Virgin Media Reports Preliminary Q4 2018 Results

 

28 February 2019

 

 

 

Virgin TV Go app offers the best entertainment on the box with new download feature

Q4 Rebased Revenue Growth of 2.4% Driven by 2.0% ARPU Growth

Total Lightning Build 1.6 Million; 481,000 Premises Added in 2018

Capital Intensity Declined by Over 400 bps to 29% in Q4 and Full Year

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 5.9 million cable customers and mobile services to 3.1 million subscribers at December 31, 2018.

 

Operating highlights:

•             Delivered YoY improvement in key Q4 cable operating metrics including accelerated ARPU growth, increased RGU growth and a reduction in churn

◦             Rebased cable ARPU growth of 2% to £51.71 in Q4 underpinned by our Q4 price rise

◦             Q4 RGU additions of 24,000 increased from 8,000 in the prior year with gains in telephony and broadband driven by Project Lightning

▪             Voice-over-IP (“VoIP”) service available to 42% of our U.K. cable footprint

▪             78% of our broadband base subscribes to 100+ Mbps speeds

▪             Extending our speed leadership with spring launch of 500 Mbps broadband in the U.K.

◦             12-month rolling customer churn was 15.1% in Q4, 10 bps lower YoY driven by continued benefits from V6 and Hub 3 upgrades as well as effective base management initiatives

▪             57% of U.K. video base has V6 and 72% of our total broadband base has Hub 3

•             Q4 mobile net additions of 17,000 comprised of 51,000 postpaid net additions partially offset by low-ARPU prepaid losses; 4G subscriptions now represent 79% of our postpaid base

◦             56% of our mobile base is now on our full MVNO platform in the U.K., allowing us to offer converged fixed and mobile bundles; increasing penetration by 60 bps to 19.5% in Q4

•             Q4 B2B rebased revenue growth was underpinned by an 18% YoY increase in our SOHO RGU base

•             The rebrand of our Irish broadcast business to Virgin Media Television contributed to a YoY increase in our share of TV viewing in Q4 and increased brand awareness and preference for our cable products

•             Added 144,000 marketable Lightning premises in Q4 and 481,000 for 2018

◦             60% of our U.K. build in 2018 was full fibre

Financial highlights:

•             Rebased revenue growth of 2.4% to £1,317.9 million in Q4 and 3.9% to £5,150.3 million for 2018

◦             Q4 revenue growth was driven by an increase in our residential and SOHO RGU base and accelerated growth for cable ARPU

◦             In addition to the increases in RGUs and cable ARPU, 2018 revenue growth also benefited from increased mobile handset revenue

•             Rebased residential cable revenue growth of 3.0% in Q4 and 2.8% for 2018

•             Residential mobile revenue declined 1.3% in Q4 but increased 10.7% in 2018 on a rebased basis

◦             The Q4 mobile revenue decline reflects a 1.3% reduction in subscription revenue due to lower out-of-bundle usage and regulatory changes such as roam-like-home and a 1.2% decrease in non-subscription revenue due to a lower volume of handset sales

◦             2018 mobile revenue benefited from the launch of our 36-month postpaid handset contracts in September 2017 which led to an increase in the volume of high-end handsets sold

•             Rebased B2B revenue growth of 3.1% in Q4 and 3.2% for 2018 driven by growth in our SOHO base

•             Operating income doubled to £71.4 million in Q4 and increased 11% to £206.9 million for 2018

◦             The increase in Q4 operating income was driven primarily by the net effect of (i) a decrease in depreciation and amortisation, (ii) an increase in impairment, restructuring and other operating items, net and (iii) growth in Segment OCF, as described below

•             Rebased Segment OCF growth of 1.2% in Q4 and 3.5% for 2018 was impacted by the nonrecurring  items detailed below combined with increased programming costs and higher network taxes of £3.6 million in Q4 and £17.6 million in 2018. These factors partially offset revenue growth and lower marketing costs

◦             Higher costs of £7.9 million in Q4 and £26.5 million in 2018 resulting from the net impact of credits recorded during Q2 2017 (£22.5 million), Q4 2017 (£7.9 million) and in Q2 2018 (£3.9 million) in connection with a telecommunications operator's agreement to compensate Virgin Media and other communications providers for certain prior-period contractual breaches related to network charges

◦             Unfavourable increases in costs of £2.0 million in Q4 and £7.0 million in 2018 due to accruals in the second and fourth quarters of 2018 related to a fine imposed by Ofcom for certain contractual breaches. This was settled Q4 and we are currently appealing this fine

•             Property and equipment (“P&E”) additions decreased to 29.1% of revenue in Q4 and 28.9% of revenue for 2018 as compared to 33.6% in Q4 2017 and 33.8% for 2017, respectively

◦             The decline in P&E additions in Q4 and 2018 is primarily due to the net effect of (i) a reduction in new build arising from a lower volume of Lightning premises constructed along with a lower cost per premise, (ii) lower investment in product and enablers which was elevated through 2017 to support the launch of our new video-on-demand service, our full MVNO platform and  the roll out of VoIP and (iii) increased baseline spend related to long-term software licenses

◦             Further declines in P&E additions in 2019 are expected to be driven by last year’s completion of our V6 upgrade programme, increased redeployment of CPE, and lower baseline capex as well as a focus on optimising new build delivery at a lower cost per premise

•             During Q4, we redeemed the remaining $340 million (£267 million) of the $530 million (£416 million) principal amount of the 6.375% 2023 Senior Notes

•             At December 31, 2018, our fully-swapped third-party debt borrowing cost was 4.8% and the average tenor of our third-party debt (excluding vendor financing) was 6.5 years

•             At December 31, 2018, 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 3.54x and 4.21x, 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 5.02x at December 31, 2018

•             At December 31, 2018, we had maximum undrawn commitments of £675 million equivalent. When our compliance reporting requirements have been completed and assuming no change from December 31 borrowing levels, we anticipate that all of our unused commitments will be available to be drawn