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virgin media.FINAL_Q4_06_Presentation_VMED virgin media.FINAL_Q4_06_Presentation_VMED Presentation Transcript

  • Fourth Quarter 2006 February 28, 2007
  • Forward looking statements “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 include: (1) the ability to compete with a range of other communications and content providers; (2) the ability to control customer churn; (3) the effect of technological changes on our businesses; (4) the ability to use the Virgin name and logo; (5) the ability to maintain and upgrade our networks in a cost-effective and timely manner; (6) possible losses in revenues due to systems failures; (7) the ability to provide attractive programming at a reasonable cost; (8) the reliance on single-source suppliers for some equipment, software and services and third party distributors of our mobile services; (9) the functionality or market acceptance of new products that we may introduce; (10) the failure to obtain and retain expected synergies from the merger of our legacy NTL and Telewest businesses and the acquisition of Virgin Mobile; (11) the rate of success in executing, managing and integrating key acquisitions, including the merger with Telewest and the acquisition of Virgin Mobile; (12) the ability to achieve business plans for the combined company; (13) the ability to fund debt service obligations through operating cash flow; (14) the ability to obtain additional financing in the future and react to competitive and technological changes; (15) the ability to comply with restrictive covenants in our indebtedness agreements; and (16) the extent to which our future earnings 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 28, 2006, Virgin Media Holdings Inc.’s Form 10-K filed with the SEC on March 1, 2006 and Virgin Media’s Forms 10-Q filed with the SEC on May 10, 2006, August 9, 2006 and November 9, 2006. We assume no obligation to update our forward looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements. 2
  • Jim Mooney, Chairman 3
  • Major achievements in last 12 months • Telewest merger – Delivered synergy savings and headcount reductions – Completed first billing system integration • Virgin Mobile acquisition – merged retail channels – cross-sell • Rebranded to Virgin Media • Significant cable ARPU growth • New products bundles (eg 4 for £40, VIP) • Completed roll-out of superior products: VOD, HDTV and DVR • Improved customer care • New management team established 4
  • Fourth quarter highlights • Revenue growth in all segments • Strong broadband net adds despite entry of Sky / Carphone • Excellent TV net adds • Triple play penetration up to record 40.6% • Continued significant ARPU growth • Reduced churn • Continued customer care improvements • Strong advertising revenue growth • Cable OCF growth 5
  • Priorities for 2007 • Deliver on promises of new Virgin brand – choice, quality, service, value, simplicity, convenience • Targeting competitor customer bases • Complete cable integration and secure synergy savings • Continue to drive efficiency and further improve customer care • Differentiate TV product through VOD • More aggressive off-net to leverage Virgin Media brand • Further exploit cross-sell to and from Virgin Mobile • Further enhance content assets • Deliver strong cashflow growth 6
  • Virgin Media Rebrand - Feb 8th • Virgin challenges established competitors by focus on customer • On Rebrand day, we announced to consumers – Launch of revolutionary new VOD channel, Virgin Central – Simpler pricing – Unveiling of eye-catching national advertising – National roll-out via off-net – Extensive retail distribution – Improved customer care 7
  • Steve Burch, CEO 8
  • Group RGU growth Group RGUs in ’000s (pro forma combined*) 15,348 15,271 15,100 15,015 14,806 Off-net 4,523 4,512 4,389 4,346 4,332 Mobile Cable 10,526 10,428 10,474 10,406 10,200 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Growth in consumer businesses driven by compelling packages, cross- sell and reinvigorated marketing * pro forma for the cable merger and the Virgin Mobile acquisition 9
  • Driving ARPU growth Cable ARPU (£) Triple play cable penetration (pro forma combined*) (pro forma combined*) £42.82 £42.48 41% £42.21 39% £41.50 £41.27 37% 35% 32% Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 ARPU growth due to • Triple play and RGU/customer growth • TV product enhancements • Selected price increases * pro forma for the cable merger and the Virgin Mobile acquisition 10
  • Cable customer additions Gross customer adds (on-net) ‘000s • Our value proposition remains (pro forma combined*) competitive 229 218 214 – Aligned marketing & products 192 – Compelling offers – 2 for £20, 3 for £30, 4 for £40, VIP – Enhanced products - VOD, V+, HDTV, Virgin Central • Q4 gross adds impacted by – install shutdown for billing migration Q1-06 Q2-06 Q3-06 Q4-06 – Christmas shutdown * pro forma for the cable merger and the Virgin Mobile acquisition 11
  • Broadband, TV, mobile contract growth 71 96 39 86 18 8 Off-net On-net 22 78 78 25 (55) (64) Q3-06 Q4-06 Q3-06 Q4-06 Q3-06 Q4-06 Q3-06 Q4-06 Mobile contract TV Broadband Home phone • TV growth through new products and compelling offers • Strong broadband growth due to product quality and compelling offers • Mobile contract growth boosted by cable cross-sell • Telephony impacted by increased competition and policy/process changes 12
  • Returning to customer growth Growing gross adds • Rebrand and reinvigorate marketing • Compelling value - 2 for £20, 3 for £30, 4 for £40, VIP • Superior products eg VOD, V+, 20 Mb Broadband • Improve sales efficiency and processes • Improve customer advocacy through better customer care Reducing churn • Rebrand and reinvigorate marketing • Improve processes eg collections / movers • Increase direct debit % • Improve service quality • Product enhancements 13
  • Growth potential from alignment Triple play ARPU 46.5% £46.55 £40.43 36.9% NTL Telewest NTL Telewest Churn Customer penetration 2.0% 40.5% 37.8% 1.3% NTL Telewest NTL Telewest Revenue difference from aligning NTL ARPU and churn with Telewest is over £250m pa 14 Note: data shown is for Q4-06
  • Offnet strategy • Continued strong broadband growth – 31% broadband sub growth in year – 18,000 broadband net adds in Q4-06 – 260,800 broadband subs at year-end • Launch fixed line (WLR) in Q2-07 • Launch off-net quad-play in Q2-07 – TV product to initially be Virgin Media DTT with branded EPG • Wholesale unbundler to provide access to exchanges by year-end – allows IPTV launch in 2008 – Pay TV and VOD capability – modest capital investment • Virgin Media quad-play will be 97% available • Leverages brand and mitigates cable movers impact 15
  • Virgin Media On Demand v Sky Anytime Virgin Media On Demand Sky Anytime • Available to 3m digital subs • Available to <15% subscribers • Free digital set top box – requires £299 HD box or up-to-date £99 Sky+ box • >500 Hollywood movies • 2,000 hrs + top TV content • Up to 40 hours selected by Sky – eg Sopranos, West Wing, • Downloaded overnight CSI, Little Britain, Lost, • Content restricted by type of Desperate Housewives TV package taken • Free catch-up TV from BBC, Channel4 and others • Immediately available “The one-way nature of satellite broadcasting makes it harder for Sky to provide a true on- • HD VOD content demand service to its customers” • Music, Adult, Kids, Specialist BBC - 3rd February 2007 Note: Source of Sky information is BSkyB website - February 27, 2007 16
  • V+ versus Sky+ and Sky HD V+ Sky+ and Sky HD • 80 hours recording time • 20 or 40 hours recording time • 3 tuners • 2 tuners • Free box • £99 Sky+ box • Free HD compatibility • £299 Sky HD box • Thousands of hours of free and • Up to 40 hours selected on- pay VOD content demand content • £25 install – if you have up-to-date box • £60 install Note: Source of Sky information is BSkyB website - February 27, 2007 17
  • 18
  • Content Strategy Increase scale and leverage of content assets as a strategic tool versus competition - Sky, Freeview, BT Vision and DSL resellers • Seek strategic control or access to enhanced content – eg VOD deals, sports rights, acquisitions, partnerships • Leverage content across multiple platforms – Freeview, Basic, Premium, VOD, HDTV, Broadband, Mobile • Differentiate through VOD and Virgin Central • Exclusive content 19
  • Neil Berkett, COO 20
  • Delivering on our natural strengths TV Broadband • Full range of TV services • Reliable & consistent speeds • Exploit VOD advantage • No reliance on BT on-net • Launched Virgin Central • 2/4/10/20Mb tiers; 50Mb trial • HD and DVR fully rolled out • Improved content eg Premiership clips Home Phone Mobile • Talk Anywhere (Bundled Minutes) • Grow underpenetrated contract business • Prepare for Fixed/Mobile • Cross-sell into cable base convergence • Grow retail channels Brand Bundles • Fun, easy to use & understand • Flexible and attractive offers • Competitively & simply priced • Multi-product capability • Brilliant customer service institutionalised • Innovative 21
  • Better Value from Virgin Media Price comparison showing value of 2 for £20 TV and Broadband Year 1 Year 2 Television Broadband Monthly Subs Monthly Subs TV Size: L Broadband = + ’000s hrs of £20 £20 + Size: M (2Mb) VOD content £25 engineer install Sky Broadband = £29 £29 Sky TV 4 mix + Base (up to 2Mb) £18 Free + £11 BT line £40 connection + £50 engineer install* rental £173 £108 ANNUAL SAVING = Note: Price comparisons based on nearest equivalent BSkyB product to the service included in the cable value pack. Source of Sky pricing information: BSkyB website -February 27, 2007. * Engineer install optional 22
  • Better Value from Virgin Media Price comparison showing value of 2 for £20 TV and Telephony Year 1 Year 2 Television Telephony Monthly Subs Monthly Subs TV Size: L Phone Size: = + ’000s hrs of £20 £20 M (Talk + VOD content Weekends) £25 engineer install Sky Talk Freetime = £29 £29 Sky TV 4 mix + (Evenings & weekends) £18 Free + £11 BT line rental £83 £108 ANNUAL SAVING = Note: Price comparisons based on nearest equivalent BSkyB product to the service included in the cable value pack. Source of Sky pricing information: BSkyB website -February 27, 2007. 23
  • Better Value from Virgin Media Price comparison showing value of 3 for £30 Year 1 Year 2 Television Broadband Telephony Monthly Subs Monthly Subs TV Size: L Phone Size: Broadband = + ’000s hrs of £30 £30 M (Talk + + Size: M (2Mb) VOD content Weekends) £25 engineer install Sky Sky Talk Broadband Freetime = £29 £29 Sky TV 4 mix + + Base (up to (Evenings & 2Mb) weekends) £18 Free Free + £11 BT line £40 connection fee + £50 rental engineer install* £53 £41 CUMULATIVE SAVING = Note: Price comparisons based on nearest equivalent BSkyB product to the service included in the cable value pack. Source of Sky pricing information: BSkyB website -February 27, 2007. * Engineer install optional 24
  • Better Value from Virgin Media Price comparison showing value of 4 for £40 Year 1 Year 2 Television Broadband Mobile Telephony Monthly Subs Monthly Subs 300 texts & TV Size: L Broadband Phone Size: 300 cross = £40 £40 + ’000s hrs of Size: M + + M (Talk VOD content + network (2Mb) Weekends) minutes £25 engineer install Sky Sky Talk Equivalent Sky TV 4 Broadband Freetime offer from = £49 £49 + Base (up to + (Evenings & + mix Vodafone 2Mb) weekends) £18 Free £40 connection fee + £50 £20 Free + £11 BT engineer install line rental £108 £173 ANNUAL SAVING = Note: Price comparisons based on nearest equivalent BSkyB product to the service included in the cable value pack. Source of Sky pricing information: BSkyB website -February 27, 2007. * Engineer install optional 25
  • 26
  • 27
  • Major improvements in customer care Average Speed of Answer (secs) • Improved customer satisfaction ratings • Complaints down 19% since Q1-06 207 • Staff attrition rates down 35% at old NTL • Customer care improvements through – increased investment 85 – improved training 40 – increased headcount – process changes Q4-05 Q3-06 Q4-06 – billing system migrations – new and improved EPG Note: statistics for Q4-05 are prepared on pro forma combined basis. Q4-06 exclude impact of December billing migration 28
  • Further efficiency improvements • Revised and reinvigorated marketing – benefit led messages – more confident and anti-competitor – more proactive PR – Acquisition costs per install fallen as result • Reduced direct sales headcount – Improved sale productivity • Reduced costs per truck roll • Increased service technician jobs per day • Reduced cost per bill 29
  • Jacques Kerrest, CFO 30
  • Segment Revenue Q4-06 Q3-06 £m £m Revenue Consumer 644 643 ARPU growth partially offset by customer losses Business 169 162 Growth in wholesale and data revenue Total Cable 813 805 Mobile 152 140 ARPU and subscriber growth Content 117 79 Strong advertising and Sit-up revenue 1,082 1,025 *Note: OCF is operating income before depreciation, amortization and other charges and is a non-GAAP financial measure. See Appendices 31 for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents
  • Segmental OCF Q4-06 Q3-06 Q2-06 Q1-06** Q4-05** £m £m £m £m £m Cable 297 296 285 268 283 Mobile 14 16 - - - Content 2 6 9 9 9 313 318 293 277 292 Merger, brand and other costs Merger implementation 19 14 14 6 2 Telewest merger fees 16 Rebrand costs 5 M&A costs 2 *Note: OCF is operating income before depreciation, amortization and other charges and is a non-GAAP financial measure. See Appendices for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents ** pro forma for cable merger 32
  • Synergy run-rate on target Annual synergy* run-rate • Majority of savings are headcount (£m) 250 related 50 • Labour costs have fallen 350 bps as % Capex Opex of revenue (excl Mobile) since Q1-06 152 • 4,750 reduction to date 36 112 – 2,550 redundancies and attrition 200 32 – 2,200 outsourced 60 116 16 • Targeting 6,000 total by end of 2007 80 44 – cost equivalent to 3,500 FTEs Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 • Other main synergies from 2006 2007 – billing integration – procurement savings * synergies are estimated figures 33
  • Virgin Mobile • Q4 ARPU up from £10.28 to £10.59 Revenue (£m) • Q4 net adds of 11k, lower than expected 151.7 – increased price competition 140.4 9.9 Equipment – high competitor ad spend 7.9 Service • Strong contract growth • 60,000 sales of 4 for £40 to date • 2007 sub growth to come from – Reinvigorated “value” messaging 141.8 – Continued contract growth 132.5 – Cross-sell to cable – Exploit Virgin Media rebrand spend – Further retail store openings • Significant Q1 negative net adds expected due to normal seasonal weakness Q3-06 Q4-06 34
  • Business services Business Revenue (£m) • Strong revenue growth through data 169 and low margin wholesale related to 162 completion of network build contract • Q1 wholesale revenues expected to be 72 65 £10m-£15m lower due to contract completion 39 • Experiencing strong demand for data 41 products • Long-term cashflow outlook remains 59 56 promising through focus on data Q3-06 Q4-06 Voice Data Wholesale & Other 35
  • Content segment Content revenue Virgin Media TV Revenue (£m) (pro forma combined) • Virgin Media TV (ex-Flextech) 35 35 – growth through ad revenue 34 33 4 32 5 4 – 2007 subscription revenue impacted by 5 4 new Sky contract 9 9 9 • Sit-up 9 9 – Q4 revenue of £82m, up £34m on Q3 due to seasonally strong sales – Q1 revenue to be approx £30m lower due 22 21 21 to normal seasonality 19 19 Content OCF • Q4 OCF of £2m, down £3.5m on Q3 due to – seasonally high programming expense Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 – partially offset by seasonally strong Sit-up Advertising Subscription Other * After intersegment elimination. 36
  • Q4-06 Financial Results Appendices February 28, 2007 37
  • Non-GAAP measures Virgin Media uses 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. Virgin Media evaluates operating performance based on several non-GAAP measures, including (i) operating income before depreciation, amortization and other charges (OCF), and (ii) pro forma operating income before depreciation, amortization and other charges (OCF), as we believe these are important measures of the operational strength of our business. Since these measures are not calculated in accordance with GAAP, they should not be considered as substitutes for operating income (loss), and total liabilities, respectively, as indicators of our operating performance, pro forma operating income (loss), and total liabilities. Pro forma information Pro forma results for the quarter ended March 31, 2006 assume that the NTL-Telewest merger took place on January 1, 2006. Pro forma results for 2005 assume that the merger took place on January 1, 2005. The pro forma financial information contained herein does not include the results of Virgin Mobile. The pro forma presentation contained herein is non-GAAP financial information. We have included the pro forma information to provide a useful basis for evaluating developments in our business over time, but it should not be viewed as a substitute for our GAAP financial information. Please see following appendices. 38
  • Non-GAAP reconciliation (i) Reconciliation of operating income before depreciation, amortization and other charges (OCF) to GAAP operating income (loss) Three months ended (in £ millions) (unaudited) Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2006 2006 2006 2006 2005 Operating income before depreciation, amortization and other charges (OCF) 313.0 317.8 293.3 198.4 154.7 Reconciling items Other charges (15.6) (30.9) (12.1) (8.4) (22.4) Depreciation and amortization (288.2) (296.5) (274.9) (186.1) (166.7) Operating income (loss) 9.2 (9.6) 6.3 3.9 (34.4) 39
  • Non-GAAP reconciliation (ii) Reconciliation of pro forma operating income before depreciation, amortization and other charges (OCF) to pro forma GAAP operating income (loss) Three months ended (in £ millions) (unaudited) Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2006 2006 2006 2006 2005 (Reported) (Reported) (Reported) (Pro Forma) (Pro Forma) Pro forma operating income before depreciation, amortization and other charges (OCF) 313.0 317.8 293.3 277.0 292.0 Reconciling items Depreciation and amortization (288.2) (296.5) (274.9) (186.1) (166.7) Other charges (15.6) (30.9) (12.1) (8.4) (22.4) Telewest pro forma operating loss(income) 4.8 (15.0) - - - Telewest pro forma depreciation and amortization (82.9) (122.3) - - - Telewest pro forma other charges (0.5) - - - - Operating income (loss) 9.2 (9.6) 6.3 3.9 (34.4) 40