Liberty Global Ltd (LBTYB) 2013 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.

(Operator Instructions)

Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.libertyglobal.com. Following today's formal presentation, instructions will be given for a question-and-answer session.

As a reminder, this conference call is being recorded on this date, February 14, 2014.

I would now like to turn the conference call over to Mr. Mike Fries, CEO. Please go ahead, sir.

Thank you. Hello, everybody. And we appreciate you joining us, as usual.

I've got a lot of folks on the phone. In particular, my five EVPs: Charlie Bracken and Bernie Dvorak, our Co-CFOs; Diederik Karsten, who runs the European operations; and Balin Nair, our CTO; and Bryan Hall, our General Counsel. There were several others on the call, which, as needed, I'll be calling on to answer some of your questions.

Before we get rolling, though, I think the operator has the Safe Harbor statement.

Thank you. Page 2 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. 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 we usually do, I want to give some overview remarks. I think Bernie today will cover the numbers, and then we'll get right to your questions. And we are speaking off of slides, so if you haven't, you might grab those off our website.

And I'm going to start on slide 4, as I usually do, with some highlights for the year. Where, perhaps, I think the most important takeaway here is that we hit the mark on the operating front in 2013. We added 1.3 million new RGUs, including 413,000 in the fourth quarter, clearly putting us in the upper echelon of growth companies in our sector -- as most of you would know. I'll provide a bit more color on those numbers in a second.

Rebased revenue and OCF growth for the year came in at 4%, which is in line with our mid-single-digit guidance -- even including Virgin Media for the full year. But if you look at the original Liberty Global assets that we started the year with, revenue and OCF growth was actually 5%.

And then, perhaps one last point. We talked a lot about the fact that our Dutch operation is going through a transition phase. If you exclude Holland and the UK, and just for comparison purposes, look at the remainder of our 13 markets, our core revenue and OCF growth as a Group was actually 6% for the year. And, of course, in January we announced the Ziggo acquisition, which will effectively create a national cable operator in Holland, solidifying growth in that market for the long term.

Focusing on cash flow, and consistent with the last few years, our capital intensity declined again in 2013, which helped drive 16% growth in our adjusted free cash flow to $1.8 billion, also in line with our mid-teens growth target.

On the M&A front -- in addition to the Virgin and Ziggo transactions, which I already mentioned, we completed the sale of Chellomedia for $1 billion of net proceeds -- $1 billion -- underpinning our strong liquidity position. But I think, more importantly, allowing us to reposition our content investments a bit more strategically. And we're exploring a spin-off of our rapidly growing Latin America business to further simplify our European platform, and create an opportunity for shareholders to participate in the consolidation of those emerging markets.

As you know, our organic growth is fundamentally dependent on product innovation, which is more important today than ever. And we feel like we're leaders in this area. Our mobile initiatives are ready for prime time, and will become a bigger part of our growth story this year.

Our advanced digital TV platforms are starting to scale, with 2.5 million Horizon and TiVo boxes rolled out in five countries. And we continue to push the envelope on broadband -- with feature speeds of 100 to 150 megabits, and premium offers in the 200- to 500-megabit-per-second range in many of our markets.

Then lastly, our balance sheet and capital structure initiatives remain a critical component of our value-creation plans. We ended the year with leverage at the high end of our 4 to 5 range target. But also $7 billion of consolidated liquidity. And with our recent increase in our buyback program, we're targeting another $3.5 billion in share repurchases between now and the end of 2015.

So, we finished 2013 on target. And 2014 is off to a great start on all three fronts: growth, M&A-driven scale and efficiencies, and our levered equity value-creation strategy.

Slide 5 provides a bit more color on net adds -- by far the most important component of our growth story, historically. In fact, the chart shows annual net adds -- by product -- for the last four years. If you just focus on the 2013 results, which are in blue, you'll notice some positive trends.

And first of all, on the left, you'll see we added 870,000 broadband subs last year -- including 270,000 in the fourth quarter. We now serve over 14 million broadband customers, representing 32% penetration. The vast majority of which are attracted to our superior broadband speeds, which is evidenced by the mere fact that our average customer is receiving a 44-megabit-per-second product, and consuming two gigabytes per day. I think those are the biggest numbers you're going to see in the cable space.

In the middle of the page, you'll see our net video losses in red, which have remained relatively stable, even though our video sub-base is 36% larger today than it was in 2010. And we attribute part of that success to our digital TV migration, which has brought digital penetration today to 63%. But we also like to point out that we have 7.8 million analog video homes who we can still convert to our high-ARPU digital services -- so, a built-in runway of growth.

But you can also attribute our better video performance -- reflected in only 50,000 video losses in the fourth quarter -- to the fact that we're now adding customers in the UK, in Chile, and in all of central and eastern Europe. And we had much better relative performance for the quarter in Holland and Switzerland, where Horizon has been a big hit.

The next five slides present some additional color on our top-five markets, which, as you know by now, represent 80% of our revenue today. Now, most folks are highly interested in our UK operation, Virgin Media -- in fact, Tom Mockridge is on the phone today. If you look at slide 6, you'll see that Tom and his team are making great progress on both the integration and innovation fronts since we completed the deal in June. As he foreshadowed, top-line growth for all of 2013 was a little weak. And due to some specific factors -- namely, softness in the B2B division.

But the core consumer business of residential video, voice and data performed well, with revenue growth up 5% year over year. It was helped by the fact that we reversed the trend -- and actually added 34,000 customers in the second half of the year, and sold them an average of 2.5 products -- bringing ARPU to GBP48, our highest in Europe. Virgin Media has several advantages over other UK competitors, including the fastest broadband speeds in the market -- with over 40% of new customers taking our 60- or 120-megabit product -- and 70% of the base already in the super-fast category.

We also have the most advanced TV platform in the market -- with TiVo, which has now crossed the 2 million sub mark. With just over 50% of our TV base subscribing to the service at an additional GBP5 per month. And we continue to differentiate Virgin's products and services -- with the launch of BT Sport, and by adding Netflix on the TiVo box, the extension of our market-leading TV Everywhere product to Android devices. And yet another first in broadband speeds with a 152-megabit product -- two times faster than anything else available over [8B DSL].

Now, one of the benefits of investing in these quality enhancements is the ability to support reasonable prices. We did increase consumer prices by around 6.7% in the UK, on average, in February. And we do not anticipate a material impact on churn.

Talk a lot about the B2B business in the UK, since we closed the deal in June. And you know, Virgin's top-line performance there was challenged due to lumpiness caused by prior-year one-offs, and continued declines in voice. But underlying trends and data growth remain positive. A new management team and operating model, in combination with some big wins in late 2013, will support stronger growth this year in the B2B business -- primarily in the second half.

And then finally, we're making excellent progress with the integration of Virgin Media -- what we call our value-creation strategy. The management reorganization is substantially complete. We've reduced internal and outsourced resources by nearly 10% at the peak at the end of the second quarter last year.

And we're making excellent progress on a number of other initiatives across our Business, all of which will derive significant savings in OpEx and CapEx. And help us achieve mid-single-digit OCF growth in 2014. So, we're on track in this market, and feel very positive about the team and the plan for 2014.

If you turn to slide 7, we had another great year in Germany -- and I'll pick up the pace here a bit. Where tremendous volume growth in the first full-year synergies contributed to nearly 10% OCF growth for the year. And an OCF margin of 60%. Let's let those numbers sink in for a second.

I'll break it down. We added 558,000 RGUs, including 360,000 broadband subs in 2013, making us the fastest-growing broadband provider in all of Germany -- even though we only operate in three states -- offering 3 times the speed that the incumbent's currently able to deliver, and grabbing 120% of net new market share in our regions.

Our Horizon launch in the Fall has gone well. We added 75,000 subs in just over four months at about a five-year ARPU uplift. We've had great reception of our Horizon TV Online service, which offers video customers who have broadband access up to 90 channels and other great contents on their iPad or PC.

As in all of our markets, we do remain focused on pricing power in Germany, where these improved video and broadband bundles have laid the groundwork for reasonable price increases in 2014, mainly in our basic video segment. And these increases might impact volumes, but they will allow us to deliver superior revenue and OCF growth in a market that continues to be our most important growth engine.

If you move to slide 8, you'll see that Telenet also had a very strong year. Our Belgian operation had 146,000 organic RGUs in 2013 -- their best result since 2009. And reported a 10% rebased revenue and 8% rebased OCF growth.

These results were driven by the success of some very creative marketing campaigns that continue to resonate with both fixed and mobile customers. On the fixed side, we saw traction again with Whop and Whoppa, our [simple, Triple-Play] bundles, which helped add 36,000 Triple-Play subs -- the best result in five years. And churn rates were down across all the fixed products.

As we foreshadowed, mobile volumes in Belgium are slowing, but they're still substantial. We added 230,000 mobile net adds last year, bringing the sub base to over 750,000. And mobile ARPU is at EUR28. And, like other markets, we're pushing Wi-Fi in Belgium, which now has nearly 1 million Wi-Fi home spots and 1,500 public spots. Bottom line is -- we continue enhancing value for our customers, which allows us to support reasonable ARPUs and reasonable price increases.

And lastly, Telenet has made good progress in the B2B front. With revamped and simplified offers for the business market, tailored towards SOHO/SME segments. I've got great confidence in John Porter and his team. And 2014's starting strongly in Belgium.

Switzerland just keeps rolling, as we show on slide 9, with a strong Q4 result, and 7% OCF growth for the year. It's a great example of both organic RGU additions -- of around 49,000 -- and ARPU growth, helped by our biggest broadband year since 2006. As in other markets, we're clearly winning the market share gain on footprint -- versus the incumbent -- with an estimated 60% of residential broadband net adds.

And Swiss consumers are among our most advanced, for sure. The average speed delivered in Switzerland is now around 70 megabits-per-second. Not the average speed that we're selling, but that people are actually paying for. 30% of our broadband RGUs have at least 100 megabits-per-second.

Horizon TV crossed 150,000 mark in early February. And sits at 23% penetration of our digital base -- our highest. And we just launched SmartRec, our network DVR which allows customers to replay 77 channels for up 30 hours.

These improvements have helped support reasonable ARPUs and a price increase across our video base in January. And with only 46% of our customers bundled in this market -- our second lowest in western Europe -- and increasingly better products, we expect solid performance in 2014.

I'll finish up with the Netherlands on slide 10, which, as you know, had a tough year operationally and financially. In the first half of 2013, reported RGU losses in the midst of difficult financial results. After introducing new, simplified bundles in September, we delivered modest positive net additions in the second half of 2013. But financial results were still negative.

The bottom line is that the market remains highly competitive. But our investments in our products are paying dividends. For example -- faster broadband speeds helped generate 15,000 net adds in the fourth quarter, a 25% increase over the third quarter. And the vast majority of all net adds on our footprint, relative to KPN -- who we estimate is generating around 20% of new broadband subs -- with cable taking the balance in Holland.

Our first Horizon market more than doubled subs in 2013, and currently has over 210,000. And we continue to innovate. The roll-out of our Wi-Fi hot spots is going according to plan -- we'll have 500,000 in the field by April. We plan to launch with MVNO with Vodafone this year.

We're focused on executing our speed leadership strategy and expanding our Horizon TV platform. As we move through 2014 and build on some of these steps that we've taken over the last six months, we expect to deliver improved performance in 2014. And that's before taking into account the benefits of our recently announced acquisition of Ziggo, which will create a national [single] platform and a true champion in the Dutch market, as we highlight on slide 11.

Industrial logic for this combination is compelling. And the benefits to all stakeholders are clear. It brings further scale to our Business, which will drive investment and innovation to the benefit of Dutch consumers and businesses.

Combined company will reach 90% of Dutch households for over 4 million customers, or 10 million RGUs, and generate revenues of around EUR2.5 billion. This will allow us to compete more effectively with KPN, which still dominates the Dutch telecom sector and fixed [and] mobile services.

As we've indicated, the plan is to leverage Ziggo's strong brand nationwide, and to harmonize products and services over time. And by 2018, we expect to have $215 million in annual run-rate synergies, driven by scale advantages across nearly all functional areas -- including $180 million with regard to the OCF line.

As we reported, Ziggo's supervisory Board and management Boards have agreed unanimously to recommend the deal. And we're confident about the regulatory process. We have a good relationship with both the Commission and the ACM, and have already discussed this case extensively with both authorities. There is no question -- the case will be dealt with professionally. And that we expect to receive clearance, either in The Hague or in Brussels. The current expectation is closure in the second half of 2014.

And I'll close -- this time, I really will close -- with a few comments on our broader strategic game plan this year. On the last slide -- slide 12. And these are the initiatives and priorities that make our unique value-creation model sustainable, in our view. If you look at the companies in our sector that are thriving -- that are adding customers and driving ARPU and margins every quarter -- they're all focused on one thing, above anything else. And that's creating superior and innovative products that exploit our network advantage, and deliver the value and experiences our customers are increasingly demanding.

I'm talking about advanced digital TV platforms, for example, that's permanently closed the functionality gap the OTT guys have opened up in certain markets. Our Horizon TV platform and user interface, with online apps and TV Everywhere services, are doing just that. And we'll continue rolling out these devices, including cloud-based versions, throughout the year. When you add in an expanded content offering, including SVOD tiers that deliver the same series and films that [places like] Netflix and look-alikes are offering -- usually at a fraction of the cost -- we're increasingly confident in our ability to retain and grow our digital TV business.

In broadband, our window is wide open for the foreseeable future. Our network advantage over VDSL and our ability to match fiber-to-the-home -- in the few places it exists -- provide the secret sauce in our Triple-Play bundles, especially as consumption and the demand for speed accelerates in Europe.

I think we've been very patient, deliberate, and cost-effective in the mobile business. But the time has come to reap those benefits. We already have 4 million customers and $1.2 billion of revenue. And with the launch of our centralized MVNO platform, we expect mobile revenue to grow faster than our Triple-Play business in 2014.

For many customers, Wi-Fi is a preferred way of connecting your mobile devices. And we'll meet this need by rolling out extensive Wi-Fi hot spot networks. Belgium already has 1 million Wi-Fi hot spots. Netherlands -- approaching 0.5 million. Together with the UK and other market launches, we're heading towards 3 million Wi-Fi hot spots in the next 12 months, across our footprint.

Our B2B business will also energize revenue growth this year. With $1.5 billion of run-rate revenue, and a new management team in Europe -- and in the UK -- and a comprehensive focus on the SOHO opportunity, B2B should outpace our average growth rate, leveraging our network and technology investments.

2014 will also be an important year for securing and beginning to execute on around $565 million of annual operating M&A synergies. Including $350 million at Virgin Media -- at about double what we originally estimated by 2016. And $215 million at Ziggo, as I just said, which should kick in by 2018. We have a very good track record on post-merger integration, and I feel confident in these estimates, which will provide additional support for our medium-term cash flow growth targets.

And then finally, speaking of targets, here's a snapshot of our 2014 outlook. Most importantly, we expect accelerating rebased operating cash flow growth this year, versus 2013. Driven by better results in the UK, continued strength in our other top-five countries, and a focus on cost efficiencies at the corporate and regional operating level. We also anticipate a modest decline in capital intensity, similar to prior periods, which, together with our OCF growth, will help us deliver around $2 billion of adjusted free cash flow in the year.

So, we're focused; we're optimistic. It's been a great start to the year, and we feel good about our medium-term outlook as well.

And with that, I'll turn it over to Bernie. Bernie?

Great. Thanks, Mike, and welcome, everyone. I will start on slide 14. Before I begin, I'd like to point out two things. First -- when we refer to our combined results, they include Virgin Media for the full 12 months of 2013, including the first five months before we completed the acquisition. Second -- the Chellomedia assets that we sold have been treated as a discontinued operation, so our operating results exclude the impact of Chellomedia for all historical periods.

We've used this slide over the last two quarters, as we think it provides a helpful snapshot of our 2013 rebased performance, which adjusts to neutralize the impact of acquisitions and currency movements. The gray bar shows our results excluding Virgin Media, the green bar depicts Virgin Media's performance, and the blue bar highlights the combined growth rates for the whole Company.

For both revenue and OCF, we delivered 5% rebased growth for the full year, excluding Virgin Media. And I'll provide more detail shortly. But the key drivers of our mid-single-digit performance were our businesses in Belgium and Germany, with Telenet posting a 10% rebased revenue growth -- their best result since we began to consolidate them -- and Unitymedia leading on OCF with 9% rebased growth. A key factor underlying both of their strong performances was volume growth on Triple-Play products, while Telenet's rebased revenue growth also benefited from strong mobile subscriber additions.

The middle bars in each graph highlight Virgin Media's 2% rebased revenue growth and 3% rebased OCF growth for the full year. Virgin's reported full-year OCF growth was hindered by a year-over-year decline of 4% in Q4. And this decline primarily resulted from higher programming costs and a challenging comparison.

As we flagged on our Q3 call, Virgin's Q4 2012 OCF benefited from over $25 million of favorable non-recurring items, including over $10 million that helped revenue. And with regards to the underlying operations -- cable subscription revenue, which represents almost 70% of Virgin Media's total revenue, provided rebased growth of 5% for the full year. This solid growth was offset by relatively flat results in Virgin's mobile and business operations, and a decline in other revenue, which includes interconnect and non-cable revenue.

Rounding out the chart, we get to the blue bar, which shows 4% combined rebased revenue and OCF growth. And these results are consistent with our mid-single-digit growth targets.

If you go to slide 15 -- this recaps our geographic results for 2013. On a combined basis, our European business generated $15.9 billion of revenue, and $7.5 billion of OCF, reflecting a rebased growth of 4% on both revenue and OCF.

In addition to our businesses in Belgium and Germany, other notable performers in 2013 include Ireland and Switzerland, with our Irish business delivering rebased revenue of 5%, and OCF growth of 11%. And I'll show you our Swiss results in a moment.

As Mike mentioned earlier, competitive pressure in the Netherlands, and central and eastern Europe, weighed on our overall results. In Chile and Puerto Rico, our businesses combined for $1.3 billion of revenue, and $460 million of OCF. Those two operations generated rebased revenue growth of 6%, and OCF increased 14% on a rebased basis. Our Chilean business drove the OCF growth rate through strong growth in the Triple-Play business, and lower mobile OCF deficit as we moved to a full MVNO approach.

The third row shows our combined results for the entire Company, with $17.3 billion in revenue, and $7.9 billion in OCF, reflecting combined rebased revenue and OCF growth of 4% each. It is worth noting that our year-to-date results include approximately $15 million of net costs incurred by our corporate locations, associated with the integration of Virgin Media, with most of the impact occurring during the second and third quarters.

And finally, the last row of the table ties back to our reported results, which include Virgin Media for approximately seven months.

Slide 16 presents our five largest markets, in terms of rebased revenue and OCF growth. First, on our combined results, these five businesses account for 80% of our revenue and 85% of our OCF. So, clearly, critical markets for us.

Our operations in Germany and Belgium produced very strong results, as we discussed earlier. Our Swiss business had its best financial performance in five years, with 4% revenue growth and 7% OCF growth for the full year -- including 8% OCF growth in the fourth quarter. The Swiss OCF growth was supported by strong cost controls, as Q4 2013 costs were largely flat compared to Q4 2012.

And on a full-year basis, Virgin Media reported 2% rebased revenue growth, and 3% rebased OCF growth. We expect Virgin to deliver an improved mid-single-digit rebased OCF growth rate in 2014, capitalizing on both its February price increase and the impact of synergies. It is worth noting that we expect Virgin's OCF growth to be weighted towards the second half of the year, helped by the timing of synergies.

And finally, our Dutch business had a difficult year, as Mike mentioned, experiencing a decline of 2% in revenue, and a decline of 5% in OCF. And although we saw sequential improvement in revenue in OCF in Q4 -- as compared to Q3 -- we still expect 2014 to remain challenging.

Slide 17 summarizes our property and equipment additions, and adjusted free cash flow results for 2013. Our combined P&E additions totaled $3.8 billion in 2013, or 21.8% of revenue. This reflects a 50-basis-point decline from our combined 2012 totals, which aggregated $3.7 billion, or 22.3% of revenue. It's important to note that, with the sale of Chellomedia, our ratios have increased by about 50 basis points, since our programming business had limited capital expenditures.

Now, the total combined spend in 2013 -- 55% was on CPE and scalable infrastructure, 25% was on line extensions, and upgrade and rebuild, and the remaining 20% on support capital. So, 80% of our spend was revenue-focused.

Geographically, our largest European businesses -- Virgin Media, Telenet, and Unitymedia -- all realized lower P&E additions as a percentage of revenue in 2013, as compared to 2012. And as we think about 2014, our goal is to deliver a modest reduction in P&E additions, measured as a percentage of revenue, as compared to our combined 2013 result.

And moving to the right-hand side of the page, we finished 2013 with $1.77 billion of the combined adjusted free cash flow, including over $800 million in the fourth quarter, which represents a 16% increase over combined 2012 adjusted free cash flow of $1.53 billion. The result was consistent with our medium-term expectations for mid-teens growth.

If you turn to slide 18, we provide a snapshot of our year-end leverage and liquidity position, as well as our stock buyback program. First, looking at the chart on the left, we had pro forma consolidated liquidity of roughly $7 billion at December 31, which breaks down as follows: reported cash of $2.7 billion; the orange slice highlights the $1 billion of cash from the Chellomedia sale, which we closed last month; and $3.3 billion of maximum borrowing capacity under our revolving lines at the end of Q4. Of which, we would expect to be able to borrow $2.8 billion upon completion of our 2013 reporting requirements.

Moving to the middle of the slide, we had total debt at year end of $45 billion, reflecting an increase from Q3 of about $700 million, due largely to foreign currency movements. Our leverage has been fairly consistent over the last three quarters, at 5.3 times on a gross basis, and 4.9 times net. Our fully swapped borrowing cost at December 31 was 6.6%, which was down 60 basis points from 7.2% last year at this time. And we've remained fairly active in the capital markets, with a refinancing in Germany during Q4, where we raised EUR470 million in 15-year bonds at a coupon of 6.25%, which refinanced debt that was slightly more than 8%.

Subsequent to year end, we also raised $1.4 billion of attractively priced 10-year debt on VTR. And have extracted VTR from the UPC credit pool. For our new bond holders, we anticipate that we will post to the Liberty Global website VTR's full-year financial report by the end of March. And that, beginning in Q1, we will post a quarterly press release and financial report, similar to our other credit groups.

Finally, looking at the chart on the right, we continue to repurchase our equity, as we bought about $280 million in the fourth quarter. This amount brings our 2013 total to over $1.1 billion, with $1 billion spent following the June close of Virgin Media.

In addition, we've increased our buyback program by $1 billion a few weeks ago. We announced that. And so, we have about $3.5 billion to spend over the next two years.

In conclusion, subscriber growth -- particularly in Q4 -- remained robust. And this gives us sustainable momentum heading into 2014. We're driving the Business to deliver OCF growth in 2014, along with reduced capital intensity. And we are targeting adjusted free cash flow of approximately $2 billion this year. All of this does not factor in the impact of the Ziggo close, it's important to note.

And as we discussed, our integration of Virgin Media is in full swing. And we are starting to see the impact of synergies. And the UK management team, led by Tom Mockridge, is making strong progress toward achieving our long-term synergy objectives, which will help set the stage for improved OCF growth at Virgin Media this year. Finally, we feel confident about our liquidity position, which allows us to continue our share repurchase strategy, and strategic acquisitions.

With that, operator, we've completed our prepared remarks, and would like to open the phone lines to questions.

(Operator Instructions)

We'll take our first question from James Ratcliffe with Buckingham Research.

Two, if I could. First of all, on Horizon. Looking at the penetration curve, Switzerland's had it for about three times -- the times Germany but has about six -- seven times the penetrations. Should we read anything into that, about the long-term prospects or appeal of the platform in the two countries? Or is it a function of what the penetration curve looks like as its been in the market for a few months?

And secondly, can you talk a little about how you're thinking about the relative appeal of M&A? From a new markets versus expansion of existing markets fill in -- and how Ono could or could not fit into that? Thanks.

Hi, James. On the Horizon point -- and, if Diederik or Balin have anything to add, please do -- but I would say it's more about just the timing. We don't anticipate meaningfully different penetration rates in the markets after we roll them out.

And remember, in Horizon -- in Germany -- we did launch it in September timeframe. But we had a few logistical and technological glitches that slowed the early launch. So while we were launched officially, we were rolling out very carefully in those early weeks and even months. So I don't think there's anything to take from that. And we think we'll reach comparable levels in most markets.

In terms of M&A -- listen, it's a great question. We are focused -- as I think I've said for over a decade now -- on our core markets first. And trying to build scale in the countries that are most important to us. We don't really comment on M&A transactions. But in this instance, I can more or less tell you -- we aren't looking at Spain. It's probably a precedent I should have -- I'll regret making -- establishing here. But that market does not fit, for a lot of reasons, today into what we are trying to achieve in the European marketplace. And we don't have the synergies or, quite frankly, the confidence in that country or that asset -- that others have. So I don't see us participating there.

Thanks.

Mike, this is Diederik. Just to add to what you said about Horizon. Indeed, just to note that in Germany, we launched the Horizon product only in the Unitymedia area. And it will be only later in this year that we will add the KBW region. So that is obviously also --

Yes. Great point. Of course. Thanks, Diederik.

We definitely -- yes. The other thing is that it may -- it's a bit newer. It's seen as a -- considered as a newer product in Germany than it is in Switzerland. So I would almost say that, potential there is still -- a lot of runway.

Thank you.

And we'll take our next question from Jeff Wlodarczak with Pivotal Research Group.

Good morning, guys. I wanted to focus on your Latin American assets. Can you provide more color, specifically, on what happened at VTR in the quarter?

Your rebased EBITDA that was way above expectation, which I assume is mostly that swapped to the MVNO model. And your RGU growth slowed materially. Are these trends expected to continue for the balance of [2014]?

And then I have a follow-up. Thanks.

Mauricio, are you online?

Yes, Mike. I'm on. The first part of your question is -- indeed, we had a very good year in Chile, both in cable and mobile. The second -- the fourth quarter results are indeed affected by the transition to a full MVNO model. And that is why you see that fourth quarter rebased OCF growth as high as you see it.

And then, typically as we head into the end of the year -- into fourth quarter and into the first quarter of this year -- the RGU acquisitions tend to slow down a little bit, as a result of that being the summer period in Chile.

So you'd expect it to get better from here?

We are seeing good growth in January. Better than we expected. And we foresee strong demand, as we did last year, for our Triple-Play product.

Alright. And then --

And with the new model, we're back on the market in mobile. Which we weren't, towards the end of last year.

Okay, thank you. And just one for Mike. You've had a successful independent capital raise at VTR, where you carved it out of the bank group. Now that you've gotten that done, what are the milestones we should be looking for, for you to potentially prep the Company for a spin and IPO? And is that something that can happen in 2014?

Well, I think it's definitely something that could happen in 2014. There's a lot of moving parts which we don't have time to get into -- not the least of which is trying to keep some clear water for other transactions to complete. But in the end, it's largely just plowing forward on the structural- and documentation-related steps for something like that.

I don't think there's any strategic or operational milestones, Jeff, that are going to jump out at you or us that would affect the decision. It's something we feel makes sense for our Company and our shareholders. And all things being equal, we're going to profitably execute on that plan. And it could very well happen in 2014.

Great. Thank you.

Yes.

It will take our next question from Michael Bishop with Barclays.

Hi. Just one question, please, on Germany. You mentioned, Mike, the strategy in Germany changing -- with a bit more of a price focus and potentially, for volumes to slow.

Could you give us a bit more detail on exactly how much more you'll turn the screw on price? Because, obviously, the fourth quarter was very strong volumes again. So I'm just trying to gauge the potential impact in 2014. Thanks.

Well, we've already implemented some price increases in Germany across bundles. And in the course of 2013, we had a bits and pieces here as well. I don't think they're substantial. And Diederik you can correct me, I think we're looking at low-single-digit increases across core products. We don't think that'll have a big impact.

But it's not just pricing. It's also the length of discounts, and how much you charge at install, and other factors that affect consumer decision-making that we feel we were leaving some on the table, if you will. As you start the year, you never know exactly what the net add impact from Germany, or from a market, will be when you make these sorts of decisions.

My personal opinion is we will continue to generate meaningful net adds in Germany. The market in there is so robust, and our products are so compelling, that I don't think -- what little pricing impacts we're delivering will have a large -- or change, significantly, the volumes that we forecasted historically. But we'll see what happens.

Do you want to add anything to that, Diederik?

Yes. Just to add, if you see our move which we started last year, from our volume focused to value focused, we are comfortable that we are not only on the right track, but it starts to deliver. I mean, ARPU was up 8% last year in Germany.

Also, new products like Horizon are priced at their higher level where they belong -- with strong, with strength in the product specs. That's a strategy which we will keep pursuing. On top of that, we will also stay put where it comes to promotional effectiveness. We're also -- in 2013, we started to reduce promotional periods, which also helped overall pricing. Just to add some flavor to details of what you said.

Thanks.

And we'll take our next question from Vijay Jayant with International Strategy and Investment Group.

Thank you. I was hoping you could provide some more color regarding the Ziggo transaction; the timeline related to any of the milestones we should be considering. Any conditions we might be thinking about -- such as, any requirements for un-bundling your network? And whether some conditions would lead you to reevaluate the deal? And what remedies you might have? Thank you.

Yes. Hi. I think our general posture is not to comment on those types of things at this stage. We're really in the very early stages of dealing with the various regulatory bodies. And we feel -- as I said in my remarks -- confident that they are approaching this in a rational and reasonable way. And we will approach it in a rational and reasonable way.

It's important we think for the Netherlands, it's important for our shareholders and Ziggo's shareholders, it's important for consumers. So we're pretty confident in the end the all parties will see it similarly. And I really don't want to get into details about this condition, or that remedy. It's way too soon to have any visibility on that. We're just working through the procedures, and feel good about a close in a second half of the year.

Great. Second if I could, if you could just, again, go over the phasing of the Virgin Media synergies this year? Is that all -- if we could think about how that is contributing to the OCF acceleration this year?

Well, we did say 2016 for full annualized affects of the $250 million. But Tom, do you want to provide any color on that?

Yes. Thanks, Mike. Progressively through this year, the benefit of the synergies and efficiencies will fall to the bottom line in the Business. Essentially, the reductions were made in headcount, which, as Mike alluded to, have been close to 10%, about 2000, that has overwhelmingly taken place before close of December last year. So we do have that benefit coming through now.

And there's a whole range of other synergies, efficiencies, programs, that are building through the year in conjunction with Liberty Global. And we'll get that progressive benefit through 2014, and then into 2015, and through to 2016.

Thank you very much.

We will take our next question from the commencement Benjamin Swinburne with Morgan Stanley.

Thanks. Good morning. One on Ziggo. And then back -- I'll ask a follow-up on Virgin.

So Mike, whenever you guys acquire assets, we're always looking at how you think about those acquisitions versus buying your own stock. So when you look at Ziggo -- I think, at 9 times EBITDA -- I'm wondering if you thought the top line could get better over time in that market. It's a national footprint; something that you haven't had before. The Dutch market's been tough. It's not growing as fast as you're overall portfolio. But clearly, you see opportunity there.

So I'm wondering if you could comment, beyond the synergies if you think about what that footprint means to the business. And whether this whole asset base could grow faster over the longer term?

Well, I think the answer, to that question, Ben, is absolutely yes. When we look at our internal forecast for our own Business, which showed progress and improvement but clearly it was going to take time to achieve on a standalone basis, and then we married that up with Ziggo's own internal forecasts, which were a bit more robust since they operate in different markets than we do. [They have] meaningfully less competition from KPN's fiber builds and things of that nature.

And then you add on top of that the synergies. There's no question that we believe we've got a combined platform that will achieve terrific growth, both in the top line and the operating cash flow line. Certainly consistent with what we are trying to achieve in other parts of Europe. So, there's no question. It was accretive both to each of the assets, and consistent with our outlook for growth across Europe, if that's where you are going.

Yes, that's very helpful. Thanks. I guess, a somewhat related question on Virgin, maybe for Tom, or Mike, or both of you. When you look at last year, the Business put up solid growth in the cable business. I think it was 5% organic. But mobile and B2B were light.

So, when you look at 2014 on the revenue side, how do you guys feel about the top line? Particularly on those areas that have weighed on growth, like B2B and mobile?

And I'm asking in the context of a market that's obviously quite dynamic. But it does look like Freeview is faltering a bit as a product, so maybe the market's becoming a little more rational than less.

Well, I'll give you a very -- a 30,000-foot view. And then Tom can fill in the gaps. The growth in revenue at Virgin in 2014 is clearly a function of several moving parts. You've got your rate increase, which we've talked about, which delivers, obviously, a big punch to your revenue and your top line. B2B turning around, which we have good confidence in. And the team has done a great job of redirecting resources and strategies there.

But you've also got continued headwinds. In the voice business, there's some regulatory issues, things of that nature. So it's always, with Virgin, going to be a bit of positive and a bit of offset.

And what we have to do is focus on driving the things we can control, principally, the consumer business, as you pointed out. As well as the B2B business, which is a huge chunk of the story there. And focusing on getting these synergies bedded down, which will ensure that we achieve the operating cash flow and cash flow forecast, which were so important to our decision to buy the business and valuation. Do you want to add anything to that, Tom?

I just want to add that, coming into the business, I think we did find that both B2B and mobile had never really been fully integrated with the cable network business. And I think in both, [given space for an] opportunity, using mobile bundled more closely with the cable business -- consumer cable business. And using the Virgin Media strength and brand, and breadth in B2B, are both giving us growth opportunities through this year and going forward. We're very focused on getting those.

Thank you.

We will take our next question from Bryan Kraft with Evercore.

Good morning. Thank you. Two questions. One on the guidance. What's happening, below the EBITDA line, that's causing the free cash flow growth in 2014 to slow to 10% versus the 16% last year? Even though the rebased EBITDA growth is accelerating in 2014.

And then, just wanted to see if you provide an update on the housing contract impact in Germany from the contracts moving over to Deutsche Telecom? Thank you.

Sure. I mean, I'll take a crack at the free cash flow. And then, Charlie, you're welcome to chime in. But I think it's actually 13% when you get -- when you get outside the rounding, not 10%. I know that rounded, it looks like 10%. But it's closer to 13%. So we still consider that mid-single -- mid-teens, consisting with our outlook.

But also, remember, we had 30% in the prior year, 16% this year. And free cash flow, for us is -- there's going to be some variability in that. But Charlie, do you want to add anything to the free cash flow line, there?

You know, I think we feel pretty good about [the 2013] number. There's a bunch of variables. I think there was some talk on the -- in the Telenet press release about the timing of a significant cash tax payment.

I think, and consistent with our spirit of not over-promising on delivery, I think we put [bigger effort in] the phasing of certain working capital items could lead to some upside or downside on that.

But I do think -- I would echo what Mike's saying, we're consistent with tracking this mid-teens target. And the fact that we've [known] performance this year, I don't think means that we're backing off that target. I think we feel pretty good about sticking with that.

What was your second question, Bryan?

Just want to clarify this -- and operating free cash flow is actually accelerating, right? More EBITDA growth, declining capital intensity? So this is just (multiple speakers)

Yes. That's right.

Okay. The other question was on Germany. The housing contracts, particularly the one big one shifting from yourselves to Deutsche Telecom. If you could provide an update on how far along we are in that migration, and how much is left to still happen?

Yes, I'll let Diederik jump in on that. But I think we won back 80% or more of the contracts that we've already been after. Do you want to talk about that, Diederik?

Yes. I think we -- it's also good to say that we didn't lose any revenue contract in 2013. But there's still some at risk. 40% of the, let's say, call it, the contracts covered by the remedy agreements remain subject to these so-called special termination rights. Although it's good to say that they only account for less than 1% of the German total revenue.

We've been able in Q4 to also secure a new contract. That's also, I could say, that we didn't lose any single remedy contract. So all in all that is what it is.

By the way, Germany's 20 largest book agreement accounts only generate 7% of its revenue. Just to -- we disclosed this already, but just to give you an indication that sometimes the size is bigger than the bill.

Does that answer your question, Bryan?

Yes. Thank you.

We will take our next question from Tim Boddy with Goldman Sachs.

Yes. Thanks for the question. I want to talk a little about content, Mike. And whether there's been a change in your attitude towards the ownership of content.

I guess, not specifically with regards to noises about Formula One. But it would be helpful to understand your strategic thinking more broadly. And then I've got a follow-up as well.

Sure. Well, I mean, as we said at the time that we announced the sale of Chellomedia, that we did feel like we could reallocate resources more effectively -- and I mean effectively from a strategic point of view, mostly, not necessarily financially more effective -- in content that will more closely align to our distribution strategy end market. Chello, of course, was in 65 countries and all over the place.

So, I'm not going to comment on specific rumors in any one market. I'll simply say that we do think sports -- especially in markets where we already have sports channels and/or sports rights that our customers have become accustomed to -- could be an interesting opportunity for us. But I would caution you not to be concerned about big bets. I mean, we're really talking about smart bets that secure access for us for the long-term.

We don't necessarily think we need to own content to the exclusion of our competitors in our markets. We just need to be in control of our own destiny, so to speak. And sometimes, either participating with others or adding elements of sports rights, for example, to existing platforms can be beneficial.

And I will just caution you that we are going to be very smart about these types of investments. We don't expect to jeopardize our core capital structure or growth prospects. We're just going to -- you know, we're looking at this, I would say, very carefully and very opportunistically.

The other area that I would add where we are perhaps ramping up a bit -- but again, it would be indiscernible to you, from a disclosure point of view -- is in SVOD. Where we do feel like, given our Horizon platform; and how robust our user interface is; and our ability to attract consumers who are focused on functionality, and multiple devices, and TV Everywhere -- that our investment in SVOD content, series, and movies, and things that they're growing accustomed to finding on a random access platform -- might increase.

Again though, those increases would be largely indiscernible to you. But on relative basis, as we look at content expenditures, I think we will be more aggressive. And more focused on SVOD content to fill in tiers of service that we know our consumers are looking for and to do it cost-effectively.

Thanks for that. And then, just a follow-up was just around your buybacks. Maybe -- yourself or Charlie -- but I guess, you didn't buy much stock in the fourth quarter, given the scale of what you want to achieve, even if you annualize it out. The buybacks were quite small. Was that related to the fact that you're in discussions with Ziggo? Or something else?

And then, staying on the same point around buybacks, my understanding is that you can't buy any stock once you file for the Ziggo transaction. And am I also right, that you can't issue any stocks? So you couldn't do any transaction that required you to issue stock, whether that's buying in a minority or anything else, during the period, while you're waiting for Ziggo to close.

Charlie or Rick, do you want to address what we're seeing about Q4 and those matters?

I think on a buyback side, we've trade -- listen, we've got a target and we're trying to get there in a relatively even way. I think we had overspent [we bought low in the year] I think we felt Q4 was very consistent with delivering the old, 2-year buyback target. So I don't think there's any sense of us slowing down for a particular reason. We're just pacing ourselves through, and we certainly remain very comfortable that we can achieve our targeted buyback target -- the new one -- in the timeframe we've given.

What I would say about the buybacks during the Ziggo offer is there is -- we have a certain period of what we have in the market. Which means that we haven't fully decided how we're going to allocate it. But you will see any buybacks, probably being backend allocated and then they spill over into the following year. But I really think we're very keen on issuing -- on buying back our stock -- that's very important to us.

In terms of issuing stock, I think we are allowed to issue stock under the merger, and I'm looking at [Andrea]. So, I think there's no -- and not that we're necessarily looking to do that -- but is an ability for us to issue stock, should we need to.

When we get into periods where we're restricted or blacked out, we generally put in 10b5-1 plans. So we're always -- Charlie, we're always in the market at some level. Unless we're absolutely restricted. But that doesn't happen often.

It doesn't happen often, but it will happen from the time at which our registration statement becomes effective at the SEC, up and until we close. So there will be at least a couple months' window between now and that point in time. But from then until the time at which we close Ziggo, we will be out of the market.

Thanks so much.

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

Thank you. Going through your 10-K, you've done a great job on containing video erosion, primarily to the low-end. Lots of advanced service momentum at Horizon and TiVo and all that. But it looks like organically, your video revenues were up only 60 basis points, even as broadband was up 10.6%. Can you elaborate a little bit on that?

Then on the programming side, it looks like European operation's programming expenses were roughly about 9.3%. You're still below $1 billion, against $5.7 billion in video revenues. I guess, even with Virgin and BT Sports and Telenet in there, you've got a really attractive programming cost template, even as you're doing more things on SVOD and with TV Everywhere.

Can you talk little bit about where you see programming cost going? And whether this very benign posture you have relative to the US guys can continue?

Sure. I don't have all the layers of our video revenue in front of me and I don't think we disclosed those. But I can tell you that the video revenue is going to be, obviously, impacted by -- on the positive -- by our conversion to digital, which we do very effectively. But losing a video customer in its entirety is pretty impactful as well.

So that's a net figure. That's going to take into account the digital conversions, which we're realizing at roughly twice the revenue of the analog customer. But also the net loss of a customer. So as we start to move into 2014 and 2015 with a focus on pricing power and looking at being more -- not aggressive -- but more appropriate in how we price or products, I think you'll see that number improve. And we also expect our video attrition to remain as it -- where it is, or improves. So over time, I think that'll change.

And programming expenses, if you don't break out -- I think I have said publicly, though that you should expect that our programming expenditures, at least in the next two to three years, might outpace our video revenue growth. But not meaningfully. And some of that is just pure catch up in terms of SVOD rights or online rights or ensuring that we have a competitive -- if not the best -- program offering in every market we're in. But fundamentally, our video margins are still extremely high.

The net effect of that catch up in program expenses is really, almost difficult to see in our video margins, which remain, I think, the highest in the business. On average, I think we spend something like $5 per subscriber, per month on content, excluding the UK market, which of course has a huge premium component to it and skews those numbers.

But, so I think we're looking at areas where we need to invest. But we're not doing it -- we're doing it, I think, in a smart manner.

Great, thank you.

And we'll take our final question from Ulrich Rathe with Jefferies.

Yes, thanks very much. I have one slightly big-picture question. Is VMED is tracking maybe a bit below your own expectations, which I think you mentioned at a recent presentation yourself, do you actually manage the portfolio to get to the numbers? So in other words, would you make compromises on growth in Germany, for example? I know it was a very high margin in Germany in the fourth quarter, yet again.

So is this something that you look at from a portfolio perspective? Or do you tend to just try to manage the individual businesses for what they need and what you think creates most value in the individual business? That would be my first question. And I have a follow-up as well.

Well, I would say that our principal approach to managing our businesses is to do as you describe, specifically, looking at each individual market and each individual market opportunity and allowing that business team and management team to present a growth strategy that is appropriate for that marketplace. So, it starts bottom-up. As anybody budgets, we budget bottom-up. And we plan bottom up. And we look at the UK differently than we look at Germany.

Having said that, like any multinational, and any large operating company, we do look for cross-border synergies. We do look for cross-border benefits. And we do look at our net consolidated results in the manner that's consistent with how you want us to look at that, so we can deliver the guidance and the targets that we've articulated.

So, it's a little bit of both, but it starts most primarily from the bottom up, market by market. What was your second question?

Thinks very much. That's very clear. The second question is very specifically on the UK. You're noting -- I think you're reporting fractionally higher churn, which I think reflects higher retention measures. Could you highlight a bit how you see the churn versus retention measures? Potentially, higher investments you needed to do in the fourth quarter to contain the churn?

And how you view the broadband net adds -- I'm focusing very particularly on the broadband net adds at VMED. Any comments around the dynamics internally and obviously, the market would be much appreciated. Thank you.

Tom?

Well, broadband adds remain our strongest-growing RGU. And we're very positive about the prospects there. We're doing a speed upgrade again, implemented later this month. And there is very strong demand in the United Kingdom for the faster broadband speeds. We're the unambiguous market leader there. And we believe we can sustain that position.

In terms of the churn, the 2013 was unquestionably a difficult year, with the early advent of BT Sports and the adjustment for the Company. We took higher churn than the Company would've liked. But there's, again, a big focus on that now. We have very effective retention teams in place. And we believe, again, with the integration and synergy with Liberty Global, there is practices and various procedures that we can pull that churn right down progressively, through this year and going forward. It's a big objective of the Business.

Sure. But could you comment on the fourth quarter specifically? Did you take particular measures in the fourth quarter? Seeing the churn pick up, and then try to --

Oh no. If anything, it was the opposite, I think, relative to Q3. With the fourth quarter last year, with the introduction of BT Sport, we saw an improvement relative to Q3. But it was a period in the UK market where you had the intense promotion by both BT itself and Sky, with the heightened competition, we generally -- churn did pick up. But we believe we responded well to that with BT Sport, with other programming initiatives. And at year-end, it was differently improving.

Appreciate it. Thank you.

Alright. Well, listen, everyone. We appreciate you joining the call. We're right about an hour here. I'll just maybe sum up again by telling you we feel we had good 2013. Hit the mark, as I said at the beginning. And a great start to this year.

And we feel positive about the guidance we provided today. If you look at the big five countries -- again, representing 80% of our business -- both the UK and Holland are on the upswing in terms of both our control and of VMED and our ability implement the plans we've articulated. And our expected consolidation of the Dutch market. And the other three markets continue to hit solid numbers.

We feel good about the operating and organic growth side of our Business -- strategically with VMED and Ziggo and synergies. And very opportunistic but careful investments in content. I think we're poised to continue the strategy that got us to this point.

And the balance sheet remains strong. Our cash flows are, we think, sufficient to manage our Business and grow our Business. With $7 billion of liquidity, we've got lots of opportunity.

And the team on the call here today -- and the Board -- are absolutely focused on delivering shareholder value. That's the number one thing.

So we appreciate your support and look forward to a great for 2014 with you. And we'll talk to you in the first quarter. Thanks very much.

Ladies and gentlemen, this concludes Liberty Global's 2013 results investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.libertyglobal.com. There you can also find a copy of today's presentation materials.