virgin media.Q2-07_Analyst_presentation


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virgin media.Q2-07_Analyst_presentation

  1. 1. Second Quarter 2007 August 8, 2007
  2. 2. 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, 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 effect of technological changes on our businesses; (4) the continued right 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 ability to obtain and retain expected synergies from the merger of our legacy NTL and Telewest businesses and the acquisition of Virgin Mobile; (11) the rates 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 March 1, 2007. 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
  3. 3. Jim Mooney, Chairman 3
  4. 4. Summary • Loss of Sky basics channels: churn substantially contained to Q2 • Better than expected TV performance – positive net adds • Market transforming content initiatives (sports channels, Virgin 1) • Super fast broadband speeds – rollout of 20Mbs • Improving telephony trends • Mobile contract strength continues • Customers taking more products than ever before • Strong cashflow outlook 4
  5. 5. RGU net adds (000s) 71 April May June Off-net 10 39 On-net/mobile 18 36 21 (3) 54 53 10 0 0 1 (11) ` 5 88 (57) 78 (63) (64) 46 (33) 2 Monthly progression Q4-06 Q1-07 Q2-07 Q4-06 Q1-07 Q2-07 Q4-06 Q1-07 Q2-07 Q4-06 Q1-07 Q2-07 Broadband Home telephony TV Mobile contract • All RGU quarterly net adds affected by short term Sky basics impact • Excellent take up of new products (VOD, DVR) drives connections and reduces churn • Popularity of mobile contract cross sell continues; but still 97% of cable base to target • Home phone turnaround during quarter – Mobile product mitigates fixed to mobile substitution • We expect much stronger RGU net adds in the second half RGUs include offnet 5
  6. 6. Cable customer adds and disconnects Gross customer adds, 000s Gross customer adds/disconnects (on-net), 000s 70 214 65 184 192 57 (231) (251) (262) Apr May June Q4-06 Q1-07 Q2 07 • Gross adds improved throughout quarter • Disconnects impacted by Sky basics churn – Underlying monthly churn* in Q2 at 1.6% versus reported churn of 1.8% • We expect positive customer net adds in the second half * excluding estimated Sky basics disconnects 6
  7. 7. Bundles drive growth Mobile contract cross-sell Triple play cable penetration 52 45% 47 43% 41% 39% 40 37% 0 Q3-06 Q4-06 Q1-07 Q2-07 Q2-06 Q3-06 Q4-06 Q1-07 Q2 07 • Triple / quad play proving to be excellent acquisition and retention tools – 3 for £30 remains the most attractive cable acquisition bundle – Strong demand for mobile contract cross-sells – Customers taking 3+ products display significantly lower levels of churn - Average monthly triple play churn was just 0.9% in Q2 7
  8. 8. ARPU Cable monthly ARPU • ARPU affected by £42.82 £42.75 £42.48 £42.21 £42.16 – Retention activity exacerbated due to Sky basics issue – Proactive realignment of pricing in a competitive market – Telephony usage decline • We expect ARPU to stabilize and then return to Q2-06 Q3-06 Q4-06 Q1-07 Q2 07 growth in the second half 8
  9. 9. Video on demand Monthly users (m) Average views per user Monthly views (m) 14 18.7 1.4 1.2 11 1.1 13.8 0.9 9 8 8 0.8 9.2 7.6 6.7 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Average views Reach per user Churn rate of VOD 70% 27 users is less than 44% half that of non- 14 VOD users Virgin Media Comcast* Virgin Media Comcast* * Virgin Media shows Q2 monthly average; Comcast data sourced from publicly available data 9
  10. 10. VOD popularity in context Share of viewing in Pay TV homes vs. Virgin Media VOD service in cable homes 3.9% In active users homes, VOD delivered a viewing share of 3.9% in Q2 - significantly ahead of all non- 2.8% terrestrial channels 2.0% On-demand usage VMtv and UKTV channels Other channels 1.8% 1.7% 1.6% 1.6% 1.6% 1.2% 1.1% 1.1% 1.0% 0.9% 0.8% 0.8% 0.8% 0.8% 0.7% 0.7% 0.7% VOD (active users) Sky Sports 1 Sky One Sky Sports 2 BBC News 24 Cbeebies VOD (enabled BBC3 Hallmark Living Disney Channel Sci-Fi Nickelodeon E4 Film4 UKTV G2 ITV2 UKTV Gold ITV3 UKTV Drama base) Notes: Linear channel viewing includes +1 channels; excludes terrestrial channels (BBC1, BBC2, ITV1, channel 4 and Five) Source: Virgin Media estimates from BARB data and Company information 10
  11. 11. Further VOD enhancements • Expect to be first TV platform to feature BBC iPlayer • Heavily marketed by the BBC • Expanding BBC content from c.50 hours to c.500 hours 11
  12. 12. V+ a key growth driver V+ customers (000s) 167 114 54 41 29 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Source: What Home Cinemas, August 2007 What HDTV, July/August 2007 • Best DVR on the market; 3 tuners, c.80 hours storage, HD compatible • 46% increase in quarter; 5.4% penetration – an excellent growth opportunity • 25% of DVR adds in June were customers new to Virgin Media • Improves ARPU; c.80% also have XL TV • Reduces churn 12
  13. 13. Steve Burch, CEO 13
  14. 14. TV proposition boosted by compelling sports content • Setanta Sports included in basic TV package for new and existing XL customers – Six Setanta sports channels • 46 FA Premier League games (33% of all televised live games) • 60 Live Scottish Premier League matches (100% of televised live games) • 25 FA Cup games from 2008 (62% of televised live games – ITV to show rest) • 3 England Internationals (plus all of U21 / B Internationals) • Other sports include US PGA Tour, horse racing, rugby, motor racing – Available at £8 to all other TV customers (compared to £9.99 on Sky and Freeview) • Announced collaboration with Setanta to launch a sports news channel – To be included in all TV packages at no additional cost 14
  15. 15. The best place to watch football Sky1 46 Premier League games Virgin Sky1 138 Premier League games Virgin XL 6 mixes XL 6 mixes Basic TV package £20.50 £21 Basic TV package £20.50 £21 Setanta Sports Included £10 Setanta Sports Included £10 Sky Sports £18 £17 Total cost £20.50 £31 Total cost £38.50 £48 Source: Sky price advertised in the Times on 17 July 2007 1 15
  16. 16. Sports to drive portal growth • Exclusive FA Premier League and Football League Internet clips – Every goal from every game available for one week after the match • Coverage of all major sports • Available free to anyone, regardless of existing TV platform – Cross promotion of entire product range – Highlights football credentials Already top 10 site with >80m monthly visits1 • – Significant advertising and search revenue opportunity Source: Comscore, H1 1 16
  17. 17. VMtv: content strengthens platform VMtv portfolio SOV1 • Viewing share and commercial impacts show strong growth 2.29 – Q2 viewing share up 15%YoY 2.20 2.11 – Equivalent commercial impacts up 24% YTD – Living was second most watched basic pay-TV channel in June, behind UKTV Gold, ahead of Sky One1 Q4 2006 Q1 2007 Q2 2007 – Sky One share declined on DTH platform: Q2 2007: -7% QoQ, -15% YoY Basic pay-TV channels SOV1 June 2007 1. UKTV Gold 1.73% • Virgin 1 rebrand in Autumn 2007 2. Living 1.53% – Available free on all platforms (Virgin Media, Sky, Freeview) 3. Sky One 1.32% – Improved programming – Cross-promote cable platform, emphasis on VOD e.g. “Next episode available on-demand on Virgin Media” SOV% = share of viewing, based on all platforms, source: BARB 1 17
  18. 18. 20Mbs broadband launched in Q2 18
  19. 19. The best broadband The truth about broadband Access speeds1 Cable using DOCSIS 3.0 >50Mbs 20Mbs Current Virgin Media XL Average max ADSL 2+ speed 7Mbs Average max ADSL speed 4.5Mbs % of homes able to receive1 20Mbs with cable (on-net) 100% 8Mbs with ADSL 2+ 30% 20Mbs with ADSL 2+ 10% Net satisfaction score2 Brand qualities 66 • “If you were to design a brand from scratch then Virgin Media’s 63 profile is pretty much what you would aim for. 52 • The biggest, fastest, most innovative, most distinctive, most 39 33 experienced and best value broadband brand. 24 • Top for all the positives such as being caring, cool, accessible, supportive and vibrant… • … whilst not registering on the negatives such as being confusing, overrated and tiring.” Virgin Sky BT Orange Tiscali Talk Media Talk Mintel, July 2007 Source: Virgin Media estimates, Analysys, Point Topic (quoted by Broadband Stakeholder Group) Customers rating as Excellent/Good less those rating as 1 2 19 Poor/unsatisfactory, CIAO/Mintel July 2007
  20. 20. Successful brand launch Market Leading Brand Image2 Rebrand success Spontaneous awareness 6 months post launch1: Brand that most “changes the market” 52% 21% 17% Feb Mar Apr May Jun 4 week rolling basis 10% Source: Consumer Intelligence Ltd Consumer Intelligence National Survey, data to 17 June 2007 1 2 20 20
  21. 21. Mobile Contract mobile net adds (000s)* Mobile blended monthly ARPU 71 £10.70 £10.59 £10.28 £10.07 54 53 25 4 Q3-06 Q4-06 Q1-07 Q2-07 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 • Experiencing strong demand in early stages of Mobile contract cross-sell • Contract mix improving – now represents 7% of total base (Q2 2006: 2%*) • Higher ARPU driven by better contract mix and higher prepay ARPU *Q2-06 as reported by Virgin Mobile prior to acquisition 21
  22. 22. Business services Improving data revenue mix Improving retail revenue mix £163m £163m £156m £156m 30.0% 31.2% 39.3% 39.1% 68.8% 70.0% 60.7% 60.9% Q1-07 Q2 07 Q1-07 Q2 07 Retail Wholesale Data Voice • Retail and data mix continue to increase as a proportion of total revenue • Revenue affected by wholesale decline due to Q1 completion of WTN build for major customer • Majority of revenue decline from lower margin products 22
  23. 23. Jacques Kerrest, CFO 23
  24. 24. OCF Growth Q1-07 Q2-07 £m £m Cable 267 283 Marketing cost reductions re brand launch Mobile 27 33 Higher prepay ARPU and contract growth Content 12 - No one-off accrual release and higher programming costs Total OCF 306 315 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 24
  25. 25. Cost reductions phase 1: synergies almost achieved OCF margin % 31.7% 29.9% 28.9% Q4-06 Q1-07 Q2-07 OCF margin expansion to accelerate as synergy benefits delivered • OCF expected to increase in second half of year, mainly through continued cost reductions arising from merger and integration synergies – Headcount reductions: 5,200 heads to date, targeting 6,000 by end 2007 – ERP integration: single system for Finance, HR and Supply Chain – Billing system migration: c.80% of customers on ICOMs today – Procurement savings Note: OCF margin% is defined as OCF divided by revenue 25
  26. 26. Cost reductions phase 2: opex re-engineering and restructuring Major initiatives underway for significant restructuring of cost base • Sales Channels transformation • Regionalization of Installs, Field Service and Network Operations • Additional outsourcing • Restructure network costs • Mobile integration • Develop and deploy self-service • Reduce faults through Best of Breed program Further significant cost reductions in 2008 26
  27. 27. Q2-07 Financial Results Appendices August 8, 2007 27
  28. 28. Net debt as at 30 June 2007 £m Rate Senior Credit Facility A 2,475 L+1.75% Senior Credit Facility B 2,195 L+2.13% Senior Credit Facility C 300 L+2.75% 4 Senior Notes due 2014 738 9.82% 4 Senior Notes due 2016 274 8.54% Capital Leases / Other 80 Long Term Debt1 6,063 Cash 277 Net Debt2 5,786 Net Debt / Annualized OCF3 4.6x Weighted average cost of debt is 8.0%4 1 Net of current portion 2 Net Debt is a non-GAAP financial measure. See above for the reconciliation of net debt to long-term debt (net of current portion) 3 Annualized OCF is Q2-07 OCF multiplied by four 4 Weighted average after taking swaps into account 28
  29. 29. 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), (ii) OCF margin, and (iii) net debt, 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 a substitute for operating income (loss), operating income (loss) margin and long-term debt (net of current portion), respectively. Pro Forma Operating Statistics Unless otherwise indicated, all historical references to operational statistics are on a pro forma basis assuming the acquisition of Virgin Mobile occurred on January 1, 2006. Unless otherwise indicated, mobile customer information prior to acquisition has been taken, without adjustment, from Virgin Mobile’s historical information. 29
  30. 30. Non-GAAP reconciliation Reconciliation of operating income before depreciation, amortization and other charges (OCF) to GAAP operating income (loss) Three months ended (in £ millions) (unaudited) Jun 30, Mar 31, Dec 31, 2007 2007 2006 Operating income before depreciation, amortization and other charges (OCF) 315.3 305.7 313.0 Reconciling items Depreciation and amortization (309.2) (309.4) (288.2) Other charges (3.1) (11.6) (15.6) Operating income (loss) 3.0 (15.3) 9.2 OCF as a percentage of revenue (OCF margin) 31.7% 29.9% 28.9% Operating income (loss) as a percentage of revenue 0.3% -1.5% 0.9% 30