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| 29/10/09 |
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| Virgin Media Reports Strong Third Quarter 2009 Results |
Virgin Media Inc. (NASDAQ: VMED; LSE: VMED) announces results for the quarter ended September 30, 2009.
Quarterly Highlights
Financial
* Consumer on-net(1)revenue increased 5.3% to £628m (Q3-08: £596m)* Total revenue increased 1.3% to £953m (Q3-08:
£941m)* OCF(2)increased 6.8% to £348m (Q3-08: £326m)* Operating income of £50m (Q3-08: £53m)* Free Cash Flow(3)of £109m
(Q3-08: £103m)* Net cash provided by operating activities of £278m (Q3-08: £213m)* Completion of secondary listing on
the London Stock Exchange Operational
* On-net ARPU increased 5.3% to £44.24 (Q3-08: £42.00)* On-net churn flat year-on-year at 1.5% (Q3-08: 1.5%)* Customers
are buying more from us with RGUs(4)net increase of 199,900 (Q3-08: 185,200) to 12.85m (Q3-08: 12.22 m)* On-net
triple-play penetration of 59.5% (Q3-08: 54.7%); quad-play penetration now at 10.1% On-net Broadband
* Broadband customer net additions of 39,000 (Q3-08: 68,700) to 3.77m (Q3-08: 3.63m)* New and existing customers are
subscribing to faster broadband, improving tier mix* Customers with 10Mb or higher increased 157% year-on-year
(including migration) to 2.70m representing 72% of base* Customers with 20Mb or higher increased 40% year-on-year to
0.5m representing 13% of base* 2Mb to 10Mb upgrade continues - 834,000 customers upgraded so far Television
* TV customer net additions of 37,000 (Q3-08: 37,800) to 3.71m (Q3-08: 3.58m)* Video-on-demand (VOD) average monthly
reach of 55% of digital customers (Q3-08: 49%)* Highest ever average VOD views of 66m per month (Q3-08: 45m) Mobile
* Record contract mobile customer net additions of 88,000 (Q3-08: 78,300) to 872,600 (Q3-08: 578,600), up 51%
year-on-year (1)On-net: where consumer services are provided by the Company's fiber optic cable network, as opposed
to non-cable areas, referred to as off-net.
(2)OCF: operating income before depreciation, amortization, goodwill and intangible asset impairments and
restructuring and other charges. OCF is a non-GAAP financial measure. Please see Appendix F for a reconciliation of
non-GAAP financial measures to their nearest GAAP equivalents.
(3)Free Cash Flow or FCF: operating income before depreciation, amortization, goodwill and intangible asset
impairments and restructuring and other charges (OCF) reduced by purchase of fixed and intangible assets, as reported in
our statements of cash flows, and net interest expense, as reported in our statements of operations. FCF is a non-GAAP
financial measure. Please see Appendix F for a reconciliation of non-GAAP financial measures to their nearest GAAP
equivalents.
(4)Revenue Generating Unit or RGU: a contract for residential broadband, TV, telephony or contract mobile services.
A triple-play customer is one household taking broadband, TV and telephony, which equals three RGUs. A quad-play
customer is one household taking broadband, TV, telephony and mobile services.
Neil Berkett, Chief Executive Officer of Virgin Media, said:
'I am pleased to report that this quarter's results delivered a strong OCF performance. I believe this demonstrates
the success we have had in significantly differentiating and monetizing our compelling consumer proposition. Our
triple-play penetration is at record levels and over 10% of our customers now take all four services from us. Our focus
remains on attracting high value customers, who buy more from us and stay with us longer. This strategy has led to the
second successive quarter of record ARPU and strong consumer revenue growth. I am delighted that these results show we
are progressing significantly in this regard.'
Conference call details
There will be a webcast and conference call for analysts and investors today at 9am ET / 1pm 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 5, 2009. The dial-in replay number for the US is: +1 866 583 1035 and the international dial-in
replay number is: +44 (0)20 8196 1998, passcode: 499513.
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 below to 'Safe Harbor Statement under the U.S. Private Securities Litigation
Reform Act of 1995' for a more detailed discussion regarding these forward-looking statements.
SUMMARY FINANCIAL RESULTS (unaudited)
Q3 2009 Q2 2009 Q3 2008
£m £m £m
(adjusted)(1)
Revenue
On-net 627.6 616.8 596.2
Mobile 134.1 127.5 145.5
Off-net (National) 14.4 13.3 14.9
Consumer segment - Total 776.1 757.6 756.6
Business segment 143.3 142.5 153.4
Content segment 34.0 35.7 30.9
Total Revenue 953.4 935.8 940.9
OCF(2) 348.4 333.8 326.3
FCF(2) 109.2 85.3 102.8
Operating income 50.2 15.2 53.3
Net cash provided by operating activities 278.4 235.5 213.3
CONSUMER OPERATIONS STATISTICS ('000s) Q3 2009 Q2 2009 Q3 2008
Consumer RGUs
Television 3,709.0 3,672.0 3,576.5
Digital TV 3,599.3 3,543.3 3,407.9
Broadband
On-net 3,774.2 3,735.2 3,625.7
Off-net 253.2 245.7 260.1
4,027.4 3,980.9 3,885.8
Telephone
On-net 4,120.0 4,104.0 4,078.6
Off-net 124.9 112.5 104.9
4,244.9 4,216.5 4,183.5
Mobile (3)
Contract 872.6 784.6 578.6
Total Consumer RGUs 12,853.9 12,654.0 12,224.4
Net Consumer RGU adds
Television 37.0 20.4 37.8
Digital TV 56.0 32.9 54.4
Broadband
On-net 39.0 5.1 68.7
Off-net 7.5 (1.3) (12.6)
46.5 3.8 56.1
Telephone
On-net 16.0 (4.3) 15.4
Off-net 12.4 3.5 (2.4)
28.4 (0.8) 13.0
Mobile (3)
Contract 88.0 72.3 78.3
Data cleanse - On-Net Operations - - (6.8)
Data cleanse - Mobile Operations - - 8.7
Total Net Consumer RGU adds in period 199.9 95.7 187.1
Notes
(1) Prior period results have been adjusted to reflect the treatment of our former
Sit-up business as discontinued operations and the reorganization of our reporting
segments.
(2) OCF and FCF are non-GAAP financial measures. Please see Appendix F for a
reconciliation of non-GAAP financial measures to their nearest GAAP equivalents.
(3) The operating statistics relating to prepay mobile are included within Mobile
Operations Statistics, as described elsewhere in this earnings release.
OVERVIEW
For the second consecutive quarter, we have delivered strong on-net ARPU which has driven significant consumer
on-net revenue growth in the quarter. Combined with sustained solid cost control, we have achieved a strong performance
in OCF. As expected, we achieved a sequential improvement in the gross number of new on-net subscribers. We also
returned to positive on-net and off-net customer growth for the period with 17,800 net additions in total. However, it
is our focus on attracting and retaining higher value customers in all areas of our Consumer business that has delivered
this financial performance as we monetize the long term capital investment we are making in our infrastructure.
In broadband, we continued to improve our tier mix, which helps drive on-net ARPU growth. We are in the process of
upgrading our 2Mb customers to 10Mb and during the quarter completed the roll-out of our ultrafast 50Mb product, the
UK's fastest widely-available consumer broadband service. We have also invested in bringing our broadband and digital TV
cable network to more potential customers, extending our network by around 55,000 additional homes so far this year.
In television, the use of our market leading video-on-demand (VOD) service continues to grow. Our customers made 66
million views each month on average during the quarter. We introduced six new High Definition (HD) channels in the
quarter, including the exclusive HD launch of VMtv's LIVING, one of the most watched digital channels in the UK, and
plan to launch more next year to complement our existing linear and popular on-demand line-up.
We have added a record number of mobile contract customers, as we execute our strategy of focusing on higher
lifetime value subscribers and targeting the opportunity to cross-sell to our on-net customers. We currently have 2.8m
triple-play subscribers, of which nearly 0.5m are quad-play, who benefit from the cost savings we provide. We continue
to work on exploiting mobile as the third screen, with a view to giving our customers a compelling content experience
across all platforms, and recently agreed our first ever comprehensive rights deal so that customers will be able to
access the same content from Disney, via their television, computer or mobile phone.
During the quarter, we extended Virgin Media's retail presence to 20 new locations, reaching a total of 59. This
combination of retail stores and 'retail-lite' outlets provides highly visible touch points for prospective and existing
customers, and we will continue to expand our retail presence in key locations throughout the UK.
On October 1, 2009, our common stock started trading on the main market of the London Stock Exchange pursuant to a
secondary listing, an important step in broadening investor access to our stock.
RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
TOTAL REVENUE
Total revenue in the third quarter was £953.4m (Q2-09: £935.8m; Q3-08: £940.9m). Revenue movements are discussed
further below.
CONSUMER SEGMENT
On-net
On-net revenue in the third quarter was up 5.3% year-on-year at £627.6m (Q2-09: £616.8m; Q3-08: £596.2m). This
increase principally reflects the growth in on-net ARPU, which increased 5.3% year-on-year to £44.24 (Q2-09: £43.27;
Q3-08: £42.00) as a result of selective price rises, successful tier mix improvement and growth in RGU per customer,
partially offset by declining fixed line telephony usage and promotional discounting.
Average monthly on-net churn remained stable year-on-year at 1.5% (Q2-09: 1.3%; Q3-08: 1.5%) and was up sequentially
mainly due to seasonal trends relating to increased movers in the quarter.
Gross on-net customer additions in the third quarter were 213,800 (Q2-09: 159,500; Q3-08: 214,600), up 34% on the
previous quarter and relatively flat on the same quarter last year. The value of the gross additions this quarter is
higher than those from a year ago due to a better tier mix, higher RGU per customer and selective price rises. The
on-net customer base increased to 4.74m at the quarter-end, with net additions of 8,100 (Q2-09: 26,200 net disconnects;
Q3-08: 8,300) in the quarter.
Successful bundling and cross-sell was reflected in continued growth in triple-play penetration, which reached a
record 59.5% at the quarter-end compared to 54.7% a year ago. The proportion of customers taking only one product fell
to 14.9% compared to 16.8% a year ago.
Broadband
Broadband net additions were 39,000 (Q2-09: 5,100; Q3-08: 68,700) showing significant improvement on the second
quarter alongside the continuing improvement in tier mix. Net additions were down year-on-year due to our shift in focus
towards growth in higher speed (and higher ARPU) customers and lower growth in the UK broadband market.
The focus on up-sell has improved the tier mix and the number of subscribers on our top two broadband tiers (20Mb
and 50Mb) has increased by 40% to 503,500 in the last twelve months. During the quarter, we completed the roll-out of
our ultrafast 50Mb product. At the end of the quarter, we had over 20,000 50Mb customers. We reduced the 50Mb price in
September and consequently saw a marked improvement in the growth rate in September and October. Over 40% of new 50Mb
subscribers in the quarter were also new customers to our broadband service.
We are part-way through upgrading our 2Mb customers to 10Mb and by the end of the quarter, 834,000 customers had
been upgraded. At the quarter-end, 72% of our broadband customers subscribed to a 10Mb tier or higher.
Television
Total TV net additions were 37,000 in the quarter (Q2-09: 20,400; Q3-08: 37,800).
Customers are increasingly using and being attracted by our market-leading VOD services. On a monthly basis, 55% of
our digital TV customers and 69% of customers on our 'XL' top basic tier use VOD. Average views per user per month in
the quarter were 33 compared to 27 a year ago.
During the quarter, we added 80,800 V+ HD DVR subscribers to reach an installed base of 749,300. This represents a
penetration level of 21% of our digital subscribers which leaves significant further up-sell opportunities.
Telephony
Telephony net additions for the quarter were 16,000 (Q2-09: 4,300 net disconnects; Q3-08: 15,400). 54% of our
telephony customers subscribe to one of our unmetered tiers (or Talk plans) compared to 52% a year earlier. Unmetered
customers typically have higher ARPU and lower churn.
Mobile
Mobile revenue in the quarter was £134.1m (Q2-09: £127.5m; Q3-08: £145.5m). The year-on-year decline reflects the
impact of the regulated Mobile Termination Charge ('MTC') reduction implemented from April 2009 and the expected
reduction in low lifetime value prepay subscribers, being partially offset by growth in the number of higher lifetime
value contract subscribers. The sequential increase was due to higher Mobile ARPU.
Contract net additions in the quarter were 88,000 (Q2-09: 72,300; Q3-08: 78,300) as we continued to execute our
strategy of using our own sales channels and cross-selling mobile contracts to our on-net customers. At the quarter-end,
we had 872,600 contract customers representing 27% of our total mobile customers, and growth of 51% in the last twelve
months.
The number of prepay net disconnections in the quarter was 126,200 (Q2-09: 106,500; Q3-08: 98,100). The decline
reflected a highly competitive market and our decision not to focus on the lower end of the prepay market which has
higher churn, low tariffs and lower overall lifetime value.
Overall Mobile ARPU for the quarter was £13.41 (Q2-09: £12.43; Q3-08: £13.60), down slightly year-on-year.
Off-net
Off-net revenue was £14.4m (Q2-09: £13.3m; Q3-08: £14.9m). Broadband net additions during the quarter were 7,500
(Q2-09: 1,300 net disconnects; Q3-08: 12,600 net disconnects). Telephony net additions during the quarter were 12,400
(Q2-09: 3,500; Q3-08: 2,400 net disconnects). The significant improvement in both broadband and telephony net additions
was due to the launch of wholesale line rental which allows us to offer a telephone line rental bundled with our
broadband product and new flexible consumer propositions.
BUSINESS SEGMENT
Business revenue was £143.3m (Q2-09: £142.5m; Q3-08: £153.4m). Business revenue declined year-on-year as a 12%
increase in retail data revenue was offset by declines in other areas. However, the mix of revenue improved as retail
data generally provides higher gross margin than other Business products. As a result, Business gross margin(1)increased
to £102.7m (Q2-09: £96.1m; Q3-08: £101.0m).
Our strategy is to focus on growing higher margin data revenues to replace declining voice revenues. Retail data
revenue in the quarter was £55.4m (Q2-09: £49.9m; Q3-08: £49.3m). Retail voice revenue was £44.3m (Q2-09: £43.6m; Q3-08:
£47.5m).
We recently agreed a large deal with the Hampshire and Isle of Wight Authority to deliver a state of the art new
network connecting more than a thousand sites. Arqiva have awarded us a large contract for a new core network and access
circuits over a seven year term. In addition, a collaborative procurement of eight Health Trusts across Lancashire have
agreed to purchase their new network requirements, potentially including wireless, LAN, voice, RAS and mobile services,
from us.
Local Area Network ('LAN') Solutions revenue in the quarter was £7.6m (Q2-09: £9.5m; Q3-08: £13.6m). The majority of
the year-on-year decline is due to the completion of the contract for Terminal 5. LAN Solutions typically provides much
lower gross margin than other Business products.
Wholesale revenue in the quarter was £36.0m (Q2-09: £39.5m; Q3-08: £43.0m). Revenue was down year-on-year mainly due
to reduced customer traffic.
( 1 ) Business gross margin is defined as business revenue less business cost of sales.
CONTENT SEGMENT
Content revenue, after inter segment elimination, was £34.0m (Q2-09: £35.7m; Q3-08: £30.9m). VMtv sells TV channels
to and receives subscriptions from the Consumer segment. As a result, for consolidation purposes, £7.0m of inter segment
revenue has been eliminated in the quarter.
VMtv revenue increased compared to the same quarter last year mainly due to growth in subscription revenue,
partially offset by reduced advertising revenue.
Subscription revenue increased year-on-year due to the carriage agreement with BSkyB for continued and extended
carriage of our VMtv channels on its satellite platform, effective from November 13, 2008, at higher rates than under
the previous contract.
Advertising revenue was down due to macroeconomic related declines in the total TV advertising market. However, VMtv
increased its overall share of the TV advertising market.
Content segment contribution was £0.4m loss (Q2-09: £6.4m; Q3-08: £3.6m loss). The sequential decrease was due to
seasonally higher programming expense. The year-on-year improvement was mainly due to increased subscription revenue.
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.
Virgin Media accounts for its interest in UKTV under the equity method and recognized a share of UKTV's net income
of £5.5m in the quarter (Q2-09: £0.4m; Q3-08: £3.2m). 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 were £132m at September 30, 2009. Virgin Media received £8.2m from
UKTV in the form of loan capital repayments during the third quarter and £8.9m in the year to date. Virgin Media also
received cash payments from UKTV in the quarter totaling £3.0m and £6.0m in the year to date 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, 2009 at £355m, which includes the
outstanding loans of £132m.
OPERATING COSTS AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Operating costs (exclusive of depreciation and amortization) were £403.8m in the quarter (Q2-09: £404.6m; Q3-08:
£398.5m).
Total gross margin percentage(1)in the quarter was 57.6% (Q2-09: 56.8%; Q3-08: 57.6%). This increased sequentially
mainly due to increased Consumer gross margin percentage(2)resulting from price increases and tier mix improvements and
increased Business gross margin percentage(2)resulting from improved mix.
(1)Total gross margin percentage is defined as total revenue less total operating
costs, divided by total revenue
(2)Consumer or Business gross margin percentage is defined as consumer or business
revenue less consumer or business cost of sales, divided by consumer or
business revenue, respectively.
SG&A was £201.2m in the quarter (Q2-09: £197.4m; Q3-08: £216.1m). SG&A was down year-on-year mainly due to lower
employee and outsourcing costs and reduced other costs. SG&A increased sequentially, mainly due to higher employee and
outsourcing costs and higher marketing costs, partially offset by lower other costs. Employee and outsourcing costs
increased sequentially mainly due to higher stock based compensation expense.
Cost saving program
In November 2008, we announced important steps to re-engineer our business and create a fully-integrated,
customer-focused organization, driving further improvements in operational performance and eliminating inefficiencies.
This program remains on track to achieve the target savings.
During the third quarter, we incurred £2.6m in SG&A and operating costs (Q2-09: £2.8m; Q3-08: £nil) and £0.6m in
restructuring and other charges (Q2-09: £22.2m; Q3-08 £nil) in relation to this program. These restructuring and other
charges consisted mostly of vacant property charges and employee redundancy expense. For the full year, we expect to
incur up to £15m in SG&A and operating costs and up to £40m of restructuring and other charges relating to this cost
saving program.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, GOODWILL AND INTANGIBLE ASSET IMPAIRMENTS AND RESTRUCTURING AND
OTHER CHARGES (OCF)
OCF was £348.4m in the quarter (Q2-09: £333.8m; Q3-08: £326.3m). The sequential increase was mainly due to increased
revenue. The year-on-year increase was mainly due to increased revenue and reduced SG&A.
As a result, OCF as a percentage of revenue (OCF margin) increased to 36.5% (Q2-09: 35.7%; Q3-08: 34.7%).
OCF is a non-GAAP financial measure. See Appendix F for reconciliations of non-GAAP financial measures to their
nearest GAAP equivalents.
OPERATING INCOME
Restructuring and other charges of £1.6m were incurred during the quarter (Q2-09: £23.6m; Q3-08: £nil).
Depreciation expense was £235.6m (Q2-09: £233.9m; Q3-08: £213.7m). Amortization expense was £61.0m (Q2-09: £61.1m;
Q3-08: £63.3m).
Operating income was £50.2m (Q2-09: £15.2m; Q3-08: £53.3m) with the sequential improvement mainly due to increased
revenue and lower restructuring charges. Operating income as a percentage of revenue was 5.3% (Q2-09: 1.6%; Q3-08:
5.7%).
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations was £60.1m (Q2-09: £47.6m; Q3-08: £118.1m). The sequential decline was mainly
due to increased foreign currency losses, partially offset by larger gains on derivative instruments and increased
operating income. The year-on-year improvement is mainly due to reduced foreign currency losses.
CAPITAL EXPENDITURE
Fixed asset additions (accrual basis) were £150.9m for the quarter (Q2-09: £142.9m; Q3-08: £145.9m).
The total purchase of fixed assets and intangible assets was £120.6m in the third quarter (Q2-09: £148.2m; Q3-08:
£106.7m) with the sequential decrease mainly due to the timing of payments to fixed asset suppliers and increased use of
capital leases. The year-on-year increase was mainly due to the timing of payments to fixed asset suppliers and less use
of capital leases.
Fixed asset additions (accrual basis) is a non-GAAP financial measure. See Appendix F for reconciliations of
non-GAAP financial measures to their nearest GAAP equivalents.
FREE CASH FLOW
Free Cash Flow was £109.2m (Q2-09: £85.3m; Q3-08: £102.8m). The sequential increase is due to increased OCF and
reduced purchase of fixed and intangible assets, partially offset by increased interest expense. The year-on-year
increase is mainly due to increased OCF, partially offset by increased purchase of fixed and intangible assets. Net cash
provided by operating activities was £278.4m (Q2-09: £235.5m; Q3-08: £213.3m) with the year-on-year increase due to
higher OCF and the timing of interest payments.
Free Cash Flow is a non-GAAP financial measure. See Appendix F for reconciliations of non-GAAP financial measures to
their nearest GAAP equivalents.
DEBT
As of September 30, 2009, long term debt, net of £42m current portion, was £5,930m. Total debt consisted of £3,127m
outstanding under our Senior Credit Facility, £2,166m of Senior Notes, £507m of Convertible Senior Notes and £172m of
capital leases and other indebtedness. Cash and cash equivalents were £352m.
Debt issuances
During the quarter, we issued $600m 9.50% Senior Notes due 2016. The net proceeds from the offering, taking into
account fees and expenses, were £360m and were used, in conjunction with existing cash reserves, to prepay £404m
equivalent of the outstanding loans under our Senior Credit Facility.
Virgin Media's amortization schedule under its Senior Credit Facility as at the end of the quarter is as follows:
September 2010 - £0.2m, March 2011 - £286m, June 2012 - £678m, September 2012 - £1,863m, March 2013 - £300m, based on
foreign exchange rates as at September 30, 2009.
Interest costs
Interest expense in the third quarter was £119.9m (Q2-09: £102.3m; Q3-08: £124.6m). Interest expense was
sequentially higher due to the issue of 9.50% Senior Notes due 2016 in June and July 2009 which were used to prepay
lower interest loans under our Senior Credit Facility.
Hedging programs
As at September 30, 2009, the fair value of our derivative financial instruments was £267m in assets and £99m in
liabilities. Certain of the derivatives described below do not qualify for hedge accounting treatment under U.S. GAAP.
Foreign currency exposure
We have hedged our exposure on the $425m Senior Notes due 2014 and EUR225m Senior Notes due 2014 through to October
2011. All of the Senior Notes due 2016 and foreign currency exposure in the Senior Credit Facility are hedged through
maturity. The principal of the Convertible Senior Notes is not hedged for currency movements as it may be settled in
either cash or shares in 2016, depending on our stock price and other factors.
The foreign currency risk resulting from interest payments for all foreign currency Senior Notes, Senior Credit
Facility tranches and the Convertible Senior Notes has been hedged through foreign currency derivatives.
Interest rate risk
We have entered into hedges which allow us to fix the LIBOR rate upon which we pay interest rate margins on £3.0bn
of our Senior Credit Facility to an average LIBOR rate of 2.18% from April 2009 to April 2010. We have also entered into
further interest rate swap agreements beyond April 2010. As at September 30, 2009, £1.8bn of our Senior Credit Facility
was hedged at an average LIBOR rate of 3.05% from April 2010 to maturity.
'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 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 ability to maintain and upgrade our networks in a cost-effective and
timely manner; (4) the ability to implement our restructuring plan successfully and realize the anticipated benefits;
(5) the general deterioration in economic conditions; (6) the continued right to use the Virgin name and logo; (7)
possible losses in revenues due to systems failures; (8) the ability to provide attractive programming at a reasonable
cost; (9) the ability to control unauthorized access to our network; (10) the effect of technological changes on our
businesses; (11) the reliance on single-source suppliers for some equipment, software and services and third party
distributors of our mobile services; (12) currency and interest rate fluctuations; (13) the ability to fund debt service
obligations through operating cash flow and refinance our debt obligations; (14) the ability to obtain additional
financing in the future; (15) the ability to comply with restrictive covenants in our indebtedness agreements; and (16)
the extent to which our future cash flow will be sufficient to cover our fixed charges.
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 26, 2009 and revised by the current report on Form 8-K as filed with the SEC on May 27,
2009, our Forms 10-Q filed with the SEC on May 6, 2009 and August 7, 2009 and our Form 10-Q to be filed with the SEC on
or about October 29, 2009. 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 and intangible asset impairments and restructuring and other charges (OCF),
(ii) Free Cash Flow (FCF) and (iii) 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), net cash provided by operating
activities and purchase of fixed and intangible assets, respectively.
Please see Appendix F 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) Consumer Operations Statistics
C1) Quarterly Segment Revenue and Contribution, OCF and Operating Income
C2) Quarterly Costs and Expenses
D) Free Cash Flow Calculation (FCF)
E) Fixed Asset Additions (Accrual Basis)
F) Use of Non-GAAP Financial Measures and Reconciliations to GAAP
Appendices
A) FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in £ millions, except per share data) (unaudited)
Three months ended Nine
months ended
September 30,
September 30,
2009 2008 2009
2008
(adjusted)
(adjusted)
Revenue £953.4 £940.9 £2,824.9
£2,828.3
Costs and expenses
Operating costs (exclusive of depreciation shown separately below) 403.8 398.5 1,222.1
1,215.5
Selling, general and administrative expenses 201.2 216.1 608.3
628.7
Restructuring and other charges 1.6 - 30.6
2.9
Depreciation 235.6 213.7 702.2
674.2
Amortization 61.0 63.3 183.3
221.7
Goodwill impairment - (4.0 ) -
362.2
Total costs and expenses 903.2 887.6 2,746.5
3,105.2
Operating income (loss) 50.2 53.3 78.4
(276.9 )
Other income (expense)
Interest income and other, net 1.3 7.8 6.6
20.9
Interest expense (119.9 ) (124.6 ) (331.2 )
(371.3 )
Share of income from equity investments 5.1 2.1 7.2
11.1
Foreign currency (losses) gains (45.8 ) (104.7 ) 116.8
(129.7 )
Loss on extinguishment of debt (9.4 ) - (16.7 )
(5.6 )
Gains (losses) on derivative instruments 43.6 48.0 (104.1 )
79.1
Loss from continuing operations before income taxes (74.9 ) (118.1 ) (243.0 )
(672.4 )
Income tax benefit 14.8 - 2.4
7.9
Loss from continuing operations (60.1 ) (118.1 ) (240.6 )
(664.5 )
Discontinued operations
Loss from discontinued operations, net of tax - (4.6 ) (22.8 )
(11.5 )
Net loss £(60.1) £(122.7) £(263.4)
£(676.0)
Basic and diluted loss from continuing operations per share £(0.18) £(0.36) £(0.73)
£(2.03)
Basic and diluted loss from discontinued operations per share £ - £(0.01) £(0.07)
£(0.03)
Basic and diluted net loss per share £(0.18) £(0.37) £(0.80)
£(2.06)
Dividends per share(in U.S. Dollars) $0.04 $0.04 $0.12
$0.12
Average number of shares outstanding 329.0 328.1 328.6
328.1
CONDENSED CONSOLIDATED BALANCE SHEETS
(in £ millions, except par value)
September 30,
December 31,
2009
2008
(unaudited)
Assets
Current assets
Cash and cash equivalents £351.6
£181.6
Restricted cash 6.0
6.1
Accounts receivable - trade, less allowances for doubtful accounts of
£13.0 (2009) and £16.5 (2008) 417.5
454.3
Inventory 97.5
81.1
Derivative financial instruments 0.3
168.4
Prepaid expenses and other current assets 115.8
107.8
Current assets held for sale -
56.2
Total current assets 988.7
1,055.5
Fixed assets, net 5,098.8
5,342.1
Goodwill and other indefinite-lived assets 2,082.3
2,082.3
Intangible assets, net 327.2
510.3
Equity investments 355.3
353.5
Derivative financial instruments 266.7
435.7
Other assets, net of accumulated amortization of £120.4 (2009) and £79.1 (2008) 152.1
153.9
Total assets £9,271.1
£9,933.3
Liabilities and shareholders' equity
Current liabilities
Accounts payable £307.2
£370.5
Accrued expenses and other current liabilities 424.7
449.9
Derivative financial instruments 29.6
84.4
VAT and employee taxes payable 63.7
63.5
Restructuring liabilities 62.6
71.0
Interest payable 155.7
131.6
Deferred revenue 290.7
268.0
Current portion of long term debt 42.2
40.5
Current liabilities held for sale -
36.2
Total current liabilities 1,376.4
1,515.6
Long term debt, net of current portion 5,929.8
6,129.6
Derivative financial instruments 69.0
42.6
Deferred revenue and other long term liabilities 152.2
150.1
Deferred income taxes 82.8
79.2
Total liabilities 7,610.2
7,917.1
Commitments and contingent liabilities
Shareholders' equity
Common stock - $0.01 par value; authorized 1,000.0 (2009 and 2008) shares;
issued 330.4 (2009) and 329.0 (2008) and outstanding 329.1 (2009) and 328.1 (2008)
shares 1.8
1.8
Additional paid-in capital 4,474.0
4,461.3
Accumulated other comprehensive income 98.7
178.2
Accumulated deficit (2,913.6 )
(2,625.1 )
Total shareholders' equity 1,660.9
2,016.2
Total liabilities and shareholders' equity £9,271.1
£9,933.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in £ millions) (unaudited)
Nine months ended
September 30,
2009 2008
(adjusted)
Operating activities
Net loss £(263.4) £(676.0)
Loss from discontinued operations 22.8 11.5
Loss from continuing operations (240.6 ) (664.5 )
Adjustments to reconcile net loss from continuing operations to
net cash provided by operating activities:
Depreciation and amortization 885.5 895.9
Goodwill impairment - 362.2
Non-cash interest 43.3 2.0
Non-cash compensation 12.0 12.5
Income from equity accounted investments, net of dividends received (5.5 ) (3.7 )
Income taxes 0.4 (4.3 )
Amortization of original issue discount and deferred financing costs 25.8 16.3
Unrealized foreign currency (gains) losses (130.7 ) 117.7
Loss on extinguishment of debt 15.8 5.6
Unrealized losses (gains) on derivative instruments 113.9 (76.9 )
Other (1.0 ) (0.1 )
Changes in operating assets and liabilities (75.8 ) (65.2 )
Net cash provided by operating activities 643.1 597.5
Investing activities
Purchase of fixed and intangible assets (413.2 ) (338.7 )
Principal repayments on loans to equity investments 8.9 10.7
Disposal of sit-up, net (17.5 ) -
Other 0.4 1.0
Net cash used in investing activities (421.4 ) (327.0 )
Financing activities
New borrowings, net of financing fees 928.8 493.4
Proceeds from employee stock option exercises 1.0 0.6
Principal payments on long term debt and capital leases (1,035.1 ) (533.2 )
Dividends paid (25.1 ) (20.4 )
Realized gain on derivatives 88.3 -
Other (0.3 ) -
Net cash used in financing activities (42.4 ) (59.6 )
Cash flow from discontinued operations
Net cash used in operating activities (7.9 ) (9.2 )
Net cash used in investing activities - (1.8 )
Net cash used in discontinued operations (7.9 ) (11.0 )
Effect of exchange rate changes on cash and cash equivalents (1.4 ) 0.1
Increase in cash and cash equivalents 170.0 200.0
Cash and cash equivalents at beginning of period 181.6 321.4
Cash and cash equivalents at end of period £351.6 £521.4
Supplemental disclosure of cash flow information
Cash paid during the period for interest exclusive of amounts capitalized £253.2 £349.7
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in £ millions, except per share data) (unaudited)
Three months ended
Sep 30, Jun 30, Mar 31,
Dec 31, Sep 30,
2009 2009 2009
2008 2008
(adjusted) (adjusted)
Revenue £953.4 £935.8 £935.7
£948.5 £940.9
Costs and expenses
Operating costs (exclusive of depreciation shown separately below) 403.8 404.6 413.7
431.6 398.5
Selling, general and administrative expenses 201.2 197.4 209.7
199.3 216.1
Restructuring and other charges 1.6 23.6 5.4
19.8 -
Depreciation 235.6 233.9 232.7
228.6 213.7
Amortization 61.0 61.1 61.2
64.1 63.3
Goodwill and intangible asset impairments - - -
- (4.0 )
Total costs and expenses 903.2 920.6 922.7
943.4 887.6
Operating income 50.2 15.2 13.0
5.1 53.3
Other income (expense)
Interest income and other, net 1.3 2.0 3.3
5.2 7.8
Interest expense (119.9 ) (102.3 ) (109.0 )
(128.1 ) (124.6 )
Share of income (loss) from equity investments 5.1 (0.4 ) 2.5
3.3 2.1
Foreign currency (losses) gains (45.8 ) 174.5 (11.9 )
(273.9 ) (104.7 )
Loss on extinguishment of debt (9.4 ) (7.3 ) -
(4.0 ) -
Gains (losses) on derivative instruments 43.6 (126.5 ) (21.2 )
204.6 48.0
Loss from continuing operations before income taxes (74.9 ) (44.8 ) (123.3 )
(187.8 ) (118.1 )
Income tax benefit (expense) 14.8 (2.8 ) (9.6 )
(1.1 ) -
Loss from continuing operations (60.1 ) (47.6 ) (132.9 )
(188.9 ) (118.1 )
Discontinued operations
Loss from discontinued operations, net of tax - (1.7 ) (21.1 )
(55.1 ) (4.6 )
Net loss £(60.1) £(49.3) £(154.0)
£(244.0) £(122.7)
Basic and diluted loss from continuing operations per share £(0.18) £(0.14) £(0.41)
£(0.57) £(0.36)
Basic and diluted loss from discontinued operations per share £ - £(0.01) £(0.06)
£(0.17) £(0.01)
Basic and diluted net loss per share £(0.18) £(0.15) £(0.47)
£(0.74) £(0.37)
Average number of shares outstanding 329.0 328.7 328.2
328.1 328.1
ADDITIONAL QUARTERLY CONDENSED CASH FLOW INFORMATION
(in £ millions) (unaudited)
Three months ended
Sep 30, Jun 30,
Mar 31, Dec 31, Sep 30,
2009 2009
2009 2008 2008
(adjusted) (adjusted)
Operating activities
Net loss £(60.1) £(49.3)
£(154.0) £(244.0) £(122.7)
Loss from discontinued operations - 1.7
21.1 55.1 4.6
Loss from continuing operations (60.1 ) (47.6 )
(132.9 ) (188.9 ) (118.1 )
Adjustments to reconcile net loss from continuing operations to
net cash provided by operating activities:
Depreciation and amortization 296.6 295.0
293.9 292.7 277.0
Goodwill and intangible asset impairments - -
- - (4.0 )
Non-cash interest 79.8 (9.7 )
(26.8 ) (48.4 ) 30.1
Non-cash compensation 6.1 1.2
4.7 4.3 5.3
(Income) loss from equity accounted investments, net of dividends received (4.0 ) 1.0
(2.5 ) 14.4 1.3
Income taxes (13.1 ) 3.6
9.9 2.0 1.8
Amortization of original issue discount and deferred financing costs 7.8 8.9
9.1 8.1 5.4
Unrealized foreign currency losses (gains) 46.7 (193.8 )
16.4 253.9 96.0
Loss on extinguishment of debt 9.0 6.8
- 4.0 -
(Gains) losses on derivative instruments (41.1 ) 131.8
23.2 (201.2 ) (52.7 )
Other 0.7 (0.4 )
(1.3 ) 0.7 0.4
Changes in operating assets and liabilities (50.0 ) 38.7
(64.5 ) 19.6 (29.2 )
Net cash provided by operating activities 278.4 235.5
129.2 161.2 213.3
Investing activities
Purchase of fixed and intangible assets (120.6 ) (148.2 )
(144.4 ) (139.2 ) (106.7 )
Principal repayments (drawdowns) on loans to equity investments 8.2 (0.5 )
1.2 (2.1 ) 10.1
Disposal of sit-up, net - (17.5 )
- - -
Other (0.4 ) (0.7 )
1.5 (0.4 ) (0.6 )
Net cash used in investing activities (112.8 ) (166.9 )
(141.7 ) (141.7 ) (97.2 )
Financing activities
New borrowings, net of financing fees 356.0 572.8
- (45.7 ) (0.6 )
Proceeds from employee stock option exercises 0.8 0.2
- - -
Principal payments on long term debt and capital leases (409.2 ) (613.5 )
(12.4 ) (313.1 ) (9.5 )
Dividends paid (8.1 ) (8.0 )
(9.0 ) (8.9 ) (7.1 )
Realized gain on derivatives - 88.3
- - -
Other - (0.3 )
- - -
Net cash (used in) provided by financing activities (60.5 ) 39.5
(21.4 ) (367.7 ) (17.2 )
Cash flow from discontinued operations
Net cash (used in) provided by operating activities - -
(7.9 ) 6.2 (3.6 )
Net cash used in investing activates - -
- (0.1 ) (0.7 )
Net cash (used in) provided by discontinued operations - -
(7.9 ) 6.1 (4.3 )
Effect of exchange rate changes on cash and cash equivalents 0.5 (1.7 )
(0.2 ) 2.3 -
Increase (decrease) in cash and cash equivalents 105.6 106.4
(42.0 ) (339.8 ) 94.6
Cash and cash equivalents at beginning of period 246.0 139.6
181.6 521.4 426.8
Cash and cash equivalents at end of period £351.6 £246.0
£139.6 £181.6 £521.4
Supplemental disclosure of cash flow information
Cash paid during the period for interest exclusive of amounts capitalized £24.9 £96.7
£131.6 £166.1 £86.2
B) CONSUMER OPERATIONS STATISTICS
(data in 000's)
Q3-09
Q2-09 Q1-09
Q4-08 Q3-08
Consumer RGUs(1)
Opening RGUs 12,654.0
12,558.3 12,409.9
12,224.4 12,037.3
Net RGU adds 199.9
95.7 148.4
185.5 185.2
Data Cleanse (2) -
- -
- (6.8 )
Data Cleanse (3) -
- -
- 8.7
Closing Consumer RGUs(1) 12,853.9
12,654.0 12,558.3
12,409.9 12,224.4
Consumer RGUs(1)
Telephone
On-net 4,120.0
4,104.0 4,108.3
4,099.2 4,078.6
Off-net 124.9
112.5 109.0
105.5 104.9
4,244.9
4,216.5 4,217.3
4,204.7 4,183.5
Television 3,709.0
3,672.0 3,651.6
3,621.0 3,576.5
Digital TV 3,599.3
3,543.3 3,510.4
3,469.0 3,407.9
Broadband
On-net 3,774.2
3,735.2 3,730.1
3,682.8 3,625.7
Off-net 253.2
245.7 247.0
252.0 260.1
4,027.4
3,980.9 3,977.1
3,934.8 3,885.8
Mobile (1)
Contract 872.6
784.6 712.3
649.4 578.6
Total Consumer RGUs(1) 12,853.9
12,654.0 12,558.3
12,409.9 12,224.4
Net Consumer RGU adds(1) & (2)
Telephone
On-net 16.0
(4.3 ) 9.1
20.6 15.4
Off-net 12.4
3.5 3.5
0.6 (2.4 )
28.4
(0.8 ) 12.6
21.2 13.0
Television 37.0
20.4 30.6
44.5 37.8
Digital TV 56.0
32.9 41.4
61.1 54.4
Broadband
On-net 39.0
5.1 47.3
57.1 68.7
Off-net 7.5
(1.3 ) (5.0 )
(8.1 ) (12.6 )
46.5
3.8 42.3
49.0 56.1
Mobile (1)
Contract 88.0
72.3 62.9
70.8 78.3
Net Consumer RGU adds(1) 199.9
95.7 148.4
185.5 185.2
Data Cleanse - On-net Operations (2) -
- -
- (6.8 )
Data Cleanse - Mobile Operations (3) -
- -
- 8.7
Total increase in Consumer RGUs in period 199.9
95.7 148.4
185.5 187.1
Notes
(1) The operating statistics relating to Prepay mobile are included within Mobile Operations Statistics,
as described elsewhere in this earnings release. Mobile contract includes both mobile
broadband and mobile service contracts.
(2) Data cleanse activity in our On-net 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.
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.
ON-NET OPERATIONS STATISTICS (excluding Off-net and Mobile Operations)
(data in 000's except percentages, RGU/Customer and ARPU)
Q3-09
Q2-09 Q1-09
Q4-08 Q3-08
On-net Customers
Opening Customers 4,736.1
4,762.3 4,755.2
4,740.4 4,741.2
Gross customer adds 213.8
159.5 167.2
192.6 214.6
Total Customer disconnections (205.7 )
(185.7 ) (160.1 )
(177.8 ) (206.3 )
Net customer adds 8.1
(26.2 ) 7.1
14.8 8.3
Data Cleanse (1) -
- -
- (9.1 )
Closing On-net Customers 4,744.2
4,736.1 4,762.3
4,755.2 4,740.4
Monthly On-net customer churn % 1.5 %
1.3 % 1.1 %
1.2 % 1.5 %
On-net Revenue Generating Units (RGUs)
Opening On-net RGUs 11,511.2
11,490.0 11,403.0
11,280.8 11,165.7
Net On-net RGU adds 92.0
21.2 87.0
122.2 121.9
Data Cleanse (1) -
- -
- (6.8 )
Closing On-net RGUs 11,603.2
11,511.2 11,490.0
11,403.0 11,280.8
Net On-net RGU Adds(1)
Telephone 16.0
(4.3 ) 9.1
20.6 15.4
Television 37.0
20.4 30.6
44.5 37.8
DTV 56.0
32.9 41.4
61.1 54.4
Broadband 39.0
5.1 47.3
57.1 68.7
Total Net On-net RGU Adds 92.0
21.2 87.0
122.2 121.9
On-net RGUs(1)
Telephone 4,120.0
4,104.0 4,108.3
4,099.2 4,078.6
Television 3,709.0
3,672.0 3,651.6
3,621.0 3,576.5
DTV 3,599.3
3,543.3 3,510.4
3,469.0 3,407.9
Broadband 3,774.2
3,735.2 3,730.1
3,682.8 3,625.7
Total On-net RGUs 11,603.2
11,511.2 11,490.0
11,403.0 11,280.8
On-net RGU / Customer 2.45
2.43 2.41
2.40 2.38
Bundled On-net Customers
Dual On-net RGUs 1,215.8
1,252.4 1,295.5
1,327.6 1,352.1
Triple On-net RGUs 2,821.6
2,761.3 2,716.1
2,660.1 2,594.2
Percentage of dual or triple On-net RGUs 85.1 %
84.7 % 84.2 %
83.9 % 83.2 %
Percentage of triple On-net RGUs 59.5 %
58.3 % 57.0 %
55.9 % 54.7 %
On-net ARPU(2) & (3) £44.24
£43.27 £42.29
£42.34 £42.00
ARPU calculation:
On-net revenues (millions) £627.6
£616.8 £604.0
£603.5 £596.2
Average customers 4,728.3
4,751.6 4,761.0
4,751.0 4,731.8
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.The net On-net RGU adds above exclude
the impact
of the data cleanse increases/decreases in order to show the true organic growth or decline.
(2) On-net 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 On-net ARPU, we have spread the
data cleanse evenly over the three months of the quarter in which the data cleanse has been
reported.
(3) As a result of the treatment of Sit-up as discontinued operations and the retroactive adjustment of
prior periods, On-net revenues and On-net ARPU have increased as we previously eliminated
revenues earned from sit-up on consolidation.
OFF-NET OPERATIONS STATISTICS
(data in 000's)
Q3-09
Q2-09 Q1-09
Q4-08 Q3-08
Off-net Customers
Opening Customers 245.5
247.1 251.9
260.2 272.5
Net customer adds 9.7
(1.6 ) (4.8 )
(8.3 ) (12.3 )
Closing Off-net Customers 255.2
245.5 247.1
251.9 260.2
Off-net RGUs
Opening Off-net RGUs
Telephone 112.5
109.0 105.5
104.9 107.3
Broadband 245.7
247.0 252.0
260.1 272.7
358.2
356.0 357.5
365.0 380.0
Net Off-net RGU adds
Telephone 12.4
3.5 3.5
0.6 (2.4 )
Broadband 7.5
(1.3 ) (5.0 )
(8.1 ) (12.6 )
19.9
2.2 (1.5 )
(7.5 ) (15.0 )
Closing Off-net RGUs
Telephone 124.9
112.5 109.0
105.5 104.9
Broadband 253.2
245.7 247.0
252.0 260.1
378.1
358.2 356.0
357.5 365.0
MOBILE OPERATIONS STATISTICS
(data in 000's except ARPU)
Q3-09
Q2-09 Q1-09
Q4-08 Q3-08
Contract Mobile Customers(1)
Opening Contract Mobile Customers 784.6
712.3 649.4
578.6 491.6
Net Contract Mobile Customer adds 88.0
72.3 62.9
70.8 78.3
Data cleanse (3) -
- -
- 8.7
88.0
72.3 62.9
70.8 87.0
Closing Contract Mobile Customers(1) 872.6
784.6 712.3
649.4 578.6
Prepay Mobile Customers(2)
Opening Prepay Mobile Customers 2,449.5
2,556.0 2,694.0
2,854.2 2,941.4
Net Prepay Mobile Customer adds (126.2 )
(106.5 ) (138.0 )
(160.2 ) (98.1 )
Data cleanse (3) -
- -
- 10.9
(126.2 )
(106.5 ) (138.0 )
(160.2 ) (87.2 )
Closing Prepay Mobile Customers 2,323.3
2,449.5 2,556.0
2,694.0 2,854.2
Total Closing Mobile Customers(2) 3,195.9
3,234.1 3,268.3
3,343.4 3,432.8
Mobile monthly ARPU(4) £13.41
£12.43 £13.14
£13.35 £13.60
ARPU calculation:
Service revenue (millions) £129.3
£121.2 £129.4
£134.6 £139.9
Average customers 3,213.6
3,251.4 3,283.0
3,360.4 3,427.5
Notes
(1) Contract Mobile Customers include customers who have taken either a mobile service or a mobile
broadband contract.
(2) 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 30 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.
(3) Data cleanse activity with respect to Q3-08 resulted in an increase in Contract and Prepay mobile
customer numbers.
(4) 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.
C1) QUARTERLY SEGMENT REVENUE AND CONTRIBUTION, TOTAL OCF AND OPERATING INCOME
(in £ millions) (unaudited)
Three months ended
Sep 30, Jun 30, Mar 31,
Dec 31, Sep 30,
2009 2009 2009
2008 2008
(adjusted) (adjusted)
Revenue
Consumer segment
On-net
627.6 616.8 604.0
603.5 596.2
Mobile
134.1 127.5 135.3
141.1 145.5
Off-net
14.4 13.3 14.0
14.6 14.9
Total
776.1 757.6 753.3
759.2 756.6
Business segment
Business
143.3 142.5 149.8
155.2 153.5
Inter segment revenue
- - -
(0.1 ) (0.1 )
143.3 142.5 149.8
155.1 153.4
Content segment
Virgin Media TV
41.0 42.3 39.2
40.7 37.3
Inter segment revenue
(7.0 ) (6.6 ) (6.6 )
(6.5 ) (6.4 )
34.0 35.7 32.6
34.2 30.9
Total revenue
953.4 935.8 935.7
948.5 940.9
Segment contribution
Consumer segment
466.4 454.0 438.2
446.3 450.5
Business segment
86.3 83.7 82.6
86.4 83.3
Content segment
(0.4 ) 6.4 6.9
(4.9 ) (3.6 )
Total segment contribution
552.3 544.1 527.7
527.8 530.2
Other operating and corporate costs
203.9 210.3 215.4
210.2 203.9
OCF (Total)(1)
348.4 333.8 312.3
317.6 326.3
Depreciation
235.6 233.9 232.7
228.6 213.7
Amortization
61.0 61.1 61.2
64.1 63.3
Restructuring and other charges
1.6 23.6 5.4
19.8 -
Goodwill and intangible asset impairments
- - -
- (4.0 )
Consolidated operating income
50.2 15.2 13.0
5.1 53.3
Note
(1) OCF (Total) is a non-GAAP financial measure. See Appendix F for a discussion of the use of OCF
(Total) as a non-GAAP financial measure and the reconciliation of OCF (Total) to GAAP operating income
before depreciation, amortization, goodwill and intangible asset impairments and restructuring and other
charges.
C2) QUARTERLY COSTS AND EXPENSES
(in £ millions) (unaudited)
Three months ended
Sep 30, Jun 30, Mar 31,
Dec 31, Sep 30,
2009 2009 2009
2008 2008
(adjusted) (adjusted)
Costs and expenses
Operating costs
Consumer cost of sales
231.5 230.2 239.4
240.0 226.7
Business cost of sales
40.6 46.4 51.0
51.5 52.4
Content cost of sales
32.4 26.7 23.2
38.2 31.2
Network and other operating costs (1)
99.3 101.3 100.1
101.9 88.2
Total operating costs
403.8 404.6 413.7
431.6 398.5
Selling, general and administrative expenses
Employee and outsourcing costs (2)
113.3 108.6 115.3
116.6 119.7
Marketing costs (3)
36.1 32.6 31.3
28.0 36.2
Facilities (4)
17.5 18.0 20.5
14.4 18.1
Other (5)
34.3 38.2 42.6
40.3 42.1
Total selling, general and administrative expenses
201.2 197.4 209.7
199.3 216.1
Notes
(1) Network and other operating costs includes costs associated with the provision of the
network and operating platforms including associated employee, outsourcing and facilities costs and certain
other operating expenses.
(2) Employee and outsourcing costs includes remuneration and benefits, temporary and contract
staff, training and stock-based compensation costs together with costs of all major outsourced
business activities.
(3) Marketing costs includes advertising, brand costs, agency fees, support and research, public
relations and internal communications costs.
(4) Facilities costs includes building costs, service costs, repairs and maintenance and utilities
costs.
(5) Other costs includes billing, collections and bad debt, IT, legal and professional, license,
insurance, and other indirect costs.
D) FREE CASH FLOW CALCULATION
(in £ millions) (unaudited)
Three months ended
Sep 30, Jun 30, Mar
31, Dec 31, Sep 30,
2009 2009 2009
2008 2008
(adjusted) (adjusted)
Operating income before depreciation, amortization,
goodwill and intangible asset impairments and
restructuring and other charges (OCF)
348.4 333.8
312.3 317.6
326.3
Purchase of fixed and intangible assets
(120.6 ) (148.2 )
(144.4 ) (139.2 )
(106.7 )
Interest expense (net)
(118.6 ) (100.3 )
(105.7 ) (122.9 )
(116.8 )
Free Cash Flow (FCF)
109.2 85.3
62.2 55.5 102.8
FCF is defined as OCF reduced by purchase of fixed and intangible assets, as reported in our statements of
cash flows, and net interest expense, as reported in our statements of operations. See
Appendix F for a discussion of the use of FCF as a non-GAAP financial measure and reconciliation of FCF to
GAAP net cash provided by operating
activities.
E) FIXED ASSET ADDITIONS (ACCRUAL BASIS)
(in £ millions) (unaudited)
Three months ended
Sep 30, Jun 30, Mar
31, Dec 31, Sep 30,
2009 2009 2009
2008 2008
(revised) (revised) (revised)
NCTA Fixed Asset Additions
CPE
53.6 39.4 65.9
51.2 45.9
Scaleable infrastructure
49.6 62.3 48.3
51.4 49.2
Commercial
18.0 14.2 15.4
22.2 21.9
Line extensions
2.5 1.0 0.7
0.6 0.2
Upgrade/rebuild
3.2 1.1 1.4
0.7 0.7
Support capital
23.7 24.1 24.3
28.4 24.0
Total NCTA Fixed Asset Additions
150.6 142.1
156.0 154.5
141.9
Non NCTA Fixed Asset Additions
0.3 0.8 1.0
6.7 4.0
Total Fixed Asset Additions (Accrual Basis)
150.9 142.9
157.0 161.2
145.9
Fixed assets acquired under capital leases
(13.5 ) (11.9 )
(0.3 ) (12.7 ) (34.2
)
Changes in liabilities related to:
Fixed Asset Additions (Accrual Basis)
(16.8 ) 17.2
(12.3 ) (9.3 )
(5.0 )
Total Purchase of Fixed and Intangible Assets
120.6 148.2
144.4 139.2
106.7
Comprising:
Purchase of Fixed Assets
120.6 148.1
144.3 139.1
106.6
Purchase of Intangible Assets
- 0.1 0.1
0.1 0.1
120.6 148.2
144.4 139.2
106.7
Notes
Virgin Media is not a member of NCTA and is providing this information solely for comparative purposes.
NCTA Fixed Asset Additions have been revised to include the net impact of cable inventory additions
previously reflected as Non NCTA Fixed Asset Additions in the appropriate NCTA category.
Fixed Asset Additions (Accrual Basis) are from continuing operations. See Appendix F 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 and intangible assets.
F) 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 and intangible asset impairments and
restructuring and other charges (OCF)
Operating income before depreciation, amortization, goodwill and intangible asset impairments and restructuring and
other charges, which we refer to as OCF or OCF (Total), is not a financial measure recognized under GAAP.
Our management, including our chief executive officer, consider 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. Some of the significant limitations associated with the use of OCF as compared to operating income 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 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 our OCF with other
companies' non-GAAP financial measures that have the same or similar names.
Reconciliation of operating income before depreciation, amortization, goodwill and intangible
asset impairments and restructuring and other charges (OCF) to GAAP operating income
(in £ millions) (unaudited) Three months ended
Sep 30, Jun 30, Mar 31, Dec 31,
Sep 30,
2009 2009 2009 2008
2008
(adjusted)
(adjusted)
Operating income before depreciation,
amortization, goodwill and intangible asset
impairments and restructuring and other
charges (OCF) 348.4 333.8 312.3 317.6
326.3
Reconciling items
Depreciation and amortization (296.6 ) (295.0 ) (293.9 ) (292.7 )
(277.0 )
Goodwill and intangible asset impairments - - - -
4.0
Restructuring and other charges (1.6 ) (23.6 ) (5.4 ) (19.8 )
-
Operating income 50.2 15.2 13.0 5.1
53.3
(ii) Free Cash Flow (FCF)
We define Free Cash Flow (FCF) as operating income before depreciation, amortization, goodwill and intangible asset
impairments and restructuring and other charges (OCF) reduced by purchase of fixed and intangible assets, as reported in
our statements of cash flows, and net interest expense, as reported in our statements of operations. Our definition of
FCF excludes the impact of working capital fluctuations and restructuring costs as defined by FAS 146. FCF is a non-GAAP
financial measure. We believe the most directly comparable financial measure recognized under GAAP is net cash provided
by operating activities.
Our management, including our chief executive officer, consider FCF as a helpful measure in assessing our liquidity
and prospects for the future. We also believe FCF is useful to investors as a basis for comparing our performance and
coverage ratios with other companies in our industry. 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
net cash provided by operating activities shown below, provides a more complete understanding of factors and trends
affecting our business. FCF should not be understood to represent our ability to fund discretionary amounts, as we have
various contractual obligations which are not deducted to arrive at FCF. Because non-GAAP financial measures are not
standardized, it may not be possible to compare our FCF with other companies' non-GAAP financial measures that have the
same or similar names.
The presentation of this supplemental information is not meant to be considered in isolation or as a substitute for
net cash provided by operating activities, or other measures of financial performance or liquidity reported in
accordance with GAAP.
Reconciliation of Free Cash Flow (FCF) to GAAP net cash provided by operating activities
(in £ millions) (unaudited)
Three months ended
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2009 2009 2009 2008 2008
(adjusted) (adjusted)
Free Cash Flow (FCF) 109.2 85.3 62.2 55.5 102.8
Reconciling items (see Note
below):
Purchase of fixed and 120.6 148.2 144.4 139.2 106.7
intangible assets
Changes in operating assets (50.0 ) 38.7 (64.5 ) 19.6 (29.2 )
and liabilities
Non-cash compensation 6.1 1.2 4.7 4.3 5.3
Non-cash interest 87.6 (0.8 ) (17.7 ) (40.3 ) 35.5
Share of net income of 1.1 0.6 - 17.7 3.4
affiliates
Realized foreign exchange 0.9 (19.3 ) 4.5 (20.0 ) (8.7 )
gains/(losses)
Realized gains/(losses) on 2.5 5.3 2.0 3.4 (4.7 )
derivatives
Restructuring and other (1.6 ) (23.6 ) (5.4 ) (19.8 ) -
charges
Income taxes 1.7 0.8 0.3 0.9 1.8
Other 0.3 (0.9 ) (1.3 ) 0.7 0.4
Net cash provided by operating 278.4 235.5 129.2 161.2 213.3
activities
Note
The line descriptions above are derived from our previously reported results. Non-cash interest includes non-cash
interest and amortization of original issue discount and deferred financing costs from our statements of cash flows.
Share of net income of affiliates includes income from equity accounted investments, net of dividends received from our
statements of cash flows and share of income from equity investments from our statements of operations. Realized foreign
exchange (losses)/gains includes unrealized foreign currency losses (gains) from our statements of cash flows and
foreign currency (losses) gains from our statements of operations. Realized gains/(losses) on derivatives includes
unrealized (gains) losses on derivative instruments from our statements of cash flows and gains (losses) on derivative
instruments from our statements of operations. Income taxes includes income taxes from our statements of cash flows and
income tax benefit (expense) from our statements of operations.
(iii) 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 and intangible assets as measured on an accrual basis, excluding
asset retirement obligation related assets.
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 our statements of cash flows. The significant limitations associated with the use of Fixed Asset
Additions (Accrual Basis) as compared to purchase of fixed and 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 and
intangible assets
(in £ millions) (unaudited) Three months ended
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2009 2009 2009 2008 2008
(adjusted) (adjusted)
Fixed Asset Additions (Accrual Basis) 150.9 142.9 157.0 161.2 145.9
Fixed assets acquired under capital
leases
(13.5 ) (11.9 ) (0.3 ) (12.7 ) (34.2 )
Changes in liabilities related to
fixed asset
additions
(16.8 ) 17.2 (12.3 ) (9.3 ) (5.0 )
Total Purchase of Fixed and
Intangible Assets 120.6 148.2 144.4 139.2 106.7
Comprising:
Purchase of fixed assets 120.6 148.1 144.3 139.1 106.6
Purchase of intangible assets - 0.1 0.1 0.1 0.1
120.6 148.2 144.4 139.2 106.7
CONTACT: Virgin Media Inc.
Investor Relations:
Richard Williams, +44 (0) 20 7299 5479
richard.williams@virginmedia.co.uk
or
Vani Bassi, +44 (0) 20 7299 5353
vani.bassi@virginmedia.co.uk
or
Media:
Tavistock
Matt Ridsdale, +44 (0) 20 7920 3150
mridsdale@tavistock.co.uk
or
Lulu Bridges, +44 (0) 20 7920 3150
lbridges@tavistock.co.uk
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