Liberty Global Ltd (LBTYK) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Liberty Global investor call. This call and the associated web cast 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. (OPERATOR INSTRUCTIONS) As a reminder this conference call is being recorded on this date, February 27, 2008. I would now like to turn the conference over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

All right. Thank you and welcome, everybody. Let me take a moment to let you know who is on the call. As usual Bernie Dvorak and Charlie Bracken our co-CFOs Gene Musselman, who heads UPC, Mauricio Ramos, President of BTR and Graham Hollis who oversees Japan, are also on the call. And we have Rick Westerman, whom you all know, from IR. Shane O'Neill has strategy and runs Chellomedia and, of course, Liz Markowski, our General Counsel who will keep us on the straight and narrow. We will go back to the Safe Harbor statement and let more people dial in and then we will get to the call.

Thank you. Page two of the slide details the company's Safe Harbor statement regarding forward-looking statements. Today's presentation will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Including with respect to Liberty Global's 2008 guidance target, future growth prospects, rollout of advanced services, borrowing availability and cash taxes. It's expectations regarding competition and M&A activity and other statements that are not historical fact. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. These risks and uncertainties include those detailed from time to time in Liberty Global filings with the Securities and Exchange Commission including its most recently filed Form 10-K. Liberty Global disclaims any obligation to update or revise any of these forward-looking statements to reflect any change in its expectation 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 use slides here and I am on slide four entitled 2007 highlights. I'm going to try to keep my remarks brief because of the plan is to let some of the other operating execs comment on their businesses in a little detail. If you are looking at the slide, you will notice our three strategic value drivers on the right. The ever present virtuous circles and I'm sure some might be tired of hearing about it. We were starting to sound like a broken record. But, once again, all three of these strategic initiatives delivered in 2007.

Beginning with operating cash flow growth. Really the foundation of our story. Our rebased operating cash flow gross was up 16% for the year. And that's excluding FX and Telenet-- and 17% in the fourth quarter on that same basis. Of course, those numbers are right in the heart of our guidance and you will hear a little later that we are forecasting similar mid teen result for 2008. On the M&A front, we had relatively quiet year, I'd say, which is fine since there are really no must-have deals in our strategic plan. We did complete one large transaction. The acquisition of a controlling interest in Telenet and a handful of smaller infield deals that added around 200,000 RGUs.

On the sale side, I don't think we could be happier with the rationalization of our interest in our Japanese Shopping Channel, our timing was clearly very good on that deal and we generated $750 million of cash. And looking forward, I would say the plan is to be patient on M&A opportunities. Until the credit market stabilizes or sellers get panicky, both of which are hard to predict. It doesn't look to us like much will get done at least in the larger markets. In the meantime, we will remain opportunistic and it continue to explore smaller deals on some emerging markets that we think could create value for us down the road. Then lastly, the anchor of our three part strategic plan, if you will, is, of course, our management of the capital structure. And I will start with the balance sheet here. I couldn't be prouder of our treasury team in the last year.

We completed a number of large refinancings in the first half of the year on great terms and then in the second half of the year, really in the teeth of the crunch, reeled off three very unique debt transactions that All-star, Telenet and the holding company or our Japanese interest. That netted us over $1.2 billion of cash. As a result our liquidity continues to rise. $2 billion in cash at year end. And additional $3 billion in borrowing availability. And, as you know, much of that liquidity is going right back into our own stock. We repurchased 1.9 million of equity last year and including purchases in 2008 over $4 billion in the last two and a half years. Reducing our shares outstanding by 27%. And we can't find a reason really to alter that path. In fact, we purchased over. $900 million of our stock since our third quarter call for about 7% of our equity. And announced yesterday, I'm sure you all saw, another additional $500 million of authorized buy-back capital. So, we are staying the course.

Leveraged operating growth, aggressive management of our capital structure. And a commitment to driving equity turns by buying back the asset we know best, our own stock. If you turn to slide five it lays out the basic numbers for you. I think there are three key takeaways here. First, it is a fact that we continue to build scale. We now serve over 24 million RGUs and 16 million customers. Those numbers are up 24% and 17% from last year, helped in part by our ability to keep consolidating our position as a largest operator in the vast majority of our markets. And we are starting to see the benefits of this scale enhance our margins and profitability. More on that later.

Second point is, we continue to deliver consistent operating growth. We talked in the past about the key growth drivers for us. First it's adding high margin voice and data subs. And second, driving (inaudible) revenues through enhanced digital TV. That simple. On the first point we added 1.52 million voice and data subs last year on an organic basis. That's roughly the same as we did in 2006. And we think we can continue this pace into 2008. The difference between that 1.52 million number and the 1.45 million number you see on the slide is due to a loss of 77,000 video subs all of which can be attributed to one market, Romania. In fact, without which,actually we would report a net gain in video on a consolidated basis.

On the second point, digital TV we added 900,000 digital TV subs last year and are driving ARPUs to advanced services almost everywhere. And of course, this growth underpins our year end revenue of $9 billion and our operating cash flow of $3.6 billion. And the last point is profitability. Bernie will show you a slide later detailing what we started to call our OCF drop where every incremental dollar of organic revenue last year dropped around $0.65 to the operating cash flow line. We think that's best in class. And obviously a big contributor to our increasing operating cash flow margins which finished a year just under 40% compared to 36% in 2006. So we like this combination. Increasing scale, supports above average operating growth and drives increasing profitability for us.

Before I hand it over for a quick regional overview, I will make a few general remarks about subscriber growth and our products on slide six. In the first point is that we are really starting to move the needle on digital cable. Total RGUs are now 3.4 million and penetration stands at 25%-- that's up from around 10% 24 months ago. When we are now rolled out at 13 of our 15 markets and happy to say achieving great milestones every quarter, like 67% digital penetration in Japan. 100% increase in digital ARPU in the Netherlands. Well above budget growth in markets like Switzerland and HD-PVR and VOG rollouts. In fact, by the middle of '08 we will have digital available in all 15 markets with 11 of those offering the advanced services and nearly half offering all three of the killer APPS -- HD-PVR and VOG.

I think the second point is that Broadband data continues to be a steady performer for us, It's driving great gross margins and operating cash flow. We added 780,000 organic RGUs last year bringing total broadband subs to 5.4 million or 21% penetration. That's up from 16% penetration two years ago. Our growth in this product is really attributable to our ability and willingness to drive Broadband speeds faster than our DSL competitors. We offer data tiers of 20 megabytes or more in eight of our 11 European markets and Japan. We've already rolled out 160 meg product. And we are on pace to roll out (inaudible) in the latter part of this year. And lastly on voice, we continue to pick up the pace across all of our markets. We did 740,000 organic net ads in '07 and that compares to 609,000 in '06 and 416,000 in '05.

So we were now serving 3.9 million voice subs representing a penetration rate of 16% and that penetration has fluctuated as we've added home serviceable. Our most penetrated market continue to be Chile at around 34% and we're approaching 20% in our larger European countries like Holland and Switzerland and Austria and we believe there is plenty of runway in markets like (inaudible) in Europe. Still (inaudible) single digits. I'll point out that 90 -- 97% of our voice customers are bundled customers. So the basic subscriber growth plan we think is intact and it's working with driving RGU volumes and our high margin voice and data products and we're driving ARPU growth in the video base really with the rollout of digital TV services which is just now picking up steam. I will do one more slide before handing it off to slide seven. We talk a lot about bundling and have talked a lot about bundling for sometime, In markets like Chile and Japan we are actually setting what I believe is the high water mark and with double and triple play penetration.

The chart shows you where we are on a consolidated basis. On the left you can see our bundle customer count at 5.4 million. And that's up about 80% from two years ago. On the right you can see our triple play subs now total 2.5 million and are up 50% just last year. The whole point of this is obviously to drive customer ARPUs or revenue per household and we're doing that. Total customer AOUs are up $39 from just under $33 two years ago. If you dig down and look at the operating company level we are generally growing customer ARPU north of 5% just about everywhere. We expect that to continue. So with that as background, let me turn it over to Gene who will start off with a quick regional overview on Europe and hand it off to Mauricio and Graham. Gene?

Thank you Mike. Turning to page or slide number eight, to '07 highlights you can see from the graft on the on the right that we added approximately 1.6 million organic net ads in '07 representing a 10% year on year increase. Driving that gross was primarily advance service with triple play customers growing by 89% to 1.4 million. We also leveraged our deep ray platform rolling out digital and DVR in Cabocom, Austria and Ireland and we're currently in the process of preparing these markets for the introduction of BOD realizing further synergies from the common [D4-ray] platform.

We also used our legacy platforms inherited as part of the acquisitions, to successfully launch digital in Czech, the UPC footprint in particular,Slovoc and Romania. And in Cabocom and Czech in particular we enjoyed sizable digital uptake accounting for 35% and 30% of UPC adds respectively. During the course of '07, NL growth decelerated as a result of switching from a push to a pull strategy, something that we talked about before on these calls. On the other hand I would like to point out that the overall quality in the base improved significantly. Churn fell by 50% and ARPU increased by over 102%. As we rolled out a full suite of products as they became available. Telephony was also a stellar performer. Achieving record growth adding 13% higher adds year on year and more than double '05 despite the fact that we have continued fixed mobile substitution.

And then finally building on our strategy to be the speed leader, data remained our growth driver, as Mike mentioned, adding 559,000 subscribers and our speed range -- top speeds ranged in the neighborhood of 20 to 25 megabytes per second. Looking at '08 for a moment, we are focused on launching D4-ray platform in Hungary and Poland. This will be accomplished in Q1 and Romania in Q2 along with the introduction of DVR and HDTV in these markets in time to benefit from the European football championships and the summer Beijing Olympics. Based on the success and growing NL's digital ARPU, we are looking at pulling forward advanced service rollouts across other markets as well. Also we are rapidly completing the upgrade of our two way plants. By the end of this year most of the upgrades will be completed to improve the quality of services and to drive our advanced service growth.

Building on the success of our bundling strategy, we are in the process of simplifying our product portfolio with the objectives to preserve ARPU, maintain the growth of our data and telephony products through the introduction of mega speeds and all you can eat voice packages and then finally in Romania, we put into place what I think is a very aggressive plan to address the competitive situation and to improve our operational performance. Specific actions include introduction of a nationwide mass market retention offer with a highly competitive analog price point in exchange for a two-year commitment. We will start rolling this out April 1 and in some cases we already commenced the rollout in areas where we are experiencing heavy competition. That's happened in the last few days. We're pulling forward digital launchers to 20 of our largest and mid sized cities. The idea is to start on or about June 1. We're accelerated the two way plan upgrades to get more new services into market as quickly as possible. And then finally we changed the senior management team almost in its entirety including the chief executive officer. At this point I think we are really in a decent position to be competitive going forward in '08. That said, I will pass it on to Mauricio.

Thank you, Gene. In Chile during 2007 we continue to build strongly from our position of leadership across all of our feed products. As you know in our footprint we're number one in video and number one in Broadband and close number two in voice. We closed 2007 with 270,000 organic adds or 242,000 RGU additions. If you, of course, exclude analog conversions to digital. Also 12% rebates revenue growth and 23% rebates OCF growth for the year. We coupled healthy RDU gain in top line growth with cost control and the benefits of scale in Chile. All of these remain the key pillars for the sustained OCF growth. You will also notice that this recipe also led to an OCF conversion ratio in 2007 of over 70%. During Q4 in particular we added 57,000 new RGUs sustained rebase revenue growth of 13% and rebase OCF growth of 24%. Q4 was therefore another consecutive quarter of 20%, last OCF growth for us. It is important to highlight again that bundling remains a key engine of our RGU growth. And of our financial performance. Our bundling ratio is approaching two times over 39% of our customers now take a bundle triple play product from us. Up from 32% at the end of last year.

But it is equally important it to highlight again that we also continue to have new customers as well as video customers. During 2007 we added 52,000 new customer relationships against the 48,000 that we had added in 2006. And we added 49,000 video RGUs against the 45,000 that we had added in 2006. So we continue to both cross sale to the system base, as well as grow the existing subscriber base. For the long run, during 2007, we completed immigration as we mentioned in the last call of our (inaudible) analog base to digital. Digitizer network in Santiago and the other key cites in Chile have launched VOD/DVR. and HD services. We're now digital ready across most of the country and have completed all the (inaudible) digital products. The next step, as we have discussed, is driving digital penetration across the subscriber base. To this end, in Q4 the classic DVR triple plaque is renamed and sold and priced as the DTR triple pack digital. This means that all our new sales are digital.

And as a result our monthly conversion rate of analog to digital subscribers has now more than tripled on average to about 15,000 new digital RDUs per month. And also as a result we closed 2007 with a 22% digital penetration of our video subscriber base. We have also started marketing our DVR product. In January approximately 5% of our video sales were include in the DVR and number is increasing to 50% by mid February and we continue to see a promising and increasing trend there. To finalize, I guess I can only emphasize what we said on the last call that our product lineup is as strong and complete as ever. That we continue to see robust demand for products and that we continue to be focused on digital migration, bundling and cost efficiencies. And that mix continues to make us feel pretty good about continued 20% OCF growth. And with that said, I will turn it over to Graham for Japan.

Thanks, Mauricio. The big event of 2007 in Japan was an overall restructuring and streamlining of our interests. We split Jupiter TV into two, shop and thematic channels and exchanged our indirect shop interest for $855 million worth of (inaudible) shares which we collared and borrowed against. And as Mike said earlier, we raised $750 million worth of cash and then we re-enforced Jaycom by merging the thematic channels into Jaycom for another approximately 254,000 Jaycom shares. Jaycom has historically been underleveraged from our point of view. For instance, in December 2007 gross leverage was only a little over two to one. So to cure that we decided to put on what you might call synthetic leverage on Jaycom.

So during the fourth quarter, we borrowed 75 billion Yen at a holy owned LGI entity above Jaycom and that took our pro forma share of the Jaycom leverage up to almost four to one which is much more in line with our goals. Jaycom has recently announced that they intend to begin paying dividends in 2008. While the amount is not yet been decided, this together with the share repurchase they made in December, is a visible sign of their commitment to shareholder returns. Operationally, the highlight of the fourth quarter was the launch of the 160 mega bit high speed data service in the Camsite area. And there we got a 25% take up rate in December. So it's been a very successful product. What we believe is that fully 40% of these customers are churning from FTTH to cable demonstrating the cable is perfectly capable of competing with fiber. The challenge for 2008 is video growth and it's an explicit Jaycom priority. But you've got to remember that it's not a matter of Jaycom losing video to competition because churn is low and the competition in Japan is weak. In particular, fiber remains unable to match our video offering for at least another year.

And here are three examples of what Jaycom is doing. They are revamping the channel lineup. Dropping unpopular channels and adding new ones. For instance the launch of channel Ginga this spring which is a venture within HK to commercialize their library. We're diversifying the sales efforts to rely less on direct sales. And also exploring out of network opportunities. In one example, Jaycom has a contract with an MDU complex of about 3,000 units. What is normally considered prime fiber territory, where we already have over 3,000 RGUs proving again that Jaycom can compete effectively with fiber. 2007 saw the continuation of the regionalization of Jaycom.

We recently purchased control of Kyoto cable and will integrate with other cable west and (inaudible) franchises to give regional scale there of over 1.7 million RGUs and you should expect more mergers and rationalization in other Jaycom areas in 2008. And this should improve the marketing and sales efforts and help to reduce overhead. Finally, [Mabeati] which is, I think about the third or fourth largest MSO in Japan, had another good year with OCF growing over 30%. And with that, let me turn it over to Bernie to take you through the financial results.

Thanks, Graham. If you turn to slide 12, this depicts a quick snapshot of our performance over the last three years and through a combination of acquisitions, organic growth and favorable affects movements we've achieved a revenue [kager] based on reported results north of 40% since 2005 and OCF doubled over that same period. Specifically we grew revenue 39% in 2007 to $9 billion. And OCF 53% to $3.6 billion. Keep in mind these 2007 figures are based on 2007 FX rates and for reference the average Euro throughout the year was $1.37 to the Euro and Yen was 118 to the dollar. For comparison purposes over 60% of our 2007 revenue was generated in Euro and Yen currencies.

In addition, the current rates in 2008 both average year to date on spot for the two currencies have appreciated meaningfully and the spot rate for the Euro is nearing 150 and the Yen is 106. If these rates stay constant this will provide extra lift to our reported results in 2008. Turning to slide 13 and we will jump into more detail. Revenue for the fourth quarter and the full year grew to 2.46 and $9 billion respectively. In terms of base growth we achieved rates of 7% for Q4 and. 9% for the full year. UPC Broadband realized 4% growth in Q4 and 7% for the entire year. And highlights from Europe include the following: most of which Gene talked about, the growth comparisons were negatively impacted by one time revenue benefits recorded in 2006 totaling $9.6 million from the Netherlands which included $4.8 million in Q4 '06. That distorts somewhat the growth rate between six and seven.

We continue to experience an increasingly competitive environment in most of our European markets. ARPU and data and phone continue to trend downward. The impact of video loss particularly in Romania had negatively impacted our growth rate in 2007. However, we've taken the following affirmative steps to stimulate revenue growth in our markets in 2008 including raising analog prices across a number of markets including a 7% rate increase in Switzerland. Instituting selective price increases across a range of products and bundles. As you heard from Gene, we were rolling digital out in Poland and Hungary as well as advanced digital services in a number of markets.

Jaycom and Telenet continue to experience high single digit rebates, growth rate for both Q4 and 2007 and lastly our operations in Chile led off separately reported segments with 13% rebates, revenue growth in Q4 and 12% for the year. Turning to slide 14, we will take a look at OCF. OCF for Q4 in the full year grew to $965 million and $3.6 billion respectively which represented rebate growth of 15% for both periods. If you exclude telenet, OCF increased 17% in Q4 and 16% for the full year. In Europe, UPC demonstrated mid teens growth with western Europe growing 11 to 13%. While central and eastern Europe grew 19 to 21%. In Belgium, Telenet grew 6% in Q4, but 12% for the full year. Jaycom delivered 18% rebase, OCF growth in Q4 up 14% for the full year. And once again Chile remains our best separately reported segment on OCF as well with rebase growth of 24% in Q4 and 23% for the full year. Turning to slide 15, we will take a look at OCF margin and conversion.

One of the tremendous successes in 2007, and which Mike talked about, has ben our OCF margin expansion and OCF conversion or drop which is defined as how much of our incremental revenue falls to OCF. This is a key differentiator between us and the US cable companies. In terms of OCF margin, we reached a 39.6% margin in 2007, which is up 360 basis points over 2006. Key drivers of this increase come primarily from four areas. First is the positive contribution of Telenet which added about 110 basis points. Secondly we continue to realize synergies and efficiencies from businesses that we have acquired, for example, Switzerland to Ireland. Thirdly we were scaling our fixed costs and gaining a significant amount of operational leverage.

Lastly we are maintaining stringent cost controls and controlling our labor as measured by number of employees. If you look at 2008 and based on our guidance that Rick will discuss, we expect a meaningfully improved OCF margin and exceed the 40% threshold in 2008. As we analyze our cost structure, our OCF conversion based on rebase figures highlights the fact that we are driving more of our incremental revenue to the OCF line. In fact, on a rebase basis in 2007, we achieved a 65% conversion ratio as compared to 50% in 2006. So the major take away in analyzing our 2007 results and in particular our OCF margin as if we were dropping most of our incremental gross margin to OCF as we were keeping a firm lid on operating expenses in SG&A with particular focus on admin costs. Slight 16 breaks down our 2007 capital spend.

The chart on the left depicts the components of our Cap Ex and as can be seen over half of our Cap Ex was success based which we defined as CPE and scalable infrastructure. This category basically tracks our subscriber level's. Another 24% of spend last year was on networks primarily in the form of upgrades. Also, some line extensions with 70% of this related to upgrades. On the right hand side you will see that network spend resulted in 1.2 million new organic two-way homes. A vast majority of that new plan is 860 megahertz which is crucial to seating future growth as we roll out advanced services. In terms of geographic break down, 68% of these homes are almost 850,000 new two way homes on an organic basis are in Europe. Mostly in central and eastern Europe which represented almost 680,000 homes. Jaycom itself added 230,000 new two way homes on an organic basis and Chile added over 150,000 new two way homes and just a side note that our plant in Japan and Chile is generally 750 megahertz.

Return to slide 17, this shows free cash flow as well as unlevered free cash flow before cash interest expense. Starting with free cash flow, we generated $515 million in 2007, and 86% improvement from $277 million from 2006. Side note, we have changed our definition of free cash flow to exclude cap lease editions. We decided to make the change based primarily on the fact that this methodology paints a truer picture of actual cash movements and is more consistent with the definition of our peers. We still disclose cap lease so you can determine how best to assess. In terms of unlevered free cash flow, we add that crash interest expense of $887 million in 2007 to get to $1.4 billion of unlevered free cash flow which represents an 84% increase compared to 2006. So in summary strong growth on both of these metrics. With that I will turn it over to the balance of the presentation to Rick.

Thanks, Bernie. I'm on slide 18 for those following along. And we just wanted to update you on our tax position. December 31 we had tax loss carry forwards of $12 billion and that was up 28% from year end '06 due mainly to the consolidation of Telenet. In 2007, we paid cash taxes of $76 million, that's less than 1% of our revenue and $54 million of the $76 million or about 70% of that related to Jaycom. So minimal taxes being paid in Europe and elsewhere perhaps it's obvious, but this is a key focus for us internally. We think we have a world class tax team.

Looking ahead, cash taxes are expected to remain modest outside of Japan. And over the next three years we were targeting approximately $100 million of cash taxes paid, again excluding Japan. And while there are obviously a lot of factors involved, we think this is an achievable target. On slide 19, you will see snapshot of our balance sheet. December 31, we had total debt of $18.4 billion. Up from $16.3 billion at September 30. That's due mainly to the refinancing of Telenet. The synthetic leveraging of our Jaycom equity interest and foreign exchange.

For the year 2007, our average interest rate was slightly below 6%. We've got about 100% of our currency exposures on our debt at December 31, hedged and we have between 90 and 100% of our outstanding debt securities hedged for their lives and we have very limited maturities between now and 2012. In terms of our cash position, we had $2.5 billion at December 31. That was up $500 million from September 30. And it's important to note that that $2.5 billion includes $500 million of restricted cash which is basically set aside for the VTR bank loan in Chile. We had gross leverage of 4.8 times at December 31. That's toward the high end of our four to five times target range. And up from 4.4 times at September 30.

Turning to slide 20, our liquidity position continues to be very strong. At December 31, we had roughly $5 billion of liquidity consisting of $1.4 billion of cash at the parent company, $600 million at our operating subsidiaries, and $2.9 billion of maximum draw availability subject to covenant compliance. Since year end 2007, we have repurchased nearly 400 million of stock which will obviously reduce our year end cash balance. And as we move throughout 2008, we will continue to look opportunistically to drive cash out of our subsidiaries for example, as Graham mentioned, Jaycom is planning to pay a dividend this year. As the chart on the right of the slide shows our shares outstanding have decreased rather dramatically since year end 2005. Down 27% as we have repurchased about $4 billion of our equity over that time period.

We announced $500 million stock buy-back program back on January 7th. And up through February 21 we had utilized $330 million of that and had about $170 million remaining. I think as everybody has probably seen yesterday, we announced an additional $500 million which would put us at roughly at $670 million of remaining availability again as measured back last week on February 21. As we look at our liquidity position and our free cash flow prospects, we believe that we have plenty of capital, and will have plenty of capital, to make acquisitions and/or repurchase our stock. Many of you have probably seen our guidance already, but slide 21 lays it out for you. We were expecting rebase revenue growth in 2008 of 7 to 9%. That compares to our actual result of 9% growth in 2007. I think most importantly the metric that differentiates us from other cable companies' organic OCF growth, on this measure we were guiding to 14 to 16% growth, the same guidance as we gave last year.

Management has obviously incentive to drive this metric so we are expecting another good year on the cash flow line. Quick point on phasing, we do expect Q1 will be our most difficult comparison for OCF growth. The first quarter of last year was our best quarter of the year with rebase growth over 16%. So not only do we have a difficult comp in Q1, we expect also to incur some costs associated with the significant digital efforts we have underway in Europe. In terms of Cap Ex as percentage of revenue, we are constantly looking to drive down this ratio and in 2008 we see it going lower compared to 2007. Despite aggressive digital plans and our guidance is specifically a range of 20 to 22% of sales. And then finally just a couple of softer points on RGU growth and free cash flow, we did not give specific RGU guidance this year, but we would say that we would expect similar levels in terms of net additions in 2008 as we had in 2007. And then on free cash flow we do expect to see a meaningful increase in '08 versus '07. But we're not going to give you specific numbers. So with that I will turn it over to Mike to wrap things up.

Great. Thanks, Rick. I'm on the last slide entitled why LGI. And I think at times like this it's important to try to re-enforce your own and our own strategic and competitive advantages. It's also valuable perhaps to differentiate your business anywhere appropriate. We try to do that here with roughly six key points.

First of all, on a macro level, because of our geographic diversity we have been largely immune to either the real or perceived economic risks in the wake of the sub prime mess. Most of our markets are stable and growing well. And we haven't seen any slowdown or impact of the economies on our ability to sell our products. Secondly, our regulatory environments range from what I would describe as the benign to the favorable. We are not facing de-regulation consolidation caps, ala cart discussion. In fact, the EU still sees cable as the quote, unquote, little guy, and is usually in our corner on those types of issues.

Third, while our markets are competitive, we were not experiencing this sort of defensive Cap Ex that's been brought on by the HD and DVD wars here in the state between cable and satellite. We were generally the first to market with HD. We don't have meaningful satellite competition in the vast majority of our markets. Our Telco competitors are typically riding copper not fiber to the home. So, we estimate that most everything we spend is revenue generating, I think, as Bernie pointed out. From an operating point of view we are religious about driving more and more digital voice and Broadband services into the home. Doesn't mean it's going to be easy. Competition is clearly heating up. But enough said before it's made us a better company, better at what we do, we have been living with it and growing through it now for some time. So we feel confident of what we are forecasting here.

And as we grow, and expand through M&A, we're seeing the benefits of greater scale as we start to realize efficiencies across our infrastructure and operating base. You can see that in our operating cash flow draw (inaudible) conversion. You see that in the improvement in operating cash flow margins. And you can see that in our 80% increase in free cash flow. And lastly, we are liquid and we were geared to either continue consolidating assets or buying our own stock. This is not a knee jerk reaction to stop price volatility. Those of you who have known us, know we have been at this since the formation of this company two and a half years ago and we're sticking to that game plan. We certainly appreciate your support. No question like all operators in this business we have our work cut out for us in '08. But I know I speak for the management team here when I say we feel really great about that challenge. And, at this point, Operator, we're happy to take questions.

(OPERATOR INSTRUCTIONS) And our first question comes from Jeff Wlodarczak from Wachovia.

Hey guys. I will limit myself to two questions. Mike, do you feel very comfortable that if you grow at the low end of your 2008 revenue guidance you will be able to generate EBITDA growth within the range you guided towards without gnawing on the bone in your words. And then secondly what's a reasonable long term EBITDA margin target for you all. Thanks.

Yeah, that's a fair question. We give a range on revenue for a reason because these businesses have variability to them. And similarly, we give a range on OCF. I think there is a relationship there. What we have been -- what we have shown in the past is our ability to create additional leverage in our Op Ex or Admin costs or even our synergy estimates to try to make up for any revenue shortfall. But we aren't gnawing at the bone.

We went through this analysis for our board not long ago and we showed every line item. What you will find is that, I think Bernie might have said it, nearly every dollar of gross margin is dropping to the OCF line because while we were increasing SG&A along with revenue growth and while there are certain other variable expenses that will necessarily increase along with revenue growth, there is a lot of opportunity to scale our IP base to execute on synergies from acquisitions and to be more efficient in our network operations in our head count and things of that nature. So I would say we were nowhere near the bone. We are just running a business in a smart and efficient way and making, I would say, the right decisions about where to prioritize capital and expense. What was your second question, Jeff?

What do you think a reasonable -- I'm not going to hold you to it in the short term, a reasonable long-term EBITDA margin target is for you all? Is 50---

Well, we said in the last year we -- the EBITDA margin was up considerably. I think if you run the math on the guidance we provided, you will see that EBITDA margins will be up again next year. Probably north of 200 bits or more. We don't see a reason why we can't continue-- not necessarily that clip, but a pretty reasonable clip and I would say, though I'm sure our guys won't want me to, that I can see close to 45%, somewhere in the medium term here.

Thank you very much.

Thank you and our next question will come from Vijay Jayant, Lehman Brothers

Hey Mike. Two questions. The two key point you made about the HD battle field in the U.S. impacting Cap Ex and the strategies here, can you just give us some context across your footprint where are we on HD. How many channels are available. What's the penetration? I'm assuming some exposure in Ireland will be (inaudible) -- can you give us some context where we are and are you driving the bus on that or are you seeing the competitors even trying to differentiate on HD? My follow-up on that would be, really, there is talk about your JV in China can you talk about what that is and there were some other comments in the press that you looking at the Russian market. Some context what that could be. Thanks.

Yes, I think that I'd first make sure that people understand that principal difference between the U.S. and. let's say, Europe and that is that we are still in the early stages of developing the HD ecosystem, if you will. Clearly it requires people buying HD-TV sets, programmers investing in HD content and distributors like ourselves allocating bandwidth to that content. We were ready, willing and able when we roll out digital to make that happen. We need the content and that slowly evolving, no question. And we need people to buy sets and that's happening. It's really early days on HD and things like the Olympics or the European Cup Champion-- the soccer-- football championships, things like this create momentum around it.

The next shoe to drop to really drive HD is going to have to be broadcasters who are willing to spend a little bit more money to deliver an HD signal because they are getting the vast majority of the dealership. Having said that, we rolled HD products out in the Netherlands, in Switzerland and certainly Japan which is our most advanced HD market where we have, I think about 15 channels already today and 100% of our digital boxes are HD ready. Varies region by region. My point is that we are ahead of the game. We were typically the only HD player in the market because there isn't either a satellite guy or satellite guy ready to go HD.

And the Telcos we compete with are largely DSL- based and DSL-PD providers. Their ability to promote HD is limited with ADSL two- plus speeds of eight to 12 megs max and they aren't going to be up there promoting HD. So we have an opportunity to be an HD leader. We are an HD leader and that to me is being on your front foot and not your back foot. The deal in China is a joint venture with the Beijing cable operator. About 3 million cable subs. And we met them through some good intermediary parties and have preliminarily agreed to assist them in the development and deployment of their high speed internet business. It's an area where they feel they need expertise and capital and where we felt, with modest risk here, we could get smarter about what is clearly a large and interesting market opportunity. The investment dollars here are relatively small. The time frame to realize the benefits is relatively long. And the time frame to realize the benefits is relatively long, but I do believe that it's a good exploratory effort for us and will keep you posted as it evolves.

Mind if I embellish on the HD?

Sure.

Terms of the gentleman's question. We have two different sets: top boxes is one a standard definition HD and then we are just in the process now of introducing an HD/DVR. With regard to the first box, standard def, it's been introduced into the Netherlands and Cablecom and with regards to the standard def and plan to roll it as well as the standard def box out in Poland, Hungary, Ireland and Austria. As we launch products into those markets and Czech we also just recently introduced high-def blocks. But it is not of the common platform. And normally in our markets there is anywhere from about three, maybe five or six channels available at the present time, depending on the market itself. We are trying to be out there for the summer Olympics and the European cup. And we think HD and the DVR are going to be important drivers and drive takeup. So we are pushing it into the field as rapidly as we can.

Thanks so much.

And our next question will come from [David Joyce with Miller Tabak and Company].

Thank you, I was wondering if you could give us an update on how your business customer has gone, if you can talk about the number of subscribers and various products and revenue and operating cash flow, that sort of thing.

Sure. Think what we said in the past and I think we said at our investor day last year that we had pretty robust targets for our DVD. business in Europe. Excluding Telenet about $63 plus million in revenue. For the full year we did 256 million Euros of revenue and brought in a gross margin of 64% and only spent about 9% of revenue on Cap Ex.

The business largely hit its objectives in 2007, but we are learning as we go here that no question -- this is a variable business model in some respects as it relates to capital. And that it's a tougher business and tougher customer segment to penetrate. So we said last year it was going to be one of our fastest growing revenue streams. It turned out to be one of our fastest growing revenue streams. We were doing a quarter billion of Euros in revenue and have pretty high hopes in the core markets we operate in that we can continue to grow at that kind of clip. Do you want to add to that, Gene?

I'd just say, I guess, in terms of revenue, I think we were forecasting this year to increase by about 12% I think overall. Operating cash flow somewhere in the neighborhood of 25% to 27% that neighborhood. At the tame time improving our overall gross margins. And Cap Ex, actually we were looking at a decrease of 10, 12% in that area. We are heavily focused on the internet and the (inaudible) side we see big opportunities for increases there. Depending upon the countries but there is strong growth that we forecast in Austria and Cabocom, Hungry, Ireland, Romania. There is good upside (inaudible), and Austria, Cabocom , Hungary and Ireland. Data growth has slowed in some the markets because of the stiff competition. The hosting business remains more or less flat. I'm actually leaving for (inaudible) meeting this evening after this conference call to meet with all of our heads of (inaudible) in the countries and we're going to be looking at how we drive this business going forward. As you probably know it's a very competitive business and it's one that I think we were still pretty much a neophyte in. On the other hand, I think there is a good opportunity to grow the revenues in our OCF. And, I think from the numbers I mentioned that you can see we are forecasting some fairly significant upside in

Thank you. As part of that push, that rollout and presumably greater demand for your services, your network that you have been upgrading in place have the capacity to handle that? Or is there -- are there efforts to move say switch data individual grow to help free up some bandwidth overall?

No, I don't think we have a serious capacity issue at the present time. It maybe that we look at something like that in the future. I think in the foreseeable future I don't see any significant investments there.

And you look at our plant generally let's say across Europe, because we are providing anywhere from a third to half the number of analog channels at average U.S. operator would be providing, we've got plent y of extra bandwidth that's unallocated at this point. We worry about this point obsessively as you would expect us to and we do not see a major rebuild any time in the near future. We continue to explore options and opportunities where we think we can and there might be pockets of plant that need to be upgraded. But, in general, our 860 plan is well positioned and as we get move into Docksis 3.0 in terms of the four channel bonding and other avenues we don't see that impacting either our broader network plans. Next question.

Next we will hear from Morgan Stanley and Benjamin Swinburne.

A couple of questions. Mike, your guidance implies acceleration or early demise acceleration on the revenue side from the fourth quarter or the second half of '07. I know you have or I believe you have a rate increase coming through in Switzerland. Any other markets you wanted to highlight where we should be expecting an acceleration in revenue growth and maybe (inaudible) specifically for you and or Gene on Hungary, what's going on in the voice business in that market? It looked like revenue fell year-over-year. Is that a competitive issue or wireless (inaudible) or any other color that might be -- that you could add could be helpful.

Sure. I will let Gene start thinking about the Hungary question. The things that are clearly going to impact revenue this year are some rate increases as you described. And a number of markets like Switzerland and Austria included. And certain other rate increases in Holland and Ireland and Poland and Czech there are more CPI based. We where necessary. we think we can eke a little bit of price rises out of certain product areas. So that's going to pick up.

And digital is going to be shown you with the ARPU boost we were getting in Holland where we roll digital out and we make the products and applications available, we drive ARPU. And from that point of view it is, as I said earlier, one of the two main drivers of revenue. If we continue to hit the numbers on voice and data that we have been hitting consistently here, and I don't think-- we had two years of consistent voice and data growth, we can continue to hit that kind of growth and those are high margin products. And clearly we seen some ARPU erosion as people spin down into lower price services, but at the same time we're also raising speed and capturing whole new market of folks who want 20 and 30 meg and those products are not highly discounted. The combination of those give us some confidence that we can rally back from the fourth quarter which I think is Bernie pointed out had anomalies in it anyway.

Thanks.

I think to add there with respect to rate increases, we actually have six countries that have rate increases built into their '08 budget.

Yeah, I listed those.

And it's analog but it's also includes a digital data and telephony increases in some markets. For example in the Netherlands we have all four built in and we have gone back already and met with those countries that really didn't have rate increases built into their budget like Hungary, Romania, Slovac and Slovenia where we are experiencing more competition and are taking a look at opportunities in those markets where you can raise rates where it's not so transparent, for example, you can do tariff-type changes on Telephony and a couple of those markets have already agreed to do some modest increases.

I think there is some upside on the revenue opportunities that we didn't capitalize on in the budget to begin with. With respect to telephone, I think-- without going into specifics, I think it's a problem in general across central and eastern Europe. We got into those markets later with Voit, and they were never fixed line markets to begin with. They had very low penetration as a result of coming out of Communism. And they went to mobile straightforward. I just got off the telephone a few minutes ago with the Czech republic and they have 120% mobile penetration there. Only 50% of the households have a fixed line today. And you kind of see that across all those markets. I think the challenge is to find or develop an attractive bundle including Telephony in order to drive that penetration and particularly pick up your usage which means that you would probably in effect either give it away in a bundle or price it such a way that the incremental revenue is coming off the usage of that phone.

Gave a comment earlier about 97% of our voice customers in Europe are taking at least one other product. Well, three quarters of them are actually triple play. So the voice product really fits nicely into the bundle when you can offer all you can eat type packages and things of that nature it really is sometimes the kicker in the bundle. And increasingly a big part of it.

Thank you guys.

Yeah.

And our next question will come from [Allen Gould at Naticsis]-

Thank you. I have a couple questions. First for Mike, do you consider Chello and the DTH businesses as separate businesses or do they make sense to be part of the grand Liberty Global.

Did you say an --

No, just Chello. Does it make sense the programming business inside of Liberty Global would make sense to have that outside of Liberty Global. Does it make sense to have the DTH business commingled with the wire business?

Historically-- historically I think our view is that it has been in both instances the right strategic approach. Let me start with Chello. Into a large degree Chello's ability to go out and acquire new programming services, launch new channels, make acquisitions is helped considerably by its relationship with UPC and ability to bring a distributor to the bear so to speak. I think from that point of view we also have a fair amount of management and cross pollenation of skills and development of the application across the divisions.

As some point as Chello continues to add scale, and it's adding scale quickly through acquisition and growth, there may be an opportunity to make that a separate entity, we will see. We will see. But today I think it fits nicely where it is and we were getting benefits both directions. The DTH business essentially in Europe historically served the purpose of allowing us to provide a UPC-TV product in areas that either we didn't have cable or it had no cable at all. And that business plan worked for a long period of time. Then it continued to work because there is still millions of homes that don't have access to cable in that sense, (inaudible) European region. Over time we have to decide do we start to cannibalize our own products. Is the product development road map consistent? Are there other DTH operators that we might want to partner with or work with? Those are questions we continually ask ourselves. At this point think they both fit nicely into the plan and we don't have any immediate plans to change that.

DTH is an integral part of the cable operations. We provide customer care and other services to support DTH. So, we look at it as imbedded. It's not separate.

Okay. And, Gene, one other question for you. When I look at the price increases, the OCF growth has been terrific, but the RGU growth slowed down a little bit as was expected '07 versus '06 and I look at Switzerland which had lower RGU growth in '07 versus '06 and now we're going to put a 7% price increase in. Are you worried what impact that price increase might have on RGU growth?

No, not really. Because generally for all practical purposes those rate increases have already been implemented, effective January 1 and historically you will see the bulk of your churn within the first a 30 days. We did see some spike in churn where we did implement increases, but it's nothing extraordinary. I think a large piece of-- of the slowdown in our growth story last year was the fact that we had heavy competition in Romania and Hungary as well as Czech and toward the end of the year from DigiTenna in the Netherlands. In Romania-- or in Hungary we introduced in late summer, early fall a low cost analog tier as well as an economy tier on our DTH.

In both cases we have seen the high churn that we are experiencing in those markets arrested and actually have fallen below pre-competitive levels. We were just in the process of doing the same in Romania and I expect hopefully a similar experience there. In fact, we budgeted a reduction of churn across most of our markets this year because of the efforts that were pitting into retention which is considerable. So I think the rate increases are only going to drive incremental revenue. The rolloff from those will be no more than what we experienced historically. Plus in Cabocom that was a negotiated rate increase more than a year ago with the regulators. So it was announced months in advance back in '07. I think we already took the hit then.

Okay. Thank you very much, Gene.

You're welcome.

Thank you and our next question comes from Bryan Kraft with Credit Suisse.

This is Mike (inaudible) for Brian. Two quick questions. First off, sub growth in Ireland is little slower than we had built into our model. I was wondering if you saw this picking up at all if the first half of 2008. And second, I saw in the 10K that competition (inaudible) expected to continue into the Netherlands. I was wondering if this was the DTV product, the DSL TV product or both?

Do you want to start with the Irish question, Gene?

Yeah. Yes, I think growth is slower than what we both anticipated and primarily I think that's related to the fact that the rebuild in upgrade of the plant has taken longer and will take longer than what we originally anticipated. There is a particular situation in the-- Ireland that we haven't incurred anywhere else and that is all the cable is attached to the facade of houses. It's not underground nor is it on telephone poles but attached to the houses.

In order to change out amplifiers, passive devices and those types of things we often have to get owners permissions to do so. In those cases where we can't then we usually have to dig around those areas which is a time consuming process. But we have people that are doing nothing but working with home owners in terms of gaining permission with sometimes takes weeks. So that is caused a delay in the rebuild itself. Also the economy has kind of gone south there, particularly with regard to real estate. And we built out of a large number of homes that really haven't been occupied but as those would fill-up, we would see particularly significant uptick in our new services. But I think it's only a timing or phasing issue. Think you will see us catch up as we build out and upgrade the system. In the Netherlands, the primary competition is DigiTenna. I think they are over 500,000 subs at the present time. They have a reasonably attractive over the air product. I think they are selling it for 495 I think if I recall.

690.

695?

I think so m they have 23 channel for 695.

23 channels which is reasonably attractive. On the other hand as you know over air doesn't have the same quality as you have on a fixed system. And I think the bulk of their subscribers are coming from areas outside of cable they are going into weekenders in homes and boats and even taxi cabs in some cases, We are seeing a higher erosion than in the past. But, I think it's containable and we've got a very attractive digital product out into the market now that I think that we are going to be able to continue to grow as well as maintain our analog business.

And their DSL TV product formerly known as Mine TV has struggled from the get-go. We estimate now that about 10,000 subs with largely a me-too product offer and the typical challenges around network stability and installation that we've seen in other IP TV rollouts. They have put all of their eggs-- if not all their eggs in this low end mass market product and I think as we find that as we continue to bundle customers in Holland, they get much stickier and if we are losing customers they are at the very low end single play or price sensitive customers. All of the things we are doing with our digital rollout will stem that flow over time. Another question, Operator?

Thank you and our final question today will come from [David Kessenbaum] with Morgan Joseph

Hey thanks. Can you just compare and contrast what you are doing on your D4-ray in Eastern Europe with what your doing in the Netherlands and and talk maybe about the financial impact and then finally why you chose not to do it in Switzerland.

Yes, very good point and I will let Gene expand on it.. We use the word D4-ray in two different context. In Holland, we dubbed the mass rollout of digital boxes, the digital for all or D4-ray project. Outside of Holland what we started to do was call the infrastructure the D4-ray infrastructure. When we say we will roll D4- ray out in other markets, what we really mean is the D4- ray of box solution, the D4-ray middle ware solution, the D4-ray digital network solution. We don't mean the D4-ray marketing and rollout solution. So important distinction. We haven't duplicated the Dutch experiment anywhere nor do we intend to. We use the word D4-ray to describe the platform, not the product offer. Did that to your question?

Yes, thanks.

Thank you so much sir, and that is all the time that we have for questions today. At this time I would like to turn the call back over to Mr. Fries for additional or closing comments.

I'll just thank you again, It was a long call today but we had a lot to say and as I said we are encouraged about 2008. Everybody on this call and highly motivated, so-- We look forward to getting back on the phone with you through the course of the year. Have a great rest of the day. Bye bye.

Ladies and gentlemen, this concludes Liberty Global investor call. Is as a reminder a replay of the call will be available in the investor relations section of Liberty Global's website at www.lgi.com. There you can also find a copy of today's presentation materials. Thank you very much for attending today's program.