LONDON, Nov. 6, 2008 (GLOBE NEWSWIRE) -- Virgin Media Inc. (Nasdaq:VMED) announces results for the quarter ended September 30, 2008.
Quarterly highlights
Financial
* Revenue of GBP 991m (Q3-07: GBP 1,006m)
* Cable segment Consumer revenue of GBP 610m (Q3-07: GBP 608m)
* OCF of GBP 325m (Q3-07: GBP 342m)
* Operating income of GBP 49m (Q3-07: GBP 47m)
Operational
* Total RGU net adds of 185,200 (Q3-07: 186,700)
* 1,900 additional increase in reported RGUs from data cleanse
(Q3-07: 4,200 increase)
* On-net churn of 1.5% (Q3-07: 1.7%)
* On-net customer net additions of 8,300 (Q3-07: 13,000)
* 9,100 additional decrease in reported customers from data
cleanse (Q3-07: nil)
* On-net broadband net additions of 68,700 (Q3-07: 115,800)
* Customers taking top-tier broadband up 78% year-on-year
* TV subscribers net additions of 37,800 (Q3-07: 20,400)
* On-net telephony net additions of 15,400 (Q3-07: 1,300 net
reduction)
* Record VOD usage; 45m average monthly views (Q3-07: 23m)
* Contract mobile net additions of 78,300 (Q3-07: 29,700)
* On-net cable ARPU of GBP 41.94 (Q3-07: GBP 41.55)
* Record triple-play penetration of 54.7% (Q3-07: 47.0%)
Neil Berkett, Chief Executive Officer of Virgin Media, said:
"These third quarter results represent another solid operational and financial performance as we continue to execute against our strategy. In particular, we have grown ARPU, churn remains lower than a year ago and our customers are buying more products from us than ever before.
In the face of a slowdown in the general economy, our business has shown good resilience and we are focused on keeping churn low, improving our operational execution and driving unnecessary costs and inefficiencies out of the business.
We continue to exploit our competitive advantages in leading next generation broadband in the UK and redefining the on-demand TV experience. Our fourth quarter will mark a major milestone as we launch our unrivaled 50Mb broadband service."
Conference call details
There will be a webcast and conference call for analysts and investors today at 9am ET / 2pm UK time.
The presentation can be accessed live via webcast on the Company's website, www.virginmedia.com/investors.
Analysts and investors can dial in to the presentation by calling +1 866 966 5335 in the United States or +44 (0) 20 3023 4472 for international access, passcode "Virgin Media Inc." for all participants.
The teleconference replay will be available for one week beginning approximately two hours after the end of the call until Thursday, November 13, 2008. The dial-in replay number for the U.S. is: +1 866 583 1035 and the international dial-in replay number is: +44 (0) 20 8196 1998, passcode: 499513#.
Analyst and Investor Days
Virgin Media will be hosting two identical Analyst and Investor days in New York and London on November 11 and 13, 2008, respectively, to update investors on the Company's strategy. Presentations will be made by key members of Virgin Media's senior management team, including Jim Mooney - Chairman, Neil Berkett - CEO, Charles Gallagher - Senior Vice President Finance, Mark Schweitzer - Chief Commercial Officer and Howard Watson - Chief Transformation and Technology Officer.
The presentations will take place in New York and London and both will be webcast live at www.virginmedia.com/investors and be available via a conference call facility. Pre-registration is required. Please find full details on the Company's website at www.virginmedia.com/investors.
Forward-looking statements
This release contains certain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Please refer to "Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995" on page 12 for a more detailed discussion regarding these forward-looking statements.
Note to the financial and operational results for the three months ended September 30, 2008
OCF is operating income before depreciation, amortization, goodwill impairment and restructuring and other charges and is a non-GAAP financial measure. Please see Appendix E for a reconciliation of non-GAAP financial measures to their nearest GAAP equivalents.
SUMMARY FINANCIAL RESULTS (unaudited)
-------------------------------------
Q3 2008 Q2 2008 Q3 2007
--------- --------- ---------
GBP m GBP m GBP m
Revenue
Cable
Consumer 610.3 610.3 607.7
Business 153.4 156.8 160.0
--------- --------- ---------
763.7 767.1 767.7
Mobile 145.5 143.9 158.7
Content 81.9 79.5 79.8
--------- --------- ---------
Total Revenue 991.1 990.5 1,006.2
OCF 325.0 332.9 341.5
Operating income (loss) 48.6 (333.1) 46.7
Note
Our OCF and Operating income for Q3 2008 and Q3 2007 benefited from a
number of items, as described in this release. Our Operating loss for
Q2 2008 included a goodwill impairment charge of GBP 366.2m in respect
of our Mobile reporting unit.
GROUP RESIDENTIAL OPERATIONS
STATISTICS ('000s) Q3 2008 Q2 2008 Q3 2007
---------------------------- --------- --------- ---------
Group RGUs
On-net TV 3,576.5 3,538.8 3,417.0
On-net Digital TV 3,407.9 3,353.5 3,167.0
Broadband
On-net 3,625.7 3,563.4 3,307.7
Off-net 260.1 272.7 282.3
--------- --------- ---------
3,885.8 3,836.1 3,590.0
Telephone
On-net 4,078.6 4,063.5 3,992.5
Off-net 104.9 107.3 90.5
--------- --------- ---------
4,183.5 4,170.8 4,083.0
Mobile
Contract 578.6 491.6 328.8
Total RGUs 12,224.4 12,037.3 11,418.8
========= ========= =========
Net RGU adds
On-net TV 37.8 24.8 20.4
On-net Digital TV 54.4 42.1 41.7
Broadband
On-net 68.7 54.6 115.8
Off-net (12.6) (6.8) 7.1
--------- --------- ---------
56.1 47.8 122.9
Telephone
On-net 15.4 3.4 (1.3)
Off-net (2.4) 4.9 15.0
--------- --------- ---------
13.0 8.3 13.7
Mobile(1)
Contract 78.3 55.9 29.7
--------- --------- ---------
Net RGU adds 185.2 136.8 186.7
Data cleanse - Residential Cable
Operations(2) (6.8) 5.3 --
Data cleanse - Mobile Operations(3) 8.7 -- --
Total increase in RGUs in period 187.1 142.1 186.7
========= ========= =========
Notes
(1) The operating statistics relating to prepay mobile are included
within Mobile Operations Statistics.
(2) Data cleanse activity in our Residential Cable Operations with
respect to August and September of Q3-08 resulted in a decrease
in reported customer numbers of 9,100 and a decrease in reported
RGUs of 6,800, comprised of decreases of approximately 6,400
Broadband, 300 Telephone and 100 Television RGUs. Data cleanse
activity reported with respect to Q2-08 resulted in a decrease in
reported customer numbers of 18,900 and an increase in reported
RGUs of 5,300, comprised of an increase of approximately 6,500
Broadband RGUs and decreases of approximately 300 Telephone and
900 Television RGUs. These Q2-08 figures included a 4,600
decrease in reported customer numbers and a 9,200 decrease in
reported RGUs relating to data cleanse activity in July 2008.
The Net RGU adds above exclude the impact of the data cleanse
increases/decreases in order to show the true organic growth or
decline.
(3) Data cleanse activity in our Mobile Operations with respect to
Q3-08 resulted in an increase in reported Contract mobile
customer numbers as disclosed above.
OVERVIEW
This year our top priority is to build a robust platform for medium and long term growth. We are strengthening our existing customer base by focusing on getting the fundamentals right and are beginning to exploit the superior capabilities of our network in order to differentiate ourselves from our competitors. We have also begun to improve the underlying economic value of the business by reducing costs and inefficiencies. Today's third quarter results show solid progress operationally and financially against our strategy.
Operationally, reducing customer churn remains a key focus and it remained low this quarter at 1.5%, compared to 1.7% in the same quarter last year. We have continued to focus on RGU growth which feeds through into low churn, and on cross-sell and up-sell, with triple-play now at a record 54.7%. We have also seen net customer growth due to a strong sequential improvement in gross additions. The percentage of customers on our top two 10Mb and 20Mb broadband tiers continued to grow, illustrating the very real demand from our customers for top broadband speeds. A combination of price rises and our focus on cross-sell and up-sell has led to ARPU growth this quarter.
Our key strategic objectives are to lead the next generation broadband market in speed and quality and to redefine the mid-market TV experience through video-on-demand ("VOD"). In broadband, our 4Mb to 10Mb speed upgrade program is now complete, we have launched mobile broadband and we are on track to launch 50Mb in the fourth quarter. Despite a slowdown in the overall market, we have seen solid broadband net additions and improved tier mix.
Turning to TV, we are delighted to carry BBC iPlayer on our platform, which achieved 11.7m views on our platform in September. We are the only TV platform in the UK to carry this service and believe this substantially improves our TV offering. We have announced the return of the Sky basic channels to our platform and significantly enhanced the terms for the carriage of our channels on the Sky platform, in each case from November 13, 2008. The additional channels will improve our TV offering for new and existing customers.
Within Mobile, we have enjoyed record success in the quarter in growing our contract mobile base, mainly through cross-sell to our cable customers.
The broader economic environment in the UK has become more challenging and we have seen some impact on gross customer additions. However, our business is showing good resilience as we successfully target churn, drive further efficiencies across the Group and enhance our compelling product suite.
RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
TOTAL REVENUE
Total revenue in the third quarter was GBP 991.1m (Q2-08: GBP 990.5m; Q3-07: GBP 1,006.2m). The year-on-year decrease was due to reduced Mobile and Business revenue, partially offset by growth in Consumer and Content revenue.
CABLE SEGMENT REVENUE
Consumer
Consumer revenue in the third quarter was GBP 610.3m (Q2-08: GBP 610.3m; Q3-07: GBP 607.7m). Revenue grew year-on-year mainly due to an increase in Cable ARPU as discussed below.
As a result of the migration of our consumer on-net billing systems earlier this year, there was a further data cleanse recognized in the quarter which resulted in a decrease in reported customer numbers of 9,100 and on-net RGUs of 6,800. All net additions/disconnections figures in the following discussion exclude the impact of the data cleanse so that we are showing the true organic growth or decline.
On-net cable RGU net additions were 121,900 in the quarter (Q2-08: 82,800; Q3-07: 134,900). The sequential increase was due to improved growth in all three products. The year-on-year decrease in net additions was due to slower broadband growth, partially offset by improved TV and telephony growth.
Average monthly churn was 1.5% (Q2-08: 1.3%; Q3-07: 1.7%). We believe this year-on-year improvement partly reflects a range of operational improvements that we have made over the last year. Gross customer disconnections of 206,300 in the quarter were down 15% from the same quarter last year. Churn was up sequentially, as expected, mainly due to the usual seasonal increase in mover churn.
Gross on-net customer additions in the third quarter were 214,600, up 28% compared to the previous quarter. Gross on-net customer additions were down by 16% on the same quarter last year. We believe this partly reflects the focus on better quality gross additions and our priority of reducing churn, along with the probable impact of a softer macroeconomic environment. As a result, the on-net customer base was 4.7m at the quarter-end, with net additions of 8,300 in the quarter.
Cable ARPU increased sequentially and year-on-year to GBP 41.94 (Q2-08: GBP 41.63; Q3-07: GBP 41.55) due to selective price rises and successful upsell and cross-sell, partly offset by declining fixed telephony usage and selective discounting.
Successful bundling and cross-sell was reflected in continued growth in triple-play penetration, which reached a record 54.7% at the quarter-end compared to 47.0% a year ago. Cable RGUs per customer also grew to 2.38 from 2.26 a year ago.
Broadband (On-net)
Broadband net additions were 68,700 (Q2-08: 54,600; Q3-07: 115,800). Net additions were up sequentially due to higher gross additions. They were down year-on-year due to lower gross additions, partially offset by lower churn. We believe gross additions were down partly due to slower growth in the overall broadband market.
Our increased focus on up-sell has improved the tier mix and the number of subscribers on our top 20Mb "XL" tier has increased by 78% in the last twelve months. The upgrading of our 4Mb "L" tier to 10Mb is also contributing to an improved mix with the number of "L" subscribers having grown by 17% year-on-year. The percentage of our broadband customers in the "L" and "XL" tiers is now 19% and 10%, respectively. Tier mix has also benefited from our offer of free wireless routers for higher tier customers, which provides an additional incentive to upgrade.
Broadband remains our premier product where our superior network differentiates us from our DSL competitors. We are fully focused on maximizing the potential of our cable network to improve the consumer experience and plan to launch a 50Mb broadband service by the end of the year. Once this is launched, we will have four tiers of broadband service at 2Mb, 10Mb, 20Mb and 50Mb, with top headline speeds and quality of service well ahead of our DSL competitors.
Television
Total TV net additions were 37,800 in the quarter (Q2-08: 24,800; Q3-07: 20,400).
Customers are increasingly using our VOD services. On a monthly basis, 1.7m of our digital TV customers are now using VOD, representing a reach of 49%. Average views per user per month in the quarter were 27 compared to 17 a year ago. Average monthly views were 45m in the quarter, up 17% on the previous quarter and up 95% on the same quarter last year.
Virgin Media is currently undertaking its first ever advertising trial on its VOD platform. Advertisements from leading brands including Kelloggs, John Lewis and Royal Mail, are being broadcast around selected on-demand programs from Virgin Media TV, Channel 4 and Warner TV. The three-month trial is taking place across North London.
During the quarter, we added 43,800 V+ DVR subscribers to reach an installed base of 468,700. This represents a penetration level of just 14% of our digital subscribers and so the growth opportunity remains strong. In addition, based on our experience, VOD subscribers and V+ DVR users are less likely to churn.
We have reached an agreement with BSkyB for the return of its basic channels to our platform for a license fee of GBP 30m per annum, plus a capped performance-based adjustment (allowing for maximum additional payments of GBP 6m and GBP 8m in years one and two, respectively, and GBP 7.9m in the final seven months of the term). These channels, which include Sky1, Sky2, Sky3, Sky News, Sky Sports News, Sky Arts 1, Sky Arts 2, Sky Real Lives and Sky Real Lives 2 will be available on our platform from November 13, 2008 and will increase the attractiveness of our TV offerings for new and existing customers. The new carriage agreement expires in June 2011.
Telephony (On-net)
Telephony net additions of 15,400 (Q2-08: 3,400; Q3-07: 1,300 net disconnects) were positive for the fourth successive quarter following six quarters of subscriber losses, and showed a large improvement on both the previous quarter and previous year. This was driven by our successful bundling of telephony with our broadband and TV products at the point of sale, along with continued cross-selling and reduced churn.
Off-net
Consumer off-net revenue, which is included in total consumer revenue, was GBP 14.9m (Q2-08: GBP 15.6m; Q3-07: GBP 17.3m). At the quarter-end, we had 260,100 off-net broadband subscribers, with a decrease of 12,600 in the quarter. The number of off-net telephony subscribers decreased by 2,400 during the quarter and we now have a base of 104,900. Subscriber growth was negative, partially due to the migration of billing systems which delayed the introduction of new offerings until mid-September in an increasingly competitive market.
Business
Business revenue was GBP 153.4m (Q2-08: GBP 156.8m; Q3-07: GBP 160.0m) with both the sequential and year-on-year revenue decline due to lower retail voice, wholesale and other retail revenue, partially offset by growth in retail data revenue.
Consistent with our strategy to replace declining voice revenue with data revenue, we continue to experience a shift in the mix of retail revenue from voice to data. Retail data revenue was greater than retail voice revenue for the first time ever in the third quarter. Retail data revenue was GBP 49.3m (Q2-08: GBP 46.8m; Q3-07: GBP 43.3m). Retail voice revenue was GBP 47.5m (Q2-08: GBP 47.7m; Q3-07: GBP 53.4m).
Other retail revenue in the quarter was GBP 13.6m (Q2-08: GBP 17.5m; Q3-07: GBP 17.7m). The majority of this revenue is from infrastructure projects which are non-recurring in nature. Our largest infrastructure project is the provision of telecoms network equipment for the new Terminal 5 at Heathrow airport, which contributed GBP 3.8m of revenue in the third quarter compared to GBP 6.4m in the previous quarter and GBP 8.2m in the same quarter last year as the contract is coming to an end. However, this contract operates at a very low margin and, consequently, it does not have a significant impact on Cable OCF.
Wholesale revenue in the quarter was GBP 43.0m (Q2-08: GBP 44.8m; Q3-07: GBP 45.6m). Revenue was down both quarter-on-quarter and year-on-year due to a reduction in voice traffic, ISP subscriber base and contract decline in mobile accounts.
Cable OCF
Cable OCF in the quarter was GBP 301.7m (Q2-08: GBP 298.3m; Q3-07: GBP 303.5m). Cable OCF was up slightly from the previous quarter mainly due to reduced operating costs, partially offset by higher SG&A. Cable operating costs were down due to lower network operating costs, which benefited from certain reductions in utilities and property costs which we believe are non-recurring in nature, lower voice interconnect costs and lower cost of sales with respect to Business infrastructure revenues.
SG&A was up partially due to higher marketing and sales acquisition costs.
Cable OCF in the same quarter last year benefited from a number of items, including a reduction in Consumer bad debt expense due to operational improvements in our billing and collections resulting from the integration of our systems and processes, lower incentive-based compensation expense relating to a revision to our expected Company incentive scheme payments and lower stock-based compensation expense, primarily due to stock and option forfeitures.
Cable OCF as a percentage of Cable revenue (Cable OCF margin) was 39.5% (Q2-08: 38.9%; Q3-07: 39.5%).
MOBILE SEGMENT
Mobile Revenue
Mobile revenue in the quarter was GBP 145.5m (Q2-08: GBP 143.9m; Q3-07: GBP 158.7m), comprising GBP 139.9m service revenue (Q2-08: GBP 139.3m; Q3-07: GBP 147.3m) and GBP 5.6m equipment revenue (Q2-08: GBP 4.6m; Q3-07: GBP 11.4m).
The sequential service revenue increase was mainly due to growth in the number of higher Mobile ARPU contract subscribers partially offset by a reduction in prepay subscribers. The year-on-year decrease in service revenue was mainly due to a reduction in prepay subscribers and Mobile ARPU, partially offset by growth in the number of higher Mobile ARPU contract subscribers.
There was a data cleanse recognized in the quarter which resulted in an increase in reported contract and prepay customer numbers of 8,700 and 6,800 respectively. All net additions/disconnections figures in the following discussion exclude the impact of the data cleanse so that we are showing the true organic growth or decline.
Contract net additions in the quarter were a record 78,300 (Q2-08: 55,900; Q3-07: 29,700) as we continued to successfully execute our strategy of using our own sales channels and cross-selling mobile contracts to our Virgin Media cable customers. At the quarter-end, we had 578,600 contract customers representing 14% of total mobile customers, and showing growth of 76% in the last twelve months.
Prepay net disconnections in the quarter were 117,300 (Q2-08: 190,100 net disconnects; Q3-07: 13,800 net disconnects). The sequential improvement is due to both an increase in gross connections and reduced churn. The year-on-year decline is because we have not elected to focus on the low price handset end of the prepay market, because that end of the market tends to have higher churn and lower profitability, resulting in lower gross connections. We aim to attract and retain higher value longer term customers to improve Mobile ARPU and profitability.
Overall Mobile ARPU for the quarter was GBP 10.93 (Q2-08: GBP 10.65; Q3-07: GBP 11.11), up sequentially mainly due to an improved mix of higher value contract customers. ARPU is down year-on-year due to both lower contract and prepay ARPU.
We have agreed new terms with our mobile network provider, T-Mobile, which reduce the wholesale rates we pay for voice and data traffic, retroactive to January 1, 2008 for voice and to April 1, 2008 for data. As a result of the new terms, we launched a complementary mobile broadband proposition in October 2008 and as of November 5, 2008, we had approximately 2,000 mobile broadband subscribers. We see mobile broadband as being an attractive product to bundle with our fixed line broadband products. The new wholesale rates mean we should be able to price more competitively in the growing mobile data usage market, which should be more attractive for higher value customers.
Mobile OCF
Mobile OCF was GBP 28.1m in the quarter (Q2-08: GBP 35.5m; Q3-07: GBP 31.5m). Mobile OCF was down compared to the previous quarter. This was partly due to the fact that second quarter Mobile OCF benefited from six months of lower wholesale rates, whereas the third quarter only benefited from three months. Mobile OCF also fell due to increased advertising expense and increased acquisition costs resulting from higher gross additions. Mobile OCF was down compared to the same quarter last year mainly due to lower revenue.
Mobile OCF as a percentage of Mobile revenue (Mobile OCF margin) was 19.3% (Q2-08: 24.7%; Q3-07: 19.8%).
CONTENT SEGMENT
Content Revenue
The Content segment consists of VMtv and Sit-up.
Total Content segment revenue, after inter segment elimination, was GBP 81.9m (Q2-08: GBP 79.5m; Q3-07: GBP 79.8m), comprising GBP 30.9m (Q2-08: GBP 28.3m; Q3-07: GBP 27.0m) from VMtv and GBP 51.0m (Q2-08: GBP 51.2m; Q3-07: GBP 52.8m) from Sit-up. VMtv sells channels to and receives subscriptions from the Virgin Media Cable segment. As a result, for consolidation purposes, GBP 6.4m of inter segment revenue has been eliminated in the quarter.
VMtv revenue was up compared to the same quarter last year due to the successful resolution of a dispute allowing us to recognize GBP 4.3m of advertising revenue that was previously unrecognized.
We have signed a new carriage agreement with BSkyB for continued and extended carriage of our VMtv channels on its satellite platform, effective from November 13, 2008. The new agreement provides for a license fee of GBP 30m, plus a capped performance-based adjustment (allowing for maximum additional payments of GBP 6m and GBP 8m in years one and two, respectively, and GBP 7.9m in the final seven months of the term). We expect this agreement to result in increased payments for our VMtv channels of at least GBP 24m per year. The new carriage agreement expires in June 2011.
Sit-up revenue was flat on the previous quarter, but down 3.4% compared to the same quarter last year due to the impact of a downturn in retail consumer spending.
In September 2008, our Sit-up business received notification that one of its two licenses to broadcast over free-to-air digital terrestrial television (Freeview) would not be renewed in January 2009. In the fourth quarter, management is reviewing the implications of this development on our business model and considering alternative courses of action.
Content OCF
Content segment OCF in the quarter, before inter segment elimination, was negative GBP 4.8m (Q2-08: negative GBP 0.9m; Q3-07: GBP 6.5m). Content OCF was down year-on-year due partly to higher programming costs for the Virgin1 channel (launched on October 1, 2007). Also, while the current quarter benefited from the recognition of the GBP 4.3m advertising revenue referred to above, there were also benefits in the third quarter last year. These were gains from the settlement of long standing contractual issues along with benefits from lower incentive-based compensation expense resulting from a revision to the Company's incentive scheme payments.
UKTV JOINT VENTURE
Virgin Media owns 50% of the companies that comprise UKTV, a group of joint ventures formed with BBC Worldwide. UKTV produces a portfolio of television channels based on the BBC's program library and other acquired programming, which are carried on Virgin Media's cable platform and also on satellite. Some channels are also available on Freeview. In October, UKTV launched a new channel, "Watch", on cable and satellite platforms. UKTV also rebranded its other entertainment channels, changing UKTV Gold to "G.O.L.D. (Go On, Laugh Daily)" and UKTV Drama to "Alibi", to make them more meaningful to their audiences and to drive increased commercial impact delivery.
Virgin Media accounts for its interest in UKTV under the equity method and recognized a share of UKTV's net income of GBP 3.2m in the quarter (Q2-08: GBP 5.0m; Q3-07: GBP 5.9m). UKTV's financial results are not consolidated in Virgin Media's revenue, operating income or OCF.
UKTV is funded by loans from Virgin Media, which totaled GBP 136.3m at September 30, 2008. These loans effectively act as a revolving facility for UKTV. Virgin Media received cash payments from UKTV in the form of loan capital net repayments of GBP 10.0m for the third quarter and GBP 10.5m for the year-to-date. Virgin Media also received cash payments from UKTV in the quarter totaling GBP 5.4m and in the year-to-date totaling GBP 15.2m, which consisted of dividends, interest payments and payments for consortium tax relief.
Virgin Media's investment in UKTV is carried on the balance sheet at September 30, 2008 at GBP 365.4m, which includes the outstanding loans of GBP 136.3m.
OPERATING COSTS (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION)
Operating costs (exclusive of depreciation and amortization) were GBP 436.6m in the quarter (Q2-08: GBP 434.9m; Q3-07: GBP 454.0m). Operating costs were down year-on-year due to lower Cable and Mobile operating costs, partially offset by higher Content operating costs. Cable operating costs were down due to lower network operating costs, which benefited from certain reductions in utilities and property costs which we believe are non-recurring in nature, lower voice interconnect costs and lower cost of sales with respect to Business infrastructure revenues. Mobile operating costs were down, mainly due to lower revenue and the new agreement with T-Mobile. Content operating costs were up due partly to higher programming costs for the Virgin1 channel (launched on October 1, 2007).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
SG&A was GBP 229.5m in the quarter (Q2-08: GBP 222.7m; Q3-07: GBP 210.7m). SG&A costs were up sequentially mainly due to higher Cable and Mobile SG&A. SG&A costs were up year-on-year mainly due to higher Cable SG&A. Mobile SG&A increased due to higher marketing expenses and higher employee incentive expenses.
Cable SG&A was up sequentially by GBP 4.3m partially due to higher marketing and sales acquisition costs.
Cable SG&A was up year-on-year by GBP 12.7m mainly due to the third quarter last year benefiting from a number of items including a reduction in Consumer bad debt expense due to operational improvements in our billing and collections resulting from the integration of our systems and processes, lower incentive-based compensation expense relating to a revision to our expected Company incentive scheme payments and lower stock-based compensation expense primarily due to stock and option forfeitures.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, GOODWILL IMPAIRMENT AND RESTRUCTURING AND OTHER CHARGES (OCF)
OCF was GBP 325.0m in the quarter (Q2-08: GBP 332.9m; Q3-07: GBP 341.5m). The sequential decrease was mainly due to the increase in Cable OCF being offset by reduced Mobile and Content OCF as discussed above.
The decrease in OCF compared to the same quarter last year was mainly due to the third quarter last year benefiting from a number of items. As a result, our Company incentive scheme expense was GBP 12.8m higher and our stock based compensation expense was GBP 5.5m higher in the third quarter of 2008 as compared to the same quarter last year.
OCF as a percentage of revenue (OCF margin) was 32.8% (Q2-08: 33.6%; Q3-07: 33.9%).
OCF is a non-GAAP financial measure. See Appendix E for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.
OPERATING INCOME (LOSS)
Operating income was GBP 48.6m (Q2-08: GBP 333.1m loss; Q3-07: GBP 46.7m) with the sequential improvement reflecting the goodwill impairment charge relating to our Mobile segment that was incurred in the second quarter.
Depreciation was GBP 214.3m (Q2-08: GBP 230.2m; Q3-07: GBP 225.7m) with the reductions due mainly to fixed assets becoming fully depreciated, partially offset by increases in depreciation in respect of new fixed assets.
Amortization expense was GBP 66.1m (Q2-08: GBP 71.3m; Q3-07: GBP 78.0m) with the sequential decline due to the cessation of amortization of certain intangible assets that became fully amortized during the period. The year-on-year decline was also due to the cessation of amortization of certain intangible assets, partially offset by an increased expense related to the reduction in the remaining useful economic life of certain intangible assets effective January 1, 2008.
NET LOSS
Net loss was GBP 120.8m (Q2-08: GBP 447.2m; Q3-07: GBP 61.0m). The sequential decrease was due to the non-cash goodwill impairment charge of GBP 366.2m relating to the annual impairment review of our Mobile segment that was recognized in the second quarter. Following the completion of our valuation of the individual assets and liabilities within the Mobile reporting unit during the current quarter we have recognized an adjustment to the goodwill impairment of GBP 4.0m and consequently the goodwill impairment charge for the nine months ended September 30, 2008 relating to our Mobile reporting unit was GBP 362.2m.
The year-on-year increase in net loss is mainly due to an unfavorable foreign exchange movement on the value of our $1 billion Convertible Senior Notes for which the principal is unhedged. This is a non-cash item. All of our other foreign currency debt balances are fully hedged for foreign exchange exposure.
CAPITAL EXPENDITURE
Fixed asset additions (accrual basis) were GBP 146.6m for the quarter (Q2-08: GBP 155.7m; Q3-07: GBP 128.2m).
Fixed asset additions (accrual basis) are up year-on-year mainly due to increased scaleable infrastructure costs relating to broadband speed upgrades.
The total purchase of fixed assets and intangible assets was GBP 107.3m in the third quarter (Q2-08: GBP 108.3m; Q3-07: GBP 137.8m).
Fixed asset additions (accrual basis) is a non-GAAP financial measure. See Appendix E for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.
DEBT
As of September 30, 2008, long term debt (net of GBP 38m current portion) was GBP 6,160m. This consisted of GBP 4,357m outstanding under our Senior Credit Facility, GBP 1,100m of Senior Notes, GBP 562m of Convertible Senior Notes and GBP 141m of capital leases and other indebtedness. Cash and cash equivalents were GBP 521m.
Cash interest paid (exclusive of amounts capitalized) was GBP 86.2m in the quarter and GBP 455.8m for the last twelve months.
Interest expense in the third quarter was GBP 122.7m (Q2-08: GBP 121.6m; Q3-07: GBP 127.9m). Interest expense was lower than the same quarter last year due mainly to savings following voluntary prepayments of GBP 704m of certain loan obligations, and a lower interest rate on Tranche A bank debt due to a lower leverage ratchet, partially offset by the interest charge on the $1 billion new Convertible Senior Notes issued in April 2008.
On November 3, 2008, Virgin Media announced that the Agent under its senior credit facility had informed the Company that it had received sufficient votes from senior lenders to amend the senior credit facility to, among other things, (i) subject to the repayment condition described below, defer the remaining principal payments due to consenting lenders under the A tranches to June 2012, through the transfer of those lenders' participations to new A tranches, and (ii) suspend the right of consenting lenders under the B tranches to receive a pro rata share of prepayments until the outstanding amounts owed to all A lenders and non-consenting B lenders are repaid in full, through the transfer of those lenders' participations to new B tranches which do not have the right to pro rata prepayments. The Agent has also informed the Company that lenders who represent over 70% of the A tranches and over 80% of the B tranches have individually agreed to move into the new tranches with modified payment terms. Virgin Media expects the amendments to be signed and become effective shortly.
The changes to the repayment schedule under the new A tranches will only become effective after Virgin Media has made payments of 20% (GBP 416m) of the current outstandings under the A tranches. The Company will have six months, subject to a further three-month extension option (exercisable at a cost of up to approximately GBP 1.5 million) to satisfy this repayment condition. Virgin Media must also make simultaneous payments (totaling approximately GBP 77m) to those B lenders who have not consented to suspend their pro rata right to prepayments when it makes repayments under the A tranches.
As a result of these amendments, and assuming (i) satisfaction of the repayment condition by prepayment of 20% of outstanding amounts owed to all A lenders and to non-consenting B lenders and (ii) transfers into the new tranches at the minimum levels notified by the Agent (70% of the A tranches and 80% of the B tranches), Virgin Media's revised amortization schedule under its senior credit facility would be as follows: March 2010 - GBP 34m, September 2010 - GBP 174m, March 2011 - GBP 290m, June 2012 - GBP 1,162m, September 2012 - GBP 1,904m, March 2013 - GBP 300m. The lenders under the new A tranches will receive a margin increase of 1.375%, with effect from the satisfaction of the repayment condition, and the lenders under the new B tranches will receive a margin increase of 1.5%, effective immediately. Additionally, Virgin Media will pay up to GBP 70m in fees in connection with the amendments, some of which is payable only upon satisfaction of the repayment condition.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
Various statements contained in this document constitute "forward-looking statements" as that term is defined under the U.S. Private Securities Litigation Reform Act of 1995. Words like "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions identify these forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by these forward-looking statements. These factors, among others, include: (1) the ability to compete with a range of other communications and content providers; (2) the ability to manage customer churn; (3) the continued right to use the Virgin name and logo; (4) the ability to maintain and upgrade our networks in a cost-effective and timely manner; (5) possible losses in revenues due to systems failures; (6) the ability to provide attractive programming at a reasonable cost; (7) the ability to control unauthorized access to our network; (8) the effect of technological changes on our businesses; (9) the reliance on single-source suppliers for some equipment, software and services and third party distributors of our mobile services; (10) the ability to achieve our business plans; (11) the ability to fund debt service obligations through operating cash flow; (12) the ability to obtain additional financing in the future and react to competitive and technological changes; (13) the ability to comply with restrictive covenants in our indebtedness agreements; (14) the extent to which our future cash flow will be sufficient to cover our fixed charges; and (15) general economic conditions.
These and other factors are discussed in more detail under "Risk Factors" and elsewhere in Virgin Media's Form 10-K filed with the SEC on February 29, 2008, as amended, and our Forms 10-Q filed with the SEC on May 8, 2008 and August 7, 2008. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.
Non-GAAP Financial Measures
We use non-GAAP financial measures with a view to providing investors with a better understanding of the operating results and underlying trends to measure past and future performance and liquidity.
We evaluate operating performance based on several non-GAAP financial measures, including (i) operating income before depreciation, amortization, goodwill impairment and restructuring and other charges (OCF), and (ii) fixed asset additions (accrual basis), as we believe these are important measures of the operational strength of our business and our liquidity. Since these measures are not calculated in accordance with GAAP, they should not be considered as substitutes for operating income (loss) and purchase of fixed assets and purchase of intangible assets, respectively.
Please see Appendix E for a discussion of our use of non-GAAP financial measures and reconciliations to their nearest GAAP equivalents.
Appendices:
A) Financial Statements
* Condensed Consolidated Statements of Operations
* Condensed Consolidated Balance Sheets
* Condensed Consolidated Statements of Cash Flows
* Quarterly Condensed Consolidated Statements of Operations
* Additional Quarterly Condensed Cash Flow Information
B) Group Residential Operations Statistics
C) Segmental Analysis
D) Fixed Asset Additions (Accrual Basis)
E) Use of Non-GAAP Financial Measures and Reconciliations to GAAP
Appendices:
-----------
A) FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in GBP millions, except per share data) (unaudited)
Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
---------- ----------- ----------- -----------
Revenue GBP 991.1 GBP 1,006.2 GBP 2,983.4 GBP 3,023.1
Costs and expenses
Operating costs
(exclusive of
depreciation shown
separately below) 436.6 454.0 1,331.9 1,338.4
Selling, general and
administrative
expenses 229.5 210.7 669.4 722.2
Restructuring and
other (income)
charges -- (8.9) 2.9 5.8
Depreciation 214.3 225.7 676.0 689.4
Amortization 66.1 78.0 230.1 232.9
Goodwill impairment (4.0) -- 362.2 --
---------- ----------- ----------- -----------
Total costs and
expenses 942.5 959.5 3,272.5 2,988.7
---------- ----------- ----------- -----------
Operating income
(loss) 48.6 46.7 (289.1) 34.4
Other income
(expense)
Interest income and
other, net 8.1 10.8 22.0 25.6
Interest expense (122.7) (127.9) (367.7) (374.5)
Share of income from
equity investments 2.1 6.0 11.1 18.5
Foreign currency
(losses) gains (104.7) 2.2 (129.7) 7.8
Loss on
extinguishment of
debt -- -- (5.6) (1.1)
Gains (losses) on
derivative
instruments 48.0 0.8 79.1 (0.7)
---------- ----------- ----------- -----------
Loss before income
taxes and minority
interest (120.6) (61.4) (679.9) (290.0)
Income tax benefit
(expense) -- 0.4 7.9 (10.3)
Minority interest (0.2) -- (0.4) --
---------- ----------- ----------- -----------
Net loss (GBP 120.8) (GBP 61.0) (GBP 672.4) (GBP 300.3)
========== =========== =========== ===========
Basic and diluted
net loss per share (GBP 0.37) (GBP 0.19) (GBP 2.05) (GBP 0.92)
========== =========== =========== ===========
Dividends per share
(in U.S. Dollars) $0.04 $0.04 $0.12 $0.09
========== =========== =========== ===========
Average number of
shares outstanding 328.1 326.4 328.1 325.4
========== =========== =========== ===========
CONDENSED CONSOLIDATED BALANCE SHEETS
(in GBP millions, except par value)
September 30, December 31,
2008 2007
------------ ------------
(Unaudited) (See Note)
Assets
Current assets
Cash and cash equivalents GBP 521.4 GBP 321.4
Restricted cash 6.0 6.1
Accounts receivable - trade, less
allowances for doubtful accounts of
GBP 18.4 (2008) and GBP 19.5 (2007) 446.6 455.6
Inventory 104.9 75.4
Prepaid expenses and other current assets 164.1 94.8
------------ ------------
Total current assets 1,243.0 953.3
Fixed assets, net 5,418.4 5,655.6
Goodwill and other indefinite-lived
intangible assets 2,120.9 2,488.2
Intangible assets, net 591.3 816.7
Equity investments 365.4 368.7
Other assets, net of accumulated
amortization of GBP 61.2 (2008) and
GBP 45.0 (2007) 230.5 183.6
------------ ------------
Total assets GBP 9,969.5 GBP 10,466.1
============ ============
Liabilities and shareholders' equity
Current liabilities
Accounts payable GBP 384.8 GBP 372.9
Accrued expenses and other current
liabilities 490.0 406.2
VAT and employee taxes payable 58.3 86.1
Restructuring liabilities 53.8 89.6
Interest payable 168.8 172.5
Deferred revenue 262.0 250.3
Current portion of long term debt 37.9 29.1
------------ ------------
Total current liabilities 1,455.6 1,406.7
Long term debt, net of current portion 6,160.4 5,929.4
Deferred revenue and other long term
liabilities 128.7 238.5
Deferred income taxes 83.7 81.0
------------ ------------
Total liabilities 7,828.4 7,655.6
------------ ------------
Commitments and contingent liabilities
Minority interest 0.4 --
Shareholders' equity
Common stock - $.01 par value; authorized
1,000.0 (2008 and 2007) shares; issued
329.0 (2008) and 328.9 (2007) and
outstanding 328.1 (2008) and 327.5 (2007)
shares 1.8 1.8
Additional paid-in capital 4,348.9 4,335.9
Accumulated other comprehensive income 158.6 148.6
Accumulated deficit (2,368.6) (1,675.8)
------------ ------------
Total shareholders' equity 2,140.7 2,810.5
------------ ------------
Total liabilities and shareholders' equity GBP 9,969.5 GBP 10,466.1
============ ============
Note: The balance sheet at December 31, 2007 has been derived from
the audited financial statements at that date.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in GBP millions) (unaudited)
Nine months ended
September 30,
------------------------
2008 2007
----------- -----------
Operating activities
Net loss (GBP 672.4) (GBP 300.3)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 906.1 922.3
Goodwill impairment 362.2 --
Non-cash interest (1.7) (29.8)
Non-cash compensation 12.5 14.1
Income from equity accounted investments,
net of dividends received (3.7) (12.5)
Income taxes (4.3) 12.7
Amortization of original issue discount and
deferred financing costs 16.3 17.3
Unrealized foreign currency losses (gains) 117.7 (0.4)
Loss on extinguishment of debt 5.6 1.1
(Gains) losses on derivative instruments (76.9) 0.7
Other (0.1) (2.8)
Changes in operating assets and liabilities (72.9) (179.5)
----------- -----------
Net cash provided by operating activities 588.4 442.9
----------- -----------
Investing activities
Purchase of fixed and intangible assets (340.6) (424.0)
Principal repayments on loans to equity
investments 10.1 14.5
Acquisitions, net of cash acquired -- (1.0)
Other 1.6 6.4
----------- -----------
Net cash used in investing activities (328.9) (404.1)
----------- -----------
Financing activities
New borrowings, net of financing fees 493.4 874.5
Proceeds from employee stock option
exercises 0.6 11.4
Principal payments on long term debt and
capital leases (533.2) (961.6)
Dividends paid (20.4) (14.8)
----------- -----------
Net cash used in financing activities (59.6) (90.5)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 0.1 (2.8)
Increase (decrease) in cash and cash
equivalents 200.0 (54.5)
Cash and cash equivalents, at beginning of
period 321.4 418.5
----------- -----------
Cash and cash equivalents, at end of period GBP 521.4 GBP 364.0
=========== ===========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest
exclusive of amounts capitalized GBP 349.7 GBP 380.8
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in GBP millions, except per share data) (unaudited)
Three months ended
-----------------------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2008 2008 2008 2007 2007
-----------------------------------------------------------
Revenue GBP 991.1 GBP 990.5 GBP 1,001.8 GBP 1,050.6 GBP 1,006.2
Costs and
expenses
Operating
costs
(exclusive
of
depreciation
shown
separately
below) 436.6 434.9 460.4 491.6 454.0
Selling,
general
and
administrative
expenses 229.5 222.7 217.2 238.0 210.7
Restructuring
and other
(income)
charges -- (1.7) 4.6 22.9 (8.9)
Depreciation 214.3 230.2 231.5 235.5 225.7
Amortization 66.1 71.3 92.7 80.4 78.0
Goodwill
impairment (4.0) 366.2 -- -- --
-----------------------------------------------------------
Total costs
and
expenses 942.5 1,323.6 1,006.4 1,068.4 959.5
-----------------------------------------------------------
Operating
income
(loss) 48.6 (333.1) (4.6) (17.8) 46.7
Other
income
(expense)
Interest
income and
other, net 8.1 7.6 6.3 (6.1) 10.8
Interest
expense (122.7) (121.6) (123.4) (139.7) (127.9)
Share of
income
(loss)
from
equity
investments 2.1 3.9 5.1 (0.8) 6.0
Foreign
currency
(losses)
gains (104.7) 3.4 (28.4) (2.7) 2.2
Loss on
extinguishment
of debt -- (5.6) -- (2.1) --
Gains
(losses) on
derivative
instruments 48.0 (2.3) 33.4 (1.8) 0.8
-----------------------------------------------------------
Loss before
income taxes
and minority
interest (120.6) (447.7) (111.6) (171.0) (61.4)
Income tax
benefit -- 0.6 7.3 7.8 0.4
Minority
interest (0.2) (0.1) (0.1) -- --
-----------------------------------------------------------
Net loss (GBP 120.8) (GBP 447.2) (GBP 104.4) (GBP 163.2) (GBP 61.0)
===========================================================
Basic and
diluted
net loss
per -----------------------------------------------------------
share (GBP 0.37) (GBP 1.36) (GBP 0.32) (GBP 0.50) (GBP 0.19)
===========================================================
Average
number of
shares
outstanding 328.1 328.1 327.8 327.4 326.4
===========================================================
ADDITIONAL QUARTERLY CONDENSED CASH FLOW INFORMATION
(in GBP millions) (unaudited)
Three months ended
---------------------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2008 2008 2008 2007 2007
---------------------------------------------------------
Operating
activities
Net loss (GBP 120.8) (GBP 447.2) (GBP 104.4) (GBP 163.2) (GBP 61.0)
Adjustments
to reconcile
net loss to
net cash
provided by
operating
activities:
Depreciation
and
amortization 280.4 301.5 324.2 315.9 303.7
Goodwill
impairment (4.0) 366.2 -- -- --
Non-cash
interest 28.1 (6.9) (22.9) 25.4 35.6
Non-cash
compensation 5.3 5.1 2.1 3.4 (0.2)
Income from
equity
accounted
investments,
net of
dividends
received 1.3 (0.6) (4.4) 1.7 (3.3)
Income taxes 1.8 0.2 (6.3) 1.6 --
Amortization
of original
issue
discount and
deferred
financing
costs 5.4 5.4 5.5 5.8 5.7
Unrealized
foreign
currency
losses
(gains) 96.0 (5.2) 26.9 (2.3) 0.8
Loss on
extinguishment
of debt -- 5.6 -- 2.1 --
(Gains)
losses on
derivative
instruments (52.8) 9.3 (33.4) 1.8 (0.8)
Other 0.4 (0.6) 0.1 13.5 (2.8)
Changes in
operating
assets and
liabilities (31.5) 40.7 (82.1) 62.2 (55.9)
---------------------------------------------------------
Net cash
provided by
operating
activities 209.6 273.5 105.3 267.9 221.8
---------------------------------------------------------
Investing
activities
Purchase of
fixed and
intangible
assets (107.3) (108.3) (125.0) (112.2) (137.8)
Principal
repayments
(drawdowns)
on loans to
equity
investments 9.5 5.5 (4.9) 1.9 8.3
Other -- 1.3 0.3 4.6 4.3
---------------------------------------------------------
Net cash
used in
investing
activities (97.8) (101.5) (129.6) (105.7) (125.2)
---------------------------------------------------------
Financing
activities
New borrowings,
net of
financing
fees (0.6) 494.0 -- -- --
Proceeds from
employee
stock option
exercises -- -- 0.6 3.6 7.4
Principal
payments on
long term
debt and
capital
leases (9.5) (514.9) (8.8) (204.0) (10.2)
Dividends
paid (7.1) (6.7) (6.6) (6.4) (6.5)
---------------------------------------------------------
Net cash
used in
financing
activities (17.2) (27.6) (14.8) (206.8) (9.3)
---------------------------------------------------------
Effect of
exchange rate
changes on
cash and cash
equivalents -- 0.1 -- 2.0 (0.4)
Increase
(decrease) in
cash and cash
equivalents 94.6 144.5 (39.1) (42.6) 86.9
Cash and cash
equivalents,
at beginning
of period 426.8 282.3 321.4 364.0 277.1
---------------------------------------------------------
Cash and cash
equivalents,
at end of
period GBP 521.4 GBP 426.8 GBP 282.3 GBP 321.4 GBP 364.0
=========================================================
Supplemental
disclosure of
cash flow
information
Cash paid
during the
period for
interest
exclusive
of amounts
capitalized GBP 86.2 GBP 121.4 GBP 142.1 GBP 106.1 GBP 85.8
B) GROUP RESIDENTIAL OPERATIONS STATISTICS
(data in 000's)
Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
------------------------------------------------
Group RGUs(1)
Opening RGUs 12,037.3 11,895.2 11,690.9 11,418.8 11,232.1
Net RGU adds 185.2 136.8 204.3 272.1 186.7
Data Cleanse(2) (6.8) 5.3 -- -- --
Data Cleanse(3) 8.7 -- -- -- --
------------------------------------------------
Closing Group
RGUs(1) 12,224.4 12,037.3 11,895.2 11,690.9 11,418.8
================================================
Group RGUs(1)
Telephone
On-net 4,078.6 4,063.5 4,060.4 4,031.4 3,992.5
Off-net 104.9 107.3 102.4 103.9 90.5
------------------------------------------------
4,183.5 4,170.8 4,162.8 4,135.3 4,083.0
On-net TV 3,576.5 3,538.8 3,514.9 3,478.1 3,417.0
On-net DTV 3,407.9 3,353.5 3,311.4 3,253.5 3,167.0
Broadband
On-net 3,625.7 3,563.4 3,502.3 3,413.9 3,307.7
Off-net 260.1 272.7 279.5 287.3 282.3
------------------------------------------------
3,885.8 3,836.1 3,781.8 3,701.2 3,590.0
Mobile
Contract 578.6 491.6 435.7 376.3 328.8
------------------------------------------------
Total RGUs(1) 12,224.4 12,037.3 11,895.2 11,690.9 11,418.8
================================================
Net RGU adds(1) & (2)
Telephone
On-net 15.4 3.4 29.0 38.9 (1.3)
Off-net (2.4) 4.9 (1.5) 13.4 15.0
------------------------------------------------
13.0 8.3 27.5 52.3 13.7
On-net TV 37.8 24.8 36.8 61.1 20.4
On-net DTV 54.4 42.1 57.9 86.5 41.7
Broadband
On-net 68.7 54.6 88.4 106.2 115.8
Off-net (12.6) (6.8) (7.8) 5.0 7.1
------------------------------------------------
56.1 47.8 80.6 111.2 122.9
Mobile(1)
Contract 78.3 55.9 59.4 47.5 29.7
------------------------------------------------
Net RGU adds(1) 185.2 136.8 204.3 272.1 186.7
Data Cleanse -
Residential Cable
Operations(2) (6.8) 5.3 -- -- --
Data Cleanse -
Mobile Operations(3) 8.7 -- -- -- --
Total increase in ------------------------------------------------
RGUs in period 187.1 142.1 204.3 272.1 186.7
================================================
Notes
(1) The operating statistics relating to prepay mobile are included
within Mobile Operations Statistics, below.
(2) Data cleanse activity in our Residential Cable Operations with
respect to August and September of Q3-08 resulted in a decrease
in reported customer numbers of 9,100 and a decrease in reported
RGUs of 6,800 comprised of decreases of approximately 6,400
Broadband, 300 Telephone and 100 Television RGUs. Data cleanse
activity reported with respect to Q2-08 resulted in a decrease in
reported customer numbers of 18,900 and an increase in reported
RGUs of 5,300 comprised of an increase of approximately 6,500
Broadband RGUs and decreases of approximately 300 Telephone and
900 Television RGUs. These Q2-08 figures included a 4,600
decrease in reported customer numbers and a 9,200 decrease in
reported RGUs relating to data cleanse activity in July 2008. The
Net RGU adds above exclude the impact of the data cleanse
increases/decreases in order to show the true organic growth or
decline.
(3) Data cleanse activity in our Mobile Operations with respect to
Q3-08 resulted in an increase in reported Contract mobile
customer numbers as disclosed above.
RESIDENTIAL CABLE OPERATIONS STATISTICS (excluding Off-net and Mobile)
(data in 000's except percentages, RGU/Customer and ARPU)
Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
-----------------------------------------------------
Customers
Opening
Customers 4,741.2 4,779.6 4,774.7 4,750.3 4,737.3
Gross customer
adds 214.6 167.9 181.4 225.1 256.5
Total Customer
disconnections (206.3) (187.4) (176.5) (200.7) (243.5)
Net customer
adds 8.3 (19.5) 4.9 24.4 13.0
Data Cleanse
(1 & 2) (9.1) (18.9) -- -- --
-----------------------------------------------------
Closing
Customers 4,740.4 4,741.2 4,779.6 4,774.7 4,750.3
Monthly customer
churn % 1.5% 1.3% 1.2% 1.4% 1.7%
Cable RGUs
Opening Cable
RGUs 11,165.7 11,077.6 10,923.4 10,717.2 10,582.3
Net Cable RGU
adds 121.9 82.8 154.2 206.2 134.9
Data Cleanse(1) (6.8) 5.3 -- -- --
-----------------------------------------------------
Closing Cable
RGUs 11,280.8 11,165.7 11,077.6 10,923.4 10,717.2
Net Cable RGU
Adds(1)
Telephone 15.4 3.4 29.0 38.9 (1.3)
Television 37.8 24.8 36.8 61.1 20.4
DTV 54.4 42.1 57.9 86.5 41.7
Broadband 68.7 54.6 88.4 106.2 115.8
-----------------------------------------------------
Total Net Cable
RGU Adds 121.9 82.8 154.2 206.2 134.9
Cable Revenue
Generating
Units (RGUs)
Telephone 4,078.6 4,063.5 4,060.4 4,031.4 3,992.5
Television 3,576.5 3,538.8 3,514.9 3,478.1 3,417.0
DTV 3,407.9 3,353.5 3,311.4 3,253.5 3,167.0
Broadband 3,625.7 3,563.4 3,502.3 3,413.9 3,307.7
-----------------------------------------------------
Total Cable
RGUs 11,280.8 11,165.7 11,077.6 10,923.4 10,717.2
Cable RGU /
Customer 2.38 2.36 2.32 2.29 2.26
Bundled
Customers
Dual Cable RGU 1,352.1 1,387.6 1,394.9 1,423.3 1,506.0
Triple Cable
RGU 2,594.2 2,515.3 2,451.6 2,362.6 2,230.5
Percentage of
dual or triple
Cable RGUs 83.2% 82.3% 80.5% 79.3% 78.7%
Percentage of
triple Cable
RGUs 54.7% 53.1% 51.3% 49.5% 47.0%
Cable ARPU(2) GBP 41.94 GBP 41.63 GBP 41.91 GBP 42.24 GBP 41.55
ARPU
calculation:
On-net revenues
(millions) GBP 595.3 GBP 594.8 GBP 601.0 GBP 604.7 GBP 590.5
Average
customers 4,731.8 4,762.9 4,780.2 4,771.7 4,737.1
Homes Marketable
On-net(3)
Telephone 12,282.7 12,306.6 12,309.0 12,313.8 12,353.5
Television -
Total 12,561.9 12,575.4 12,578.1 12,586.8 12,701.5
Television -
DTV 11,974.8 11,987.6 11,990.2 11,993.8 12,050.5
Broadband 12,050.3 12,067.9 12,054.7 12,058.2 11,807.0
Total homes 12,561.9 12,575.4 12,578.1 12,586.8 12,701.5
Penetration of
Homes
Marketable
On-net
Telephone 33.2% 33.0% 33.0% 32.7% 32.3%
Television -
Total 28.5% 28.1% 27.9% 27.6% 26.9%
Television -
DTV 28.5% 28.0% 27.6% 27.1% 26.3%
Broadband 30.1% 29.5% 29.1% 28.3% 28.0%
Total Customer 37.7% 37.7% 38.0% 37.9% 37.4%
Notes
(1) Data cleanse activity with respect to August and September of
Q3-08 resulted in a decrease in reported customer numbers of
9,100 and a decrease in reported RGUs of 6,800, comprised of
decreases of approximately 6,400 Broadband, 300 Telephone and
100 Television RGUs. Data cleanse activity reported with respect
to Q2-08 resulted in a decrease in reported customer numbers of
18,900 and an increase in reported RGUs of 5,300, comprised of an
increase of approximately 6,500 Broadband RGUs and decreases of
approximately 300 Telephone and 900 Television RGUs. These Q2-08
figures included a 4,600 decrease in reported customer numbers
and a 9,200 decrease in reported RGUs relating to data cleanse
activity in July 2008. The Net Cable RGU adds above exclude the
impact of the data cleanse increases/decreases in order to show
the true organic growth or decline.
(2) Cable monthly ARPU is calculated on a quarterly basis by dividing
total revenue generated from the provision of telephone,
television and internet services to customers who are directly
connected to our network in that period together with revenue
generated from our customers using our virginmedia.com website,
exclusive of VAT, by the average number of customers directly
connected to our network in that period divided by three.
For the purpose of calculating Cable ARPU, we have spread the
data cleanse evenly over the three months of the quarter in which
the data cleanse has been reported.
(3) Homes marketable on-net represents management's estimate of homes
passed by our cable network that are capable of taking our
respective products.
CABLE SEGMENT OFF-NET OPERATIONS STATISTICS
(data in 000's)
Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
-----------------------------------------------------
Off-net RGUs
Opening RGUs
Telephone 107.3 102.4 103.9 90.5 75.5
Broadband 272.7 279.5 287.3 282.3 275.2
-----------------------------------------------------
380.0 381.9 391.2 372.8 350.7
Net RGU adds
Telephone (2.4) 4.9 (1.5) 13.4 15.0
Broadband (12.6) (6.8) (7.8) 5.0 7.1
-----------------------------------------------------
(15.0) (1.9) (9.3) 18.4 22.1
Closing RGUs
Telephone 104.9 107.3 102.4 103.9 90.5
Broadband 260.1 272.7 279.5 287.3 282.3
-----------------------------------------------------
365.0 380.0 381.9 391.2 372.8
MOBILE
OPERATIONS
STATISTICS
(data in 000's
except ARPU)
Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
-----------------------------------------------------
Contract Mobile
Customers (1)
Opening
Contract
Mobile
Customers 491.6 435.7 376.3 328.8 299.1
Net Contract
Mobile Customer
adds 78.3 55.9 59.4 47.5 29.7
Data cleanse (2) 8.7 -- -- -- --
-----------------------------------------------------
87.0 55.9 59.4 47.5 29.7
-----------------------------------------------------
Closing Contract
Mobile
Customers (1) 578.6 491.6 435.7 376.3 328.8
Prepay Mobile
Customers (1)
Opening Prepay
Mobile
Customers 3,797.4 3,987.5 4,115.1 4,102.1 4,115.9
Net Prepay
Mobile Customer
adds (117.3) (190.1) (97.9) 13.0 (13.8)
Data cleanse (2) 6.8 -- (29.7) -- --
-----------------------------------------------------
(110.5) (190.1) (127.6) 13.0 (13.8)
-----------------------------------------------------
Closing Prepay
Mobile
Customers (1) 3,686.9 3,797.4 3,987.5 4,115.1 4,102.1
-----------------------------------------------------
Total Closing
Mobile
Customers 4,265.5 4,289.0 4,423.2 4,491.4 4,430.9
=====================================================
Mobile monthly
ARPU (3) GBP 10.93 GBP 10.65 GBP 10.06 GBP 10.69 GBP 11.11
ARPU
calculation:
Service
revenue
(millions) GBP 139.9 GBP 139.3 GBP 134.5 GBP 142.0 GBP 147.3
Average
customers 4,267.4 4,359.6 4,457.8 4,429.2 4,417.9
Notes
(1) Mobile customer information is for active customers. Prepay
customers are defined as active customers if they have made an
outbound call or text in the preceding 90 days. Contract
customers are defined as active customers if they have entered
into a contract with Virgin Mobile for a minimum 30-day period
and have not been disconnected.
(2) Data cleanse activity with respect to Q3-08 resulted in an
increase in Contract and Prepay mobile customer numbers as
disclosed above. Data cleanse activity with respect to Q1-08
resulted in a decrease in Prepay mobile customers as disclosed
above. Previously this data cleanse was shown within Net Prepay
Mobile Customer adds.
(3) Mobile monthly ARPU is calculated on service revenue for the
period divided by the average number of active customers
(contract and prepay) for the period, divided by three. For the
purpose of calculating Mobile ARPU, we have spread the data
cleanse evenly over the three months of the quarter in which the
data cleanse has been reported. This has the effect of revising
the ARPU previously reported for Q1-08 from GBP 10.04 to
GBP 10.06 and the average number of customers previously
reported from 4,465,200 to 4,457,800.
C) SEGMENTAL ANALYSIS
(in GBP millions) (unaudited)
Three months ended
-----------------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2008 2008 2008 2007 2007
-----------------------------------------------------
Revenue
Cable segment
Consumer 611.2 611.0 618.8 623.2 608.4
Business 153.5 156.9 160.8 163.1 160.1
-----------------------------------------------------
Total 764.7 767.9 779.6 786.3 768.5
Inter segment
revenue (1.0) (0.8) (0.7) (1.4) (0.8)
-----------------------------------------------------
763.7 767.1 778.9 784.9 767.7
-----------------------------------------------------
Mobile segment
Virgin Mobile 145.5 143.9 139.5 151.6 158.7
-----------------------------------------------------
Content segment
Virgin
Media TV 37.3 34.8 34.7 33.5 33.2
Sit-up 51.0 51.2 55.0 86.8 52.8
-----------------------------------------------------
Total 88.3 86.0 89.7 120.3 86.0
Inter segment
revenue (6.4) (6.5) (6.3) (6.2) (6.2)
-----------------------------------------------------
81.9 79.5 83.4 114.1 79.8
-----------------------------------------------------
-----------------------------------------------------
Total revenue 991.1 990.5 1,001.8 1,050.6 1,006.2
-----------------------------------------------------
Operating costs
(exclusive of
depreciation)
Cable segment 281.4 292.3 309.0 292.1 296.1
Mobile segment 89.3 83.0 92.6 100.7 102.2
Content segment 72.3 66.1 65.1 105.0 61.9
Inter segment (6.4) (6.5) (6.3) (6.2) (6.2)
-----------------------------------------------------
436.6 434.9 460.4 491.6 454.0
Selling, general
and
administrative
expenses
Cable segment 181.6 177.3 168.7 184.7 168.9
Mobile segment 28.1 25.4 29.7 33.1 25.0
Content segment 20.8 20.8 19.5 21.6 17.6
Inter segment (1.0) (0.8) (0.7) (1.4) (0.8)
-----------------------------------------------------
229.5 222.7 217.2 238.0 210.7
Segment OCF (1)
Cable
segment OCF 301.7 298.3 301.9 309.5 303.5
Mobile
segment OCF 28.1 35.5 17.2 17.8 31.5
Content
segment OCF (4.8) (0.9) 5.1 (6.3) 6.5
-----------------------------------------------------
OCF (Total) 325.0 332.9 324.2 321.0 341.5
-----------------------------------------------------
Note:
(1) Segment OCF includes inter segment revenue and costs as
applicable. OCF (Total) is a non-GAAP financial measure - see
Appendix E.
D) FIXED ASSET ADDITIONS (ACCRUAL BASIS)
(in GBP millions) (unaudited)
Three months ended
---------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2008 2008 2008 2007 2007
---------------------------------------
NCTA Fixed Asset Additions
CPE 53.4 50.5 62.5 53.3 49.1
Scaleable infrastructure 42.5 43.4 29.1 33.7 28.4
Commercial 18.6 22.6 18.9 17.1 17.1
Line extensions 0.2 0.1 0.5 0.6 0.1
Upgrade/rebuild 0.7 1.6 0.8 6.4 2.1
Support capital 23.4 25.3 20.3 24.9 25.1
---------------------------------------
Total NCTA Fixed Asset
Additions 138.8 143.5 132.1 136.0 121.9
Non NCTA Fixed Asset Additions 7.8 12.2 5.0 4.3 6.3
Total Fixed Asset Additions ---------------------------------------
(Accrual Basis) 146.6 155.7 137.1 140.3 128.2
Fixed assets acquired under
capital leases (34.2) (29.6) (22.7) (17.9) (12.7)
Changes in liabilities
related to:
Fixed Asset Additions (Accrual
Basis) (5.1) (17.8) 10.6 (10.2) 22.3
Total Purchase of Fixed ---------------------------------------
Assets and Intangible Assets 107.3 108.3 125.0 112.2 137.8
=======================================
Comprising:
Purchase of Fixed Assets 107.2 105.4 123.2 104.5 137.7
Purchase of Intangible Assets 0.1 2.9 1.8 7.7 0.1
---------------------------------------
107.3 108.3 125.0 112.2 137.8
=======================================
Note
Virgin Media is not a member of NCTA and is providing this
information solely for comparative purposes.
Fixed Asset Additions (Accrual Basis) are from continuing operations.
See Appendix E for a discussion of the use of Fixed Asset Additions
(Accrual Basis) as a non-GAAP financial measure and the
reconciliation of Fixed Asset Additions (Accrual Basis) to GAAP
Purchase of Fixed Assets and Purchase of Intangible Assets.
E) USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS TO GAAP
The presentation of this supplemental information is not meant to
be considered in isolation or as a substitute for other measures
of financial performance reported in accordance with GAAP. These
non-GAAP financial measures reflect an additional way of viewing
aspects of our operations that, when viewed with our GAAP results
and the accompanying reconciliations to corresponding GAAP
financial measures, provide a more complete understanding of
factors and trends affecting our business. We encourage investors
to review our financial statements and publicly-filed reports in
their entirety and to not rely on any single financial measure.
(i) Operating income before depreciation, amortization, goodwill
impairment and restructuring and other charges (OCF)
Operating income before depreciation, amortization, goodwill
impairment and restructuring and other charges, which we refer
to as OCF or OCF (Total), is not a financial measure recognised
under GAAP. OCF represents our operating revenue before
depreciation, amortization, goodwill impairment and restructuring
and other charges. Our management, including our chief executive
officer, who is our chief operating decision maker, considers OCF
as an important indicator of our operational strength and
performance. OCF excludes the impact of costs and expenses that
do not directly affect our cash flows. Other charges, including
restructuring charges, are also excluded from OCF as management
believes they are not characteristic of our underlying business
operations. OCF is most directly comparable to the GAAP financial
measure operating income (loss). Some of the significant
limitations associated with the use of OCF as compared to
operating income (loss) are that OCF does not consider the amount
of required reinvestment in depreciable fixed assets and ignores
the impact on our results of operations of items that management
believes are not characteristic of our underlying business
operations.
We believe OCF is helpful for understanding our performance and
assessing our prospects for the future, and that it provides
useful supplemental information to investors. In particular, this
non-GAAP financial measure reflects an additional way of viewing
aspects of our operations that, when viewed with our GAAP results
and the reconciliation to operating income (loss) shown below,
provides a more complete understanding of factors and trends
affecting our business. Because non-GAAP financial measures are
not standardized, it may not be possible to compare OCF with
other companies' non-GAAP financial measures that have the same
or similar names.
Reconciliation of operating income before depreciation,
amortization, goodwill impairment and restructuring and other
charges (OCF) to GAAP operating income (loss)
(in GBP millions) (unaudited) Three months ended
---------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2008 2008 2008 2007 2007
---------------------------------------
Operating income before
depreciation, amortization,
goodwill impairment and
restructuring and other
charges (OCF) 325.0 332.9 324.2 321.0 341.5
Reconciling items
Depreciation and
amortization (280.4) (301.5) (324.2) (315.9) (303.7)
Goodwill impairment 4.0 (366.2) -- -- --
Restructuring and other
income (charges) -- 1.7 (4.6) (22.9) 8.9
---------------------------------------
Operating income (loss) 48.6 (333.1) (4.6) (17.8) 46.7
=======================================
(ii) Fixed Asset Additions (Accrual Basis)
Our primary measure of expenditures for fixed assets is Fixed
Asset Additions (Accrual Basis). Fixed Asset Additions (Accrual
Basis) is defined as the purchase of fixed assets and intangible
assets as measured on an accrual basis. Our business is
underpinned by significant investment in network infrastructure
and information technology. Our management therefore considers
Fixed Asset Additions (Accrual Basis) an important component in
evaluating our liquidity and financial condition since purchases
of fixed assets are a necessary component of ongoing operations.
Fixed Asset Additions (Accrual Basis) is most directly
comparable to the GAAP financial measure purchase of fixed and
intangible assets, as reported in the Statement of Cash Flows.
The significant limitations associated with the use of Fixed
Asset Additions (Accrual Basis) as compared to purchase of fixed
assets and purchase of intangible assets is that Fixed Asset
Additions (Accrual Basis) excludes timing differences from
payments of liabilities, including finance leases, related to
purchase of fixed assets and purchase of intangible assets. We
exclude these amounts from Fixed Asset Additions (Accrual Basis)
because timing differences from payments of liabilities,
including the use of finance leases, are more related to the
cash management treasury function than to our management of
fixed asset purchases for long-term operational performance and
liquidity. We compensate for the limitation by separately
measuring and forecasting working capital.
Reconciliation of Fixed Asset Additions (Accrual Basis) to GAAP
purchase of fixed assets and purchase of intangible assets
(in GBP millions) (unaudited)
Three months ended
---------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2008 2008 2008 2007 2007
---------------------------------------
Fixed Asset Additions
(Accrual Basis) 146.6 155.7 137.1 140.3 128.2
Fixed assets acquired
under capital leases (34.2) (29.6) (22.7) (17.9) (12.7)
Changes in liabilities
related to fixed asset
additions (5.1) (17.8) 10.6 (10.2) 22.3
------- ------- ------- ------- -------
Total Purchase of Fixed
Assets and Intangible
Assets 107.3 108.3 125.0 112.2 137.8
======= ======= ======= ======= =======
Comprising:
Purchase of fixed assets 107.2 105.4 123.2 104.5 137.7
Purchase of intangible
assets 0.1 2.9 1.8 7.7 0.1
------- ------- ------- ------- -------
107.3 108.3 125.0 112.2 137.8
======= ======= ======= ======= =======