Virgin Media Reports Preliminary Q3 2019 Results

Fourth Consecutive Quarter of Growth in Operating Free Cash Flow

Rollout of 1 Gbps Speeds Underway Across U.K. Footprint

New FMC Bundles Drove Record Growth of Mobile Subscriptions in Q3

119,000 Premises Added in Q3; Total Lightning Build now at 1.9 Million

Virgin Media Inc. (“Virgin Media”) is the leading cable operator in the U.K. and Ireland, delivering 14.7 million broadband, video and fixed-line telephony services to 6.0 million cable customers and mobile services to 3.2 million subscribers at September 30, 2019.

Operating highlights:

• Virgin Media remains focused on optimising operating free cash flow (OFCF) by striking an effective balance between price and volume, while deploying capital efficiently
  • Rebased OFCF increased 14.9% in Q3 as capital intensity improved by 440 bps YoY to 22.9%

• A strategic decision was taken to implement our U.K. price rise across September and October, which was one month earlier than the prior year\

  • Overall the customer response to our 2019 price rise was in-line with our expectations and the related ARPU benefit will be fully reflected from Q4

• Q3 rebased cable ARPU was up 0.5% to £51.41, reflecting a 1.7% increase in rental ARPU, which was underpinned by  price rises, partially offset by declines in phone usage and lower pay-per-view revenue

• We reported a 3,000 customer loss and a 53,000 RGU decline in Q3, due to our disciplined approach to customer acquisition and retentions and a shift in focus to higher-value TV bundles which has contributed to lower capital expenditure

  • A 5,000 gain in broadband RGUs was more than offset by a 50,000 decline in video RGUs and a 9,000 decline in telephony RGUs

• We are successfully implementing our mid-term growth plan. In Q3, we launched our 1 Gbps broadband service. This is now available in Southampton and Manchester and is planned to be rolled out across our U.K. footprint by the end of 2021

• Our FMC bundles, which launched in Q2, continue to gain traction and have supported record postpaid net additions of 107,000 in Q3, resulting in our highest ever quarterly mobile net adds of 85,000

  • Our fixed-mobile converged base increased by 80 bps sequentially to 20.7% in Q3. Over time, take-up of converged bundles is expected to drive higher ARPU and lower churn

• Innovation in mobile is set to continue following our recent announcement of a five year deal with Vodafone U.K. which will enable us to offer 5G services to our mobile customers in the U.K.

• In October, our Small Office business was moved into our larger Consumer operations in order to drive scale benefits

  • Our Q3 SOHO RGU based increased 9.0% YoY driving growth in B2B subscription revenue

• Virgin Media Television remains the largest commercial broadcaster in the Republic of Ireland with a 17% share in viewership across our three free-to-air channels

Financial highlights:

• Revenue of £1,281.7 million in Q3 was broadly flat YoY on a rebased basis

• Rebased residential cable revenue growth of 0.5% in Q3 was due to modest YoY increases in our cable RGU base and cable ARPU, partially offset by a decrease in non-subscription revenue

• Rebased Q3 residential mobile revenue decline of 2.5% was mainly due to lower subscription revenue

  • Q3 mobile subscription revenue declined by £3.7 million YoY, primarily due to a £2.9 million benefit in Q3 2018 related to the expected recovery of certain prior-period VAT payments and lower out-of-bundle usage

• Rebased B2B revenue decline of 0.4% in Q3 was driven by a 2.0% decrease in non-subscription revenue, partially offset by a 14.0% increase in subscription revenue due to growth in SOHO RGUs

  • The decline in B2B non-subscription revenue reflects the net effect of lower data and installation revenues and an increase in revenue from dark fibre wholesale contract wins in the quarter

• Operating income increased YoY to £19.2 million in Q3 due to the net effect of (i) a reduction in Segment OCF, as described below, (ii) higher share-based compensation expense, (iii) increased related-party fees and allocations, net, (iv) lower depreciation and amortisation and (v) lower impairment, restructuring and other operating items, net

• Rebased Segment OCF declined 4.1% in Q3, reflecting the aforementioned revenue performance and increases in our cost base due to (i) higher programming costs, (ii) an £8.8 million net increase in network taxes, (iii) higher mobile data costs and (iv) the impact of a net £3.9 million benefit in the prior-year period relating to the reassessment of certain accruals

• Property and equipment (“P&E”) additions decreased by 16.0% YoY to £293.5 million in Q3 due to lower spend on baseline and customer premises equipment capex

• Rebased operating free cash flow increased 14.9% in Q3 driven by a reduction in capital intensity to 22.9%, compared to 27.3% in Q3 2018

• At September 30, 2019, our fully-swapped third-party debt borrowing cost was 4.6% and the average tenor of our third-party debt (excluding vendor financing) was 6.7 years

  • In July, we issued $600 million 5.5% Senior Secured Notes due 2029. The proceeds were used to redeem the outstanding amounts of our (i) 5.5% GBP Senior Secured Notes due 2021 and (ii) 5.25% USD Senior Secured Notes due 2021
  • Subsequent to September 30, we issued (i) $3.3 billion Term Loan N due 2028, (ii) €750 million Term Loan O due 2029 and (iii) £400 million 4.25% Senior Secured Notes due 2030. The proceeds were used to redeem (i) $3.4 billion Term Loan K, (ii) $1 billion 5.25% Senior Secured Notes due 2026 and (iii) £300 million 5.125% Senior Secured Notes due 2025
  • In addition, certain lenders of our credit facilities agreed to increase and/or extend their commitments, as such in Q4 we expect our existing revolving facilities will be replaced with a new revolving facility with a maximum borrowing capacity equivalent to £1.0 billion with an extended maturity date of January 31, 2026

• At September 30, 2019, and subject to the completion of our corresponding compliance reporting requirements, the ratios of Net Senior Secured and Total Net Debt to Annualised EBITDA (last two quarters annualised) were 3.89x and 4.47x, respectively, each as calculated in accordance with our most restrictive covenants
  • Vendor financing obligations are not included in the calculation of our leverage covenants. If we were to include these obligations in our leverage ratio calculation, the ratio of Total Net Debt to Annualised EBITDA would have been 5.28x at September 30, 2019

• At September 30, 2019, we had maximum undrawn commitments of £675 million equivalent. When our compliance reporting requirements have been completed and assuming no change from September 30 borrowing levels, we anticipate the borrowing capacity will be limited to £592.1 million equivalent