Feb 23, 2012
Executives
Michael T. Fries – President and Chief Executive Officer Bernard G.
Dvorak – Senior Vice President and Co-Chief Financial Officer Charles H.R. Bracken – Senior Vice President and Co-Chief Financial Officer Diederik Karsten – MD, European Broadband Operations Balan Nair – Senior Vice President and Chief Technology Officer Bryan H.
Hall – Senior Vice President, Secretary and General Counsel
Analysts
Matthew Harrigan – Wunderlich Securities James Ratcliffe – Barclays Capital Jeff Wlodarczak – Pivotal Research Group Ryan Fiftal – Morgan Stanley David Joyce – Miller Tabak Hugh McCaffrey – Goldman Sachs Will Milner – Arete Research Vivek Khanna – Deutsche Bank Daniel Morris – JPMorgan
Operator
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 expressed written consent of Liberty Global is strictly prohibited.
At this time, all participants are in a listen-only mode. Today’s formal presentation materials can be found under the Investor Relations section of Liberty Global’s at 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.
Michael T. Fries
Thank you, and good morning or good afternoon, wherever you might be. I just want to introduce the folks in the call here with me.
As usual, we have a large group of individuals from various locations. But I’m going to 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’s our Chief Technology officer.
Bryan Hall who’s just joined us from after eight years with Virgin Media is our new General Counsel. Bryan is on the call and of course Rick Westerman; who everybody knows.
I’m going to turn it back to operator for the safe harbor and then we’ll get started. Operator?
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 expectation with respect to its 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 Forms 10-K. Liberty Global disclaims any obligation to update 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.
Michael T. Fries
Great, thank you. So our format is going to 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; hope you had a chance to get our slides off our website.
And 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. And 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’re 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 Aster in Poland.
We also expect to complete the sale of our Australian business in the second quarter, and over the last seven years we’ve completed well over $20 billion in M&A transactions and accretive to our growth opportunity. Well priced and more recently geared towards building scale in Europe.
And then lastly we’re committed to delivering levered equity returns to shareholders, which starts with a 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 of proceeds that we expect to receive from the Austar sale, which would 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 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 with our strong big numbers around here is another one with the equity we’ve 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 five, we 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 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 of programmers and free to air broadcasters, ability to source and close acquisitions and of course our access to capital.
Now I might just pause to put our size into perspective for a minute. In a last five years or so, we’ve grown to be the second largest cable operator in the world in terms of subscribers, you heard to say that many times.
,
Slide six 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 and that should give you some indication of our confidence that that deal will close.
The first thing that you (inaudible) in this stage 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 $9.5 billion revenue and $4.5 billion of operating cash flow.
Now just pass 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 a 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%.
Then finally, our 20% growth to an adjusted free cash flow to $791 million which exceeded our mid-teens growth target. And again Bernie will provide more color on these numbers in a minute.
Slide seven is my favorite slide in 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 green.
And I think the chart actually speaks for itself. We’ve generated a steady and consistent upward trend in subscriber growth for each corresponding quarter over the last three years, including our record third quarter, earning more than double 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 is reporting out that over the last eight quarters we have 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 eight, at year end we had 8.2 million digital RGUs overall, a two and half 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 growth demand for HD and DVRs, which nearly half of our digital cable base now pays us for on a monthly basis. And now then we 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 handful of others.
Some quick math shows that with the addition of KBW, we’re now at 46% digital cable penetration versus 12% five years ago, and we have plenty of runway for growth because over 9.5 million analog subscribers in blue yet to be converted into digital subs in green and those numbers have obviously include KBW. It’s also worth repeating since many of you’ve heard me say this before that our digital cable ARPU is on average 80% higher than our blended analog ARPU, which as I said accounts for our continued growth and total video revenue and should for some time to come.
One quick slide on our bundles, which represents the vast majority of our total sales these days, our bundled offers largely revolve around our broadband services, which averaged 25 megabit 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 cover plan. You can see that result in our voice and data adds which are highlighted in 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. Remember voice is not a give away.
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 jump nearly 40% last year and it’s 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 (inaudible) 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.
Now, this is our largest market and one of our fastest growing, representing nearly 40% of net adds and just under 20% of our operating cash flow in 2011. Obviously, with KBW, it’ll be an even bigger part of our story in 2012.
Slide 10, [here’s] 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. In 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 round it, versus the 440,000 Unity generated on its own. Despite the 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.
In the bottom, you see that the combined revenue for 2011 would have been €1.6 billion, up 9%, and operating cash flows approaching €1 billion, up 13% in Germany. The integration process is going very well.
Lutz Schüler, who is the CEO of Unity will manage that entire market for us, and he is 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 of it 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’s 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 power triple-play bundles, which continue to drive our ability to take market share from the larger incumbent telecos, 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 1 million analog subs to our more advanced higher ARPU services and that’s a strategy that will get a substantial boost this year from our launch of Horizon, a new media entertainment platform, which we’ll talk quite a bit about and we’ll rollout in four markets this year.
In Chile, our 4G mobile networks is expected to generate additional revenue in that market, and will continue our capital light development of quad-play opportunities in markets likes 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 will be helped in the longer term by the synergies we consistently deliver on new acquisitions like KBW in Germany, and Aster 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’ve ever worked with and he will missed greatly by all of us. So, with that I will hand it over to you Bernie.
Slide six 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 and that should give you some indication of our confidence that that deal will close.
The first thing that you (inaudible) in this stage 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 $9.5 billion revenue and $4.5 billion of operating cash flow.
Now just pass 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 a 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%.
Then finally, our 20% growth to an adjusted free cash flow to $791 million which exceeded our mid-teens growth target. And again Bernie will provide more color on these numbers in a minute.
Slide seven is my favorite slide in 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 green.
And I think the chart actually speaks for itself. We’ve generated a steady and consistent upward trend in subscriber growth for each corresponding quarter over the last three years, including our record third quarter, earning more than double 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 is reporting out that over the last eight quarters we have 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 eight, at year end we had 8.2 million digital RGUs overall, a two and half 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 growth demand for HD and DVRs, which nearly half of our digital cable base now pays us for on a monthly basis. And now then we 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 handful of others.
Some quick math shows that with the addition of KBW, we’re now at 46% digital cable penetration versus 12% five years ago, and we have plenty of runway for growth because over 9.5 million analog subscribers in blue yet to be converted into digital subs in green and those numbers have obviously include KBW. It’s also worth repeating since many of you’ve heard me say this before that our digital cable ARPU is on average 80% higher than our blended analog ARPU, which as I said accounts for our continued growth and total video revenue and should for some time to come.
One quick slide on our bundles, which represents the vast majority of our total sales these days, our bundled offers largely revolve around our broadband services, which averaged 25 megabit 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 cover plan. You can see that result in our voice and data adds which are highlighted in 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. Remember voice is not a give away.
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 jump nearly 40% last year and it’s 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 (inaudible) 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.
Now, this is our largest market and one of our fastest growing, representing nearly 40% of net adds and just under 20% of our operating cash flow in 2011. Obviously, with KBW, it’ll be an even bigger part of our story in 2012.
Slide 10, [here’s] 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. In 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 round it, versus the 440,000 Unity generated on its own. Despite the 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.
In the bottom, you see that the combined revenue for 2011 would have been €1.6 billion, up 9%, and operating cash flows approaching €1 billion, up 13% in Germany. The integration process is going very well.
Lutz Schüler, who is the CEO of Unity will manage that entire market for us, and he is 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 of it 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’s 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 power triple-play bundles, which continue to drive our ability to take market share from the larger incumbent telecos, 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 1 million analog subs to our more advanced higher ARPU services and that’s a strategy that will get a substantial boost this year from our launch of Horizon, a new media entertainment platform, which we’ll talk quite a bit about and we’ll rollout in four markets this year.
In Chile, our 4G mobile networks is expected to generate additional revenue in that market, and will continue our capital light development of quad-play opportunities in markets likes 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 will be helped in the longer term by the synergies we consistently deliver on new acquisitions like KBW in Germany, and Aster 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’ve ever worked with and he will missed greatly by all of us. So, with that I will hand it over to you Bernie.
Bernard G. Dvorak
Thanks Mike. Hello everyone.
I will discuss our financial results beginning on slide 13. And as Mike had mentioned it’s 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’ve 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 up on Mike’s earlier comments, we delivered 2011 results of $9.5 billion in revenue and $4.5 billion in OCF.
For revenue, it reflects the year-over-year growth of 14% and adjusting for both the impact of foreign currency and M&A; we achieved rebase revenue growth of 4.5%. Our rebase revenue growth was primarily driven by volume grains.
From a product perspective, broadband was once again our fastest revenue growth product, followed by telephony. From a [facing] perspective, we gained momentum in Q4; on the back of our strong second half RGU gains as we delivered our best rebase result of the year at 4.7%.
Turning to OCF, we grew it faster than revenue as we improved our OCF margin to 47.1%, compared to 46.4% in 2010. And we were helped by our – 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 rebase basis. In the fourth quarter, our rebase OCF growth meaningfully improved to 4.8% compared to 1.8% in the third quarter.
And if you exclude our Chilean Wireless project, our rebase 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 is – includes Aster for roughly a quarter and KBW for two weeks and favorable foreign currency movements; we were able to achieve rebase 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% rebates 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 Belgium football rights in the second half of the year which amounted to approximately $24 million. And Telenet continues to grow its advanced 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 rebates growth of 6% and a rebates to OCF decline of 1%.
If you exclude the impact of the wireless project, the rebates OCF growth of our Chilean operations would have been more in lien with the rebates revenue growth. And 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 rebates revenue and OCF growth of 5% and 7% respectively in 2011. Of these operations we have highlighted our four largest on the 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 charts shows rebates revenue on 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’ll focus on the two middle operations, the Netherlands and Switzerland. Our Dutch operation delivered 5% revenue and 7% rebates to OCF growth.
This was the second year in a row that NL posted 7% rebates to 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 continue to experience margin expansion, driving a system level margin of 59.3%, which reflects a 100 basis point increase over 2010. Turning to Switzerland, the year was another positive step and improved performance for us.
We achieved revenue in 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 advance 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 a strong product bundles as well as focused on cost containment.
Although, we faced 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 is the slide highlights the trend has been moving down, but it’s 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 these results, given we added 240,000 more advanced services in 2011, as compared to 2010.
And our growth assets like German 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 addition 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 spent was directly attributable to the 2.6 million organic advance 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, roughly 235,000 homes and upgraded our 600,000 homes to – or over 60,000 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 benefit 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 return 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 of vendors to extend their 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 a 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 and do more vendor financing in 2012 than in 2011, if it’s 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 adjust our debt for $1.2 billion Sumitomo loan and also adjust 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 times in Q3, due primarily to the inclusion of KBW and the exclusion of Austar. And as Mike alluded to in his comments, we believe we’re in a great place with the current capital structure.
In just the last five months, we’ve extended over $2 billion of debt maturing in the 2013 to ‘16 time period with debt that matures as late as 2022. As a result, we currently have a 7-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. And 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. Just go to the last slide, it summarizes our 2012 public guidance targets.
For the full year we are targeting consolidated rebased revenue and OCF growth of mid single-digit for both metrics. It’s worth noting that our rebased OCF growth target in 2012 cash to the following costs substantially higher expenses in Chile related to mobile, a full year of football rights costs in Telenet in 2012 versus a parcel year in 2011.
As Mike about we are investing for growth in key markets like Germany, and we will be aggressive in marketing and exploiting our competitive advantage of broadband speeds. The integration costs of KBW and Aster and additionally from a facing perspective as we take into account the factors I just mentioned, we expect a year-over-year OCF growth largely ramped throughout the year and will be significantly back end 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’re 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 [that’s in] 2012 of up to a $150 million. And to service our guide post, we’re assuming 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’re once again targeting $1 billion of stock repurchases in 2012 and this amount could ultimately fluctuate based on our M&A activity. As we sit here today, we’re 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
(Operator Instructions) And our first question goes to Matthew Harrigan, with Wunderlich Securities.
Matthew Harrigan
Good morning. Can you talk a little bit about pricing in Europe in your strategy on market share; particularly in Germany given – the past year some of your competitors and then also, when you look at the – I know I asked this question before, but on the ARPU per customer relationship, you’re up low single digits and an ARPU per product basis, you hit 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, so I know you’ve seen us in the past, was a little surprising because you’re moving your advanced services’ penetration faster than anyone else and it looks like you so that your per product ARPU is dead in the water. Thanks.
Wunderlich Securities
Good morning. Can you talk a little bit about pricing in Europe in your strategy on market share; particularly in Germany given – the past year some of your competitors and then also, when you look at the – I know I asked this question before, but on the ARPU per customer relationship, you’re up low single digits and an ARPU per product basis, you hit 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, so I know you’ve seen us in the past, was a little surprising because you’re moving your advanced services’ penetration faster than anyone else and it looks like you so that your per product ARPU is dead in the water. Thanks.
John C. Malone
Thanks, Matt. I’ll take a crack at that second one and BD can think a little bit about pricing, but ARPU per customer is a 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%, plus percent 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 in the order of €13, €14 per customer, we’re now getting close to €18 per customer. So it’s a number you want to focus on a per product basis, generally speaking, were flat, I don’t know what numbers you’re looking at, Matt, and there might be some math in there we can help you with, but generally speaking our ARPU per RGU is generally flat.
It’s not something we target to go up or down; it’s generally something that’s flat. We’re principally focused on volume, high margin volume and that’s really what’s been driving our growth historically.
Pricing, for the most part, we’re 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 marketshare gains. So we’re generally in our bundles going to be cheaper than the competition and faster in terms of our broadband product.
And if you want to have a faster product and a more attractive bundle, you’re generally going to underpricing your competition a little bit. That’s served us well.
As long as we can do that and maintain kind of volumes we’re achieving and the kinds of ARPU per customer growth we’re achieving, that’s the strategy you want us pursuing. I mean, there is – these are high NPV, 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 50 megabits are going to end various pricings and billings structures will evolve such that we do think we’ll have greater pricing power in broad band in particular in the long run and I think you should expect to see that. (Inaudible) want to add anything to that?
Bernard G. Dvorak
No, other than to say that, for example in a country like Netherlands, you also see what you just said reflected where, for example, we were able to kind of more or less stabilize decline in broadband ARPU decline behind the introduction of three to zero and kind of slowed down and now with the move to triple play and the emphasis on triple play just recently up the price from €45 to €49 with no slow down in sales and this is one of the countries where we carefully look at what it serves as an example and also with the…
Matthew Harrigan – Wunderlich Securities
Bernard G. Dvorak
Well, certainly usage, voice usage from our voice product has declined almost steadily since we launched it. But I’ll 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 a $21 and 85% margins because their net connect costs are relatively low that product is great so we are 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 – it’s been so for quite sometime.
Matthew Harrigan – Wunderlich Securities
Thank you.
Operator
And the next question comes from James Ratcliffe with Barclays Capital.
James Ratcliffe – Barclays Capital
Good morning. Thanks for taking the question.
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 sticking to video for a second, where do we stand in terms of the impact programming cost that had year-on-year and how do you think about those going forward particularly in the context of some of your U.S. counterparts?
Thanks.
Michael T. Fries
Sure. I’ll take the programming one and Diederik, Charlie you can take the sub growth or the DTH one.
Programming for us, as we’ve said many times, is relatively low cost proposition in our video revenue stream principally because of the nature of the European market and 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, $5 a month for sub and that number in our core programming supply arrangements is flat to down. What we are doing in 2012 is doing playing a little catch up in our programming spends specifically in on-demand and also over the top, our online programming line up.
So, the numbers are huge or you would never be able to pick them out of our P&L. But I will tall you that we’re playing a little bit of catch up in some of our core markets to ensure that when we launch Horizon, say for example on the Netherlands, we have all the contents and anybody could ever want to see a television available online and we’re 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’s the strategy want us to purse.
Having said all of that, our gross margins look really great in video and I don’t see the programming equation which is I think where you’re headed with your question, changing materially as we go forward even with this year of catch up. (inaudible) Central Eastern European and DTH, Diederik or Charlie?
Diederik Karsten
Yes, fine. Diederik here.
With regards to DTH, the answer to I would say the pick up in sales this year lies in the comparison versus last year because that year 2010 that was in the first three quarters of that year we had to work with (inaudible) go through that and as a result, I would say the results were somewhat depressed in terms of sales in net adds. This year we had a good team working on exploiting all the opportunities for the entire year, that’s why basically picked up versus last year.
Some smart propositions, most countries we will be – we found a melons in how to compete, it’s tough competition in Central Europe and DTH between Czech Republic. So that explains (inaudible) last year explains the pick up in sales in net adds.
That’s it.
James Ratcliffe – Barclays Capital
And just maybe the economics around a typical DTH customer versus one of your cable based video customers are they comparable or?
Bernard G. Dvorak
It does a little bit because one of the key correct engines for DTH in recent times have been Romania (inaudible) and that has a slightly lower ARPU in line with the market as a whole. But in general you’d be expecting that business to be about 30% EBITDA margin.
We do have high margins in our peers and one of the reasons is we benefit from obviously economies of scale with the (inaudible) business. As a result, we have pretty good gross margin on the programming side.
And I think as Diederik said, I think it’s an outreach strategy for us. It’s not designed to compete with our cable proposition.
But obviously [where] we don’t have cable, it’s an interesting way to leverage our scale and strength.
James Ratcliffe – Barclays Capital
Great, thanks.
Operator
And we’ll take our next question from Jeff Wlodarczak from Pivotal Research Group.
Jeff Wlodarczak – Pivotal Research Group
Good morning, guys. I want to focus on Germany.
Mike, can you quantify the effect on EBITDA growth from your aggressive Germany marketing program, and then obviously I assume we should expect to see accelerated RGUs as a result of that? And then, I have a follow-up.
Michael T. Fries
Yeah. I don’t think we’re quantifying [if we thought] about that question, Jeff.
I don’t think we’re quantifying the specific impact from what we’re describing as go to growth or go for growth strategy. But I can tell you it’s going to come from sort of things you’d 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 had presence in maybe 50 shops two years ago, and now we’ll have over 300 shops. So I think all the spend from our point of view is high return spend and NPV 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 service [service station] 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’s money well spent.
Jeff Wlodarczak – Pivotal Research Group
Fair enough. As part of your guidance on the EBITDA side, does that also reflect potentially these carriage fees that you’re getting from the German broadcasters, those are potentially going down, I guess that wouldn’t be [of ’12 or ‘13], right?
Michael T. Fries
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 field a little bit in terms of that report, which got everybody excited.
We anticipate to be collecting a carriage fees from all of our broadcast partners this year, that more or less that we collected last year. So I don’t think there is any impact in 2012, we don’t anticipate any impact in 2012 on those feed in fees.
Jeff Wlodarczak – Pivotal Research Group
Okay, great. And then just one last quick one.
There is a press report this morning that you all maybe interested in purchasing Ziggo, you get that pretty regularly when anything comes up, but can you comment at all, do you think that’s something a clear regulatory hurdle? Thanks.
John C. Malone
Well, as I said publicly, and more or less what Pete has said publicly, it’s 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’ll tell you to my understanding that they’re moving very aggressively and rapidly towards a public market listing or an IPO. So that’s really all I know there.
And you should also expect that when these types of conversations or these types of rumors gets 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, six years I think reflects that.
Having said all that though, to my understanding, they’re going public.
Jeff Wlodarczak – Pivotal Research Group
Okay, thanks very much.
Operator
We’ll take our next question from Benjamin Swinburne with Morgan Stanley.
Ryan Fiftal – Morgan Stanley
Hi, this is Ryan Fiftal 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 adjustments 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’ve 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.
Michael T. Fries
Okay, Johny or Rick or for anyone.
John C. Malone
Let me have a crack on that one. I think one of the things that we’re benefitting from is we’re doing a particularly good job of driving scale economics in particular under Balan’s leadership.
(inaudible) getting tighter across our entities and we’re achieving very, very substantial savings on our unit cost, if you like, on the CapEx side. So that’s one of the key drivers that is going through.
Rick, you want to add a color of the guidance?
Rick Westerman
Yeah, I would just say that we’re expecting the CapEx to sales to be down 50 to 100 basis points inclusive of the wireless project in Chile.
Michael T. Fries
Yeah. I think in KBW, we’ve definitely factored into their as well as all the integration CapEx.
And as you rightly pointed out, it’s north of 20% in that market. And Horizon, which we rolled out late second quarter is not a huge hit to the CapEx line, I mean if it’s not a Horizon box it will be a Defray box, the Horizon box is more expensive but the volumes that we’re 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.
So I don’t think Horizon has a meaningful impact and I’ll just tell you that we have been – we’ve spent considerable time in our budgeting process this year and this is credit to Balan and Dedrick 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 would expect us to do. And it doesn’t mean to say we didn’t always do that, but with a sharpened pencil you can always find 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 brining that number down, but not sacrificing the most important projects of the company, like investing in Germany and things that we know generate the kind of the revenue and EBITDA growth we’re looking for.
Ryan Fiftal – Morgan Stanley
Okay, great. Thank you.
Operator
We’ll take our next question from David Joyce with Miller Tabak and Company.
David Joyce – Miller Tabak
Thank you. If you could just provide a little more color on the KBW digital ads.
They used to provide a definition of I think pay TV including digital and some other advanced services. So that the number they contributed seems lower.
Is that the duty or definition or what was really in there for true digital video? And secondly, more broadly on analog videos.
If here been any kind of trend change and where you’re loosing the analog substitutes that are migrating to digital?
Michael T. Fries
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 in the way in which folks with new contacts in that market.
I don’t know if there was any other meaningful trends in there in the analog loss. But if you net it out Switzerland, it would have been more typical of a sort of reduction we’ve seen quarter-over-quarter.
Much on following the KBW question, I do know – [I’m going to let Rick to] comment on the IR description, but I do know that we do not include in digital subs. The unencrypted digital customers of KBW, they may have done so previously, we consider those to be analog subs unless they’re paying monthly for the digital products.
But…
Frederick G. Westerman III
That’s right it might be, the way they used to count them any type of premium unit was considered digital and now, with the basic digital unencrypted, is customers not paying an incremental fee. For a digital feed, we do not count them as digital.
So as they upgrade to high definition packages or DVRs et cetera, at that point we call them digital.
David Joyce – Miller Tabak
Thanks. And on the VTR Global effort, when do you expect to start showing the revenue flow and the customer is on that new platform?
Bernard G. Dvorak
I don’t know (inaudible) but I think the plan is to roll out second quarter this year to be conservative and he has already got number of customers on trial basis. Do you mind spend a minute on that ratio?
Diederik Karsten
Sure. Our network is basically ready and we’ve had couple of months now stable service statistics.
We’ve noted that we have about 3,000 subscribers which are largely internal employees were as we speak in the process of loading the network up with limited trail number of customers on a trial basis. And we expect to spend a 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 the operational issues around (inaudible) 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 some time in the second quarter.
David Joyce – Miller Tabak
Great. Thanks.
And just finally, on the regulatory front, I know you’ve said that you expect to close (inaudible) second quarter, what are the remaining boxes that need to be checked?
Bernard G. Dvorak
Well, it’s the 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 thee ACCC or Competition Commission.
And I think it’s been widely reported publicly that FOXTEL has been and remains in negotiations and discussions with 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.
David Joyce – Miller Tabak
Great, thank you very much.
Operator
We’ll take our next question from Hugh McCaffrey with Goldman Sachs.
Hugh McCaffrey – Goldman Sachs
Hi guys, I’ve got two questions please. Firstly, can you give us a view on just the impact of HD TV on your German business and how you see that accelerating top line growth across your German assets?
And then secondly, really a big picture question on the cost base. Obviously you don’t expect operating leverage to kick in significantly in ’12, given you’re investing in a number of different project, but do you see that coming back strongly into ’13?
Michael T. Fries
Hugh, just to make sure – pardon me, we understand the question. On the second question, are you referring to the company as a whole or just Germany?
Hugh McCaffrey – Goldman Sachs
I’m referring to the company as a whole. So I’m just looking at the guidance of [your] mid-single-digits top line and OCF and I guess I would expect the OCF number to be higher than the revenue number normally?
Michael T. Fries
Yeah. And I think that the mid-single-digit characterization was just exactly what we did last year.
It could mean a lot of different things up and down on the margin. But I will tell you that some of our revenue growth in 2012 and beyond will be coming from mobile projects, like in Chile, and 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 a purpose of our comments.
But I do think we believe that – on balance, we continue to improve our operating cash flow margin overtime. So hopefully that’s not what you’ve been taking away from.
And then HD in Germany, I don’t know [do if you] want to speak to that. I will tell you that KBW is – it carries about 40 HD channels today.
Unitymedia carries about 22 channels and we’re still in negotiations with companies like Sky and others to continue to end 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’s somewhere 60%; we expect that number to continue to rise as the availability of channels and the quality of the HD channels improve. So I think we’re right in that mix; right in that flow at this point and I can – only be a positive thing for us.
Hugh McCaffrey – Goldman Sachs
Hi, guys. Just maybe clarify my question on German HD a little bit.
And it just seems that [Joe] obviously you’re charging for the access to the private broadcaster of HD channels and there seems to be very, very strong demand for that kind of product in the German market and I was just wondering to how you see that accelerating top line growth next year?
Michael T. Fries
Well, I think it’s really mostly going to accelerate our digital penetration if you need a device to receive those services from us. So it’s kind of – it’s really that is the connection.
We did – 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. So I mean, we’re not giving the projection if that’s what you’re looking for, what our net [adds in] digital, we did something I believe closer to a couple of hundred thousand in 2011, and I think our go for growth strategy essentially assumes we’re going to ramp all those numbers up.
So digital will be [to my mind] an increasingly important of the revenue picture in that market.
Hugh McCaffrey – Goldman Sachs
Okay. Thank you.
Operator
And we’ll take our next question from Will Milner with Arete Research.
Will Milner – Arete Research
Thanks. Just a couple of questions.
It just strikes me that EBITDA up mid-single-digits and CapEx down 50 basis points to 100 basis points just maybe translates into more than mid-teens free cash flow growth. And in that context, are you still forecasting around $100 million of cash tax going growing and are there any other things to bear in mind when we think about free cash flow growth guidance that you’ve given?
And then just secondly also related to the free cash flow, I mean you have slightly changed the definition of free cash flow and included I think the capital elements of vendor financing repayments and capital lease repayments. I wonder if you can just explain why you’ve made those changes now.
And apologies, I’ve joined the call late. So if you’ve already answered, I apologize for that.
Thanks.
Michael T. Fries
[It might be]…
Bernard G. Dvorak
Can I have a crack at that?
Michael T. Fries
Yeah.
Bernard G. Dvorak
Mike?
Michael T. Fries
Yeah, go ahead.
Bernard G. Dvorak
Sorry. There were a 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 [already got levered] return strategy, so for explaining your doubts with the increase in the interest expense. But remember that that interest reflects higher debt, which is being used, broadly speaking, to help fund the buyback.
So I think if you do the math, probably the interest expense is the difference. The other aspect of free cash 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 receivables side; still a lot of time looking at prepayments and things like that on the asset side of the balance sheet. And what are the elements, and it’s only one – has been to focus on our leverage with vendors and I think because of the way the U.S.
GAAP works it’s important to disclosure purpose at least to disclose what we done that by increasing our vendor credit beyond 90 days. So, and these are the full disclosure we’re showing you where we will be able to use of sale not necessarily (inaudible) but a payment terms.
We often use our scale to get better prices (inaudible) get a better payment terms and it’s 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 in the near term.
Will Milner – Arete Research
Sorry, just to clarify, do you expect around $100 million going forward as well in 2012-2013?
Michael T. Fries
Yeah, I think it’d be.
Charles H.R. Bracken
We’re certainly almost half that amount in 2011.
Michael T. Fries
Yeah, it will be less than $100 million in 2012. And I would tell you that we’re still be around this $100 million or less mark in 2013.
Bernard G. Dvorak
Hey, Mike, let me just address the definitional change to free cash flow which is part of your question as well. Because it’s 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 – to be considered in our free cash flow.
So, as that – as we increase the vendor financing number, we wanted to be transparent that’s why the definitional change.
Will Milner – Arete Research
Right. Thank you.
Operator
And we’ll take our next question from Vivek Khanna with Deutsche Bank.
Vivek Khanna – Deutsche Bank
Hi, hello, can you hear me?
Bernard G. Dvorak
Yeah, we hear you.
Vivek Khanna – Deutsche Bank
Okay, lovely. So just one quick question from me and it’s largely on German cable starting off with Unity, clearly the capital intensity of 28% to 30% flat year-on-year driven by the strong sub growth.
I just want 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 would envisage going forward on the back of the demand, which you’re seeing and related to that is clearly intensity of Kabel BW is lower and I’m just wondering whether that’s just a timing issue or whether you think that asset actually has been better invested from a historical perspective.
Bernard G. Dvorak
Balan, you want to take that one
Balan Nair
Okay so we’re spending in Unity a fair amount on node-splitting as well as amplifier upgrades. And I think with KBW will be spending some on node split as well probably significant as we have in Unity right now.
Vivek Khanna – Deutsche Bank
Sorry, I missed the last comment
Bernard G. Dvorak
The expenditure of KBW on node splitting is not as significant as Unity
Vivek Khanna – Deutsche Bank
Perfect can I insert one follow-up please just looking at the low DVR penetration et cetera which we have in Germany I saw in UPC has released you mentioned that you’re going to be increasing vendor financing. Is there thought of using vendor financing in Germany or is it ready, I don’t know whether I have missed it pardon me
Bernard G. Dvorak
Well we’re using our vendor financing again its part of an overall share. We centralized our procurement function trying to drive as much as we can to centralize purchasing.
So Germany is clearly a key part of that. So in terms of some of the benefits we’re getting by the purchasing scale with our vendors both on lower prices and indeed sometimes on better payment terms in 90 days then clearly Germany is participating in there does that answers your question.
Vivek Khanna – Deutsche Bank
Yes, thank you very much.
Bernard G. Dvorak
Okay
Operator
And we’ll take our final question from Daniel Morris with JPMorgan.
Daniel Morris – JPMorgan
The 5,200 basis points I seem that exclude the impact of vendor financing, is that right?
Michael T. Fries
I think the question was [for you] Charlie.
Charles H.R. Bracken
Yeah, that’s correct.
Michael T. Fries
Yeah, that’s correct. Yes.
Daniel Morris – JPMorgan
Okay, 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 $25 million to $35 million a quarter for 2012?
Bernard G. Dvorak
I’m sorry, I don’t fully follow the question. Are you asking how does the vendor financing phase across the year?
Daniel Morris – JPMorgan
Well, just about how that will layer on top, because obviously that’s outside of the CapEx guidance and there’s a bit of vendor finance CapEx to think about coming through the cash flow obviously on your [new] definition.
Bernard G. Dvorak
[Doesn’t the] CapEx guidance includes vendor financing, Rick, doesn’t it? Cash CapEx.
Rick Westerman
Yeah, the guidance is cash CapEx, so there’s no vendor financing included in it.
Michael T. Fries
The question is – you want to clarify that, Rick, again?
Rick Westerman
Yes. The guidance on CapEx being down 50 basis points to 100 basis points, that CapEx figure is cash CapEx that we would report in our cash flow statement.
Daniel Morris – JPMorgan
Okay. Thanks very much.
Bernard G. Dvorak
So if we have delayed payments on the capital expenditure, due to because we’ve extended payments [them to scale] that will be in that sense an impact on the cash CapEx number.
Daniel Morris – JPMorgan
Right. And that will then…
Michael T. Fries
That’s correct. But that’s also why we changed the definition to pick up the vendor financing for extended payables at the time we pay them.
Daniel Morris – JPMorgan
Right. So that’s why we feel (inaudible) coming through?
Bernard G. Dvorak
If I may just (inaudible) here. So first of all, the cash CapEx is the amount of money that we physically pay in capital expenditure.
So if we get 90 days, 120 days, 180 days, that’s when we cash pay it. So we’re in that sense getting the benefit of the vendor financing.
Where we’re not taking the full benefit is we’re saying, however, as and when we repay that vendor financing, which under U.S. GAAP is at least defined as a loan, we could technically leave that outside, right in the financing or the cash flow definition, but we chose to add a track…
Daniel Morris – JPMorgan
Sure.
Bernard G. Dvorak
…say, there in a sense we are kind of hitting ourselves, we are understating the benefit of experience, it’s at a 50/50 [deal]. We are getting the benefit of delaying the payment in some respect, but we are giving – paying – concluding the cash payment (inaudible) from last year.
Daniel Morris – JPMorgan
Sure, understood, that’s helpful. And it is obviously clear the way that it comes to your cash flow, thanks.
Bernard G. Dvorak
Yeah, okay.
Michael T. Fries
All right, that’s exactly an hour and we appreciate everybody paying attention and being part of the callers this morning. I’ll simply say that the my mind is indicated in the press release and otherwise the momentum that we experienced in 2011, especially leading out 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. I appreciate everybody.
Operator
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.