recaps our liquidity and leverage situation. At June 30th our aggregate debt totaled $41.9 billion an increase from $30.7 billion at the end of Q1 mainly due to the Virgin Media acquisition. As shown on the bar chart on the left our leverage was 5.2 times on a gross basis and 5 times net, so we are at the upper end of our 4 to 5 targeted range on a fully swapped basis. In addition to the debt we now consolidate as a result of the Virgin acquisition we also raised about $450 million of incremental financing in Germany in Q2, and we fully drew the term loan under the Virgin Media credit facility after the transaction closed raising incremental proceeds. We remain very comfortable with our maturity schedule and cost to capital. We are largely termed out as about 85% of our debt is now due in 2018 and beyond, and our fully swapped cost to debt is down to 6.8% which is 100 basis points improvement from Q2 of last year.

On the right side of slide 19 is a pie chart that lays out our liquidity position. We finished Q2 with total cash of $2.1 billion including $1.4 billion at the parent level. In addition to cash we have $3.1 billion of maximum borrowing capacity under our revolving lines at the end of Q2, bringing our consolidated liquidity position to $5.3 billion. Upon Q2 compliance reporting under our facilities we would expect to be able to borrow $1.6 billion of that $3.1 billion mentioned previously.

In summary we are very positive about our overall results. As we discussed Virgin Media had a good first half despite a somewhat slower second quarter. The management team at Virgin Media is motivated and confident in their ability to drive growth. We expect to give you more granularity around our synergy targets when we report third quarter results. Overall we remain confident we will deliver our medium term outlook which consists of mid single-digit revenue in OCF growth along with declining capital intensity and mid teens free cash flow growth. Another exciting part of our story is around product innovation.

We remain squarely focused on enriching both the video and Internet experiences of our customers through products like Horizon, TiVo and super fast broadband. And finally our levered equity strategy remains a key element of our value creation model. We have been active purchasers of our stock as we have mentioned a couple times now in recent weeks and expect to remain active buyers going forward.

This completes our prepared remarks. And, operator, please open it up for questions.

(Operator Instructions). We will take our first question from Tim Boddy with Goldman Sachs.

Good morning. I wanted to ask about Germany where it sounds like there has been a change of strategy towards slightly lower subscriber growth but at better profitability. Can you explain a little more how you see that playing out and whether we should this quarter's net additions as a new normal trend given your change strategy? Thank you.

It is Mike. I think it is purposeful change in strategy which I think has as you can see driven double digit growth in EBITDA and revenue. Our goal is not to maximize customers per se. That is not what we are in business to do. We are in business to generate optimal returns to shareholders and that means driving the most profitable growth we can out of a marketplace and driving revenue and operating cash flow improvements quarter after quarter. So we assume shareholders are mostly focused on t he financial results and that is the right place to be focused and the best way to generate those financial results will vary market by market. In Germany though I will tell you the engine is roaring. I don't see much in the way at least in the medium term if not longer anything that will impede continued growth in that marketplace.

All of the key drivers of value creation are there. You have a robust broadband market which is under penetrated and where cable continues to essentially add all of the customers in the market and DSL continues to decline its customer base, so we have that very positive broadband dynamic. You have of course continued synergies coming through the mergers of our two operations and you also have our Horizon launch driving our business profitably in video.

All the pieces of the puzzle in Germany are working, and I would not get too fussed about quarter-to-quarter sub growth. Really for us we are trying to optimize value creation in the market and that is really in the operating cash line. And also I would point out that last year at this time we took a slightly different approach which was really market share driven and we had a quote on quote go for growth strategy in that period. So it is not a great comparable. Diederik, did you want to add anything to that?

Mike, no, I think you are right. And if you look at the Horizon introduction as we speak and plan for roll out earlier in September and you look at the continued speed increases I think we have the right activities in place to keep the growth fueling. But like you said there is more strength and our focus in customer economics. It is indeed also working out like we had expected, as we present by ARPU increase. So I do not think that we intend to go back to like you day, RGU maximising strategy.

Thank you for that. Just a brief follow-up. Are you concerned about the court ruling that is coming up in couple weeks potentially disrupting your growth in terms of the KPW acquisition?

No, that won't have an impact we do not believe. First of all that will take quite some time to work its way through the system. You can expect that we would appeal it as would the government. It is the government's case quite frankly not our case. We are in this instance totally aligned with the German regulator. And I think that will take quite some time to sort its way out through system and ultimately won't unwind anything we have achieved. There might be some conversation down the road if it is appropriate to try to ease the government's concerns around this, but I don't think it is going to have an impact on our business at all.

Great. Thank you.

We will take our next question from Jason Bazinet with Citi Investment Research.

Just wanted to confirm one thing, is it fair to say with the V Med. acquisition now done that you have unlimited ability to repeat trade cash back to the U.S. for buy backs? Is that issue behind you now?

Unlimited is a big word. I will tell you we have a significant amount of capacity for a relatively long period of time subject to our decision to use that free cash in that manner. But certainly absent the Virgin Media transaction and the structure we incorporated in that structure we would not be able to say that. As long as you and I are around here, Jason, the answer is yes.

Okay, very good. Thank you very much.

We will take our next question from Jeff Wlodarczak with Pivotal Research Group.

Good morning, guys. Mike, I would like to get your thoughts on this BT Sports data promotion in the U.K., how you think it will affect you and if you believe this is a start of a material heightening of the competitive environment in the U.K.?

We spent a lot of time on that issue last week in London as you can imagine. I invited the CEO of BT in to meet the Board including Jeremy Darroch the CEO of Sky, so we had a very open conversation about what is happening in the marketplace and the approaches that people are taking. I would say BT Sport move I would describe a defensive move principally targeting Sky and the struggle the challenge they see between those two platforms not so much us. We don't know exactly what kind of channel it will be just yet. I will tell you it will only have about 38 matches and we will have about 116 matches with the all the fixed Sky sport channels. So it is not going to be as good as Sky, but I do think it is something that consumers will be interested in, it will get their attention.

Their decision to offer it in to their broadband package for a period of time I think is a clever one but it won't be sustainable. Clearly at some point -- I think they have a 15 Pound price point on the product if you want to buy it a la carte. At some point they need to start recouping the 0.5 billion Pounds of expenditures and exactly how they will do that is to be determined.

In terms of Virgin our position with Virgin has always been -- and we believe in the prior management team's strategy as well, that you want to provide everything. So for example Virgin is the only place you can get all the Sky force channels, so we are in conversations as you might imagine to find an economical way of providing BT Sports to our customers who want it. But I can not guarantee you that we will get to that point. Thus far we haven't seen material impact of their offers on our sales. It is creating noise, but not necessarily churn.

The proof will be in the product and whether or not consumers think it is valuable enough to switch or take heed of. I will tell you that Sky doesn't believe it will be impactful of course. If you look the sports offering they have it is quite substantial. I think we are in the middle, and we are in conversation as you can imagine and we will see what happens down the road. It is a big bet on behalf of BT and unclear whether it will pay off for them.

Thanks. And one follow-up related to the Netherlands, an obvious way to offset the competitive environment would be a Ziggo deal. How amenable to a deal do you think Netherlands regulators would be? Thanks.

Certainly we have been in that market c for a very long time, and it is hard to speculate about what would or wouldn't be their position. But I will tell you it is not Germany in the past when we have had meetings or conversations about consolidation in Holland which has been going on for 10 years now the approach has been far more rational. Now we do not know. We do not have anything to talk to them point.

They may or may not have that point of view today. But I would say it is down the list of challenges in the deal with Ziggo. The most important one would obviously be it is very expensive. It is trading at a relatively high price. Hard to rationalize the economics. Obviously there is huge benefit to consolidation in all of our markets Holland included. We compete with national Telecos. The bigger scale we have in any market the better we are able to compete. It is the same philosophical approach we are taking in every country, no different and nothing special there. We will see what unfolds overtime.

Thank you.

We will take our next question from [BJ Giant] with International Strategy and Investment Group.

Hi, Mike. Couple of questions. You talk about the change in strategy in Germany a little. Can you talk about have you taken any pricing (Inaudible) and whether the prospects are trying to do that given you have a better value proposition broadly from what I can see. And second, I think John (Inaudible) talked about exploring M&A down in Europe. Can you talk about the opportunities there versus buying your own stock and how you balance that out. Thank you.

I will let Diederik answer the question on price increases in Germany. I think that was it, BJ, you were cutting in and out. And on the second question if I heard you correct,you were referencing comments that John may have made about Southern Europe. Not sure where or when those comments were made. You have know us a long time, right? We are constantly looking at opportunities, but I think our strategy and our philosophy should be well understood by shareholders.

We are interesting in building scale but the right kind of scale. And for us to look outside of our core markets today would have to be a pretty compelling opportunity, one that we could easily explain to you for example and others that if fits within our model here. And our model is good, solid growth, great free cash flow characteristics and scale. So I am not sure specifically what he said or when he said it, but he is accurate in saying that we are always looking at stuff.

I do think you can take comfort in the fact there is no must have transactions in this group and we have maintained that position for quite some time. The platform we operate today can generate terrific returns for a long period of time for all of us, and that is really where we are focusing our energy right now. Diederik, do you want to talk about pricing increases in Germany?

Yes, indeed we did take pricing and we will intend to keep looking at opportunities. For example in the second quarter what we did it was a combination of bringing down reducing promotional pressure in terms of periods, in terms of cost, also tried to move to low cost sales channels and I can tell you with the upcoming Horizon introduction we will go for a descent price level again not to maximum RGU growth but to go for profitable growth so yes we are taking pricing.

Thank you.

We will take our next question from Michael Bishop from Barclays.

Good morning. Just a quick question on your wireless strategy across (Inaudible) assets. It seems like Telenet keeps surprising on both the growth and profitability of its mobile ventures, so are you looking at potentially accelerating your wireless strategy in any other key markets such as Germany?

I think as we have said in the past we do have plans to launch wireless in six or seven markets here in the not too distant future where we are building a centralized core network infrastructure in IT system that will help us manage it efficiently the launch of a NVO services across those core markets. We are sitting today on 4 million subs, something like that. A million outside of the U.K. and 3 million in the U.K. Telenet is the largest there.

But we have mobile customers in Germany we have a couple hundred thousand I think , mobile customers today mostly SIM cards. So we are preparing ourself to replicate as you point out the solid profitability and benefits of our U.K. and Telenet and Belgium mobile plan platform, but to do it cost efficiently with this centralized network infrastructure in all of our core markets. So in Holland, in Switzerland, in Germany, Poland, Austria, Hungary, on top of Belgium and the U.K. we will have and have deals ready to role. So we have NVO in place in all those markets. We have already launched some sort of service in most of those markets and s we think we are in a good position to take advantage of a quad-play.

The quad-play is debated endlessly by analysts and investors. We will simply say that it is a proven point that if you can get someone to subscribe to your mobile product they are going to be stickier bottom line. The question to be answer is can you get them to subscribe to your product and still make money, because reducing churn for churn sake does not help you if you are doing it with products and services that are not ultimately benefiting the bottom line. I feel pretty good about the strategy we are talking. You can expect going forward that is going to be a bigger part of the story.

We will take our next question from Ben Swinburne with Morgan Stanley.

Thank you. I wanted to come back to the Ziggo transaction. Mike, I think it in the queue it talks about a margin loan facility that allows you to buy up to a maximum of 48 million additional shares. I just wanted to understand the details and if I got that right. What are the rules if you can remind us, in Holland around tendering for all the equity of certain levels just to make sure we are all up to speed on how that works as we move forward.

Sure. I will let Charlie answer the details of the structure. But the rules are pretty are simple up to 30% is fine at or above 30% there is a mandatory tender offer requirement so to speak, so 30% is the threshold. Charlie, do you want to explain the hedge structure? You are on mute Charlie. Okay. Basically I think it is fairly well described in the queue. Our initial instinct was the stock is trading we should hedge it which should not be surprising to people given that our average cost is and was well below where the stock was trading. As part of the that structure we were able to secure ownership position beyond where we sat and most of that was financed through the hedge structure. So I think it is a clever way of increasing exposure, but also reducing downside risks and financing that stake creatively. Bernie, do you want to explain any more of the queue disclosure there?

No, I think it is pretty clear, Mike, the way it is in there in terms of the --

Thanks. A totally unrelated topic on the open access stuff in Belgium. I remember this happening or attempts by the regulators to open up your network for video resale in Holland and ultimately, I think, blocked by the EU. Why do you think this is moving the way it is moving in Belgium? Is there a difference we are not picking up on and where do you think this ultimately leads to? I think they are looking to unbundled both data and video in that market.

A couple of differences it is a different political environment obviously number one. Number two, Telenet the difference here is that the politicians essentially are arguing that Telenet has a substantial position in broadband in Flanders. It is true Telenet has a significant market share of broadband in Flanders, but not necessarily throughout all of Belgium because they don't operate throughout all of Belgium. The management team lead by John Porter feel relatively the same way about it. The key isn't so much what the government or politicians want to have happen, it is what actually operators in the market will do unclear to what extent any of them will take advantage of a structure like this if and when it is approved.

It is going to take some time to be approved. I don't think anything would happen before mid 2014. And we will argue as you did in Holland okay, fine if you want to do that, then here is the price and the reference price. And that has not been opined on I believe at this point. The reference price being the price someone would have to pay to for access. Honestly we talk these things very seriously, but I will tell you that in the end your instinct about it, like what is that, generally is the same for operators in the market, so I am not too concerned about it at this stage in the game. But we will keep you posted as the hearings and appeals as processed.

Thank a lot, Mike.

We will take our next question from Amy Yong from Macquarie Capital.

Hi, this is Andrew for Amy. Just a quick question on the strategic alternatives to Chello is that considered a core assets to you, and also could you maybe comment on Virgin Media if you could quantify where you see the upside in synergies and the tax assets? Thanks.

We are not going to quantify the Virgin Media synergies today because as Bernie pointed out in his remarks we are still working on them. And we do not want to give you one estimate and come back and say we had that wrong. Management has been on board for six weeks or something, so we are not in a position at this stage to quantify that for you. I can tell you we think they are materially higher. Remember our synergy targets that we put out in February were based on essentially the due diligence we were able to do in a relatively short period of time. Didn't include much in the way of revenue synergies, did not necessary look closely at cost efficiencies on the Liberty side of the equation mostly focused on what we could do on the Virgin side on the equation.

And once you get inside the tent, you have far more exposure to the moving pieces. So you can expect that we will give more granularity on that on our next call. And Chello I think as it has been reported is (Inaudible) asset we are looking at strategic options there and we don't have anymore to report at this stage. There is a process underway and we will see how that process unfolds. This probably has been mentioned in the past it is a great assets. It has terrific potential. It is just not a strategic for us perhaps as we would want our programming business to be, so we are looking at perhaps reallocating resources in to more technical and strategic content assets and looking at the Chello opportunity as one way of possibly doing that if we decide to do that.

Great, thanks.

We will take our next question from Matthew Harrigan from Wunderlich Securities.

Thank you. Your Chairman made some fairly gracious remarks about Vodafone and KDG it sounds like you could at least be frenemies. One of the things I thought was interesting in that context was his thoughts on scale maybe even how it helps the whole tech road map. And some of things Qualcomm X1000 presentation they give on the cable small cells and (Inaudible) WiFi, LTE and integration it seems that becomes more and more relevant on these countries like Germany and the Netherlands when you are two players. I know Ziggo is doing these things with dual SSID and the Netherlands and all that. But is just feels like that is a big bucket of revenue that your engineers have to be looking at least perspectively.

And secondly, this is a really off the wall question but I am curious to ask it. You have been asked a few years ago whether you would go into U.S. and the answer has always been consistently no. But when you look at everything happening now Time Warner, cable, your size, your liquidity, your cap relativity to some other conduits that John Malone has, would you ever consider hopping back across the Atlantic and getting involved in a big way in U.S. cable? And I do realize that is an off the wall question but I would still like to get your response.

On the second one no. We are not really focused on that at this stage, and John is making his decisions independently of us as he should through Liberty Media, John and Greg. There is really not a lot of conversation about that, Matt. We are just far too busy creating value with the business we have which is pretty substantial. And nobody ever says never around here, but it is not currently something that we are thinking about I can promise you that. On the KDG question and Vodafone transaction we think there are several things about that deal I like. It validates our business model. It indicates a very large and sophisticated telecommunication operator.

I think its cable is worth 11.5 times EBITDA and there are benefits to putting fixed and mobile platforms together and all those things are true. It is worth that and there are benefits. But the opportunity to realize those benefits vary market by market and operator to operator. I think for KDG and Vodafone it was pretty straight forward. There were obvious opportunities to reduce back wholesale payments (Inaudible) Telecom, opportunities to improve the relative broadband offering they can provide to their customer. It provides a fix management team and a fixed network opportunity that they do not have today. It made a lot of sense for them, and I think that is really the reason they did it. What will they be doing in terms of new technologies, I do not know.

We are rolling out the same EMTA that Ziggo is with dual SSID, and we will have millions of hot spots too at some point and our WiFi activities are pretty robust. I think one point I will make and John has made this too that mobile operators clearly realize that more and more of the traffic is consumed in the house under the roof and that is flowing to WiFi networks in the home. That is good and bad. It is good because it takes pressure off their mobile network but it is bad because they are losing revenue and opportunity.

So lots of strategic reasons to see those types of business coming together. And I am sure that Vodafone will do a great job of exploiting them. We have had lots of conversations with them about cooperation in Germany since the deal was announced. So I am encouraged.

Great. Thanks Mike.

We will take our last question and it will come from Justin Funnell with Credit Suisse.

A couple of questions please. The experience on the Horizon box obviously in the Netherlands you are playing a little bit of defense but in Switzerland it is an up side opportunity and that gives us bit of a flavor as to how it could play out in Germany. Just wondering if you could give us a bit more color on the lessons learned. How is it selling, what are the appealing features, what is the potential for the product having seen it run in Switzerland for a bit? Secondly, more mundane what are the current status of talks with the private broadcasters in Germany on carriage fees please.

Yes, I will let Diederik talk about Horizon in greater detail in Switzerland and Holland to date. In conversations with private broadcasters and public broadcasters for that matter are ongoing in Germany, and we had very good dialogue with RTL, good dialogue with folks even. Those private broadcaster I do think understand the long-term benefits of a collaborative approach to working together. Cable operators in Germany provide access to half the (Inaudible) and as such represent a terrific platform for delivering advance digital services. So I feel good about the conversations we had with private broadcasters there, no specifics to offer today. Public broadcasters who are taking something like 8 billion Euro out of consumers pockets every year have a somewhat irrational approach to this discussion, which there is probably no benefit to me highlighting this morning. Do you want to talk about Horizon, Diederik. I lost Diederik too.

I think it is because the mute button is not working very well on the system.

Yes. On Horizon I will tell you that as with any innovative new product in the marketplace you have bumps in the road. What I mentioned briefly in my remarks was that we just had a new code drop in both Switzerland and Holland that has dramatically improved pretty much every customer complaint. Now customers complain about everything. It is normal in new products. Some want it faster, some want it green, some want it blue. But most of the feedback we are getting which we listen to carefully we have been able to sort through with this new code drop in terms of user interface working more and more effectively and quicker, simplifying some of the menu options, launching the new remote that has a keyboard and much better look and feel. So lots of the things we intend the product to be ultimately are rapidly being introduced. You can expect that every quarter we will be improving our Horizon product. And every market where it launches down the road will have a better Horizon product to launch, but we have a good number of customers using and very few people turning off it, so thus far the experience is positive.

Thank you.

This is Diederik. Also don't forget for the first time now with Ireland coming up and Germany within a year we will have this product launched in four markets with incredible improvements. It is not only faster navigation the simpler menu structure but both Germany as well as Ireland both launches will be based on the learnings from both Switzerland as well as the Netherlands. You could even say that on a relative base these launches are expected to be even stronger, which is also support with consumer research. So from that point of view particularly also for Germany where they have the payTV market is still one for us to conquer.

We also demo for the Board last week in London our cloud based version of Horizon. We will have ready to launch a cloud based version at user interface, which will make future releases simper,reduce cost of the box exactly where you think we should be doing. I am really pleased and proud of the development that is happening all internally with Horizon and the fact that our online platform and the iPad app are used regularly and also we just dropped a new version of the iPad application in to our customer base. Just expect constant innovation there is what you should expect. And it is going to get better and better every quarter.

Thanks very much.

I think that is it for our time. It is 7:57. We appreciate everybody getting on the call this morning or this afternoon depending on where you are. As I mentioned in my remarks we feel really good about our business. Our core European business is right on track. We have only owned Virgin for 23 days or whatever the numbers are. We inherited a fantastic business. And it may appear to the outside maybe there is issues around the revenue or EBITDA strong, but I will tell you give us a chance here and we will be I think giving you some very positive feedback on our next call once we have had a chance to really get our hands around and run it.

But I will tell you to a person our Board was enthusiastic about the opportunity, extremely positive about the management team, feel really good about the market and the rational approach operators are taking and it is going to be great, great long term business to integrate with the rest of our European operations. Thanks for listening and we will speak to you all soon.

Ladies and gentlemen, this concludes Liberty Global's Q2 2013 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.libertyglobal.com. There you can also find a copy of today's presentation materials.