Liberty Global Ltd (LBTYK) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Liberty Global's investor call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission, or rebroadcast of this call or webcast, in any form, without the express written consent of Liberty Global, is strictly prohibited. At this time, all participants are in a listen-only mode. Today's formal presentation materials can be found under the investor relations section of Liberty Global's website at www.lgi.com. Following today's formal presentation, instructions will be given for a question and answer session. As a reminder, this conference call is being recorded on this date, February 23, 2012. I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Thank you, and good morning or good afternoon, wherever you might be. I just want to introduce the folks on the call here with me, as usual we have a large group of individuals from various locations. I'll introduce the five EVPs; Bernie Dvorak and Charlie Bracken, of course, our Co-CFOs; Diederik Karsten in Amsterdam, who runs our European Operations; Balan Nair, I'm not sure where Balan is today in the world but he is our Chief Technology Officer; Bryan Hall, who has just joined us from after eight years with Virgin Media as our new General Counsel, Bryan's on the call; and of course, Rick Westerman, who everybody knows. I'm going to turn it back to the operator for the Safe Harbor and then we'll get started. Operator?

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 it's outlook for 2012 and future growth prospects and other information and statements that are not historical facts. 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 expectation or any conditions on which any such statement is based. I would now like to turn the call back over to Mr. Mike Fries.

Great, thank you. Our format this morning will be the same as usual. Bernie and I will run through the slides and then we'll get right to your Q&A. I'm going to start with slide 4, hopefully you have a chance to get our slides off our website. This is a recap of what we believe was a really, really strong year for us across the board. Of course, our number-one goal each and every year is to drive steady and sustainable organic growth, and we certainly did that in 2011, with 1.2 million net RGU adds, up 42% year-over-year. Financially, we generated rebased revenue and OCF growth at around 5% for the full year and we achieved or exceeded all of our public guidance targets, as Bernie will outline for you later.

Strategically, as you know, we are focused on rebalancing our business into Europe, and we made good progress in that goal in 2011, with the addition of KBW in Germany and AUSTAR in Poland. We also expect to complete the sale of Australian business in the second quarter and over the last seven years, we've completed well over $20 billion in M&A transactions, nearly all (technical difficulties) and accretive to our growth opportunity, well priced and more recently geared towards building scale in Europe. And then lastly we are committed to delivering levered equity returns to shareholders which starts with a strong balance sheet. We ended 2011 with $3.5 billion of total liquidity, including $1.7 billion of consolidated cash. Of course those figures do not include the $1 billion in proceeds that we expect to receive from the AUSTAR sale which will bring total liquidity to over $4.5 billion.

Our access to capital markets remains very strong with over $15 billion in financings completed in the last two years, most of which resulted in lengthening the average duration of our debt structure which now sits at seven years and minimizing debt repayments in the medium term. As long as we're throwing big numbers around, here is another one; with the equity we repurchased in 2011 we've now bought back over 275 million shares, representing in the aggregate over 8 billion since 2005, and we just announced our target of another 1 billion in 2012.

On slide 5, we've added a simplified map of our current footprint since we haven't shown you one of these in quite a while. And as you can see, today over 90% of our 33 million RGUs and 20 million customers reside in 10 contiguous European markets, plus Ireland. And as you might expect, we're already seeing the benefits of this concentration and consolidation. Of course operationally, in our cash flow margins, procurement savings, talent management, content relationships, and network efficiencies, and more strategically in our influence with regulators, negotiating leverage with programmers and free-to-air broadcasters, ability to source and close acquisitions, and of course our access to capital.

I might just pause to put our size into perspective for a minute. In the last five years or so, we've grown to be the second-largest cable operator in the world in terms of subscribers; you've heard us say that many times. Our 20 million customers and 33 million RGUs is second only to Comcast at 22 million customers and 50 million RGUs. I think the interesting point there is that with only 2 million more customers, Comcast has 17 million more RGUs or a product ratio of 2.25 compared to ours of 1.7. With several of our markets already at 2 times, we see no reason why we can't or won't reach the sort of bundling ratios over time, so more on that in a minute.

Slide 6 provides a high-level snapshot of our 2011 reported results in comparison to our actual 2010 reported figures. I should point out that all of these numbers exclude AUSTAR, our Australian subsidiary which is now treated as a discontinued operation. That should give you some indication of our confidence that that deal will close. The first thing that should jump out of you on this page is the addition of 5.8 million RGUs in the year, bringing our total RGU count to 33 million. Of course that number includes acquisitions like KBW in Germany and the 1.2 million organic net adds we achieved in the year.

Bernie will dig into our financial results in a minute, in particular our $9.5 billion of revenue and $4.5 billion of operating cash flow, but I'll just pause for a second on our operating cash flow margin which was up 70 basis points to over 47% for the full year. And our CapEx to sales ratio which came in at 20% of revenue, quite frankly a good result when you consider our 42% increase in sub growth and our wireless build in Chile. In fact, if you exclude the Chilean 4G project, the same-store number was down to 19.5%. And then finally our 20% growth to an adjusted free cash flow to $791 million, which exceeded our mid-teens growth target. Again, Bernie will provide more color on these numbers in a minute.

Slide 7 is my favorite slide of the deck, it shows quarterly net adds over the last three years, so Q1 to Q4, from left to right, and in each of the three years, 2009 in grey, 2010 in blue, and 2011 in green, and I think the chart actually speaks for itself. We generated a steady and consistent upward trend in subscriber growth for each corresponding quarter over the last three years, including our record third quarter where we more than doubled net adds year-over-year and ending in Q4 with our second-best quarter ever at 380,000 RGUs. Now while nearly all of this growth in RGUs is driven by accelerating broadband and voice subscriptions, it's worth pointing out that over the last eight quarters, we've seen a steady decline in quarterly video losses year-over-year with the exception of Q4 and in 2011 we reported our lowest level of annual video losses since 2007. And while we are pleased with that result, the real story in our video business is the ARPU and overall video revenue growth we are achieving from the continued and steady adoption of our digital TV services.

As you can see on slide 8, at year end we had 8.2 million digital RGUs overall a 2.5-fold increase over the last three years, fueled primarily by the addition of around 1 million new digital customers every year, excluding acquisitions. In fact we delivered 15 straight quarters with at least 200,000 organic digital adds. Our digital TV services benefit from our broadband bundles of course, but also from the growing demand for HD and DVRs which nearly half of our digital cable base now pays us for on a monthly basis.

And now we'd love to point out the continued upside in our digital TV opportunity. The right-hand side of the slide you'll see our 18.4 million video customers broken out in a pie chart by analog, digital, and a handful of others. Some quick math shows that with the addition of KBW, we are now at 46% digital cable penetration versus 12% five years ago and we have plenty of runway for growth, with over 9.5 million analog subscribers in blue yet to be converted into digital subs in green and those numbers obviously include KBW. It is also worth repeating, since many of you have heard me say this before, that our digital cable ARPU is on average 80% higher than our blended analog ARPU, which accounts for our continued growth into total video revenue and should for some time to come.

One quick slide on our bundles, which represent the vast majority of our total sales these days. Our bundled offers largely revolve around our broadband services which averaged 25 megabits today and are trending towards 50 megabits. Our 3.0 platform now reaches all of our markets in 29 million homes, representing over 90% of our two-way footprint. And we are continuing to take meaningful market share in countries like Germany and the Netherlands, where the incumbent telcos are struggling with their [encumbered] plan, and you can see that result in our voice and data adds which are highlighted on the left-hand side of the slide, we delivered 1.5 million organic voice and data adds in 2011, a record year for us in both products. And remember voice is not a giveaway, our average voice ARPU is roughly $21 and we are generating nearly 80% gross margins on that product. On the right you'll see our triple-play customer base which is up nearly 40% last year and has nearly doubled over the last two years. Obviously bundles drive sales, they reduce churn, they build ARPU, which was up 4% on an FX neutral basis. And as I mentioned just a moment ago, in relation to other operators, at only 1.7 products per customer we have plenty of room for growth here.

We anticipate a significant portion of that growth will come from Germany, and with the acquisition of KBW recently completed, we thought we'd spend just a minute reviewing our German operations. And this is our largest market and one of our fastest-growing, representing nearly 40% of our net adds and just under 20% of our operating cash flow in 2011. Obviously, with KBW it will be an even bigger part of our story in 2012.

Slide 10 is the number of combined pro forma statistics for our German businesses which now total 12.4 million homes passed, 10.4 million RGUs, and 6.9 million unique customers. On the top left we've shown Unitymedia's net adds in 2010 and 2011, which were up considerably. And then on the top part of that bar, the addition of KBW's net adds for those same periods which would take total German subscriber growth to 740,000 in 2011, if we'd owned it, versus the 440,000 Unity generated on its own. Despite this strong growth, penetration rates for voice and data are below our other markets at 15% and over 70% of the video base is still analog. On the bottom you'll see that the combined revenue for 2011 would've been EUR1.6 billion, up 9%, and operating cash flows approaching EUR1 billion, up 13% in Germany. The integration process is going very well. Lutz Schuler, who is the CEO of Unity will manage the entire market for us and he's assembling the best Management team from the two operations right now and those synergies should be substantial.

Not only are we encouraged by the integration, we've decided to dial up the growth engine a bit in Germany, with some aggressive marketing campaigns this year designed to continue increasing our market share and further strengthening our brand awareness. This growth plan, together with the integration, are expected to impact operating cash flow a bit in the first half of the year, but it is exactly the strategy you would expect us to pursue in a market where we have substantial scale, tremendous organic growth potential, and above-average financial upside.

And then lastly on slide 11, we've identified some of the more critical elements of our operating game plan for 2012. Beginning on the top left with our broadband powered triple-play bundles, which continue to drive our ability to take market share from the larger incumbent telcos, especially as we push our most popular packages to the 50 megabit level. I've already mentioned the opportunity in digital cable, where every year we convert over a million analog subs to our more advanced higher ARPU services, and that is a strategy that will get a substantial boost this year from our launch of Horizon, our new media and entertainment platform, which we've talked quite a bit about and will roll out in four markets this year.

In Chile, our 4G mobile networks are expected to generate additional revenue in that market, and we'll continue our capital light development of quad-play opportunities in markets like Holland, Belgium, Switzerland, and Germany. As you might expect we plan to maintain a laser focus on cash flow margins which we believe will continue to expand, given the accretive margins on our triple-play products. And we will be helped in the longer-term by the synergies we consistently deliver on new acquisitions like KBW in Germany and AUSTAR in Poland.

Before I hand it over to Bernie, I'd just like to take a minute to recognize the recent passing of Shane O'Neill, after a prolonged illness who as I think you know was a very senior member of our Management team for the last 13 years. His contributions to our strategy, M&A and programming initiatives were substantial. And lasting. He was a very good friend and one of the finest executives John Malone and I have ever worked with and he will be missed greatly by all of us. So with that I'll hand it over to you, Bernie.

Thanks, Mike. Hello, everyone. I will discuss our financial results beginning on slide 13, and as Mike had mentioned, it is important to note before we start that all of our financial and operating results, as well as key financial metrics exclude the results of AUSTAR as we have treated AUSTAR as a discontinued operation in our year-end financial statements. Also, our earnings release includes each of the 2011 quarters for revenue, OCF, and free cash flow without AUSTAR to assist your modeling.

With that out of the way, and building upon Mike's earlier comments, we delivered 2011 results of $9.5 billion in revenue and $4.5 billion in OCF. For revenue, this reflects year-over-year growth of 14%, and adjusting for both the impact of foreign currency and M&A, we achieved rebased revenue growth of 4.5%. Our rebased revenue growth was primarily driven by volume gains. From a product perspective, broadband was once again our fastest revenue growth product, followed by telephony. From a phasing perspective, we gained momentum in Q4 on the back of our strong second half RGU gains as we delivered our best rebased result of the year at 4.7%.

Turning to OCF we grew even faster than revenue as we improved our OCF margin to 47.1%, compared to 46.4% in 2010. We were helped by the strong contribution of our German operation which posted an OCF margin increase of 200 basis points in 2011. In terms of growth, we experienced reported OCF growth of 15% in 2011 and 5.4% on a rebased basis. In the fourth quarter our rebased OCF growth meaningfully improved to 4.8% compared to 1.8% in the third quarter. And if you exclude our Chilean wireless project, our rebased OCF growth would have been 6% for 2011.

Slide 14 depicts our full-year results by key operating region. Our European operations, excluding publicly traded Telenet, increased revenue by $834 million to $6.1 billion and grew OCF by $486 million to $3.2 billion in 2011. Adjusting for the impact of acquisitions which includes AUSTAR for roughly a quarter and KBW for two weeks and favorable foreign currency movements, we were able to achieve rebased revenue and OCF growth of 4% and 6% respectively. This is driven by organic growth in our advanced services as we added 2.1 million advanced service to RGUs in 2011 reflecting 16% year-over-year growth.

Telenet achieved 6% rebased revenue and OCF growth on revenue and OCF of $1.9 billion and $967 million, respectively. Solid numbers, considering that Telenet's 2011 OCF was negatively impacted by programming related costs for Belgian football rights in the second half of the year, which amounted to approximately $24 million. At Telenet continues to grow its advance service RGUs with over 300,000 net adds during 2011. Without AUSTAR, our non-European operations are now largely concentrated in Chile. For the year in Chile, we generated $889 million of revenue and $341 million of OCF, which equated to top-line rebased growth of 6%, at a rebased OCF decline of 1%. If you exclude the impact of the wireless project, the rebased OCF growth of our Chilean operations would have been more in line with the rebased revenue growth.

As slide 15 indicates, our Western European operations have been a key to the growth numbers we have been posting in recent periods. Overall, our Western European operations collectively delivered rebased revenue and OCF growth of 5% and 7%, respectively, in 2011. Of these operations we have highlighted our four largest on this slide -- Germany, the Netherlands, Switzerland, and Belgium. In 2011, these businesses accounted for over 60% of our consolidated revenue and even more of our OCF. The bar chart shows rebased revenue and OCF growth rates for each of these markets.

Since Mike already spent some time on Germany, and we discussed Telenet on the prior slide, I will focus on the two middle operations, the Netherlands and Switzerland. Our Dutch operation delivered 5% revenue and 7% rebased OCF growth this was the second year in a row that NL posted 7% rebased OCF growth. This growth was fueled by 137,000 net adds in 2011 including 54,000 in the fourth quarter, which given the maturity of the Dutch market is quite an accomplishment. And as the growth rates indicate, our Netherlands business continued to experience margin expansion driving a system-level margin of 59.3% which reflects 100 basis point increase over 2010.

Turning to Switzerland, the year was another positive step in improved performance for us. We achieved revenue and OCF rebased growth of 2% and 4% respectively, this compares to rebased growth rates last year of 1% for both revenue and OCF. This improvement was due in part to a pickup in the organic growth of advanced services as we added 179,000 RGUs in 2011, an increase of 38,000 over our additions in the prior-year. In 2011, our OCF growth and margin improved dramatically as we benefited from previous network investments and were helped by our strong product bundles as well as a focus on cost containment. Although we face a highly competitive incumbent, we are positive about our continued growth prospects in the Swiss market this year.

Slide 16 focuses on capital expenditures. Certainly, as the chart highlights, the trend has been moving down, but is expected flat year-over-year. For 2011 we spent $1.9 billion on CapEx or 20.3% as a percentage of our revenue. We are pleased with this result, given we added 240,000 more advanced services in 2011 as compared to 2010. And our growth assets like Germany required higher levels of CapEx during the year to support their strong subscriber volumes. For example, Germany's CapEx-to-revenue ratio was 25% in 2011. Additionally, our CapEx ratio of 20.3% included our investment in Chilean wireless, consistent with how we set our guidance, if we exclude that investment, our CapEx-to-revenue ratio would have declined to 19.5%.

Moving to the chart on the right, we take a look at the breakdown of our additions to our PP&E. Approximately 55% of our total spend in 2011 was directly related to customer premise equipment and scalable infrastructure, while another 27% was attributable to line extensions and upgrade and rebuild of the network. The remaining 18% was related to support capital and other. A portion of our spend was directly attributable to the 2.6 million organic advanced services that we added during the year. In addition, we gained 1.1 million HD and/or DVR customers in 2011. Furthermore, we also expanded our overall footprint by roughly 235,000 homes and upgraded our 600,000 homes -- or over 600,000 homes to two-way capability. And finally we've largely completed our 3.0 rollouts with 29 million homes 3.0 ready.

For 2011 we achieved reported free cash flow growth of 65% to $672 million benefiting from a 28% increase in cash provided by operations, offset by higher levels of capital expenditure. Our growth was largely driven by our Western European operations. In addition we also benefited from favorable year-over-year FX movements and working capital efficiencies. Offsetting some of this growth is the impact of our levered capital structured strategy, which includes maintaining leverage to drive equity returns and proactively extending debt maturities. For example our cash interest plus our interest related derivative payments increased our cash outflow by approximately $175 million in 2011 as compared to 2010.

The chart on the right shows adjusted free cash flow, which adds back the free cash flow deficit from VTR wireless. On an adjusted basis in 2011, we achieved 20% year-over-year increase to $791 million. Important to highlight here is that we are working hard to improve the efficiency of our working capital and one way that we are doing that is by using our scale with vendors to extend our cash payment cycle through vendor financing arrangements. As our growing vendor financing payments are not classified as CapEx in our cash flow statement, we have taken a couple of steps to make things more transparent for investors. In the earnings release we have included the table which lays out our additions to PP&E and more importantly, we have changed our free cash flow and adjusted free cash flow definitions to pick up the cash payments on the vendor financing. We expect to leverage our scale and purchasing power to do more vendor financing in 2012 than in 2011 if it is available on attractive terms.

If you move to slide 18, I'll spend a minute on our leverage and liquidity situation. At year end, we reported $24.8 billion of total debt and capital lease obligations. As compared to Q3 levels, our debt increased by $2.4 billion as a result of the inclusion of KBW's $3.3 billion of debt, offset in part by the exclusion of AUSTAR's debt and favorable FX movements. The bar chart on the left summarizes our adjusted leverage ratio which adjusts our debt for our $1.2 billion Sumitomo loan, and also adjusts our last quarter annualized operating cash flow to give effect to a full quarter of KBW, as a result, our adjusted gross leverage is around 4.9 times and on a net basis it is 4.5 times. Adjusted gross leverage is up from the reported 4.3 in Q3, due primarily to the inclusion of KBW and the exclusion of AUSTAR. And as Mike eluded to his comments, we believe we are in a great place with our current capital structure. In just the last five months, we've extended over $2 billion of debt maturing in the 2013 to 2016 time period, with debt that matures as late as 2022. As a result, we currently have a seven-year average duration and over 90% of our debt is due 2016 and beyond. Including the cost of derivatives, our overall cost of debt at year-end was 8% as we remain substantially hedged on currency and interest rates.

Turning to the chart on the right, we finished 2011 with $3.5 billion of consolidated liquidity. This consisted of approximately $1.7 billion in consolidated cash, including $900 million at the parent level, as well as $1.9 billion on our lines of credit which represent our maximum borrowing capacity under our credit facilities. Of this amount, we expect to be able to borrow up to $833 million upon reporting of our fourth-quarter. All of these liquidity amounts exclude the $1.1 billion of cash we expect to receive from the AUSTAR disposition.

As we go to the last slide, it summarizes our 2012 public guidance targets. So for the full year we are targeting consolidated rebased revenue and OCF growth of mid-single digit for both metrics. It is worth noting that our rebased OCF growth target in 2012 capture the following costs; substantially higher expenses in Chile related to mobile, a full year of football rights costs in Telenet in 2012 versus a partial year in 2011, and as Mike talked about, we are investing for growth in key markets like Germany and will be aggressive in marketing and exploiting our competitive advantage in broadband speeds. The integration costs of KBW and AUSTAR, and additionally from a phasing perspective as we take into account the factors I just mentioned, we expect that year-over-year OCF growth will largely ramp throughout the year and will be significantly backend weighted, particularly in Germany.

In terms of capital expenditures, we expect to achieve a decline in our CapEx ratio of 50 to 100 basis points in 2012 as compared to our reported 20.3% in 2011. This is inclusive of our expectation for continued strong RGU growth including our go for growth strategy in Germany, our mobile investment, our integration of recent acquisitions, and introduction of new products such as Horizon. And from a free cash flow perspective, we are once again targeting mid-teens adjusted free cash flow growth from our adjusted free cash flow of $791 million in 2011. Similar to what we did last year, we plan to adjust free cash flow and exclude the cost associated with our mobile product in Chile, which we would expect to generate a free cash flow deficit in 2012 of up to $150 million. And to serve as a guidepost, we are shooting to deliver consolidated adjusted free cash flow in excess of $900 million in 2012 based on current FX rates which, given our investment projects and product launches, we think is a strong statement.

And finally as we did in 2011, we are once again targeting $1 billion of stock repurchases in 2012 and this amount could ultimately fluctuate based on our M&A activity, but as we sit here today, we are comfortable that we can finance the deals we're looking at and continue our substantial buyback program. That completes our prepared remarks today so, operator, please open it for questions.

(Operator Instructions)

Matthew Harrigan, Wunderlich Securities.

Can you talk a little bit about pricing in Europe and in your strategy on market share particularly in Germany given the posture of some of your competitors. And then also when we look at the -- I know I've asked this question before but on the ARPU per customer relationship you are up low single digits, and on ARPU per product basis if you back into that number after the bundling ratio you're actually slightly down. Do you expect to get some traction on that at some point? I know you've seen this in the past but it is a little surprising because you're moving your advance services penetration faster than anyone else and it still looks like your per product ARPU is dead in the water. Thanks.

Yes, Matt. I'll take a crack at the second one and Diederik might think a bit about pricing. ARPU per customer is the metric that we focus on as you can imagine. And with the bundling ratio of 1.7 or really 1.65, every customer we add, every broadband subscriber we add, every voice customer we add generally improves that and we've been pretty steady 4%, 5%, 6% growth in that ARPU per customer quarter over quarter as long as I can remember so that number is going nowhere but north. If you look at Germany for example I think when we first bought Unitymedia, they were at somewhere on the order of EUR13 or EUR14 per customer. We're now getting close to EUR18 per customer, so it's a number you want to focus. On a per product basis, generally speaking we are flat, I don't know what numbers you're looking at, Matt, there might be some math in there we can help you with. But generally speaking our ARPU per RGU is generally flat. It is not something we target to go up or down, it is generally something that is flat. We are principally focused on volume, high-margin volume and that is really what has been driving our growth historically. In our pricing, for the most part, we are taking CPI and small increases just about everywhere where we can, but I think the main goal in our pricing strategy is to maintain our market share gains. So, were generally in our bundles, going to be cheaper than the competition and faster in terms of our broadband products.

And if you want to have a faster product and a more attractive bundle you're generally going to be underpricing your competition a little bit and that has served as well. So long as we can do that and maintain the kind of volumes we're achieving and the kind of ARPU per customer growth we're achieving, that is the strategy you want us pursuing. These are high-end TV high-return products and bundles from an economic point of view so we have a little room. Over time though as the speeds enhance and as the market matures a bit, we do believe that products north of the 50 megabits are going to end and various pricing and billing structures will evolve such that we do believe we will have greater pricing power in broadband in particular in the long run. I think you should expect to see that. I don't know, Diederik you want to add anything to that?

No, other than to say that for example in a country like the Netherlands you also see what you just said reflected where for example we were able to more or less stabilize a decline in broadband -- ARPU decline behind the introduction of 3.0, the decline kind of slowed down. And now with the move to triple-play, and the emphasis on triple-play just recently, upped the price from EUR45 to EUR49 with no slowdown in sales, and this is one of the countries where we carefully look at what it serves as an example and also with the --

You're not seeing material effect from decline in fixed-line usage then that Virgin has talked about. Most of it is in bundles and there isn't that much of a volume pricing?

Well, certainly, voice usage, our voice product has declined almost steadily since we launched it. But, I will tell you that the vast majority of our ARPU out of the voice product is coming in that monthly line rental portion of the bundle. And at $21 and 80% margins because interconnect costs are relatively low, that product is gravy. So we're not as concerned about it because for the most part that usage is a lesser and lesser piece of the pie for us, and has been so for quite some time.

James Ratcliffe, Barclays Capital.

Couple if I could, subscriber growth particularly picked up in Central Eastern Europe and especially in the DTH business, can you give us some more color on where that product stands right now, ARPUs, margins, that sort of thing? And then if we are sticking to video for a second, where do we stand in terms of the impact programming costs have had year-on-year and how do you think about those going forward particularly in the context of some of our US counterparts? Thanks.

Sure, well I'll take the programming one and Diederik or Charlie you can take the sub growth or the DTH one. Programming for us as we've said many times is relatively high -- low-cost proposition in our video revenue stream principally because of the nature of the European market and the fragmented nature of our programming relationships over there. But today on average our margins in video across-the-board including digital are about 80%. So, the rough math I think we are spending $4 or $5 a month per sub, and that number in our core programming supply arrangement is flat to down.

What we are doing in 2012 is playing a little catch up in our programming spends specifically in on-demand and also over-the-top or our online programming lineup. So, the numbers aren't huge or you would never be able to pick them out of our P&L, but I would tell you that we are playing a little bit of catch-up in some of our core markets to ensure that when we launch Horizon, say for example in the Netherlands we have all the content that anybody could ever want to see on television available online and we are able to get those agreements largely because of our relationships with free-to-air broadcasters, because of our relationships in those markets with the cable programmers and I think it is a strategy you want us to pursue. Having said all that, our gross margins look really great in video and I don't see the programming equation which is I think where you are headed with your question changing materially as we go forward even with this year of catch-up. Do want to talk about Central Eastern Europe and DTH Diederik or Charlie?

Yes, that is fine. Diederik here. With regards to DTH, the answer to I would say the pickup in sales this year lies in the comparison versus last year because that year 2010 it was in the first three quarters of that year we had to work with the Dish turn and go through that and as a result I would say the results were somewhat depressed in terms of net sales and net adds. This year we have a good team working on exploiting all the opportunities for the entire year that is why it basically picked up versus last year. Some smart propositions, most countries we found a balance in how to compete, there is tough competition in Central Europe on DTH particularly in the Czech Republic, so that explains the Dish turn loss here explains the pickup in sales and net adds. That is it.

And just the economics around a typical DTH customers versus one of your cable-based video customers, are they comparable?

It varies a little bit because one of the key growth engines for DTH in recent times has been Romania where the business has got focus at and that has a slightly lower ARPU in line with the market as a whole. But in general, you would expect in that business to be about a 30% EBITDA margin. We do have a higher margin than our peers and one of the reasons is we benefit from obviously economies of scale with the [Korkale] business, as a result a pretty good gross margin on the programming side. And I think as Diederik said I think it's an outreach strategy for us, it is not design to compete with our core cable proposition but obviously in areas where we don't have cable, it's an interesting way to leverage our scale and strength.

Great. Thanks.

Jeff Wlodarczak, Pivotal Research Group.

I want to focus on Germany, Mike and can you help quantify the effect on EBITDA growth from your aggressive Germany marketing program? And obviously I assume we should expect to see accelerated RGUs as a result of that. And I have a follow-up.

Yes. I don't think we're quantifying, we thought about that question, Jeff, I don't think we're quantifying the specific impact from what we are describing as go to growth or go for growth strategy, but I can tell you it is going to come from the sort of things you would expect it to come from. We're going to increase a bit our spend on our brand, on our advertising, on our retail presence for example where we think historically we've had presence in maybe 50 shops two years ago now we'll have over 300 shops. So, I think all the spend from our point of view is high-return spend and MPV positive spend and will result in a meaningfully larger increase in net adds in these two markets than we would have otherwise achieved on a steady-state budget basis and I don't think we're quantifying that either, but Rick or Diederik correct me if I'm wrong, but we expect Germany to represent a significant portion of our growth this year. Needless to say, if we didn't think we could outperform so to speak in that market we wouldn't have authorized the spend but we think it is money well spent.

Fair enough. Is part of your guidance on the EBITDA side, does that also reflect potentially these carriage fees that you are getting from the German broadcasters, those potentially going down? I guess that wouldn't be '12 that would be '13, right?

We think that whole episode around carriage fees and feed in fees was a bit curious. I can tell you that we haven't had any meaningful conversations with any of our free-to-air broadcast partners. That was really out from left field a little bit in terms of that report which got everybody excited. We anticipate to be collecting the carriage fees from all of our broadcast partners this year that more or less we collected last year. So I don't think there's any impact in 2012. We don't anticipate any in 2012 on those feed in fees. Okay great. And just one last quick one. There is a press report this morning that you all may be interested in purchasing Xigo, now you get that pretty regularly when anything comes up but can you comment at all? Do you think that's something that will clear regulatory hurdles? Thanks. Well as I have said publicly, and I'll more or less repeat what I've said publicly, it is a big market, it's one that you should expect us to look at if a transaction like that were to become available, but I will tell you it is my understanding that they are moving very aggressively and rapidly towards a public market listing or an IPO, so that is really all I know there. And you should also expect that when these types of conversations or when these types of rumors get started, you never have to worry about us being less than disciplined on price and things of that nature. Every deal we've done in the last five or six years I think reflects that. Having said all that though it is my understanding they're going public.

Okay. Thanks very much.

Ben Swinburne, Morgan Stanley.

This is Ryan Fiftal on for Ben. Maybe we can dig briefly into the CapEx outlook. First, I missed it I don't know if the guidance is all in or if that has any adjustment for the Chilean wireless spend. And then maybe more broadly, 100 basis points improvement in capital intensity would be very strong result given that you're rolling out Horizon, plus you have added KBW which I think has been running north of 20% in capital intensity so maybe you can talk about where you expect to generate those savings this year? Thanks.

Okay, Charlie or Rick or anyone?

Let me have a crack at it and then Rick can comment. I think one of the things we're benefiting from is we're doing a particularly good job of driving scale, economics, and procurement under Balan's leadership. I'll tell you the only thing I'm worried about is getting tied across our entities and we are achieving very very substantial savings on our unit costs if you like, on the CapEx side so that is one of the key drivers that's going through. Rick do you want to talk about the color of the guidance?

Yes, I would just say that we are expecting the CapEx-to-sales to be down 50 to 100 basis points inclusive of the wireless project in Chile.

And I think Horizon and KBW we have definitely factored into their as well as all the integration CapEx as you rightly point out it is north of 20% in that market. And Horizon which we will roll out second quarter late second quarter, is not a huge hit to the CapEx line. If it is not a Horizon box, it will be a D4A box. The Horizon box is slightly more expensive, but the volumes we are projecting at least initially don't represent massive increases and the vast majority of the spend to get to the point of launch is really behind us. I don't think Horizon is a meaningful impact and I would just tell you that we have been -- we've spent considerable time in our budgeting process this year and this is a credit to Balan and Diederik in particular, looking at it as we do every year from a bottom-up but being I think a bit more critical if you will of discretionary versus non-discretionary expenditure, and really focusing our attention on things that are critical to the business. As you'd expect us to be and that doesn't mean to say that we didn't always do that, but with the sharpened pencil, we can always find in a Company with $2 billion of CapEx spend and multiple geographies and business units, you can always find more. And so I think that reduction is a function of really being focused early on in bringing that number down but not sacrificing the most important project of the Company like investing in Germany and things that we know generate the kind of revenue and EBITDA growth we are looking for.

Okay. Great. Thank you.

David Joyce, Miller Tabak & Co.

If you could just provide us a little bit more color on the KBW digital adds, they used to provide a definition of pay-TV including digital and some other advanced services so the number they contributed seemed lower, is that due to your definition or what was really in there for true digital video? And secondly, more broadly on analog video, has there been any kind of trend change in where you are losing the analog subs to that aren't migrating to digital?

Well on the analog sub losses the one market that was an outlier in the fourth quarter was Switzerland, but that has to do principally with the year-end billing cycle and the way in which folks renew contracts in that market. I don't know if there is any other meaningful trends there in the analog loss, but if you net it out Switzerland it would've been more typical of the sort of reduction we have seen quarter over quarter. Not sure I'm following the KBW question, I do know, and I'll let maybe Rick or others comment on the IR description, but I know that we do not include the digital subs, the unencrypted digital customers of KBW. They may have done so previously, we consider those to be analog subs and unless they are paying monthly for the digital products.

That is right, Mike, the way they used to count them any type of premium unit was considered digital and now with the basic digital unencrypted, if customer is not paying an incremental fee, for a digital feed, we do not count them as digital. So if they upgrade to high definition, packages or DVR's, et cetera, at that point we call them digital.

Thanks and on the VTR mobile effort, when do you expect to start showing the revenue flow and the customers on that new platform?

I don't know if Mauricio is on or not?

I am, Mike.

Yes. I think the plan is to roll out second quarter this year to be conservative, and he's already got a number of customers on trial basis. And you want to spend a minute on that Mauricio?

Sure, our network is basically ready. We've had a couple of months now of stable service statistics. We've loaded it up with about 3,000 subscribers which are largely internal employees. We are as we speak in the process of loading the network up with limited trial number of customers on a trial basis. And we expect to spend the following few weeks loading up the network with those subscribers to make sure that the network continues to be very stable, and work out all of the operational issues around reverse logistics, billing systems, et cetera, et cetera, making sure that we are operationally ready to go to market. So, we are in good position of controlling our time-to-market sometime the second quarter.

Great, thanks, and then just finally on the regulatory front, I know that you have said that you expect to close the AUSTAR deal in the second quarter, what are the remaining boxes that need to be checked?

Well, there is really only one, well there's two I suppose, one we have to have our Scheme Meeting with shareholders and that is awaiting only one thing which is approval from the ACCC or competition commission and I think it has been widely reported publicly that FOXTEL is, has been, and remains in negotiations and discussions with the ACCC on a remedy package that satisfies the commission's concerns around what if any a small change in the competitive environment this might result in. So, we remain confident based on the status of those conversations that this transaction will close.

Great. Thank you very much.

Hugh McCaffrey, Goldman Sachs.

I have two questions, please. Firstly, can you give us a view on just the impact hit of HDTV on your German business? How you see that accelerating topline growth across your German assets? And then, secondly, and just on the really a big picture question on the cost base, obviously you don't expect operating leverage to kick in significantly in '12 given you are investing in the number of different projects, but do you see that coming back strongly into '13?

So, Hugh, just to make sure we understand that question. On the second question are you referring to the Company as a whole or just Germany?

I'm referring to the Company as a whole so I'm just looking at the guidance of your mid-single digit topline in OCF and I would expect the OCF number to be higher than the revenue number normally?

Yes, and I think the mid-single-digit characterization was exact what we did last year, could mean a lot of different things up and down, on the margin. But what I will tell you that some of our revenue growth in 2012 and beyond will be coming from mobile projects like in Chile, those have lesser margins. So there might be a little variance in that going forward but I don't see us -- we continue to expect to scale our margin as a whole, so, I don't know if that was the purpose of our comments but I do think we believe that on balance we can continue to improve our operating cash flow margins over time. So hopefully that is not what you are taking away from that. ¶ And then HD in Germany, I don't know if Diederik you want to speak to that. I will tell you that KBW carries about 40 HD channels today, Unitymedia carries about 22 channels and we are still in negotiations with companies like Sky and others to continue to -- and the free-to-air broadcasters to continue to increase those HD -- those number of HD channels and our HD DVR penetration in Germany is only 20%, so unlike other markets where it's closer to 50% or Holland where it is almost 60%, we expect that number to continue to rise as the availability of channels and the quality of the HD channels improves. So, I think we're right in that mix. Right in that flow at this point, and that can only be a positive thing for us.

I guess just to maybe clarify my question on German HD levels, it just seems that obviously you are charging for the access to the private broadcaster HD channels, and there seems to be very very strong demand for that product in the German market and I was just wondering how you see that accelerating topline growth next year?

Well I think it is really mostly going to accelerate our digital penetration. Because you need a device to receive those services from us so it's going to -- that is the connection. The stronger the demand for HD, the more digital subscribers we're going to add on our footprint and the more digital subscribers we add, the bigger uplift we have to video ARPU. We are not giving the projection if that is what you're looking for of what our net adds to digital. We did something I believe closer to a 200,000 in 2011 and I think our go for growth strategy essentially assumes we are going to ramp up all those numbers up. So, digital will become I imagine an increasingly important part of the revenue picture in that market.

Okay. Thank you.

Will Milner, Arete Research.

Just a couple of questions. It strikes me that EBITDA up mid-single digits and CapEx down 50 to 100 basis points should maybe translate into more of a midteens free cash flow growth. And in that context are you still forecasting around $100 million of cash tax going forward? And are there any other things to bear in mind when we think about free cash flow growth guidance that you have given? And then just secondly also related to free cash flow, you have slightly changed the definition of free cash flow and included I think the capital elements of vendor financing and repayments and capital lease repayments, I wonder if you could just explain why you've made those changes now. And apologies, I joined the call late so if you've already answered I apologize for that. Thanks.

Mike, can I take a crack at that?

Yes.

There are couple of things, one is we do have free cash flow growth, we don't actually focus on per-share for a bunch of reasons but you should remember that we are doing a levered return strategy, but it probably explains your delta is the increase in the interest expense but remember that that interest expense reflects higher debt which is being used broadly speaking to help fund the buybacks. So, I think if you do the math you'll find that it is probably interest expense that is the difference.

The other aspect to free cash that we've been focusing on is efficiencies around working capital and in a broad-based sense, as we try and drive our scale of economics we've been looking at a number of aspects of working capital, so we've been trying to improve our cash collections on the receivable side, spent a lot of time looking at repayments and things like that on the asset side of the balance sheet. And one of the elements, there's only one as we do focus on our leverage with vendors, and I think because of the way the US GAAP works, it is important to disclose your publicist or at least disclose where we've done that by increasing our vendor credit beyond 90 days. So it is the full disclosure, we are showing you where we've been able to use our tails, not necessarily to achieve better prices, but to get better payment terms. We often use our scale to get better prices and these examples will get better payment terms. And it has been an overall perspective we apply on working capital efficiencies. Finally on tax, you're right, we will be less than $100 million this year and we continue to see very significant opportunities for tax optimization across our footprint and certainly in the near-term.

Sorry, just to clarify, do you expect $100 million around $100 million going forward as well in 2012 and 2013?

Yes, (multiple speakers) we are certainly almost half that amount in '11.

Yes. We'll be less than $100 million in 2012 and I would say that would still be around $100 million or less Mark in 2013.

Mike, let me just address the definitional change to free cash flow which is part of your question as well. So, because it is vendor financing, it would be a financing activity which would not typically be included in free cash flow. We've changed our definition to include any repayments on better financing cap leases to detract from our free cash flow, or to be considered in our free cash flow. So as we increased the vendor financing number we wanted to be transparent so that's why the definitional change.

All right. Thank you.

Vivek Khanna, Deutsche Bank

Just one quick question if I may and it is largely on the German cable starting off with Unity, clearly the capital intensity of 28% to 30% year on year driven by the strong sub growth. I just wanted a little bit more visibility if possible as to how much of that CapEx is going into node splitting? And is that something which we should envision going forward on the back of the demand which you are seeing. And related to that is clearly intensity of Kabel BW is lower, and I'm just wondering whether that is just a timing issue or whether you think that asset actually has been better invested from a historical perspective?

Balan, do you want to take that one?

Okay, so we are spending in unity a fair amount on node splitting as well as amplifier upgrades and I would expect that in KBW we will be spending some on node splits as well probably not as significant as we are in Unity right now.

I missed the last comment.

The expenditure at KBW on node splitting is not as significant, as Unity.

Perfect and can I have just one follow-up please? Just looking at that low DVR penetration et cetera, which we have in Germany, I saw in UPC's release that you mentioned that you're going to be increasing vendor financing, is there any thoughts of using vendor financing in Germany? Or is it all ready there and I've missed it? Pardon me.

We are using our vendor financing -- but again it's part of an overall scale which centralizes our procurement function trying to drive as much as we can through centralized purchasing, so Germany is clearly a key part of that, so in terms of some of the benefits we are getting by our purchasing scale with our vendors pipeline at lower prices and indeed sometimes on better payment terms, 90 days then clearly Germany participating in that. Does that answer your question?

Yes, thanks very much.

Daniel Morris, JPMorgan

The down 50 to 100 basis points, I see that excludes the impact of vendor financing, is that right?

I think the question was (multiple speakers) yes, that's correct.

So that's helpful so how would we think about how the vendor financing run rate will layer on top of that, is it similar kind of $20 million to $25 million a quarter for 2012?

I'm sorry I don't fully follow the question, are you asking how does the vendor financing phase across the year?

Well just about how that will layer on top because obviously that's outside of the CapEx guidance then there is a bit of vendor financing to think about coming through the cash flow on obviously your new clear definition?

The CapEx guidance includes the financing Rick, doesn't it? Cash CapEx.

Yes, that guidance is cash CapEx so there is no vendor financing included in it.

The question is you want to clarify that, Rick, again?

Yes, the guidance on CapEx being down 50 to 100 basis points, that CapEx figure is cash CapEx. That we would report in our cash flow statement.

Okay. So if we have delayed payments, we have delayed payments on the capital expenditure due to -- because expand the payment term through scale, that would be in that sense an impact on the cash CapEx number. (multiple speakers)

And that's why we changed the definition to pick up the vendor financing for extended payables at the time we pay them.

Right, so that's what we'll see obviously then coming through.

(multiple speakers) If I may just be clear because (inaudible) so first of all the cash CapEx is the amount of money that we physically pay in capital expenditure. So that if we get 90 days, 120 days, 180 days that is when we cash pay, so we are in that sense getting the benefit of the better financing. Where we are not taking the full benefit is we are saying however as and when we repay that vendor financing, which is under US GAAP I think is defined as alone, we could technically leave that outside the vendor financing or the cash flow definition, but we've chosen to add it back. So in a sense what we are kind of hitting ourselves we are understanding the benefits of the experience, so it is a 50/50 if you like, we are getting the benefit of delaying the payment in some respects but we are including the cash payment for vendor financing from last year.

Sure, understood that is helpful and is obviously clear the way it comes through your cash flow. Thanks.

Okay well listen that is exactly an hour and we appreciate everybody paying attention and being part of the call this morning. I'll simply say that we might've indicated in the press release and otherwise, the momentum that we experienced in 2011 especially leading up to the fourth quarter has continued through 2012. Q1 is off to a great start and we certainly look forward to reporting those numbers to you in the not-too-distant future. So, thanks for being on the call and I think we'll hang up now. Appreciate it, everybody.

Ladies and gentlemen this concludes Liberty Global's 2011 investor call. As a reminder, a replay of the call will be available in the investor relations section of Liberty Global's website at www.lgi.com. There you can also find a copy of today's presentation materials.